Franz Wild
NEW investment deals in South Africa might be scrapped or put on hold while the government completed changes to rules designed to redress the economic inequalities of apartheid, lawyers said.
The Department of Trade and Industry sprung a surprise last week by saying that firms would be awarded fewer black economic empowerment (BEE) points if their black shareholders were community trusts or employees rather than black individuals or black-owned businesses.
The points are part of an assessment system that gauges whether businesses can win government contracts. That has created uncertainty among companies and investors about the new rules, according to lawyers.
Foreign companies “want to invest in South Africa, but there’s so much uncertainty about their structure that they can’t set up here until they’ve got certainty”, Norton Rose Fulbright mergers and acquisitions lawyer Ismail Laher said last week. “A lot of people are trying to put deals in place.”
More than two decades after apartheid ended, the government of Africa’s most developed economy is still trying to help previously disadvantaged citizens get ahead in business.
The new BEE codes were aimed at refining the measures set up to achieve that goal, Trade and Industry Minister Rob Davies said on May 7.
The following day, the department said the rules would not count retrospectively and that a task team would be reviewing the measures. Completing the codes specific to different industries might take until October.
Investment impact
“It will impact investment decisions” if the reforms were not withdrawn, Verushca Pillay, a director at law firm Cliffe Dekker Hofmeyr’s corporate and commercial practice, said.
“There will be concern about what could still happen in the future. Every impacted company was on the government’s back to do something about it.”
While the award of shares to black empowerment trusts may result in some benefits, it does not equate to real ownership because the stock cannot be leveraged or sold, according to Davies.
He said he wanted to address that issue and ensure black people had more “real involvement” in firms, which could then enhance business skills and wealth generation.
Brewer SABMiller, furniture manufacturer Steinhoff and insurer Old Mutual are among Johannesburg-listed companies with employees or trusts benefiting from black empowerment programmes.
At least a dozen companies contacted by Bloomberg News declined to comment on the changes, preferring to approach government directly.
Community groups and labour unions would probably miss out on business opportunities and shareholdings under the new proposals, while black entrepreneurs who had built investment companies and personal fortunes over the past two decades could become more sought after as partners, the lawyers said.
Patrice Motsepe has become South Africa’s first black dollar billionaire having founded a company that initially bought assets from AngloGold Ashanti.
His brother-in-law, Deputy President Cyril Ramaphosa, has entered into business with companies including Glencore and McDonald’s.
Resource companies digging up the world’s biggest reserves of platinum, chrome ore and manganese will not be affected – unless they supply the government. Mining companies have to comply with separate laws obliging them to give black shareholders a stake of at least 26 percent in their projects or equity as a condition of their mining rights.
That is also under scrutiny as the Chamber of Mines and the Department of Mineral Resources seek a court ruling on whether companies should lose their empowerment status if their black shareholders sell their stakes.
Northam Platinum last year announced a deal to include new black empowerment partners after their previous black shareholders had sold their shareholding.
Foreign direct investment into South Africa declined to R62 billion last year from R80.1bn in 2013.
“I’m still trying to get my head around” the changes, Jose dos Santos, the chief executive of the mobile company Cell C, said last week. “Government really needs to engage the private sector more.” – Bloomberg