Johannesburg - Against a backdrop of the harsh realities of Covid-19 potentially deterring investment, there have been renewed calls for a review of transformation laws in South Africa, particularly the impact of B-BBEE empowerment regulations on EU companies.
Investors are concerned about the lack of clarity concerning policy and structural reforms with the B-BBEE policy, one of which has been described as often eliciting a “deer-in-the-headlights” response from even the most seasoned investors”, said the findings of a new study unveiled during a webinar attended by top European diplomats, including the EU Ambassador to South Africa, Dr Riina Kionka.
Entitled EU Investors’ Responses to Broad-Based Black Economic Empowerment (B-BBEE): A Skills Enhancement Model by research expert Feroza Samaai-Abader, the study emphasised support for empowerment, acknowledging that South Africa offers many attractive assets for foreign investors, such as its diversified and advanced economy, its abundance of natural resources and its well-developed infrastructure.
Samaai-Abader, whose report was commissioned by the EU-funded “EU-South Africa Partners for Growth” Project, described the B-BBEE policy as the government’s key instrument in reconstruction and development. Through this policy, she said economic transformation has progressed from being just a strategic vision to a legislated, measurable actuality.
“But as the proponents of B-BBEE sought to increase the regulatory and measurability aspects of the legislation, the policy, primarily affected through the codes of good practice, has become rather convoluted and complex, often frustrating businesses rather than encouraging transformative practices,” Samaai-Abader said.
Several major EU companies with large operations in the country said they were committed to helping transform South Africa through empowerment by ownership and through large-scale skills development initiatives – but there was concern that some requirements of empowerment laws are far-reaching and may deter investment.
According to Kionka, economic transformation and impediments to increased investment were important issues for the EU political and business community in South Africa.
“EU companies have, however, found it more difficult to achieve the B-BBEE ownership target, and on average, they have achieved 48% of the maximum target against this element of the codes.”
Kionka said the reason for this was because a large number of EU-based firms are family-owned and are unable to transfer shares to external parties in all countries, including South Africa, and this in spite of their willingness and commitment to contribute to skills and job creation.
But Kionka praised EU companies for having done particularly well in contributing towards South Africa’s B-BBEE objectives around socio-economic development and enterprise and supplier development, achieving an average of 88% and 74% of the maximum targets, respectively.
EU companies have also made significant contributions towards skills development in South Africa, achieving an average of 65% of the maximum target, Kionka said.
She said the study, as well as other research, showed that EU businesses had made “strong progress in complying with the B-BBEE codes of good practice”, pointing out that according to the Who Owns Whom study, 27% of EU firms (for which B-BBEE information is available) have a BEE rating of level 4 or better while another 22% of EU companies have B-BBEE ratings at levels 5 to 9.
She added that EU companies have done particularly well in contributing towards the country’s B-BBEE objectives around socio-economic development and enterprise and supplier development, achieving an average of 88% and 74% of the maximum targets, respectively.
EU companies have also made significant contributions towards skills development in South Africa, achieving an average of 65% of the maximum target, Kionka said.
She said that the European Union Delegation ( EUD) in Pretoria has already approached the government to engage on the matter and was awaiting a response.
“EU businesses and the EU at large are committed to collaborating with the SA government and stakeholders to make this policy work. It’s a win-win.
“Our investors want to invest here, so we’re looking to unblock these issues. We have asked for a dialogue (with the SA government) to talk about what we can do together to break the ice,” said Kionka.
Denmark’s ambassador Tobias Elling Rehfeld said the Danes share the concerns related to the enormous challenges faced by South Africa in transforming the economy and supports the government efforts to address very high levels of inequality that exist in the country.
Noting that all countries in sub-Saharan Africa were looking to attract investment from abroad, he said that Danish companies were compliant, or working towards compliance, committed to the transfer of skills and extending ownership that seeks to empower rather than enrich individuals.
Some of the Danish investors, according to Rehfeld, ran small operations, and found it difficult to meet administrative requirements of B-BBEE, while many are family owned, and were unable or unwilling to dilute the ownership, and if they continue to be discouraged by current provisions of the empowerment laws, they would look at other markets, he warned.
“In Denmark, our main resource is our population, this also goes for South Africa with a young population, willing to work hard to ensure that South Africa becomes a gateway to the rest of the continent.”
Portugal’s ambassador Manuel Carvalho said South Africa stands out as an attractive investment destination in Africa.
“It explains why EU companies come to SA. The EU is the biggest partner in the country … investment is necessary for development of South Africa. European companies want South Africa to grow, transform and redress its tragic past,” he said.
“Through dialogue we want to assist in building a case of companies in Europe coming to South Africa. We understand that B-BBEE is an important element of the regulatory environment, no one questions this, but it is a way of seeing how companies ensure it is coherent with their business model.
“Recurrent comments on question of ownership, companies abroad have their own business structures, skills enhancement to make SA an attractive destination, we’ve heard the great examples by various companies. Portuguese don’t just do job training, they do development of skills creation for the future. Business people in the end are responsible for transformation of South Africa.
“In short, the idea is to engage in dialogue to see how we can make South Africa an attractive business location. This is a conversation that is not finished until South Africa is transformed as a country – through ownership, skills training – and that is a discussion we hope to have with the government of South Africa.”