Among the most salient features of South Africa’s empowerment laws are their practicality, feasibility and responsiveness to economic conditions without deviating from the objective of redressing the economic injustices of exclusion of the past.
This stems from the need to meet two separate but interdependent objectives.
The first is to achieve substantial change in the racial composition of ownership, control and management of the economy to overcome a history of exclusion.
The second is to achieve growth that is not only inclusive but sustainable in the long-term, by broadening the economic participation of enterprises owned by black South Africans, women and young people.
The broad-based black economic empowerment legal framework applies to all companies wishing to invest in and do business in our economy, whether they are local or foreign.
Empowerment laws are not unique to South Africa. These laws are often referred to as indigenisation or localisation measures. They exist in various forms in other emerging market economies with similar histories of race-based economic exclusion such as India, Zambia, Indonesia, Nigeria, Malaysia and Brazil.
A number of these jurisdictions compel foreign investors or multinationals who wish to invest in the economies of those countries or in certain sectors of their economy to fully set aside equity stakes in their companies to local entities as a prerequisite for operating in the country.
Barrier to entry
This can serve be seen as a barrier to entry for investment in certain environments.
However, we have found that many would-be investors do embrace these measures as they enhance inclusiveness, lead to broad acceptance of their companies and tend to grow market share.
South Africa’s empowerment laws are distinct in that our empowerment or indigenisation measures are practical and innovative.
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In addition to having a pure equity participation measure, we have introduced the Equity Equivalent Investment Programme (EEIP).
It was created to accommodate multinationals whose global practices or policies prevent them from complying with the B-BBEE ownership element through the “traditional” sale of equity or shares. It allows multinationals to invest in socioeconomic, skills and enterprise development in South Africa without selling equity in their local subsidiaries.
Some in the public space have recently sought to suggest that the EEIP represents a circumvention of B-BBEE laws – and that it is a response to the conditions of a particular company or sector.
Neither are factually correct. Firstly, the EEIP is not new and has been in existence for a decade. It is firmly embedded in our laws and is not an attempt to “water down” B-BBEE. Secondly, there are stringent requirements for multinationals to participate.
All EEIP initiatives must be aligned to government’s economic policies and strategic goals. There is firm government-backed oversight over EEIP programmes that must be broad-based in terms of impact.
Since its inception, the EEIP has encompassed a broad range of sectors and onboarded some of the world’s leading multinational firms such as Hewlett-Packard, Samsung Electronics, JPMorgan, Amazon and IBM as well as automotive firms such as BMW, Volkswagen, Nissan and Toyota.
By way of example, last year IT giant Microsoft announced a R1.3-billion investment over 10 years in skills, supplier development and research & development – under the EEIP.
These firms have leveraged the EEIP to direct investment into local development, to incubate black, youth and women-owned businesses, and to fund skills development. This has in turn assisted government in achieving several policy and infrastructure goals.
Equity equivalents have been proven to be a practical B-BBEE compliance tool for multinationals operating in South Africa, and we will continue to leverage them in pursuit of economic growth and job creation.
Shift the mindset
Not only do we have to move away from the perception that we must make a choice between growth and transformation – we also must shift the mindset that compliance with B-BBEE is punitive or burdensome.
By supporting firms with compliance, they can embrace empowerment as a meaningful investment in South Africa’s long-term economic stability. This is a sound strategy that recognises that a transformed South African economy is one in which their investments are safe and guaranteed.
Just as our economy has evolved since our B-BBEE laws were first conceptualised, so has the playing field.
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The emergence of new industries, whether it is digital technology, advanced manufacturing, AI or renewable energy, means South Africa must actively position itself to attract greater foreign and domestic investment in these sectors or risk being left behind.
As a country we have had to adapt and evolve in response to these economic trends, and continue to do so. We are clear that our empowerment laws remain central to our goal of economic transformation in South Africa and are here to stay.
Our focus going forward must remain creating an enabling policy environment, driving key structural reforms, supporting innovation and reducing regulatory barriers to harness the potential of emerging industries and support existing ones.
Beyond the spirited and often heated debates currently under way around B-BBEE and the EEIP, the pursuit of inclusive economic growth that creates jobs and improves people’s lives remains our overriding goal.
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- The author, Cyril Ramaphosa, is president of South Africa
