The Department of Trade and Industry ("DTI") has itself acknowledged that there may exist multinationals that have global practices which prevent them from diluting their ownership and complying with the ownership element required of B-BBEE.
The Broad-Based Black Economic Empowerment ("B-BBEE") Amended Codes of Good Practice ("Codes") highlight that certain companies are required to be rated on their ownership element in the B-BBEE scorecard. For local operations, this can already be somewhat of a challenge but much has recently been debated on the amplified challenge which foreign operations face in circumstances in which they are reluctant to dilute any ownership component of their operations – this in the context of a political and social landscape of which they have very limited knowledge.
The Department of Trade and Industry ("DTI") has itself acknowledged that there may exist multinationals that have global practices which prevent them from diluting their ownership and complying with the ownership element required of B-BBEE. The Codes have now catered for the recognition of contributions by multinationals in lieu of such dilution of its equity. Such contributions are referred to as equity equivalent ("EE") contributions which are implemented through an EE programme ("EEP"). According to DTI, the value of EE contributions may be measured against 25% of the value of the multinational's South African operations or against 4% of the total revenue from its South African operations annually over the period of continued measurement.
What the EEP essentially entails is that a public programme/scheme and/or private programme/scheme be designed and implemented to fulfil the requirements of B-BBEE ownership. This will entail a programme targeting investment or any other programme that promotes socio-economic advancement/development in South Africa focusing on B-BBEE.
Any envisaged EE contributions administered through an EEP would need to be submitted by the multinational to the DTI in a prescribed form and approved by the Minister of Trade and Industry in order to utilise EE and qualify for ownership points on the scorecard. The application to the DTI would need to illustrate that the multinational has a sustained policy of no equity dilution and further motivate for EE to demonstrate Enterprise Creation Programmes, Economic Development Programmes, projects aimed at technology transfer within the local industry and programmes that promote growth and employment creation.
Multinationals presented with challenges in addressing the need to obtain the ownership points of a B-BBEE scorecard ought to seriously consider the opportunity now presented to obtain such ownership points by means of EE. Such a process does entail engaging with local experts who can advise and handle the process on their behalf and it is recommended that multinationals reach out to Tabacks for such guidance.
Originally published 14 May 2019