In­ter­na­tional com­pa­nies would rather lose busi­ness than com­ply with new em­pow­er­ment laws

CityPress - - Business - JUSTIN BROWN justin.brown@city­

M any in­ter­na­tional cor­po­ra­tions find South Africa’s lat­est set of broad-based black eco­nomic em­pow­er­ment (BBBEE) reg­u­la­tions, taken at face value, un­work­able, ac­cord­ing to a re­port by the Econ­o­mist Cor­po­rate Net­work re­leased this week.

“The chal­lenges as­so­ci­ated with com­ply­ing with in­di­geni­sa­tion and se­lect pop­u­la­tion group em­pow­er­ment reg­u­la­tions, im­pact­ing staff mix and equity-own­er­ship struc­tures, come into sharp fo­cus in South Africa,” the re­port said.

The re­port quoted one ex­ec­u­tive anony­mously com­ment­ing that: “My prin­ci­pals in North Amer­ica are not go­ing to ap­prove of us essen­tially hav­ing to ‘give away’ equity to raise our BBBEE rat­ing. We would rather run the risk of los­ing busi­ness [to other com­pa­nies with a higher rat­ing] for now.”

The re­port fol­lows from a sur­vey of African busi­ness peo­ple.

Over 90% of the peo­ple who par­tic­i­pated in the sur­vey were from South Africa, Nige­ria or Kenya, which to­gether ac­count for 46% of Africa’s to­tal GDP.

The sub-Sa­ha­ran coun­tries with the three largest economies – again South Africa, Nige­ria and Kenya – were cited as the top three mar­kets for re­spon­dents’ firms.

These mar­kets were ex­pected to re­main the top three over the next six years; how­ever, re­spon­dents ex­pected Nige­ria to over­take South Africa as their most im­por­tant mar­ket by 2022.

The Econ­o­mist In­tel­li­gence Unit is fore­cast­ing that South Africa will grow at 1.4% this year from 0.3% last year.

“Labour rigid­ity, leg­isla­tive and reg­u­la­tory un­cer­tainty – for ex­am­ple in the ar­eas of land re­form, the min­ing sec­tor and black eco­nomic em­pow­er­ment – as well as in­ter­nal di­vi­sions in the gov­ern­ing ANC con­trib­ute to the slow-growth eco­nomic out­look.

“While re­spon­dents ex­pected the coun­try’s im­por­tance as a pri­mary mar­ket to de­cline over the medium term, South Africa is likely to re­main a key mar­ket for at least the next five years. This may re­flect South Africa’s im­por­tance for many com­pa­nies as a spring­board into the rest of the re­gion.”

In 2017, nine African coun­tries are ex­pected to be among the 20 fastest­grow­ing economies in the world, ac­cord­ing to the re­port. Of these nine African coun­tries, six are ex­pected to be in west Africa. Kenya is one of the coun­tries fore­cast to be among the fastest-grow­ing economies world­wide in 2017.

“African gov­ern­ments are ac­tively seek­ing to di­ver­sify their economies, to en­cour­age in­vest­ment and to move be­yond a de­pen­dence on low value-added com­mod­ity ex­ports,” the re­port said.

How­ever, 2016 was the first year in over a decade in which Africa’s eco­nomic growth of 1.4% did not ex­ceed the rate of global GDP growth of 2.2%.

“Re­spon­dents in­di­cated that their firms’ east Africa-based op­er­a­tions were the most prof­itable.

“De­spite these pos­i­tive com­mer­cial out­comes and prospects, op­er­at­ing in the re­gion is rife with chal­lenges,” the re­port said.

Al­most 80% of the re­spon­dents’ key chal­lenges fell into three broad cat­e­gories: reg­u­la­tory, macroe­co­nomic and hu­man cap­i­tal­re­lated.

Reg­u­la­tory is­sues were the top chal­lenge in Africa.

Cur­rency-re­lated chal­lenges were cited by around 30% of re­spon­dents.

Hu­man cap­i­tal-re­lated chal­lenges were an im­por­tant is­sue for re­spon­dents to the sur­vey. “Zam­bia and Rwanda are pre­sent­ing a huge chal­lenge. In Kenya, the skills are avail­able, but they are ex­pen­sive; re­ten­tion is also a chal­lenge,” said Tran­sUnion Africa re­gion CEO Grant Philips.

The re­port said that east and west African re­gions were get­ting the at­ten­tion of Alexan­der Forbes.

South Africa was cited as the top mar­ket in Africa. How­ever, by 2022, re­spon­dents ex­pected Nige­ria to be the top mar­ket in Africa.

“Nige­ria’s rise in im­por­tance is ex­pected to come at the ex­pense of South Africa and Kenya,” the re­port said.

Sixty-three per­cent of re­spon­dents in­di­cated that their firms’ Africabased profit mar­gins were the same or higher than their global av­er­age.

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