BEE goalposts shift to ‘benefit elite’
Business caught off-guard by sudden move that downgrades collective ownership on the scorecard
THE government’s decision to unexpectedly alter its criteria for BEE compliance has dismayed the business community and hardened perceptions that policy uncertainty is making South Africa a less attractive place for investment.
Business leaders warn that the lack of clarity and predictability in legislation that affects private companies, coupled with the lack of adequate consultation, is as unsettling as the power shortages that will hobble economic growth for the next few years.
News that collective ownership schemes will no longer count as much as individual ownership on BEE scorecards is a prime example of the unpredictability of the playing field on which companies plan their performance and returns, they say.
The new codes mean that companies that have spent millions on BEE compliance will drop several levels down the scale and will make many noncompliant. They have also cast doubt on the government’s commitment to broad-based BEE and fuelled concern that only a limited number of politically astute individuals will benefit.
“It means that the political elite are calling the shots. It’s going to accelerate inequality in society,” said Iraj Abedian, MD of Pan-African Investments.
“We cannot keep up with this continuing chop and change, this destabilisation of the platform on which one does business.”
Carol O’Brien, executive director of the American Chamber of Commerce in South Africa, said that as a result of the changes to the BEE codes, a lot of companies were scrambling to see if they could comply and others were talking about the possibility of basing their business in a neighbouring country.
“This came as an absolute surprise — the fact of the matter is there is a lot of unhappiness. We need transformation in the country, but it seems like a getrich quick scheme. The loser is the employee,” she said.
Last week, South Africa dropped out of the AT Kearney Foreign Direct Investment Index for the first time since its inception in 1998. In 2014, it was ranked 13th among the 25 countries rated by the index, compiled from an annual survey that tracks the effect of likely political, economic and regulatory changes on the foreign direct investment intentions of top executives.
Although AT Kearney executives said that part of the reason was a global “flight to safety” — meaning assets in developed economies — negative perceptions of South Africa were also to blame, stemming from slow economic growth, credit ratings downgrades and regulatory uncertainty.
“There has been a sense of uncertainty here for quite a long time, and it is increasing the view that South Africa is not the desirable destination it used to be,” said Peggy Drodskie, acting CEO of the South African Chamber of Commerce and Industry.
On Wednesday, Grant Thornton’s International Business Report showed that the rolling average of total optimism in South Africa — calculated as the difference between optimism and pessimism — plunged to a record low of nine last year, down 30% since 2013.
Disturbingly, a new question in the survey for the first quarter of this year showed that 93% of companies believed that new legislation awaiting enactment would have a negative effect on the economy and 90% believed it would hurt foreign investment.
A further 86% believed that the legislation would also affect investment by local companies, and would lead to disinvestment by foreign companies.
The legislation includes the Expropriation Bill, the Protection of Investment Bill, the Private Security Industry Regulatory Amendment Bill, the Land Act Amendment Bill and the Mineral and Petroleum Resources Development Amendment Bill. Business views these bills as a threat to property rights across different sectors of the economy.
“This result makes us sit up and think, now we have an issue, — government, please take note of these responses,” said Andrew Hannington, CEO of Grant Thornton Johannesburg. “Not a good picture is being painted — but we do believe that sanity will prevail and these bills will be looked at again.”
Econometrix chief economist Azar Jammine said that there was mounting frustration over the lack of policy implementation and the direction it appeared to be taking.
“Business realises that government is caught in a cleft between trying to pursue market- and investment-friendly policies on the one hand and appeasing socialist and leftwing elements on the other, who see the private sector as the enemy.”
He said business had lost confidence in the government’s commitment to the National Development Plan, which had been seen as a credible blueprint for a sustained recovery in economic growth and employment.
Figures from the Reserve Bank show that gross fixed capital formation, the country’s main investment measure, contracted by 0.4% last year, largely due to a fall in investment by private companies.