Businesses question future in SA

2013-10-29 00:00

There was some good news, in that the thresholds have been increased, allowing small business some compliance relief, but qualifying businesses are going to find complying very onerous indeed, because the number of elements has been reduced and there is little flexibility.

Businesses that have less than 51% black ownership, making turnover of between R10 million and R50 million, are considered qualifying small enterprises (QSEs) and are required to comply with two of the three priority areas, while those with turnover in excess of R50 million (generic enterprises) are required to comply with all three, and both categories are required to comply with all five scorecard elements.

Imports were previously excluded from turnover, and now they may no longer be excluded, unless an application for exclusion on the basis of the goods not being available here is successful.

A 40% sub-minimum requirement has also been introduced for the three priority elements, which are ownership, skills development, and enterprise and supplier development, with QSEs required to comply with ownership requirements and one other, and generic companies with all three elements.

Non-compliance with the sub-minimum target will result in the company losing one scorecard level. The implications are far reaching. If an entity has no disabled black staff, for instance, it will not achieve the target for skills development and will lose a scorecard level.

While I don’t have a problem with the ideology behind the codes, and in many cases I advocate for the outcomes that they hope to achieve, I feel that forcing compliance will not have the desired effect. Why? Because businesspeople are wired to identify opportunities in conducive environments. If the environment becomes unattractive, they find ways to navigate past “obstacles”, or they withdraw from the environment and find a more suitable one. What I think will happen, is that many businesses are likely to restructure. Not because they don’t want to play their part in transforming the economy, but because it is too complicated to do so.

And what of the multinationals?

I had a visit from a foreign delegation the other day, representing a multinational that has been in Pietermaritzburg for many years. They asked whether I thought that there would be a future for them in South Africa in view of the new B-BBEE codes.

I was horrified at the question. As a company, it has always embraced B-BBEE and is a level-four contributor. It has embraced the spirit of broad-based black economic empowerment and its programmes prove that it is able to make a meaningful contribution in this space. Their investors, the delegation explained, are getting uncomfortable, because ownership is such a key element in terms of their scorecard in the future and it is something that they are not able to address. In terms of the original codes, if multinationals are able to prove that they are not permitted to sell shares, that it is a policy implemented throughout the world (which is the case with this industrialist), then they are permitted to put an “equity equivalent programme” in place in order to attain a better rating. There is no certainty whether this will remain, and even if it does, obtaining a level four seems out of their reach. One of their major customers is a state-owned enterprise (SOE), and they need to achieve a level four rating if they hope to continue doing business with the SOE. Not only that, but ownership will now be a significant factor in determining whether SOEs will contract with the organisation or not.

Their anxiety stems from the fact that there has been little discussion regarding the treatment of multinationals, and although a statement is expected soon, it can’t come soon enough.

To my mind, failing to accommodate multinationals will not only drive ethical investment away, but it will create an environment where fronting is the norm, inflating the costs of goods and causing a high inflationary environment. We cannot afford to overlook the contribution of multinationals in favour of short-term gains. These companies are large employers, which have invested in South Africa over a long period of time, and which contribute significantly towards the economy.

The new employment tax incentives mooted by Finance Minister Pravin Gordhan are a sensible approach to the job-creation challenge. It’s a pity that the new B-BBEE codes seem to encourage smaller turnovers and lower payrolls.

• Melanie Veness is the CEO of the Pietermaritzburg Chamber of Business.

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