Many 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 fastest-growing 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 capital-related.
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’ Africa-based profit margins were the same or higher than their global average.