According to the Codes of Good Practice, all entities operating in South Africa need to contribute toward the objectives of Broad-Based Black Economic Empowerment, known as B-BBEE.
This includes the Ownership element, which poses a problem for a Multinational Company (a foreign-owned company).
First, we need to look at the definition of a Multinational Company. According to Investopedia, the definition of a Multinational Company is a company that has facilities and other assets in at least one country other than its home country. A multinational Company has offices or factories in different countries and a centralised head office where they coordinate global management.
The Codes of Good Practice have made specific provisions for Multinational Companies where they don’t need South African ownership and can score full points on the ownership element. According to the Codes of good practice, a Multinational company needs to make contributions in place of a direct sale of assets, which contribution is referred to as Equity Equivalent programs.
It is important to note that not all Multinational Companies may apply with the Department of Trade and Industry to approve their equity equivalent programs.A Multinational company needs to prove that they have global practices preventing them from complying with the ownership element of B-BBEE through the traditional sale of shares to black South Africans.
These contributions are 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 throughout the continuous measurement. A proposal for an Equity Equivalent Programme needs to be developed by a representative entity of the foreign Multinational company that needs to be submitted to the DTI and may either take the form of a private programme, a public programme or a combination of both.
Step 1: Apply for exemption
The first step is to fill out the standard form, which can be obtained from the DTI unit. Together with the application form, an application letter should be submitted. The application letter should contain specific information and documentation, a list of which can be provided to you by your legal advisor.
Once the form is filled in, the DTI will need to present a case to the Equity Equivalent Committee that it is a global practice for the Multinational not to sell equity. The committee will need to decide whether exemption applies or not and make recommendations to the Deputy General. The Equity Equivalent program will be approved or rejected.
Step 2: Submit a proposal for the contribution amount
A proposal for the contribution amount should be submitted to the DTI.This report and proposal are also required to provide certain information and must be accompanied by the documents necessary to substantiate as the report and the proposal. Your legal advisor will provide you with more details as to what information will be required for the proposal and the report.
Step 3: The Equity Equivalent proposals will be evaluated
Once the exemption has been granted, the Multinational Company will need to submit a business plan for the Equity Equivalent programme to the DTI. The Equity Equivalent Committee will assess the proposals, and once it is approved, a Memorandum of Agreement will be negotiated and signed.
Step 4: Points under the Scorecard are granted
Using the Equity Equivalent points are subjected to the Memorandum of Agreement between the Multinational and the DTI. Once the programme has been approved, and the Memorandum of Agreement is signed, the Multinational will be able to use the points toward the Ownership element.
Step 5: Monitor the Equity Equivalent programme
The Multinational Company is required to report back on the progress of the Equity Equivalent Project as per the Equity Equivalent proposal, MOA and monitoring and evaluation guidelines.
To conclude, all is not lost for Multinational companies. They can still get a good B-BBEE level and contribute toward the elements of the codes of good practice by following the steps mentioned above.
Contact your nearest SEESA office to assist your business with any queries regarding Ownership Elements. Alternatively, please leave your name on our website for a SEESA representative to contact you.
About the Author:
Shane Buys is a B-BBEE Legal Advisor at the SEESA Pretoria Head Office. He obtained his Bcom Law degree in 2015 and completed his LLB degree in 2017. He is specialised in his field with over three years of experience in B-BBEE.
Resources:
- Department of Trade and Industry Website – www.thedti.gov.za