• Multinationals can participate in B-BBEE
Articles:

Multinationals can participate in B-BBEE

09 November 2016

By Gcina Mahlaba, Transformation Manager at BDO SA

The B-BBEE Codes of Good Practice necessitate that all businesses operating in the South African economy contribute towards the objectives of Broad-Based Black Economic Empowerment (B-BBEE). This can be a very difficult task for a multinational that has a business in South Africa, specifically the Ownership requirements. However, the codes of Good Practice take into consideration that there may be multinationals that have global practices preventing them from complying with the ownership element of B-BBEE through the traditional sale of shares to black South Africans.

In order for the multinational to apply for any equity equivalent programme, they would need to prove that they have not concluded an ownership transaction elsewhere in the world, as it is global policy not to do so, and they believe they may be prejudiced by doing so.

Multinationals that qualify can score points on the ownership scorecard by contributing towards an Equity Equivalent programme. The aim of the Equity Equivalent programme is to boost growth initiatives in South Africa.

Recognition of Equity Equivalent Programmes

  • The minister may approve certain Equity Equivalent Programmes after the multinational has consulted with the sectoral line ministry, premiers or other stakeholders in any government department, provincial government or local government, with respect to their Equity Equivalent proposal
  • Any Equity Equivalent Programme forming part of a sector code constitutes an approved programme
  • Equity Equivalent Programmes are preferably sector specific, but the minister may consider requests for approval of programmes that are not Sector Specific.

Equity Equivalent programmes may involve projects that support government strategic economic development policies and programmes such as:

  • The Accelerated and Shared Growth Initiative for South Africa (ASGISA)
  • The Joint Initiative for Priority Skills
  • The National Skills Development Strategy
  • National Development Plan
  • Any of the programmes of the Department of Trade and Industry
  • Programmes that promote enterprise creation in respect of co-operatives that are:
    • More than 50% owned by black people
    • More than 30% owned by black women
    • More than 50% owned by black designated groups
  • Any other programmes that promote social advancement or contribute to the overall socio-economic development of South Africa.

Equity Equivalent Programmes must include:

  • A full description of programme objectives and projected outcomes
  • Qualification criteria for participation in the programme
  • Timelines for implementation and delivery with milestones against which progress is measurable
  • Methodology for valuing contributions, including the calculation of points under the ownership scorecard
  • Details about the sponsors of the programme.

Equity Equivalent Programmes may have any of the following as beneficiaries:

Enterprises in which:

  • Black people hold more than 50% of the exercisable voting rights and more than 50% of the economic interest
  • Black women hold more than 30% of the exercisable voting rights and more than 30% of the economic interest
  • Black designated groups hold more than 50% exercisable voting rights and more than 50% of the economic interest
  • Communities, natural persons or groups of natural persons where at least 75% of the beneficiaries are black people and the same percentage of the economic value is derived by black people.

Contributions to Equity Equivalent programmes are measured as actual contributions made using the general principle set out in code series 400 and 500 against any of the following targets:

  • 25% of the value of the South African operations of the Multinational, determined using a Standard Valuation Method; orv
  • 4% of Total Revenue from its South African operations annually over the period of continued measurement.

Each of the above targets are required in order to qualify for maximum points.

Specific rules for multinationals

  • Any contributions towards the ownership element of B-BBEE made by multinational businesses or South African multinationals are measurable against the value of their operations in South Africa
  • A standard valuation method must be used to determine the value of the South African operations
  • In calculating their ownership score, multinational businesses or South African multinationals must apply the Exclusion Principle to any portion of the business value of their South African operations gained from non-South African sources
  • In calculating their ownership score, multinational businesses may recognise the sale of Equity Instruments in non-South African enterprises to black people on the following basis:
    • The non-South African enterprises must form part of a chain of ownership between the Multinational business and its eventual holding company
    • The transaction must comply with South African exchange control requirements
    • The percentage of the value of the Equity Instruments sold to the black buyers to the value of the multinational business represents the recognisable black claim to economic Interest
    • The percentage of exercisable voting rights ceded to the buyers of the Equity Instruments represents the recognisable black voting rights
    • The rights of ownership in the Equity Instruments are comparable to rights that would have accrued had the Equity Instruments been in the multinational business.

From the outline above, it is clear that multinationals are confronted with a complex task when it comes to determining its possible ownership score. It is therefore critical to engage a B-BBEE professional to ensure that all relevant regulations are complied with.

equity equivalent contribution An equity equivalent contribution made by a multinational in an Equity Equivalent Investment Programme.
equity equivalent investment A public programme or scheme of any programme national, provincial or local government department in the Republic of South Africa, or any other programme approved by the Minister as an equity equivalent investment programme.
equity instrument The instrument by which a participant holds rights of ownership in an entity.
exclusion principle

A measurement principle used to calculate points for the various indicators of the ownership scorecard. It allows for the exclusion of a number of rights of ownership, namely voting rights and economic interest, from the total of such rights issued by the measured entity, before determining the rights of ownership held by black participants, as a percentage of all ownership rights.

Code 100 and its statements allow for the exclusion of four categories of rights of ownership:

  1. those held by organs of state and public entities;
  2. those held as mandated investments;
  3. those held by non-profit companies or public benefit organisations;
  4. those that equate to the value of the foreign operations of a multinational business operating in South Africa or a South African multinational business (see paragraphs 6.1 and 6.2, Statement 103) The exclusions of ownership held through the entities in (a) to (c) above is to be effected before any exclusion in terms of (d) is to be applied.
global policy A globally and uniformly applied restriction, regulation or directive, whether technical or commercial, imposed on a foreign-owned financial institution by the parent company or on any financial institution by a regulator
multinational business A measured entity with a business in the Republic of South African and elsewhere which maintains its international headquarters outside the Republic. The term ‘South African multinational’ has a similar meaning except that it has its international headquarters inside the Republic.

 

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