Paul Janisch | 16 October 2024
It’s too early to celebrate the possible relaxation of empowerment regulations for multinationals, but extending the concept of equity equivalents to providers of network services will be a move in the right direction.
A hard-and-fast rule that must be adhered to when applying for an Electronic Communications Network Services (ECNS) licence through the Independent Communications Authority of SA (Icasa) is that 30% of the shareholding must be held by historically disadvantaged groups (HDGs).
The simplest definition of an HDG is black. Black is broadly defined as an African, coloured or Indian person born in South Africa with at least one SA-born parent.
This requirement has been part of South African telecommunications policy for at least two decades – but many multinationals are reluctant to extend their shareholding to any minority shareholder, specifically in the information communications technology (ICT) sector.
To address these concerns, the Department of Trade, Industry and Competition (dtic) provided an alternative to actual local ownership.
This alternative is known as an equity equivalent project (EEP) and is only open to multinationals. There have been a number of extremely successful projects implemented by the larger ICT companies in the country, namely IBM, Hewlett-Packard and Microsoft.
The equity equivalent projects are a substitute for ownership where the ownership points are awarded without ownership changing hands.
Announcement … and Starlink
Minister of Communications and Digital Technologies Solly Malatsi has now announced that his department will look at extending the concept of equity equivalents to multinationals applying for an ECNS licence.
It’s likely that this came as a result of President Cyril Ramaphosa meeting with Elon Musk recently.
Musk owns Starlink, a service that provides super-fast satellite internet connectivity all over the planet, almost everywhere. It’s not available in South Africa, but is available to our closest neighbours.
We must recognise that this suggestion by the minister is a move in the right direction.
The government may deny this, but our employment and empowerment policies have proven to be a major deterrent to foreign-owned companies operating in South Africa.
The question is – will offering an equity equivalent be a viable incentive for foreign-owned investment, specifically in the ICT space?
What exactly is an equity equivalent project?
Before this answer is tackled it’s important to understand what an EEP is, how long it takes to implement, what the actual cost is, and anything else that might be worthy of consideration in embarking on one.
The first requirement is that the multinational must have a global policy of not selling shares in a local entity.
This is a difficult one for South Africa because some very large countries, like China, have this requirement but the markets are so big that companies wanting to operate there comply. South Africa has a very small economy, and it’s likely that this requirement is overlooked.
The next thing is the project that needs to be undertaken. The Black Economic Empowerment (BEE) Code covering this offers an idea of the types of projects that are acceptable. These range from entrepreneurial and education to agricultural projects. An amount of money needs to be invested in these projects over a two- to 10-year period.
To describe the investment values as costly would be an understatement.
The investment can either be 25% of the value of the local entity or 4% of total revenue each year. The amount invested will determine how long the programme will last.
The waiting game
If the cost is palatable, then the company applying for the EEP had better be prepared to wait for at least two years and deal with an all-powerful department within the dtic that may or may not approve the project.
Stories abound as to how this department has been known to reject a project because it feels that a project of its choosing is better; the fees-must-fall project was very popular about five years ago.
They’ll also have to deal with a change in dtic staff members who come in with their own ideas when the project is quite far down the line.
It doesn’t seem someone like Musk is going to demonstrate the necessary patience to handle unnecessary bureaucracy.
It’s too early to celebrate this perceived relaxation of South Africa’s empowerment regulations for multinationals. The proof lies in how the dtic and the Department of Communications and Digital Technologies approach the application of an equity equivalent programme. If it’s anything like the past programmes, we won’t expect Starlink to provide connectivity in those South African areas where broadband will never reach.
‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.