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Charters could do well to follow the process of precedence

Posted On Thursday, 07 October 2004 02:00 Published by
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The significant differences between the black economic empowerment (BEE) charters published so far are making companies in industries without charters reluctant to embark on BEE initiatives


October 7, 2004

By Soria Hay

The significant differences between the black economic empowerment (BEE) charters published so far are making companies in industries without charters reluctant to embark on BEE initiatives.

Four charters have been published covering the fuel and chemical, mining, maritime and financial services industries. A fifth, covering the information and communication technology (ICT) industry, is in draft form and is expected to be finalised soon.

We have found that some of our clients do not know whether to move or sit tight and are reticent to start transforming until they know what they are transforming to.

Some of the differences between the various charters are substantial, both in terms of approach and detail. A glaring difference between the financial services charter and the third draft of the ICT charter is that it exempts international companies from equity ownership targets while the ICT charter does not.

From an international perspective, this is embarrassing and could signal that South Africa is more encouraging of investment in the financial services industry than the ICT industry. Members of the ICT charter working group have gone so far as to state publicly that if multinationals are unhappy about not being exempted, they are welcome to divest.

It is incomprehensible that the group is taking such a hard line on this issue, particularly when this industry has been identified by government as being of strategic importance to our economy. Overall, the ITC charter is more aggressive than the financial services charter.

For example, its ownership and employment equity targets are higher, and the draft does not allow companies to be exempted from the categories prescribed, whereas the financial services charter prescribes a process of applying for exemption.

Because they do business in this country through a branch and not a separate company, some multinationals are restricted from selling equity to a BEE - or any other - player. In terms of the ICT charter such a multinational will score zero out of 20 for ownership.

Assuming that it scores 100 percent in all the other categories it will end up with an 80 percent score. In terms of the financial services charter, a multinational can apply for exemption from the ownership category. Should it score 100 percent in all the other categories, its overall score will be 100 percent.

I question the reasons behind the aggressive stance taken by the compilers of the ICT draft, as from a BEE perspective the ICT industry is much further down the line than most.

The working group seems to feel that, while the ICT industry has transformed more quickly than the financial services industry, for example, its targets still need to be a stretch. At Bravura we think this is wrong - tantamount to penalising the industry for having done well. On the other hand, the financial services charter's procurement computations are stricter.

The problem of uncertainty with regard to what the approach of new charters in other industries will be could be solved by following a process of precedence, similar to that followed in South Africa's legal system. In terms of legal precedence, if one court rules on a legal principle then all other courts in that jurisdiction must follow that ruling. Only a higher court can overturn it.

Charters yet to be drafted should follow the principles of those already published, to provide some degree of certainty to industries without charters. The department of trade and industry could act as the "higher court" and reserve the right to overturn a principle that a particular industry need not follow.

Soria Hay is an executive director of Bravura, an integrated equity and debt company

Publisher: Business Report
Source: Business Report
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