Multinationals face tougher BEE rules
Draft Financial Sector Charter requires that multinationals apply to the trade minister over qualifying criteria
Multinational companies will not have an automatic exemption from ownership elements of the broad-based black economic empowerment scorecard under a revised draft of the Financial Sector Charter, which is under discussion by the Financial Sector Charter Council (FSCC) and the Department of Trade and Industry.
FSCC chief operating officer Busisiwe Dlamini said on the sidelines of an Association of Black Securities and Investment Professionals summit on Thursday that in terms of the proposals multinationals would have to apply to Trade and Industry Minister Rob Davies, who would have the discretion to grant exemptions and decide whether the companies met the qualifying criteria to substitute the ownership element of the scorecard with equity equivalents.
Dlamini said this was a new element of the draft charter which was introduced through engagements with the department after the draft was released for public comment.
This was confirmed by Association for Savings and Investment SA representative on the FSCC Trevor Chandler.
Once the minister has granted his approval, the multinationals will be able to submit their equity equivalent schemes to the department for approval.
Also introduced since the public-consultation process, which closed in May 2015, is a penalty clause for not reporting to the FSCC annually on performance related to the scorecard. If a report is not submitted, one point will be deducted from the following year’s scorecard.
Each subsidiary of a group which is a registered legal entity in its own right will have to have its own individual scorecard and cannot just be subsumed into the group.
Under the current Financial Sector Charter multinationals are given the option of investing in equity equivalents if the policy of the holding company prohibits the sale of shareholdings in their foreign subsidiaries.
Banks in particular have made use of the equity equivalent alternative, which requires a multinational company to invest in black economic empowerment initiatives to the value of the equity stake it would have had to dispose of to meet the ownership targets set out in the charter.
Banking Association SA MD Cas Coovadia was not aware of the new development around exemptions but said any introduction of ministerial discretion into the use of equity equivalents would create unwanted uncertainty in the regulatory regime.
The department’s director-general, Lionel October, had told him the department and the minister were happy with the charter submitted by the council.
Coovadia said the agreement reached with the government was that the once empowered always empowered principle would remain, that the financial sector would make substantial investments into black industrialist financing in lieu of meeting the ownership requirements of the charter and that multinationals would be able to use equity equivalents.
October said the equity equivalent programme had worked very well, with schemes being approved for multinationals such as IBM and Microsoft. One with Caterpillar would be launched next week.
"That policy still stands. It is very good for empowerment. We are getting a lot of equity equivalent proposals now. We are getting some big names coming in such as Toyota."
October said applications for equity equivalents had in the past been evaluated by a departmental adjudicating committee, which ensured that they met the criteria. The committee then made recommendations to the minister, who could approve them. This system would not change, he said.
Dlamini expressed frustration at the long delay in getting the revised charter approved by the Cabinet and gazetted.
The first draft was gazetted for public comment from March to May 2015, with a second reworked draft being resubmitted to the department in August 2015.
It was already due for review without even having been implemented, she said.