In early June, President Ramaphosa announced that BEE legislation and broad-based economic empowerment strategy would be reviewed due to its ongoing ineffectiveness. This as the intended beneficiaries of the legislation remain left out of the country’s economy. And while this rhetoric has been said a number of times before, which loses some of its impact and causes frustration, there are green shoots of change underway.
The first is that of Minister of Trade, Industry and Competition, Ebrahim Patel’s decision in May to gazette a notice that BEE Collective Schemes qualify to be scored as genuine black ownership. The second is the Competition Commission’s decision not to allow the sale of Grand Parade’s Burger King to Emerging Capital Partners (ECP Africa) to go ahead on the grounds that the buyer was not interested in South Africa’s transformation agenda.
Both of these speak volumes and go a long way in bringing some credibility back to the table after BEE legislation has been, for lack of a better word, fumbled with, making its intended outcomes half-hearted at best. This is according to Elsa Frylinck, a Broad-Based Black Economic Empowerment consultant at boutique law firm Reynolds Attorneys.
In the case of Minister Patel, he over-ruled BEE Commissioner Zodwa Ntuli who has for the past two years considered collective enterprises as means for “fronting”. In a memo attached to the practice note, Patel cleared up any misconceptions about collective schemes, stating that specific beneficiaries do not need to be individually identified. Given this, broad-based schemes or employee ownership schemes can satisfy ownership provisions under the codes.
This is of major significance to employees. “Broad-based economic empowerment benefits a number of employees, not just a few and in these harsh economic times this is definitely a successful outcome. This decision also goes to show that Patel is a strong supporter of evergreen structures that benefit non-profit organisations, and that then meets the requirements of the codes,” says Frylinck.
The Competition Commission’s stance on the Burger King sale is as bold as Patel’s, and underlines just how important ensuring economic transformation among business is. Given it has been reported that a senior employee at the commission had said the prospective buyers did not want to address the question of empowerment – effectively moving the BEE ownership from 68% to 0% – the blocking of the sale sends a very clear message. While the ECP is currently appealing the decision through the court system, the President has been strong on his views that tough decisions on enabling transformation need to be made.
The Burger King sale is also not the first time that the DTI has intervened. The first time was last year June when US multinational Pepsico sought to buy Pioneer for R26bn. Initially the deal was not at all good for BEE, but in the end a settlement was reached and it was the first large transaction that had to meet the amended Competition Act’s requirements that mergers improve the spread of BEE ownership.
“These green shoots of change are more necessary now than they’ve ever been thanks to the Covid-19 pandemic that has ravaged certain sectors of our economy. This period, as devastating as it is, does however allow for a clean slate with respect to the implementation of the transformation agenda and Ramaphosa has been quoted as saying black businesses need to be prioritised when it comes to procuring support from Government to help them get back on their feet and participate in the recovery of the economy.
“If we are going to see real and effective change in South Africa’s economic transformation, that will positively affect generations to come, we need to see action. These past few months have been exciting from a legislation point of view as the end-game is massively in favour of those beneficiaries who are set to benefit from these changes the most. We need to see bold steps being taken by our Ministers, organisational bodies and President and as a firm, we welcome these encouraging steps forward,” concludes Frylinck.