South Africa's BEE legislation: hindering investment or promoting partnerships?
South Africa, like other emerging markets, and the rest of the African continent has a critical need to attract foreign investment. The country is in a fortunate position of being among the highest ranking African nations in the World Bank’s ease of doing business ratings. This positions South Africa relatively well to attract foreign direct investment (FDI), as it means investors looking to Africa will likely perceive South Africa very favourably.
Source: EY analysis
The graphs above illustrate the correlation between investor friendly policies and FDI flows. Six of the seven countries with the most open investment policies attract the highest FDI flows into Africa.
It is critical for South Africa to maintain its competitive investment edge, whilst at the same time, driving economic transformation. This is particularly acute given that the commodity cycle remains weak, and both the UK’s Brexit decision and the election of Donald Trump in the US have further contributed to uncertainty in investor sentiment. This could impact FDI into Africa, particularly given the strong role both the US and UK already play as a major investors in Africa.
Our latest EY Africa Attractiveness survey reflects South Africa first by FDI projects into Africa, amounting to $4.9bn for 2015, with the largest source of investment sourced from the US, followed by the UK, India, Germany and Italy. South Africa’s leading FDI position has held steady despite the need for multinationals to consider the country’s unique empowerment considerations and the cost of compliance with those regulations.
In terms of South Africa’s regulatory evolution, a recent Business Day article referred to a survey of European multinationals flagged concerns around the latest Broad-Based Black Economic Empowerment (‘B-BBEE’) scorecard requirements et al. This is despite the legislation attempting to address local ownership requirements and making them easier to meet.
Over the past three years, we have seen the South African B-BBEE legislative framework, which is aimed at redressing economic participation of black people, continuously evolve. The B-BBEE Codes of Good Practice provide for multinationals to address the Ownership pillar through an Equity Equivalent Investment Programme. Government has recognised that there are 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, and has hence provided alternatives for measurement against this element.
The programme allows foreign-owned multinationals to claim ownership points by undertaking projects that are approved by the Minster of Trade and Industry as Equity Equivalent programmes. Through this initiative, companies can earn up to 25 qualifying ownership points based on 25 percent of the value of their South African based operations, paid over a 10 year period or less, or 4 percent of the turnover of the South African operation.
At EY, we strongly encourage active dialogue and collaboration, which is an action required to realise our country’s and continent’s possibilities. In this context, the relationship between government and business across many parts of the continent is not always as engaging and productive as it could and should be. Too often business is viewed as part of the problem. In contrast, government and business, both local and international, need to become partners both in embracing a philosophy of shared value and driving a common agenda of inclusive, sustainable growth. We have seen in recent times collaboration with government and business in the interests of the community at large, achieving great milestones across the continent. Partnership, co-operation and collaboration across the private, public and social sectors could be a powerful force for transformative change and growth.
Sugan Palanee is the BEE Leader at EY. He has been recognised as an authority on local empowerment legislation and has extensive experience across a number of listed organisations.
5 minutes with... Janthana Kaenprakhamroy, CEO, Tapoly
Founder and CEO of award-winning insurtech firm Tapoly, Janthana Kaenprakhamroy heads up Europe’s first on-demand insurance platform for the gig economy, winning industry awards, innovating in the digital insurance space, and leading with inclusivity.
Here, Business Chief talks to Janthana about her leadership style and skills.
What do you do, in a nutshell?
I’m founder and CEO of Tapoly, a digital MGA providing a full stack of commercial lines insurance specifically for SMEs and freelancers, as well as a SaaS solution to connect insurers with their distribution partners. We build bespoke, end-to-end platforms encompassing the whole customer journey, but can also integrate our APIs within existing systems. We were proud to win Insurance Provider of the Year at the British Small Business Awards 2018 and receive silver in the Insurtech category at the Efma & Accenture Innovation in Insurance Awards 2019.
How would you describe your leadership style?
I try to be as inclusive a leader as possible. I’m committed to creating space for everyone to shine. Many of the roles at Tapoly are performed by women and I speak at industry events to encourage more people to get involved in insurance/insurtech. Similarly, I always try to maintain a growth mindset. I think it’s important to retain values to support learning and development, like reliability, working hard and punctuality.
What’s the best leadership advice you’ve received?
Build your network and seek advice. As a leader, you need smart people around you to help you grow your business. It’s not about personally being the best, but being able to find resources and get help where needed.
How do you see leadership changing in a COVID world?
I think the pandemic has proven the importance of inclusive leadership so that everyone feels supported and valued. It’s also shown the importance of being flexible as a leader. We’ve had to remain adaptable to continue delivering high levels of customer service. This flexibility has also been important when supporting employees as everyone has had individual pressures to deal with during this time. Leaders should continue to embed this flexibility within their organisations moving forward.
They say ‘from every crisis comes opportunity’, what opportunities do you see?
The past year has been challenging, but it has also proven the importance of digital transformation in insurance. When working from home was required, it was much harder for insurers to adjust who had not embedded technology within their operating processes because they did not have data stored in the cloud and it caused communication delays with concerned customers at a time when this communication should have been a priority, which ultimately impacts the level of customer satisfaction. This demonstrates the importance of what we are trying to achieve at Tapoly in driving digitalisation in insurance and making communication between insurers and distribution partners seamless.
What advice would you give to your younger self just starting out in the industry?
Start sooner, don’t be afraid to take (calculated) risks and make sure you raise enough money to get you through the initial seed stage.