16 Jan What is the Equity Equivalents Programme?
A 2013 report by the South African Communication and Information Department revealed that the Foreign Direct Investment contribution to the economy in 2013 was a staggering $8 Billion. Multinational companies find it difficult to comply with B-BBEE ownership requirements, which led to the development of the Equity Equivalents Programme – allowing foreign companies alternative Black Economic Empowerment contribution means. Here’s the low-down on the Equity Equivalents Programme…
Equity Equivalents Programmes at a Glance
The revised BEE Codes of Good Practice stipulate that all businesses operating in the South African economy make contributions to the objectives of Broad-Based Black Economic Empowerment (B-BBEE). Owing to the fact that many foreign multinational corporations simply cannot meet the ownership requirements of B-BBEE, an objective that holds much weight on the B-BBEE Scorecard, alternative contribution means are now recognised by the Codes of Good Practise – allow multinationals retention of their B-BBEE scores by contributing in lieu of a direct sale of equity. Through implementation of an Equity Equivalents Programme, once approved by the Department of Trade and Industry, contributions are set at 25% of the value of South African operations, or at 4% of the total revenue from the organisation’s South African operations over a period of continued measurement.
Principles and Objectives of the Equity Equivalents Programme
Equity Equivalents Programmes are expected to contribute towards Black Economic Empowerment by achieving the following objectives:
- Enterprise creation and development
- Foreign direct investment
- Accelerated empowerment of black rural women and children
- Sustainable growth and development
- Human development, focussing on education and skills development
- Infrastructure, emphasising the development of South Africa’s research and development infrastructure.
There are three principles that must be adhered to by multinationals if they are to successfully implement an Equity Equivalents Programme:
- The economic impact of the proposed programme must be aligned to the objectives of the B-BBEE Act
- The proposed programme must not displace/replace any other B-BBEE initiatives to be undertaken by the organisation as per the scorecard
- The proposed programme must be broad based regarding its impact of the black population of South Africa.
Developing an Equity Equivalents Programme
There are different forms of Equity Equivalents Programmes that can be conceptualised and implemented by multinational organisations with South African operations, including:
- Enterprise Creation Programmes
- Economic Development Programmes
- Projects that transfer/diffuse technology within the small, medium and micro-enterprise sector of the local economy
- Projects that promote economic growth and job creation through the enhancement of technological innovation.
According to a 2016 report, IBM South Africa rolled out a R700 million equity equivalent investment programme in February of that year. The programme is expected to run for 10 years and contributes towards the achievement of enterprise development, starting an academic programme and launching a research programme in South Africa – focussing on key challenges to be addressed regarding information communication technology (ITC) development and enhancement.
Developing an equity equivalents programme, as well as getting ministerial approval, is often a lengthy and technically complex process. At SAB&T, we make the business of Black Economic Empowerment our business! Contact us today and find out how we can assist you with setting up and submitting an equity equivalents programme.