Monday, June 07, 2004

1. BEE Compliance in General
The general principle is that foreign companies doing business in South Africa either through a registered branch office or through a subsidiary would be subject to BEE legislative and regulatory requirements.  The BEE Act does not contain any specific exemptions for foreign companies doing business in South Africa.  If the locally registered foreign company wishes to tender for public sector business or apply for any type of licence, concession or permit from the state, the foreign company’s South African operations would be measured on the same BEE criteria as any other South African company.
In doing business with the private sector, locally registered foreign companies will find themselves under increasing pressure to address BEE targets.  Many private sector industries are parties to BEE charters and they need to show that they are procuring goods or services from BEE compliant firms in order to meet their own targets set out in these charters.
The ownership and control BEE targets are generally the most contentious for foreign companies.  Many multinational companies have global policies in place restricting the level of ownership and control that can be transferred to local parties.  It is argued that foreign companies can still score highly in BEE by focusing on human resource development and employment equity, affirmative procurement and social development.  There is however increasing pressure on companies doing business in South Africa to focus on meeting BEE ownership and control targets.
2. The Financial Services Charter
The Financial Services Charter adopted in October 2003, is currently the only sector charter which contains specific qualifications for the adherence by foreign financial institutions to the BEE ownership and control targets set out in the charter.  If a foreign financial institution has in place a global policy which precludes it from accommodating local ownership participation, it will be exempt from the ownership provisions set out in the charter.  In addition, if a global policy to which a financial institution is subject imposes any board members, executive or senior managers on the local operation, those personnel will not be taken into account for purposes of calculating the board, management and human resource development targets set out in the charter.  If foreign financial institutions fall within these qualifications, they will not be required to complete the relevant sections in the charter score card.  The points allocated to the sections from which the institution is exempted will be cancelled, and the institution will be scored out of the remaining points and will have its BEE score calculated as a percentage of the reduced remainder.  The charter provides that in evaluating tenders, the private sector and all tiers of government should base their evaluation of the BEE contribution of members of the financial sector on the charter rating which has been accorded in terms of the charter, as opposed to the BEE Act, Preferential Procurement Act or any other sector charter. 
3. The ICT Charter and Telecoms Sector
In the Information and Communication Technology (ICT) sector, some foreign owned and controlled ICT enterprises (mainly American multinationals) have proposed that the ICT Charter contain specific qualifications relating to BEE ownership and control targets along the lines of those contained in the Financial Services Charter.  It is argued by such companies that their parent companies place stringent ownership restrictions on their local operations and there is also the need to preserve ownership and control of intellectual property.  Counter-arguments have been advanced by other industry players to the effect that certain multi-national companies both in and outside the ICT Sector have sold equity to black shareholders.  The issue has not yet been resolved and specific exemptions for foreign companies have not been included in the working drafts of the ICT Charter that have been released to date.  The charter is expected to be finalised by the end of June 2004.
It should be noted that there are already minimum BEE ownership requirements that apply in terms of the Telecommunications Act.  The Minister of Communications has recently promulgated regulations in terms of the Act which stipulate that entities which apply for certain network licences must have 15% ownership by previously disadvantaged individuals, as well as an employment equity strategy.  Foreign-owned companies that wish to apply for such licences would need to comply with these requirements.  This is discussed in more detail in the section dealing with BEE in the Telecoms Sector.