One could be forgiven for thinking there are some encouraging signs ahead of this year’s state of the nation address, President Cyril Ramaphosa’s sixth since assuming office, flagging an increase in the pace of reform and increasingly supportive economic conditions that will provide a much-need tailwind — if yet another false dawn is to be avoided.
The long-delayed and highly contested auction of 5G spectrum is finally set to be concluded, with Telkom dropping its legal challenge while a review of its concerns is being considered by the Independent Communication Authority (Icasa) and others. Last week Icasa announced the preferred bidders. Qualified bidders are set to be announced on February 21 and the auction will follow in March.
An extra R200bn provides room in the budget for a balance of tax relief, accelerated debt repayment and the extension of temporary social support to assist those worst hit by the pandemic.
New car sales sped off the line in 2022, with a 19.5% increase in January from a year earlier. The V&A Waterfront, Africa’s busiest leisure spot, saw sales increase 30% in December from a year earlier, and Growthpoint SA CEO Estienne de Klerk tells me it’s almost back to pre-pandemic levels.
National Prosecuting Authority head Shamila Batohi, writing in the Sunday Times, has revealed that the efforts to prosecute high-profile state capture crimes emanating from the first reports of the Zondo commission’s findings have received a boost with the recruitment of 21 special prosecutors.
But scratch beneath this veneer of progress and you will find the sclerotic arteries of a socialist state that has pumped so much junk ideology into its system that investment, capital and the dollar, yen, euro and rand that carry with them the only real promise of jobs and growth to revive the ailing SA economy, simply cannot flow.
In 2021, a decision made by the Competition Commission to block the acquisition of Burger King from Grand Parade Investments by US private equity firm Emerging Capital Partners through its ECP Africa Funds, on public interest grounds relating to transformation, was reversed. But only after it was widely and resoundingly rebuked on legal substance as well as ideological form, by investors and legal scholars who have a vested interest only in seeing SA grow and succeed.
In Burger King the commission relied on a recent amendment to section 12A(3) of the Competition Act, which requires that when determining whether a merger “can or cannot” be justified on substantial public interest grounds, the competition authorities must consider, among others, ownership by black South Africans.
Since then, the commission has begun taking the approach that all merging parties have a positive obligation to “promote” a greater spread of ownership due to these changes to the act, and accordingly it has started asking merging parties in each and every merger to agree to conditions that either require a divestment of some shares to a black shareholder or the creation of an employee share participation scheme, even if the local target company is not empowered at all.
In other words, the empowerment position cannot be worse as a result of the merger, or the transaction is a global buyout that just happens to feature a SA subsidiary that isn’t now empowered (or sufficiently empowered).
However, this new approach goes well beyond the Burger King precedent, which was at least a situation in which the black shareholding in a significant local player in the food retail sector was reducing significantly. It seems the commission may have appreciated that unless it applies this as a requirement to all merging parties, regardless of whether they are currently empowered, there will be a negative effect on existing empowered companies and sellers.
So it now seems to be demanding that every company that wants to merge — local or foreign — must pay a sizeable empowerment tax to do so, even though the empowerment legislation doesn’t make empowerment compulsory for all local companies.
It is fundamentally inappropriate for a regulator to drive a minister’s policy on black shareholding via the enforcement of a completely different piece of legislation, rather than for parliament to pass a law of general application that requires every company in SA to have a black shareholder and/or shares held by workers. This would of course be subject to the usual public comment process, since it would amend the Broad-Based Black Economic Empowerment Act, which does not make black ownership mandatory (companies are free to choose how to empower, and indeed, whether to empower at all).
You can imagine the reaction of private equity investors who are trying to do a global deal, when they are told they cannot get clearance in SA unless they agree to divest shares in the SA business after the deal closes. Many will simply cut the SA business out of the global deal, which will leave the SA operations orphaned (and potentially harm SA consumers and our overall competitiveness).
It is a crazy message to be sending at a time when SA is desperate for foreign investment, and seems directly at odds with the president’s efforts to attract that $100bn of investment. The ideological shibboleths of transformation remain one of the greatest single impediments to growth, jobs and reducing poverty in SA.
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at badger@businesslive.co.za
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