MTN Zakhele-Futhi finding confirms new BEE phase in South Africa
13 July 2019
The BBBEE Commission’s finding on the MTN Zakhele-Futhi transaction affects thousands of companies in South Africa and confirms that a new, intensified phase of BBBEE is at hand. This is the opinion of Piet le Roux, CEO of Sakeliga, based on a preliminary analysis by this organisation’s legal and research team.
The Commission’s findings imply comprehensive corporate disruption for the South African economy, says Le Roux: “The MTN empowerment transaction by all appearances was in line with best practices in BEE and the Broad-based Black Economic Empowerment Act (BBBEE Act). Thousands of transactions, including those of JSE-listed companies, have been structured similarly – and the risks posed by this finding therefore are not limited to the interests of the MTN Group or its shareholders.”
Le Roux says the Commission has erred in its findings and with its recommendations has exceeded its powers: “The findings and recommendations of the Commission run counter to the principles of company law. They represent a misinterpretation of the BBBEE Act. They ignore the quid pro quo that should apply when BEE shareholders obtain shares at a substantial discount. They demand public apologies from a company and its employees who have acted within the realm of their professional judgment and fiduciary duties. And they increase the risk profile of BEE transactions to such an extent that companies in South Africa will now be thinking more than twice before participating in a game where the rules constantly change.”
Le Roux points out that the judgment fits a pattern of intensified and increasingly unreasonable BEE requirements in South Africa: “BEE should be fundamentally reconsidered: as a measure supposed to bring wider and increased economic prosperity it simply does not succeed. Sakeliga has been warning for the past eighteen months of a new, intensified and more damaging phase of BEE. Developments in this phase include the following: In April this year, Zodwa Ntuli, BBBEE Commissioner, described as invalid the majority of trust-structured BEE empowerment transactions. In February, President Cyril Ramaphosa signed the Competition Amendment Bill, incorporating BEE in competition law. In May, Minister Rob Davies published more stringent BEE codes. In 2017, amendments (introduced under the then Minister of Finance, Pravin Gordhan) to the state’s preferential procurement regulations came into force, empowering state entities such as Eskom to exclude white contractors from tenders in advance. And the list goes on.”