With policy action on black economic empowerment (BEE) conditions for multinationals, like Starlink, high on government’s agenda, analysts say adjusting these regulations must be done in a way that still advances empowerment objectives.
Lowering regulatory hurdles that inhibit investment in the country is one of communications minister Solly Malatsi’s targeted efforts. This move is part of an initiative to significantly expand access to broadband connectivity to poor South Africans.
According to Malatsi, policy clarity on the recognition of equity equivalence schemes has long been sought by players in the ICT industry.
Since taking over the communications portfolio under the Government of National Unity, Malatsi has stepped up action to improve governance at some of the entities in his portfolio.
His strategy includes finding a temporary fix to the squabble between the SABC and Sentech, as well as bringing leadership stability to the Universal Service and Access Agency of SA.
Meanwhile, the non-availability of Starlink in SA is an area that some have been calling for him to act on.
Earlier this month, the minister announced his plans to issue new policy direction to the Independent Communications Authority of SA (ICASA) to clarify the department’s position on the recognition of equity equivalent programmes, for urgent consideration.
It will be in line with the Codes of Good Practice, which recognise that the global nature of their operations may constrain multinationals in their ability to comply with equity ownership requirements, he stated.
Africa Analysis MD Andre Wills believes the new policy will result in marginal investment impact in the sector, as large companies have driven significant investment in the ICT sector and will continue to do so.
However, the reduction of regulatory barriers could attract new players that introduce disruptive business models, he states. “For example, multinational companies, like Starlink, could accelerate innovation in underserved rural areas.
“Importantly, whether the investment is marginal or not, increased competition could lower costs, increase connectivity and stimulate further growth across various segments of the industry.”
Koffi Kouakou, senior research fellow at the Centre for Africa China Studies at the University of Johannesburg, notes SA desperately needs some action in this regard, but this doesn’t mean a complete policy overhaul.
“It may be that he [the minister] probably doesn’t need new policy direction…most of these policies are already there. The key thing is a coherence of their application.’
Kouakou notes that if the minister wants to have an impact, he needs to review policies to identify what challenges are stopping us – is it lowering the regulatory hurdles, or dealing with changing the environment regulations.
“For example, China has strong regulatory rules for empowering China and the Chinese, and any foreign investor or multinational will deal with it. I think that’s worked well for China. Malatsi has a new way to go, but he needs to take into account what’s there first. A change in policy is not easy.”
Mark Walker, IDC South Africa country manager and VP of data and analytics in the Middle East, Turkey and Africa, says: “Overall, reducing unnecessary regulation, administration and compliance issues, while improving access to a global skills base and providing incentives such as tax breaks and training recognition plans, are growth drivers in any market, regardless.
“BEE regulation places unnecessary constraints on growth and is considered a disincentive to investment, especially in a fast-moving and complex sector like ICT.”
Many have questioned why billionaire Elon Musk’s Starlink satellite internet service has yet to be offered in his birth country, especially when it is available in some of SA’s Southern African peers.
In September, AfriForum said it had submitted written comments to ICASA, calling on the regulator to drop its “strict race criteria”, saying it “currently encumbers the granting of a South African licence to Starlink”.
The organisation says “racially discriminatory criteria”, in the form of ownership requirements, should be scrapped from ICASA’s requirements for internet service providers.
Musk has said Starlink is awaiting regulatory approval to operate in SA.
However, ICASA chairperson Mothibi Ramusi recently revealed to ITWeb TV that the regulator has not yet received a formal application from Starlink, saying such an application would have to conform to the rules of the land.
Ramusi was referring to one of the requirements for licence approval, which is that international firms like Starlink must be 30% owned by historically disadvantaged groups.
In recent weeks, Musk met with president Cyril Ramaphosa on the sidelines of the United Nations General Assembly in New York, with the two said to have discussed SA’s telecoms and automotive sectors, among others the president believes the tech billionaire can invest in.
Balancing act
While BEE conditions may be perceived as a hurdle for certain international investors at times, the South African ICT industry has still seen significant investment over the years, comments Wills.
“Large multinationals have generally been able to work within the existing framework by partnering with local entities or adopting equity equivalent investment programmes (EEIPs), indicating that BEE, while a factor to navigate, has not fundamentally deterred foreign investment. Examples of multinational companies that have used EEIPs in the ICT sector are AWS, Dell, HP, IBM, Microsoft and Samsung.”
Kouakou also believes BEE conditions caused “very little” disturbance to the development of, or investment in, the local ICT industry.
“Little in the sense that if you look at the rest of the private sector that’s not even dealing with BEE, most people have largely bypassed BEE conditions.”
He adds that BEE conditions haven’t been entirely favourable because the kind of people who benefitted from them haven’t deployed much of the investments in rural areas. “However, the penetration of telecommunications in SA is one of the highest in the world.”
Kouakou points out that making BEE conditions less onerous will be a good way to get things moving.
In SA, EEIPs have been implemented in various sectors, including automotive, financial services and mining. These industries have used EEIPs to align with BEE requirements, while still enabling foreign multinationals to invest and operate in SA without needing to cede significant ownership stakes.
Wills explains: “While challenging, these rules have been integrated into long-term strategic planning for many firms, allowing them to operate within the local regulatory framework without requiring policy changes. However, smaller firms have generally struggled to implement the BEE regulations.”
Can’t win them all
The relaxation of these rules is likely to receive pushback from incumbent players, say Kouakou and Wills.
“Local industry players could view the potential relaxation of BEE conditions as undermining local ownership and transformation goals,” Wills points out.
“SA’s telecoms operators, which have built their businesses under these regulations, may argue that changing the rules could create an uneven playing field.
“SMEs in the ICT sector might also resist such changes, fearing that foreign competition could outpace local growth and disrupt the market dynamics they operate in.”
Kouakou concurs: “Monopoly companies don’t like to be disturbed, so they will push back, but the extent of that pushback will be to their detriment because we need to show success now after years of talking. The talk must stop and we must have action. The policies don’t need dramatic changes, but they must focus on social imperatives.”
Wills advises the minister to engage stakeholders. “He must consult widely with local and international stakeholders in the ICT sector, including local businesses, industry bodies and potential foreign investors. This will help balance interests and mitigate any potential backlash.”
In addition, the minister must clarify the role of BEE in new policies and provide regulatory certainty, he states. “By adopting a holistic approach that balances the interests of foreign and local players, the minister could foster a more attractive investment climate, while still advancing empowerment goals.”
Kouakou says Malatsi needs to do a SWOT (strengths, weaknesses, opportunities and threats) analysis around the policies and determine why, in large part, they haven’t worked.
“He needs to work on evidence-based scenarios, not ideological or neo-liberal. He needs to have partnerships with other government areas, like the Department of Trade, Industry and Competition.
“It [lowering BEE conditions] should be done with great hope of some kind of coherent policy action, taking into account that small businesses should benefit from this approach. If all of this is done with a sense of economic growth and social imperatives combined, I think minister Malatsi’s objectives will be well taken by all of us and by the population in general.”
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