BILATERAL DEAL MAKING:

Sweden and South Africa to trade empowerment "equivalents"

subscriber | 11 May, 2010

Swedish companies will, through a new deal signed this week, be able to trade "empowerment equivalents" instead of giving away shares to black economic empowerment players in South Africa.This deal where Swedish companies will be able to pledge funds for various black economic empowerment projects - skills development, health projects, entrepreneur schemes - instead of handing out shares for free or at a discount comes after some four years of back and forth discussions between Sweden and South Africa.

Most of the some 100 Swedish companies in South Africa have managed well without entering the BEE arena mainly as their clients are in the private sector.
For some of the largest Swedish companies in South Africa, like ABB and Ericsson, the agreement will not mean that much. They have forged black economic empowerment deals long ago to please the South African Government and to make sure that they were able to win e.g. public contracts.

But for many others the equivalent idea could be helpful as they will be able to claim that they have black economic empowerment credentials by investing in separate vehicles that are not threatening ownership or board-room control.

To what extent the signed memorandum will be embrace by Swedish companies in South Africa depends on if there is anything in there for the them. Swedish companies have been involved in activities with the Swedish Government before through HIV-Aids- and skills development programmes. In these cases the incentive has been that the Swedish Government, through funds channeled through the development agency Sida, have subsidised the implementation of health- and human resources goals.

The new mechanism takes this collaboration a step further as it makes it possible for the companies to convert such activities to "equivalents" - with a little help from Swedish tax payers.

The new deal shows that the South African Government is becoming more relaxed about pushing a too rigid black economic empowerment agenda that so far has created a new free wheeling, big deal searching black middle class.

From Swedens point of view times certainly are also changing. Development cooperation is wound up in well heeled countries including South Africa, Botswana and Namibia. Instead new mechanisms of disbursing money are put into place - with the intention to tone down old cosy political links and scale up relations based on economics.