US capital equipment giant Caterpillar has announced an equity-equivalent investment programme in South Africa through which it aims improve its black-empowerment rating by localising R1.3-billion-worth of components used in the construction and mining equipment it sells domestically through Barloworld Equipment.
The investment commitment, which was unveiled at a ceremony in Johannesburg, presided over by Trade and Industry Minister Dr Rob Davies, will be implemented over a ten-year period.
It is the ninth equity-equivalent investment deal announced under South Africa’s broad-based black economic empowerment (BBBEE) legislation, which allows multinationals to earn ownership credit without actually selling shares to black shareholders.
Caterpillar Industries MD Zakieya Parker described its largest-ever equity-equivalent investment concluded to date and also one of US group’s largest investments in Africa. Caterpillar has been present in the South African market for 90 years, having first signed a dealership agreement with Charles ‘Punch’ Barlow on August 17, 1927.
Davies said equity-equivalent investments were not government’s preferred empowerment option, with the amended BBBEE codes placing emphasis on black ownership and control. However, he said the instrument remained available to those firms and original-equipment manufacturers (OEMs) that where unable, owing to corporate restrictions, to sell shares to meet their empowerment obligations.
The Caterpillar transaction could, thus, provide a template for those automotive OEMs seeking to improve their empowerment ratings, after government announced that it would be phasing in a stipulation that all recipients of government incentives have a minimum BBBEE rating of Level 4.
In June, South African automotive industry executives presented an outline for a proposed R3.5-billion venture capital fund to support black enterprise development in the sector at a meeting with African National Congress leaders.
Parker indicated that Caterpillar would seek to localise various components used in equipment sold to the mining, construction, energy and transportation industries. She revealed that Caterpillar Industries had already successfully completed its first localisation project, working with a local supplier to manufacture mining buckets.
“The multi-year investment will allow local, empowered South African suppliers to develop world-class capabilities and the capacity to plug into Caterpillar’s global supply chain. This opens up export opportunities to regional and global markets,” Parker said.
Selected component suppliers would need to be black owned and meet the US group’s exacting quality standards and Parker indicated that it would be turning to the Department of Trade and Industry (DTI) for support in identifying potential black-industrialist partners.
Separately, the DTI has set a target of supporting, through a targeted incentive, 100 black industrialists by the end of March next year and Davies confirmed that disbursements under its Black Industrialist Scheme had risen to 62.
Barloworld Equipment Southern Africa CEO Emmy Leeka said the deal would also assist the JSE-listed group in consolidating its own empowerment credentials, which currently stood at Level 3. Hitherto, Barloworld Equipment has not received any empowerment credit from its relationship with Caterpillar, but the US group’s commitment would assist it in its aspiration of securing a Level 1 rating in future.
DTI director-general Lionel October said the arrangement was the outcome of intense negotiation between the department and Caterpillar, where the DTI sought full integration between its twin objectives of transformation and industrialisation.
The commitment would be monitored and enforced by the DTI’s own empowerment unit as well as the BBBEE Commission, which has been mandated to deal with allegations of compliance transgression or fronting.