South African machinery and capital equipment companies must understand the legislation of countries they are operating in, or exporting to, South African Capital Equipment Export Council (Saceec) chairperson and CEO Eric Bruggeman told delegates attending the Local Southern African Manufacturing Expo, on Tuesday.
He commented that the country's machinery and capital equipment exports amounted to about R178-billion a year and that it was the biggest contributor to gross domestic product in South Africa aside from agriculture.
Bruggeman pointed out that several African countries had something akin to South Africa’s broad-based black economic empowerment (BBBEE), with the notable exceptions of Namibia and Zimbabwe.
While not particularly fond of BBBEE because of its impact on the local economy and its inability to alleviate poverty for the majority instead of enriching an elite minority, he asserted that “the rules are the rules” and that companies must comply with legislation.
He cited the example of Zambia, noting that its Citizens Economic Empowerment Act of 2006 has similar imperatives and targets as South Africa's BBBEE. The Act stipulates that Zambian companies and entities must procure products that have 70% local content, despite the fact that, according to Bruggeman, Zambia does not have the manufacturing base to enable compliance with said stipulation.
Companies entering the Zambian market, therefore, need to have a local partner, agent or distributor; must have an office in Zambia; and must employ local people.
Bruggeman noted that all of this needed to be in place before the entrant established a foothold in the country, which was problematic because, “why would you set up offices and employ staff when you have yet to sell a product in the country?”.
He further noted that Zambia was planing to change its value-added tax (VAT) to a general sales tax, which meant that South African and other foreign companies operating in Zambia would not be able to claim back VAT, which had severe economic implications for some exporters, including that doing business in Zambia may no longer be viable.
Moreover, even if the change in tax does not occur, Zambia may withhold VAT should it find that any foreign company has not complied with the legislative and regulatory requirements. Bruggeman commented that many countries including Zambia and the Democratic Republic of Congo owe “hundreds of millions” in VAT.
Bruggeman stressed that he did not have a problem with Zambia, as the challenges he cited are found in many African states. However, South Africa accounts for 70% of Zambia’s exports.
Additionally, the country has a looming change in legislation, which Bruggeman tied in to his other point, namely that legislation and regulation changes frequently – often with every new administration.
“You need to be up to date with the most recent changes in legislation.” Bruggeman provided an anecdote of a company that worked in Ecuador when the legislation changed to state that foreign firms could only extract $15 000 a month, because at the time the country lacked foreign exchange.
“It would’ve taken them 43 years to extract a year’s worth of profits,” adding that the company had cut its losses. His anecdote was also aimed at illustrating the importance of understanding the political situation in other countries.
Bruggeman noted that organisations like Saceec provided its members with information on potential markets, the legislation within those markets, as well as advice such as quoting clients in local currency rather than dollars so that payments were processed faster.
He added that companies that did not belong to industry bodies or associations could contact the commercial attaché at the embassy in question.
Bruggeman also stressed the importance of finding the right logistics partners because they would understand factors like the harmonised system codes needed. He commented that using the wrong code could result in companies paying an extra 20% import duty on goods that are duty free.
On the issue of standards he noted that manufacturers cannot sell locally if they do not meet the relevant international standards, specifically ISO17025.
He noted that companies looking to export should make sure that their products align with the national standards of the country in question. Further, he commented that while a South African Bureau of Standards mark would not hurt an exporter's chances in Africa, compliance with standards was more important that the mark itself.