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.
He said 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, besides agriculture.
Bruggeman pointed out that several African countries had something akin to South Africa’s broad-based black economic empowerment (BBBEE), with Namibia and Zimbabwe being notable exceptions.
While some might oppose such frameworks, particularly when they were associated with elite enrichment, he stressed, “the rules are the rules” and companies must comply with legislation.
He cited the example of Zambia, noting that its Citizens Economic Empowerment Act of 2006 had similar imperatives and targets to 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 this 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 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 planning 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 might no longer be viable.
Moreover, even if the change in tax does not occur, Zambia may withhold VAT should it find that a foreign company has not complied with the legislative and regulatory requirements. Bruggeman commented that many countries, including Zambia and the Democratic Republic of Congo, owed “hundreds of millions” in VAT.
Bruggeman stressed that he did not have a problem with Zambia, as the challenges he cited were prevalent in many African States. However, South Africa accounted for 70% of Zambia’s exports.
Additionally, there was a looming change in legislation in the country, which Bruggeman tied in to his other point, namely that legislation and regulation changed 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 operating in Ecuador when the legislation changed, resulting in foreign firms being able to extract only $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,” he said. 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 and the legislation within those markets, as well as advice, such as quoting clients in local currency rather than dollars so that payments could be 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 were duty free.
On the issue of standards, he noted that manufacturers could not sell locally if they did not meet the relevant international standards, specifically ISO 17025.
Companies looking to export should make sure that their products aligned 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.