South Africa Withdraws Empowerment Change After Company Backlash

South Africa’s government scrapped a plan to change rules aimed at redressing economic inequality and empowering black business people that threatened to put new investment deals in the country on hold for months.

Trade and Industry Minister Rob Davies withdrew an official notice of May 5 that said companies would get fewer black economic empowerment points if their non-white shareholders are community trusts or employees rather than individuals or black-owned businesses. The points are part of an assessment system that gauges whether companies can win government contracts.

“This is a very welcome, sensible decision given the original guidelines struck a lot of fear into investors about the state of their Black Economic Empowerment settlements,” Peter Attard Montalto, an economist at Nomura International Plc, said in an e-mailed response to questions.

Uncertainty surrounding the May 5 order and a lack of clarity on timing of the changes had created uncertainty among companies and investors, according to lawyers from Norton Rose Fulbright LLP and Cliffe Dekker Hofmeyr. South Africa’s empowerment laws are designed to help citizens disadvantaged by apartheid, a system of whites-only rule, to get ahead in business.

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