Business Law & Tax: October 2020

BUSINESS LAW&TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Never too late to knock on TikTok’s door over copyright

• Tricky to distinguish between dance routines and lip-synch posts as parody and therefore original

Ilse du Plessis

ENSafrica

For the benefit of any adults reading this article, TikTok is asocial network for amateurmusic videos, aglobal phenomenon that started inChina as recently as 2016.

Whathappens isyoungsters use13-second music clipsthat theycan uploadto TikTok and addtheir own little twists, which may take the form of a funkydance or lipsynch. Lots ofother youngsters thenwatch these videos. It’s stillway tooearly to tellwhether anyone involvedin thisprocessgoes on to get a life!

Some TikTokvideos become hugeand thereare a number ofperformers who

have become global stars with enormous followings and brand endorsements. The focusnow seemsto be shifting to copyright issues, as itshould. An article thatappeared intheIPKat blog entitled “TikTok Signs Copyright Licensing Agreements With Music Publishers ” addresses someofthese issues. The author, Hayley Bosher, makes some interesting points.

Bosher suggeststhat Tik-

Tokcan actuallyhave apositive outcome for some musicians,inthe sensetheTikTok videos havethe effectof pushingthe originalrecordings upthe charts. Shelists as an example LilNas X’s (yes really, that’s theartist’s name) song Old TownRoad which, after going viral on TikTok, holds the recordfor the longest-reigning Billboard Hot 100 No 1.

The music industry and thecollecting societieshave been trying to negotiate a deal withTikTok forsometime, andlegal proceedingshave been threatened.

In July 2020, TikTok signed licensing agreements withcertain independentdistributors.This wasfollowed up withnews thatTikTok had signeda copyrightlicensing agreementwith theUK

Earlierattempts aimedat reaching acopyright agreementended upwith amatter being referred tothe UK Copyright Tribunal the matter was subsequently withdrawn whenthe parties announced theywould try arbitration.

As for TikTokusers, the terms andconditions they agree to whenthey upload content state that they remain ownersof thecopyright.But therights theypurportto grant areso broadand farreaching there istalksuch as unconditional,irrevocable, nonexclusive, royalty-free licences permittinguse, reproduction, modification andadaptation ofmaterial thatBosher feelstheyhave the effectof “completely

underminingtheentiremusic copyright system”

Bosher finallyconsiders whether a13-second video mightbe regardedasparody, which issignificant because parody issometimes regardedas anexception tocopyright infringement.Bosher suggestsa meredanceroutine wouldprobably not amount toparody, although an elaborate andfunny lipsynch routine might.

Itseems clearthatthe intellectual property(and particularly copyright)issues surrounding TikTok are complex and there may still be someway togo.But thefact thatthey arebeingtackled should probablybe regarded as a positive thing.

Meanwhile, USPresident Donald Trump has made sure there areother, non-intellec-

tual propertyissues toconsider.As manyreaderswill know, Trump hasbeen fixating on TikTok for a while. Whether this isbecause TikTok isChinese-owned or because it isknown to have hosted contentthat mocks Trump is notclear. But he does seemconvinced that TikTok posesa security threatto theUS,in thesense thatit allowstheChinese state toaccess orharvest information about US citizens through their cellphones. Thepresident hasmade big demands: finda buyer of TikTok’sUS businessorface aban.PerhapsheseesTikTok as an election winner? The chances arewe will be talking about TikTok for some timeto come.Even those of us who aren’t singing or dancing along to it!

Prepare for a wave of postCovid tie-ups

• Even more work may have to done to smoothen the passage of merger deals by the authorities

Heather Irvine Bowmans

Covid-19 will affecttheeconomy longafter the state of disaster ends. While ourcompetition authorities have been quick to react to theimmediate impact of the pandemic, even greater challenges lie ahead.

Theglobal experiencehas been that merger activity is reviving quitequickly as lockdowns aroundthe world ease,and SAmay alsoexperience a wave of proposed acquisitions. Therecession due to thepandemic may causesome firmsalreadyin distress to fail, and profitable firms tobattle, particularlyin industries whichhave been hard hitby thesocial changes wrought bythe pandemic (such as sports and entertainment) and sudden shifts in consumer demand(such as brick and mortar retail).

Itmayno longerbepossible fordiversified companies tocarry divisionsthat arenot profitable or coreto their business, orto continuewith businessesthat arestillin development. Forresilient and well-resourcedbuyers, the currentmarket offersa chance toacquire quality assets atreduced prices. Acquisitions may be a means to buildcritical massand greater resilience against

future events of this kind

Assessing these transactionswillpresentourcompetition authoritieswith some tough choices. Consolidation can creategreater efficiency and facilitatecost-cutting and investment innew technology. Inindustries inwhich scale really matters (such as mobile telecommunications or airlines)combining smaller rivals may preserve their ability to growand compete more aggressivelywith their larger rivals in the future.

Merging SA competitors could potentially strengthen our nationalchampions and placethem ina betterpositionto competewithforeign giants on theglobal stage. Vertical mergers,which combine firmsat different levels of the supply chain, can eliminatedoublemarginsand drive efficiencies. However, whattraction these argumentswill gain with ourcompetition watchdogs isuncertain. ManySA markets arealready highly concentrated. Inmany cases, thepotential buyerswillbe

AUTHORITIES HAVE TO TRY TO FORECAST WHETHER A PROPOSED TRANSACTION WILL BENEFIT OR HARM COMPETITION

firms that already have a substantial market share. Allowing mergerswith themmay further strengthendominant firms andaffect thecompetition for years to come.

While traditionaleconomic theory recognises that vertical mergersgive riseto efficiencies, asignificant number of these transactions have been prohibited by the Competition Commission in the past. The recent draft report on its first impact study,in theforestrysector, suggests it maycontinue to apply high levels of scrutiny to vertical transactions

Although ourlegislation recognises thata mergerthat substantially lessens or prevents competition may be approved if it leads to efficiencies that outweigh these anticompetitive effects, relatively few transactions have been approved onthis basis in recent years. The Competition Act also envisages that mergers involving a “failing firm” may be approved even if they harmcompetition, but this doctrinetoo hasseldom been relied on by merging parties in recent years.

Allowing further consolidation in SAmarkets may makeiteven harderfornew competitorsto enter,orfor existing competitors to participate and sustain themselves. This may potentially harm consumers in the long run, if bulked-upfirms with

STRONGER TOGETHER

market power can charge more, or innovate less.

Merger review is by its nature a predictive exercise: competition authoritieshave totry toforecast whethera proposed transaction will benefit or harm competition They haveto doso basedon the economic evidence available, which includes how many competitors there are, and howeasy entryinto the relevant markets is.

Past experience for example, of whether firms have beenable toenter the market, or have been forced out, or how closely two competitors have competed with one another often provides a valuable guideto what may happen. However, the unprecedented disruption caused by the pandemic across the global value chainwill make this predictive exercise even more challenging.

Whatusedto betruemay no longerhold: wehave never before experienced such widespread disruptions locally, or globally. Competitionauthorities alloverthe world willhave tograpple these issues, including in industries that have already been changing rapidlydue to new technologies (such as thetaxi industry)or inwhich the pandemic has dramatically acceleratedthe paceof change (such as grocery and clothing retail).

In SA, however, the merg-

er evaluation exercise is even more complicated,because our authorities are required toassess notonly theimpact of a proposed transaction on competition in the relevant (defined)market, but also to consider the impact on a number of broadly defined public interest factors, which were significantly expanded in theamendments tothe Competition Act in 2019.

Balancing public interest effects with efficiency gains is difficult: while consolidation may salvage businesses and drive efficiencies, job losses are deeplyunpalatable ata time when unemployment in SA has neverbeen higher, and employees’ chances of finding alternativeemployment has never been so low.

Consolidation may also have disproportionatelynegative impacts onsmall, medium and micro businesses and firmsowned orcontrolled by historically disadvantaged people, since they may be disproportionately affected by pricing from their dominant suppliers, or squeezed out by increasingly powerful purchasers.

To date,our competition authorities have tended to deal with suchpublic interest concerns by asking merging partiestoagreetoa“package” of public interest conditions.

In somecases, pressure was applied to prevent merging parties from retrenching any

staff, even ifproposed job losses are unrelated to the merger, for up tofiveyears. Acquiring firms, especially wealthy foreign ones, are frequently asked toset up small supplier developmentfunds or staff bursary schemes. Although suchconditions were initially imposed in megadeals featuring a foreign firm (as inthe Walmart/ Massmart merger) only, they have gradually become more prevalent, even in relatively modest localmergers (61%of conditional mergers in the 2018financial year,and54% in 2019.) Thishas imposed significant additional costs: in 2019, inseven instances,the tribunalrequired ofpartiesto large mergers to commit more than R6bnto local production expansion and to contribute R10.2bn to development funds.While itis relatively easy for acquiring firmsto makethesesubstantial commitments when the economy is relatively stable, they maybe farmore difficult after the pandemic.

Merging partiesneed to anticipate these challenges and help the competition authoritiesto dealwiththem. Proactive engagementswith trade unions and government departments whether public interest conditions are feasible,forinstance mayneed to beheld inadvance of merger filings withthe competition authorities. Since evaluatingand balancing these competition and public interest effects are likely toextend thetime needed by competition authorities for merger reviews, transaction timetableswill need to be adjusted. If claims about efficiencies or failing firms are made,these will haveto besubstantiatedwith detailed economic analysis. While theCovid-19 pandemicand itsaftermathmay sparka freshwave ofmerger activity, thisis unlikelyto providea freepass fortransactions which raise competition or publicinterest concerns. Merging parties will stillhaveto dotheirhomework if they want to get their transactions cleared.

Proposed new taxation law could hurt contract miners

Denny

Da Silva Baker McKenzie Johannesburg

Contract miners playa significantrolein managingamining company’s capitalbudgets. Froma taxperspective, though,ithas beenahotly debated topic for some years as towhether contractminers should be entitled to claim the acceleratedcapital allowancesavailable totaxpayers conducting “mining” or “mining operations” On the face of it, it does not seemlikemuch ofadebate, and one would assume a contractminer shouldqualify as an entity conducting “min-

ing” or “mining operations”

However, upuntil the Benhaus judgment delivered last year by the Supreme Court of Appeal, there was no absolute certaintyin this regard. TheBenhaus judgmentclarified thematterand the contractmining industry breathed a collectivesigh of relief as a result. Fast forward to2020 and inthe midstof Covid-19,on July 31 2020, the Treasury released theDraft Taxation Laws AmendmentBill for comment. Thebill includes proposed amendmentsto section 15 and section 36 of the Income Tax Act, effec-

tively notingthat capital expenditure allowancesare only availableto taxpayers who holdthe relevant mineral rights.This proposed amendment wasalluded to earlier this year as part of finance ministerTito Mboweni’s budget speech, during which henoted it was being considered.

The proposedamendment, ifpassed inits current form, willmean contract minerswill notbe entitledto claim anyaccelerated capital expenditure allowances,and willhave toclaimallowances for capitalexpenditure in terms of otherprovisions in

the Income TaxAct. Contract miners willtherefore no longer be entitled to claim 100% of thecapital expenditure incurredin aparticular year,andwill insteadneedto determine whetherother allowances areapplicable for example,the 40/20/20/ 20allowancein12C,available to taxpayersconducting manufacturing operations. It is clear thiswill have a significanteffect on the contract mining industry. What isnot clear,though, is how contract miners will transition froma regime where they wereable to claim 100%to aregime

where theycannot claim 100%. Moreparticularly, itis unclear what will happen to the historical allowances claimed undersection 15, read with section 36.

One would assume, under legal principles,that those allowances previously claimed willremain. The problem,however, isthatthe so-called “unredeemed capex ” canonly beused to offset mining income, so contractminers arepotentiallyin the precarioussituation of having allowancesthey cannot utilise.Furthermore, just because acontract miner may be entitled to claim a 12C

allowance, forexample, it doesnot meanit wouldqualify for the allowance, as some of theallowance provisions are only applicableto new and unusedmachinery, or machinery broughtinto use for the first timein a process of manufacture. Thesearejust someofthe ramifications ofthe proposed amendment and wewill be makinga submissiontothe Treasury in this regard. However,given thatthis hasbeen aboneofcontentionformany years, contractminers would bewiseto considertheeffect of theproposed amendment on their businesses.

FOCUS ON: ETHICS

ESG in mining no longer ‘nice to have’

• Investors increasingly expect environmental, social and governance factors to be key considerations

Wildu du Plessis & Jo Hewitt Baker McKenzie

Environmental, social andgovernance (ESG) encompasses a broad range of issuesacross thespectrumof environmental (climate change; biodiversity;waste, water andresource use;pollution),social (humanrights; labour practices;health, safety and environment; diversity) and governance (corporate governance; ethics; compliance) matters.

Themining sectorhas become increasingly exposed toESGrisks,whichtheymust address urgently including concerns around emissions, water use,deforestation and community relations.

ESG considerations have moved rapidly from the marginstothe heart of decision making and are now consideredessential forbusiness survival and resilience, especially in an uncertain, postCovid-19 world.

With immediate-term setbacksanddelays duetothe spread of Covid-19, the definition of ESG isalso by necessitygrowing toencompass a focuson protectingthe health ofthose involvedin projects, including workers and thepopulations where projects are under way.

INVESTOR INTEREST

Andas climatechange impacts become clearer and nearer,there isa majorrole for ESG policies to play in helpingto mitigatesomeof the effects, through planning andbuilding forhottertemperatures, highersea levels andmore extremeweather conditions,aswellasinseeking tominimise theenvironmental impacts of projects.

Further, ESG reporting obligations andinstitutional and otherinvestor interestin whatresourcecompaniesare doing in this space are rapidly increasing.

Not onlyare companies required to be compliant with a growingnumber ofregulationsinthis area,butpractisinggoodESG isalsocritical

from strategic,reputational and marketing perspectives.

In SA, a plethora of legislation, such asthe Prevention andCombating ofCorrupt ActivitiesAct 2004,govern ESG factors including businessandfinancialsectorconduct, economicand social empowerment and environmental protection.

Voluntary codes such as theKing4 Codeoncorporate governance and the Code for ResponsibleInvesting inSA also serve as a guide Looking globally,ESG requirements areevolving fromloose guidelinesto mandatory, country-specific obligations toreport and comply. WhileUK legislation in thisarea, suchas the Bribery Act 2010 (UK) and the Companies (Miscellaneous Reporting) Regulations2018 (UK), is arguably the strictest, relevant legislation in other countries includes the Foreign CorruptPractice Act (FCPA) in the US.

THE RELATIONSHIP BETWEEN THE MINING INDUSTRY AND COMMUNITIES CLOSE TO THEIR OPERATIONS HAS BEEN UNIQUE

Further,many(oftenoverlapping) voluntary codes and principles also exist, which can make it difficult, particularly for smaller companies, todetermine exactlywhich principles to follow.

Some examples of voluntarystandards includethe Extractive Industries Transparency Initiative(EITI), the Responsible GoldMining Principles’ the UNGuiding Principles onBusiness, and the Human Rights and UN Guiding Principles Reporting Framework.

When considering which of the voluntary codes to subscribe to,mining companies should rememberthat, by complying withapplicable mandatory ESG requirements, they are likely already complying with certain of the voluntary codes, in which

case itwould bepossible to sign up to such codes without increasing the overall existing scope of their ESG strategies.

In addition,considerations aroundwhich ofthevoluntary codes will likely become hard obligations inthe future (eg the EITIprinciples are being implementedinto domestic lawin anumber of countries) will berelevant, as well as whether its investors are focused on certain codes in preference to others.

Risks fornoncompliance with themultitude oflaws, voluntary codesand best practices governing ESG range from criminal prosecutionand heftyfinesto reputationalrisk andbusiness failure. Alongsidethese developments, actual and perceived noncompliance with ESGregulations and best practices have engendered activist shareholder protests andaction against theparent companiesof global mining groups.

FUNDING CRITERIA

Investors and lenders are increasingly focusedon ESG factorswhen makinginvestmentdecisions. Thismeans that, inmany cases,to access capitalminers nowneedto demonstrate commitment to ESGconcerns andhowtheir project meets(or willmeet) relevant ESG standards.

Investors concerned aboutESG canobtaininformationfrom anumberof sources in addition to disclosures made under the regulations and codes.Many larger investors will have in-house specialists inthis area,but there are also indices and ratings agencies (such as FTSE4Good, DJSI,Sustainalyticsand MSCI)that rank companies according to their actualor perceivedESG strengths. A number of institutional investorshave publicly committedto takingESG into accountwhen making investment decisions.

Alongside the increased investorfocusonESG,certain lenders arealso nowprescribing particular ESG principles a companymustmeet to receivefunding. This placesscrutiny onminers’

WHEELS OF CHANGE

management plansand how these will assistthe company inmeeting itskeyperformance indicators(and, indeed,the ESGrequirements set out by lenders).

Other bodies,including the World GoldCouncil, are lobbying forinsurance providers tobecome more involved in the ESG movement,in particularbyrequiringmining companiesto upholdESG principlestobe eligible for insurance policies.

However,in additionto informing the way in which investors deploytheir capital in the first place, ESG factors have alsoled to arise in shareholder activism, whereby existing investors use their shareholding to seekto influence therelevant company’s ESG performance.

In the oil and gas industry, groups such as Follow This have beenmaking themselves known atannual general meetings,often diverting attention fromother key strategic messages boards wishto communicate.We anticipate the mining industry will soon follow as a target.

Tostay competitiveinthe market, it will be important for miners to engage meaningfully withESG andto build (and,insomecases,publish)a clear and robust ESG strategy that speaks to both the mandatory and voluntary ESG standards and codes and also worksfor their strategic priorities.

A drive to meet ESG targets shouldin theoryhave a positive impact on the mining industry, help to assuage

TO STAY COMPETITIVE IN THE MARKET, IT WILL BE IMPORTANT FOR MINERS TO BUILD A CLEAR AND ROBUST ESG STRATEGY

investor concerns and promote continued investment. However, asevidenced by theongoing Exxonsecurity fraud case in the US, as ESG targets rise, so does accountability. While this case hinges onthe priceof carbonemissions, climate costs and the forecasting of future policy impacts, it acts as a reminder that companies needtobe both ambitious and realistic about what they can deliver.

CORPORATE GOVERNANCE POLICIES

Mining companiesshould consider the voluntary codes applicable in eachsector and jurisdictionin whichthey operate (or have entities incorporated) andprepare a group-wide strategyfor complyingwith the requirements. When considering which voluntarycodes to subscribeto,it isworthbearing inmind thatcertain voluntarycodes maybecome hard obligations in the future, and somay beworth considering now.

For example,the EITI principlesare beingimplementedintodomesticlawina numberof countries.Further, a miningfirm mayalready be complying with certainof the voluntary codes by way of compliance with applicable mandatory codes, in which caseitwould bepossibleto sign up to such codes without increasing the overall existing scope of the ESG strategy.

In addition, different investor groupsmay bemore focused on certain codes than on others companies may wishtodiscussprioritieswith key investors.

FUNDAMENTAL CHANGE

There is a fundamental change in theway our financial systemand oureconomy asa wholework. Withthe adoptionof theUNsustainabledevelopment goalsand the ParisClimate Agreement

and a globalmove towards stakeholder capitalism, onedimensional, short-term maximising of profit is no longer aviable optionfor companies. ESGstrategies are no longer a “nice to have”; theyare essentialtocompanies’ licence tooperate in the long term,especially postCovid-19.

The relationshipbetween theminingindustryandcommunities close totheir operations has always been unique. But Covid-19has shonea brighter light on the ESG valuesstakeholders atalllevels expectthe miningindustryto uphold, including how mining companies protect and ensure the safetyand health (aswellas thelivelihoods)of both theirworkforce and local communities.

Covid-19 has necessarily meantthat theemphasishas shifted towards the “S” of ESG,but thatdoesn’t mean theotherareas donotstill garner attention. Recent events in the industry have demonstrated that investors require ESG factors to be consideredat alllevels ofthe corporate decision-making processand willdemand accountabilityat asenior level where these expectations are not met.

Covid-19 has also been a catalyst fora notableshift in the way the mining sector operatesat theasset level,the mostobvious beingthemove towards increasedremote working.This hasthepotentialto bringwider socialbenefits in attracting and retaining a diverserange of talent, aswellas reducingthecarbon footprint of the industry. By continuingto drawon anddevelop theseefficiencies,andin playingaleading role inthe settingof health and safety-related standards for itsworkforce, themining industry is well placed to embrace and drive the ESG agenda for others to follow.

LATERAL THINKING

Lessons on ethics from Africa

• An inherent sense of community is central to a person’s moral conduct, writes

Evan Pickworth

As we contemplate messages from Ethics Month around the world, it is a timefor deepreflectionand introspection bystate and private sector actors in SA.

A rogue’s gallery of SA business people, politicians andparastatalmanagersrank highly on thelist of global crooks who puttheir interests above the needs of societies,economiesandthepoor and downtrodden. Their recent abysmalconduct is among the reasons there is a need to raiseawareness for a month aboutbasic standards of ethics and stewardship in the first place.

FromSteinhoff tothe Guptas and statecapture, all the way to Eskom and lights out,mostpeople arefedup with it all andcalling for radical change together with orange overallsfor thebigger fish who continue to cause the rot.

This is nothing new, however.AnarticleintheHarvard Business Review in 1993 laid bare the challenges of asking people inthe businessworld to place ethicsbefore profits. Granted, withprofessions suchas lawandscience, itis easier to drawthe line betweenthe needsofpeople and the push for profits.

Theearly 1990s,however, was whenbusiness ethics started gainingground asa new corecomponent within curricula inbusiness schools. Before that,balance sheets, earnings, sales and the bottom line ruled the roost.

Itwas actuallythesocial responsibility advocates of the 1970s who got the ball rolling towardsbusiness

ethics as a new managerial discipline. However, what quickly becameapparent was manybusiness ethicists found the preceptsof corporate socialresponsibility profoundly dissatisfying.

Harvardmakes thepoint that businessethicists have two basic problemswith the enlightened self-interest answer tothe questionof why managersshould be ethical. First,they disagree that ethicalbehaviour is always ina company’s best interest, however enlightened. Second, they object that even when “doing good” is in the company’sbest interest, acts motivated by such selfinterest really can’t be ethical.

The expectation from managers oftenleaves them bewildered and thereis no clear solution, nomatter how many new iterations of the KingCodeare thrownatthe C-suite.

Theproblemis thatitis within thegrey areaof what is good forthe company and shareholder (and can be convenientlyfitted withinatickbox complianceexercise) vs what istruly ethical behaviour thatcorrupt politicians andbusiness people have crept,operating with reckless and almost unchecked abandonfor way too long.

MANY BUSINESS ETHICISTS FOUND THE PRECEPTS OF CORPORATE SOCIAL RESPONSIBILITY PROFOUNDLY DISSATISFYING

Theworldhashadenough with companiesand individuals operating on the edges of theethicalspectrumtoselfish endsat thecost ofother important societal needs. Inher excellentrecent book Reimagining Capitalism, RebeccaHenderson highlights the needfor a longer-term focuson the environment, society and governance, whichleads to sustainable profits anyway. The double-digitGDP losses caused byclimate change alonein thenearfuture shouldbe enoughtorealise thatthe effectsonthe globe and notablyits agricultural supply chain will be too severe to contemplate.

Strong calls fora broader ethical foundationare being heard,including inAfrica. Itis time for change and for true leaderstostep upandset course in a new direction.

Asuperb articleby famous Ghanaian philoso-

MORAL COMPASS

pher Kwame Gyekye,in the Stanford Encyclopediaof Philosophy, highlights the concept of ethics from an African perspective.

Adeeperunderstandingof the approachto ethicsin Africa may also hold the key tohow companiescan overcometheir mentalblockwith why and how ethics needs to be applied more broadly.

Of course, the notion of ethics refersto a setof social rules,principles andnorms that guide orare intended to guidethe conductofpeople ina society,and asbeliefs about rightand wrongconductaswell asgoodorbad character. Africanhumanitarianism and communitarianism often do not feature stronglyin thisdiscussion, whichmostly veertowards Aristotle’svirtue ethicsand try tofit that roundblock into thesquarehole ofthemodern economy. However, these principles mayindeed offersomesolutions to theglobal debate about ethics, which tend to focus on individual duties and moralityin isolation.They mayalsosolvetheproblemof

WITH PROFESSIONS SUCH AS LAW AND SCIENCE, IT IS EASIER TO DRAW THE LINE BETWEEN THE NEEDS OF PEOPLE AND THE PUSH FOR PROFITS

business ethics highlighted by Harvard a business is itself a partof the community and itneeds to dowhat is rightfor thecommunityit servesto becalled asuccess. Approachedthis way,many businesseswouldneverneed tolosesleep overwhetherto act in their enlightened selfinterest or not.

The paper by Gyekye notesthat asubstantialnumberof sub-SaharanAfrican languagesdo nothavewords that canbe said tobe direct equivalentsof theword “ethics” or “morality”

Soa numberofinquiries weremade fromnative speakers of afew African languagesand howstatementsabout aperson’s ethical ormoral conductare expressedinthoselanguages, including two of the prominentlanguages inGhana, Akan (theauthor’s nativelanguage) and Ewe.

Whena speakerofthe Akan language wantsto say, “Hehasno morals” or “He is immoral” or “He is unethical” or “His conductisunethical”, hewould almostinvariably say, “He hasno character” (“Onni suban”).

Thestatement, “He has no morals” or “Heis unethical” is expressed by a speaker of the Ewelanguage as “Nonomo melesi o” (which means “He has no character”).

In Yoruba language and thought,the word “iwa” meansboth characterand morality(it alsomeans “being” or “nature”).

In Igbo language of Eastern Nigeria, the word “ agwa ” , meaning character,is usedin such a statement as “He has no morals” (“Onwe ghi ezi agwa”).

In Shona, the language spokenby asubstantial majorityofthepeopleofZimbabwe,the word “tsika”

STRONG CALLS

FOR A BROADER ETHICAL FOUNDATION ARE BEING HEARD, INCLUDING IN AFRICA

means “ethics” or “morality”

But whenthey want tosay of apersonthat “He has no morals” or “He is unethical”, they wouldoften usethe word “hunhu”, whichdirectly means “character”. Thus, “Haana hunhu” means “He has no character”, “He is not moral”, “He is unethical” In South Sotho,a language spokenwidelyinLesothoand southern Zimbabwe (Matebeleland), there areno words that are thedirect equivalents of “ethics” or “morality”. References to the moral or ethical life or behaviour are made usingwords thatmean behaviouror character.Thus, moral statements such as “He has no morals” or “His action is unethical” will be expressed by words such as “ maemo”— which means

characteror behaviour:thus, “Maemo a mabe” means “He has abad character”, “His behaviour(action) isunethical.” When a person behaves (or acts)in waysthat are morally right,they wouldsay “He has agood character”, using the words “lokileng” or “boitswaro”,both ofwhich mean good characteror good behaviour.

These concepts are often misunderstood,but Iagree withGyekye thatrecognition in theAfrican ethicaltraditionsof allhumanbeings as brothersby reasonof our commonhumanity isindeed alofty moralideal thatmust be cherished and made a vital orrobust featureof global ethics in our contemporary world.

In his stirringwords: “It is abulwark againstdeveloping bigoted attitudes toward peoples ofdifferent culturesor skin colourswho are,also, membersof theuniversal human family called race.”

● Evan Pickworth, an admitted attorney, is editor of Business Day’s Business Law & Tax.

A BUSINESS IS ITSELF A PART OF THE COMMUNITY AND IT NEEDS TO DO WHAT IS RIGHT FOR THE COMMUNITY IT SERVES TO BE CALLED A SUCCESS

BUSINESS LAW & TAX

Beating trademark squatters

• Three ways to protect against brand opportunists

Chiraag Maharaj Adams & Adams

Facing mounting pressure from major retailers and the public,the Washington RedskinsNFL franchisefinally announced it will be retiring its controversialRedskins name and logo. The team’s name has been widelycontested, witha decades-long campaignfrom Native Americangroups, describing it as a “dictionarydefined racialslur”. Whilethe possibility ofa teamname changehas beencirculating for years, itappears the franchise has notyet taken stepsto secureownership rightsto usesome ofthe morelikely, orpopular, replacement names that have been suggested. According to the Law.com Daily Business Review, someonewho iskeento “steal aplay” on oneof the NFL’s oldest franchise’s nam-

ing predicament is an American entrepreneur,Philip McCaulay. Quickto hisfeet, he has been registering a host ofpotential Washingtonfranchisenames forappareland merchandise,as wellas websitesthat featureAmericanfootball content,with trademarkssuch as “Washington Americans”, “Washington Bravehearts”, “Washington Federals” and “Washington Gladiators” In an attempt to derive as much aspossible fromthis sneakyyet “lucrative” opportunity, McCaulay hasfiled additional intent-to-use applicationsfor thesepossible trademarks.

Law.com Daily Business Reviewindicates thatUS trademark law allowsfor an applicationtobe filedonan intent-to-usebasis beforethe markis actuallyusedcommercially to secure a priority date. Inother words,the applicationwill notproceed to registrationuntil useof the markin commercebegins and can be proven. Nonetheless, McCauley’s actionshave all thehallmarks of “trademark squatting” Simply put, trademark squatting(or hi-jacking)is where one party intentionally filesa trademarkapplication foranother party’s registered trademarkin acountry

where thesecond partydoes not currently holda trademark registration.Or inthe Washington Redskins case, the trademark squatter registers a mark with the intention of selling itto the brand holderor another willing third party,often foran outrageous price.

A more elementary version ofthis sort of “bad faith” commercial squattingwould beacase ofregisteringa websitedomain beforea brandholderis abletosecure it or cybersquatting.

As confirmed by the Law.comwriters, theUS followsa first-to-userather than afirst-to-file system, “ so a common lawuser who proves it haspriority in the markwould likelybesuccessful in challenging a registrationon thatbasis”. In attempting to showhe is using the “opportunistic” trademarks incommerce, McCaulay is producing brandedT-shirts, capsand other merchandise.

Butif oneof hischoices hits the mark,then a challenge by theNFL franchise would likely turn on whether he genuinelyintended to,and didin fact,use thetrademarks commercially.

The main motivation

LABOUR PAINS

behind trademark squatting is simply tomake money, even moreso injurisdictions where instituting invalidation proceedings islengthy and expensive. The squatter knowsif thebrand holderis not prepared to wait and then institute cancellationproceedingsbased onnonuse, thentheeasiest thingtodois to pay the squatter off.

What can brand holders do to fendoff the unpleasant menace? The brandowner shouldquickly searchand registerall possibletrademarks. This wouldinclude all trademarksto beused,

THE MAIN MOTIVATION BEHIND TRADEMARK SQUATTING IS SIMPLY TO MAKE MONEY

including names, labels, logos,slogans, acronymsand devices.Consider filingthe trademarks in all classes that are relevantor thatmay be relevantas partof agrowth strategy,and payspecific attention to subclasses

Companies should considerregisteringtheirmarkin any countries in which:

● Their goods or services are sold;

● Products or partsfor their products are manufactured;

● Research &development facilities are located;

● Their products pass through during shipping;

● Theymight expandtheir business in the future; and ● Counterfeitingis knownto be a problem.

Brand ownersshould ensurethat theyhaveproperly drafted contracts in place with their suppliersand distributors, particularlythose based in other jurisdictions. Protecting one’s intellectual property (IP) is costly, but it issurely nothingcompared with the cost of trying to claimit froma “resourceful” squatter. It is important to engage an IPlaw professional who would beable to help identify and quantify your IP assets, then devise a plan to protect andcommercialise those resources.

Inthe meantime,it willbe interestingto seewhether McCaulay’s “Hail Mary” gamble paysoff orwhether he’llbe caughtoffside witha load ofunusable shirtsand coffee mugs.

What gets employers into trouble with retrenchments

If you want to know what typically gets employers into trouble in retrenchment disputes, look no further than inadequate consultation and unfair selection criteria.

To begin with, employers have an obligation, in respect of section 189(2) of the Labour Relations Act, to conclude “a meaningful joint consensus-seeking process and attempt to reach consensus ” on essentially three things.

First, ways of avoiding the proposed retrenchments; second, if unavoidable, ways of delaying the timing of the proposed retrenchments; and third, ways of mitigating the adverse effects of any confirmed retrenchments, including how much severance pay is to be paid.

As has been confirmed in case law over time, including Van Vuuren v Mondelez South Africa (Pty) Ltd [2019] 3 BLLR (LC), a mechanical checklist approach is inappropriate, and will result in a presumption of unfairness.

As confirmed by the labour appeal court in Wanda v Toyota SA Marketing [2003] 3 BLLR (LAC), there is

TONY HEALY

no legal requirement that consensus is reached, though there must be clear evidence of the fact the employer nonetheless sincerely endeavoured to facilitate a joint consensus-seeking process, even though that process was ultimately unsuccessful. The emphasis is on there being evidence that the joint consensusseeking process followed by the employer, was meaningful.

In Association of Mineworkers and Construction Union (Amcu) and Others v Shanduka Coal (Pty) Ltd, [2013] JOL 29787 (LC), the labour court confirmed that “it is well established that the consultation process envisaged under section 189 is intended to be a joint goal orientated problem solving process. It is one in which the parties ought to try to

reach a common understanding on the need for and extent of any retrenchments. In examining the need for retrenchment, the parties must, as a matter of logic, and in terms of sections 189(2)(a)(i) and (ii), explore if there are ways of addressing the operational need without shedding jobs, or at least by minimising job losses. If job losses cannot reasonably be avoided there is a need to look at what can be done to ameliorate the position of those who will be affected and how they will be selected for retrenchment.

“Ideally, the logical progression of discussions would follow the sequence of issues set out in section 189(2). However, discussion on these issues often proceed in tandem, so that selection criteria might be discussed even though parties have not yet agreed on the need or extent of any retrenchments. Nothing prevents this happening but to avoid misunderstandings parties would be well advised at each round of consultations to review what has been agreed, what is still unresolved but requiring further consultation, and

what is unresolved but where neither party has anything new to suggest which might break the impasse on an issue.”

However, employers who lose retrenchment cases most often do so because it has been determined the criteria adopted to select the retrenched employees were unfair. Section 189(2)(b) of the Labour Relations Act states that “the employer and the consulting parties must in the consultation envisaged by subsections (1) and (3) engage in a meaningful joint consensus-seeking process and attempt to reach consensus on the method for selecting the employees to be dismissed”

Section 189(7) of the Labour Relations Act continues on this theme in adding that “the employer select the employees to be dismissed (retrenched) according to criteria (a) that have been agreed to by the consulting parties; or (b) if no criteria have been agreed, criteria that are fair and objective”

The significance of this section of the act was emphasised in Singh v Mondi Paper [2000] 4 BLLR (LC)

“the selection process must rank as the most fundamental issue for scrutiny in order to determine whether the dismissal was fair or not. An employer can get everything else right but if the selection process during which the employees who were ultimately dismissed is found to be unfair and subjective, the entire process is flawed thereby.”

The criteria to be adopted in the selection of potential retrenchees is something which must be consulted on; the employer may not simply unilaterally impose cast-instone selection criteria. If consensus cannot be reached on the selection criteria in the consultation process, the employer is then entitled to unilaterally identify selection criteria, as long as they are fair and objective. And that’s the rub all too often, selection

ALL TOO OFTEN, SELECTION CRITERIA ADOPTED BY THE EMPLOYER

ARE HELD NOT TO HAVE BEEN FAIR

criteria adopted by the employer are held not to have been fair and objective. It must be remembered that retrenchment is a socalled no-fault dismissal, and as noted by the labour appeal court in Porter Motor Group v Karachi [2002] 4 BLLR (LAC), the “code of good practice on dismissal in Schedule 8 to the act lists length of service, skills and qualifications as generally accepted considerations” That said, evolving case law does recognise that certain other criteria may be considered fair and objective. For example, in Numsa & others v Columbus Steel (Pty) Ltd [LC: case number JS529/14] the court confirmed that an “employee’s disciplinary record and attendance records, which by any account are objective benchmarks” together with “conduct, experience, skill, adaptability, attitude, potential, and the like, are on the face of it, acceptable selection criteria”

● Tony Healy is MD at Tony Healy & Associates Labour Law Consultants, www.tonyhealy.co.za.

BUSINESS LAW & TAX

Update on the state of Ters

• Slow rate of relief payments has created stress in the workplace

Jonathan Goldberg & Natalie Singer Global Business Solutions

The Temporary Employer/ Employee Relief Scheme (Ters) was negotiated and instituted atthe endof March when SA entered the period ofhard lockdown.Although hailed with a welcome sigh of reliefby employersand employees, in thepast six monthsthis schemehashad anumber ofchallenges. Some of these were:

● Criticism fromemployers and employees over continuallydelayed payments,valid applicationsthat weredenied and bad administration;

● Technical challengeswith the Ters portal; and

● Allegationsofcorruptionin the form of applications being madeon behalfof fakeID numbers and dead people. At the time of writing this article, the Ters claim period hadbeen extendeduntil September15 (withthe wordingof thedirection stating itwould continueas long as the Disaster Management Act is in effect). But pay-

CORONAVIRUS CHAIN REACTION

ments had beensuspended because ofrisks identified in the system andthe need for the UnemploymentInsuranceFund(UIF)toimplement mitigation interventions.

WHY TERS NEEDS TO WORK

Every day, thereare more and more people who are losing theirjobs as aresult of Covid-19 and theimpact on theeconomy. TheQuarterly LabourForce Survey(QLFS) forthe firstquarter of2020 statesthattheunemployment rateissittingat30.1%.AsStats SA was unable to conduct the QLFSvia face-to-faceinterviews,as itnormallydoes, owingto Covid-19restrictions,the bodyhas hadto conduct thesurvey viatelephonic interviews.

This has delayed the releaseof thesecond-quarter QLFSfigures. However,as GDPdropped by16% betweenthe firstandsecond quarters of2020 (which is even morethan the same period in 2009,the height of the global financialcrisis), the rateof unemploymentis

doubtless set to increase.

There can be no doubt that Ters,currently valuedat morethan R40bn,has providedrelief toemployees andtheir employerswho have beenable toput off retrenchments while restartingtheir businessesand resuming normalcy.

However, the slow rate of paymenthas createdpressure and stressfor both employees andemployers andunfortunately ledto

WHEN PEOPLE’S LIVELIHOODS ARE AFFECTED THROUGH NO FAULT OF THEIR OWN, THEY WILL TAKE MATTERS INTO THEIR OWN HANDS

escalatingtensions atthe workplace.

When people’s livelihoods are affectedthrough nofault oftheir own,they willtake matters into theirown hands, ascanbe seenwiththecase

ofMacsteel ServicesCentre (Pty)LtdSA vNumsaobo Members (LC) (June 3 2020) J483/20. Theemployer approachedthe labourcourt to preventa strikeby Numsa based on changesto salaries. Theemployer closedits operationson March27 2020 because it was not an essential service.

The employees received fullpayduring thefirstphase oflockdown. Theno-work, no-payprinciple wasnot applied.In May,employees wereasked totake a20% reductionin salary(which would be assessed after three months). These measures were introduced toavoid job losses. On May1 2020, the employerresumed itsoperations but only at 50%.

Numsa rejectedthe proposal on behalfof its membersand demandedfull pay.Theemployerproceeded toimplement thereduced pay. Numsareferred adispute relatingto theunlawful unilateral change to the terms andconditions ofitsmembers’ employment anda notice to strikewas sent on

CONSUMER BILLS

May 262020. OnMay 28, Numsaand itsmembers went on strike, but the strike was notin compliancewith section64 oftheLabour Relations Act.

The employer approached the labour courtto declare the strikeunlawful. Thecourt found there was no obligation on theemployer topay salariesduring thelockdown when they werenot permitted to operate or work. However,after that,employees whorendered serviceswere entitled to their salaries.

While the court appreciated the circumstances broughton bytheCovid-19 pandemic,the reductionto 80% was problematic.

Numsa requiredan undertaking from the employer regarding salary shortfalls.The employerwas not able to give thisand so the court held that this leaves them wanting for compliance with section 64 (4).

The judge commented that the strike could have beenavoided throughdiscussionat conciliationand theapplication couldhave

beenavoided throughconstructive engagement betweenthe parties.The application wasdismissed. There was no costs order

The labour court judgmentconfirms thecorrect legal approach is that, where it islegally impossiblefor employees toperform services,the tenderingof servicesby theseemployees is irrelevant andthe employer isentitled toimplement a no-work, no-pay principle, based on the legal impossibility of bothparties performing.

WehopeTers willbeable to honourits obligationsto existingclaimants andcontinue to pay out meaningful reliefto thoseemployees whoseearnings continueto beaffected bythecoronavirus pandemic, through temporary lay-off,short-time or reduced salaries.

Business recoverywill requireboth employersand employees topull togetherto focuson re-buildingand seeking sustainable solutions into the future.

Human rights ignored in Caster’s court challenge

We have all just suffered a defeat at the hands of the Swiss supreme court in Caster Semenya’s challenge of the World Athletics regulations which oblige her and other women athletes to suffer drug intervention or surgery which would make it impossible for them to continue running successfully in their chosen events.

Semenya has suffered under a system which is flawed from start to finish. It needs a total overhaul.

World Athletics is situated in the privileged enclave of Monaco with expensive offices paid for by the many successful world athletes, each with their own genetic advantages that the crowds pay to see in action. This means Swiss law is not applicable to the merits of the dispute and the case has no connection to Switzerland other than that the Court of Arbitration for Sport (CAS) is

PATRICK BRACHER

situated in Lausanne, Switzerland, an elite and expensive jurisdiction.

The parties to CAS proceeding can authorise the adjudication panel to decide the matter according to what is equitable and good. World Athletics refused to submit their regulations to an equitable process. In its decision, the CAS ignored submissions from the UN High Commissioner for Human Rights and it ignored affidavits from human rights lawyers in SA, India, England, UK, Canada and the US condemning the regulations. The panel said it was not able to undertake an

assessment of the likely impact of the regulations on wider society because “multifaceted sociological issues are not amenable to judicial resolution by the panel”. The CAS decided to look at legal rules and not international human rights.

It recognised that the inclusion of the 1,500m and one-mile events in the regulations was based at least in part on speculation and invited World Athletics to reconsider its inclusion of these events. World Athletics refused to do so.

The European Court of Human Rights has suggested that the CAS is a specialised body which is capable of “prompt and cost efficient resolution of sports disputes” If being required to find millions of rands to pursue rights in Switzerland is said to be cost efficient, it reflects the privileged nature of the bodies concerned and a complete disdain for what

access to justice means.

What did the Swiss supreme court do? It found it could only review the award from the perspective of a limited set of grounds whether the CAS decision was based on “essential and widely accepted values prevailing in Switzerland”

It is impossible for a litigant to find out in advance what the judges believe those values are.

The court admitted it is an extremely rare occurrence for an award to be set aside on this ground. Nor, according to the court, are sports associations directly subjected to the European Commission of Human Rights. Switzerland has a constitution but, unlike the SA’s bill of rights, it only applies to relationships between the state and individuals. The court held that the regulations do not make participation in the specified events impossible

because athletes can either agree to submit themselves to untested drugs or surgery (and stop winning) or go and run in some other events they have never trained for.

Consider what the five judges found: while it is true that such a refusal will result in the impossibility for some women athletes to take part in their best events, it cannot be accepted this consequence could “in and of itself, amount to a violation of the individual’s human dignity” because the rights of other women athletes to win races is a more important value.

Terminating a career by forcing drugs or surgery on someone to let other women

MOVE YOUR BASE TO A COUNTRY LIKE SA WHICH HAS A BILL OF RIGHTS THAT PROTECTS INDIVIDUALS

runners win races is apparently not in breach of public policy in Switzerland. Extraordinarily, they justified their decision with reference to previous findings in doping cases when it is World Athletics who are doing the doping.

I have a challenge for the CAS and for World Athletics. Move your base to a country like SA or Canada which has a bill of rights that protects individuals and is firmly grounded in international human rights values. Then you can immerse yourself in broader social issues and surround yourself in international legal norms and champion properly-tested fairness in sport.

My challenge to Switzerland is: download our bill of rights free of charge and adopt it as your own.

● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BUSINESS LAW & TAX

Cloud: getting some privacy

• Before migrating it is imperative that organisations consider a data protection impact assessment

Isaivan Naidoo, Rakhee Dullabh & Lucinda Botes ENSafrica

The cloudis now the preferredlocationformanybusinessestohosttheir data.

Thecloud comeswith many benefits,such as increased security, reduced infrastructure investments and operationalefficiency. Cloud productsare also attractive becauseof their flexibility, scalabilityand ease of implementation.

However,as enticingas these benefits sound, it is imperative thatorganisations consider theprivacy implications beforemigrating. Conducting adata protection impact assessment(DPIA) is one methodthat couldhelp minimise the risks.

Data privacy matters because whendata containing personalinformation is transferred to the cloud:

● You lose control over that data;

● The cloudprovider becomes anoperator as defined in theProtection of Personal InformationAct, 2013; and

● It could amountto a transborder transferof personal information if the cloud servers are located outside SA.

Aresponsible partymust ensure anyprocessing is compliant withProtection of Personal InformationAct, appropriate operator agreements areconcluded that impose obligationson the cloud providerto protect data,andthatanytransborder transfer ofpersonal information is done lawfully. Therefore, itis criticalto understand andassess the privacyrisk ofmovinginto cloud from the outset, especiallysinceyouasaresponsible party willultimately be liable if anything goes wrong.

A great way to understand and essentiallyminimise pri-

UP IN THE AIR

vacy risks is by conducting a DPIA.Theact doesnotmandate thatDPIAs beconducted on a project-specific basis, unlikethe EUGeneralData Protection Regulation (GDPR), which specifies that an assessment of the impact of any envisaged processing activity be conducted in instances where “a typeof processing activity, in particular, using new technologies and taking into account the nature, scope, context and

purposes of the processing, is likely to result in a high risk to therights andfreedomsof natural persons”

It is ourview that conducting a DPIAis best practice and should apply in the SA context, especially in instances where migrating or using the cloud is considered. Drawing fromthe guidance provided bythe UK’s Information Commissioner’s Office, a DPIAis a process designed to help you system-

COMPETITIVE EDGE

/123RF VIPERAGP

atically analyse, identify and minimise the data protection risksofa project.ADPIA entails identifying your processingactivitiesandthepurposes of processing, then assessing the necessity and proportionality of the processing in relation to the purpose, including assessing the risks tothe rightsof thedata subjects.

A DPIA isnot intended to eliminateallriskbutassistsin minimising the risks posed

by your processing activities and helps you determine whetheror notthe riskis acceptable.

Once the riskshave been identified, a DPIA also helps you determine how those riskscan bemitigated.For example, after conducting a DPIA, you mayfind you require additionalundertakings inyour agreementwith your cloud provider.

Over andabove this,a DPIA helps todemonstrate to any interested party the information regulator or affected data subject or in the event ofa databreach or complaint being raised that as aresponsible partyyou have taken all reasonable stepsto assessandmitigate any data privacy risks. Data privacyrisks are only a subsetof risks that need to be considered; organisations shouldalso consider the financial, operational and technological risks when migrating tothe cloud. Tothisend, wehavedevelopeda cloudrisk matrixto help organisations understand the risk associated with a cloud providerand assist businesses to make informed decisions about the cloud.

Study weighs up effects of forestry sector mergers

The Competition Commission has conducted its first impact study by virtue of the new section 21A of the Competition Act 89 of 1998, which expands the commission’s ability to study the impact of any decision of the South African competition authorities.

The enactment of section 21A aims to address the challenges faced by small and medium-sized enterprises (SMEs) and firms owned by historically disadvantaged persons (HDP firms) trying to enter and participate in the economy.

The commission has used its new powers to assess the cumulative effect of merger control decisions and complaint investigations in the forestry sector over the years. It has highlighted the trend of vertical integration (where larger private commercial operations are participating in different levels of the supply chain, especially forestry plantations and processing mills) and is concerned about the impact this has on the security of supply of logs to nonvertically integrated downstream players and smaller vertically integrated players.

COMPETITIVE EDGE

The commission is particularly concerned it has so far failed adequately to address these issues as well as the sustainable participation of SMEs and HDP firm entrants in the forestry sector. The commission is concerned vertical integration and long-term contracting in the forestry sector has resulted in the foreclosure of SMEs and HDP firms that are not able to compete with the larger incumbents. SMEs and HDP firms, especially new entrants in the market, face overwhelming odds in building a sustainable business. Challenges begin with securing access to log supplies. This results in these firms experiencing difficulties in planning their production, committing to their customers and being successful in tenders.

In its preliminary findings, the commission noted that

competition law has a role to play in preserving and protecting access to log supply for SMEs and HDP firms. The state also has a role to play through the implementation of industrial policy which, for example, directs the mandates of state-owned entities (SOEs) and development finance institutions (such as the IDC) to develop and support stable, long-term supply agreements with SMEs and HDP firms and invest in the upgrading of milling operations.

Private-owned entities should also be incentivised to promote long-term procurement and/or supply contracts with SMEs and HDP firms. In light of this, the commission set out preliminary recommendations to address its concerns, including the following:

● Mandatory notification of all forestry mergers involving an acquisition of plantation assets by vertically integrated firms. The commission explained this will continue until there is evidence of improved conditions for the sustainable participation of SMEs and HDP firms in the forestry sector. In conducting merger assessments, the competition authorities must be cognisant of the need to

preserve SME and HDP firms’ access to log supply to prevent the continued erosion of opportunities and the ability for these firms to participate competitively in the forestry sector.

● There should be mechanisms in place which facilitate co-operation arrangements between SMEs and HDP firms, such as collective purchasing or joint ventures, subject to compliance with the Competition Act. The commission identified policy tools such as industry-level agreements and revised SOE mandates as means of ensuring greater security of input supply and greater stability in sales prospects for SMEs and HDP firms.

● The state could endeavour to determine potential public construction, timber structures and furniture opportunities to support the conclusion of longer-term contracts with downstream SMEs or HDP players.

Similarly, in the private sector, commercial firms (such as mining or building supply companies) have been identified as important customers of forestry products and should be incentivised to contract with the SMEs and HDP firms.

● State development financial institutions should be required to consider smaller financing packages for the upgrading of milling operations of SMEs and HDP forestry firms, as well as the financing of the acquisition of plantation assets. The reliance on development finance emanates from the paucity of funding available to SMEs and HDP firms from commercial lenders.

● The state should consider dividing reclaimed state plantations and allocating portions to a few SMEs and HDP firms for management rather than allocating large portions to a single firm. Furthermore, plans should also be put in place to support and incentivise the new owners of forestry reclaimed land to engage in forestry farming.

The recommendations of the commission appear to focus on the objective of achieving longer-term supply and demand stability for SMEs and HDP firms. The commission is relying on competition and industrial policy as well as effective enforcement and cooperation between the relevant authorities to enhance competition and reduce concentration in the forestry sector. The commission’s nonconfidential version of the impact assessment report dated July 31 2020 can be found on its website. Public commentary and stakeholder submissions on the preliminary findings and recommendations of the commission were due on September 16 2020. It remains to be seen how the impact assessment will be received by the relevant stakeholders and whether the recommendations of the commission will be enough to ensure SMEs and HDP firms are able sustainably to enter, expand and compete in the forestry sector.

THERE SHOULD BE MECHANISMS IN PLACE WHICH FACILITATE CO-OPERATION ARRANGEMENTS

BETWEEN SMES AND HDP FIRMS

● Mark Garden is a director, Tayla Theron a senior associate and Sphiwe Dlamini a candidate attorney at ENSafrica.