1. Thought Leadership: Client Protection – Informed Stakeholders Lead to
Informed Growth Decisions
Written by: Johan Muller – Team Leader – Energy and Power System - South Africa
Introduction
South Africa is currently undergoing various changes in the policy landscape.
Broadly speaking, these changes cut across nearly all spheres of commercial
activity, and will ultimately affect an extremely wide range of stakeholders. Policy
changes and the economic and social effects thereof can be inherently positive or
negative, depending on the ideological glasses used to gauge the impact of the
policies. This article briefly investigates the link between the underlying motives
(positive and negative) behind policy change, and what stakeholders can do to
protect their corporate interests, whether in an individual capacity or on a company
basis.
The two prima facie opposing South African examples that will be discussed include
the Protection of Personal Information Bill and the tabled Carbon Tax Paper.
Protection of Personal Information Bill
The Protection of Personal Information Bill (PPIB) aims to promote the protection of
personal information processed by public and private bodies, as well as introducing
principles to establish minimum requirements for information processing.
Furthermore, the PPIB will guide the establishment of an Information Protection
Regulator coupled with installing codes of conduct. It will also guide the
establishment of rights of persons regarding unsolicited electronic communications
and automated decision making and so forth.
The reasons for the existence of the PPIB are noble and justifiable. The general
South African public has long been a victim of questionable business practices,
linked to the incorrect collection and storage of personal information by corporates.
This has led to cases of identity theft, and the receiving of unsolicited marketing
materials. Also the PPIB is an attempt to bring South Africa’s privacy laws in line with
international standards, such as those found in the European Union countries.
With the rationale behind the PPIB, the next question arises, namely: how should
companies go about the implementation of the PPIB and how implementation will
affect stakeholders - also from a cost perspective?
With the PPIB still being in Bill phase (but set for promulgation soon), companies are
afforded the opportunity to gain a complete understanding of the potential effects the
PPIB will have on them. There will not be a single-solution answer, since companies
are completely diverse in nature when it comes to operations. Companies have the
chance of obtaining sound advice from independent advisors (consultants, audit
houses, law firms) to ensure that they hit the ground running when the PPIB

2. becomes operational. This kind of strategic foresight is invaluable, and will almost
surely benefit first-movers.
Factors that will aid in a smooth transition include:
Initial high level analyses: Depending on the size and resource capability,
and availability of the company, a high level internal analysis can be launched
to determine the effects of the PPIB. Based on a reading of the PPIB, Frost &
Sullivan predicts that very few of the companies in South Africa will be
unaffected by the PPIB.
External advice: Once an internal analysis has been done (or not done),
companies will need to obtain expert external advice. The detail of advice
sought will depend on the complexity of the company. A small family business
distributing equipment and merely maintaining a database of client contact
details will be a relatively “quick fix” compared to a large entity, such as Old
Mutual, ABSA, and Toyota, or companies making use of cloud-computing for
example.
Expert advice will include a full business analysis of all the potential affected
areas, with subsequent strategies and management initiatives, frameworks
and strategies installed to activate an efficient transition.
Wording of the legislation: Clear and robust legal documentation / policy,
which leads to clear and robust implementation strategies
Availability of advisors: The availability of informed and experienced
advisors, who not only understand the effects of the PPIB, but are also able
to analyse the effect the PPIB will have on the operations of the company.
All things being equal, Frost & Sullivan does not foresee companies struggling too
much with the implementation challenges accompanying the PPIB. The challenges
that exist can all be addressed by the company and a great deal of issues will be
solved by pro-active companies enforcing a pro-active office culture where
behavioural changes are embraced. Effectively, the ball is in the court of industry.
Carbon Tax
In stark contrast with the PPIB above, is the proposed Carbon Tax concept tabled in
2010 in South Africa by the Department of Treasury. The main purpose of this tax is
the eventual reduction of harmful greenhouse gas emissions, although nearly two-
thirds of emissions will be tax-exempt until 2020 to lessen the impact on industry. In
its 2012/13 budget, the Department of Treasury proposed a 60% tax-free threshold
on annual emissions for all sectors, including electricity, petroleum, iron, steel and
aluminium. Furthermore, all entities except for electricity (Eskom) would be able to
claim additional relief of at least 10%.
The above is the result of various discussions and input from industry, after the initial
carbon tax document was tabled in 2010, which led to major concerns being voiced
by industry as to the reach and effects of the tax. Several of the industries stated that

3. they would either pass the full brunt of the levy onto the consumer, or move their
operations to countries where no carbon tax exists.
The reasons behind the existence of the carbon tax are questionable. On the one
hand, the reasons are green-friendly and completely justifiable. South Africa is a
major emitter of CO2 gasses stemming from the usage of coal to fire power plants. In
fact, South Africa is by far the leading emitter of greenhouse gasses on the
continent, and the carbon tax could be seen as a pioneering move of example-
setting in the developing world.
On the other hand, various comments have been made by industry as to the
motivation behind the carbon tax. Some say that the carbon tax was merely tabled to
place South Africa in a favourable light at the recent COP17 talks. Competitive
issues were raised, asking whether the South African industry will survive a carbon
tax. This is based on base factors as to why corporates choose South Africa as an
investment destination, such as lower operating costs.
Furthermore, South Africa is all but alone from a comparative developing nation
perspective in the carbon tax landscape. The majority of other countries with some
form of a carbon tax are developed countries such as European countries. The
South African energy mix, however, does not currently afford industry to use
alternatives to coal fired energy, with renewable energy being in the starting-blocks
phase.
Factors that will aid in a smooth transition include:
Understanding the tax: Industry gaining insight into the reach and scope of
the eventual final Bill, once it is tabled. Currently, the objectives are more
clear than two years ago, but still in a process of being finalised. Thus, the
industry is placed in a positive position where they can influence the
outcomes of the final legislation. This also affords Industry the necessary time
to get its house in order.
Getting Industry on-board: In order for Industry to buy into the idea of the
carbon tax, the commercial side of the tax needs to make sense to Industry.
This will be the result of various informed stakeholder input sessions, as well
as clear “earmarking” of the revenues from the tax.
Existence of alternatives: In order to adhere to principles of fairness,
industry should be taxed in order to drive a changed behaviour. If no
alternative exists, the tax merely becomes a stick beating a revenue drum.
Implementation strategies: Once the wording and objectives of the tax
become more final, industry can continue to increase the activities of making
sure their operations comply with the requirements of the tax. This will include
making use of internal and external advisors and consultants. Several of the
larger companies potentially being affected by the tax, have already begun to

4. make strategic provisions (financial and operational) in preparation for the
pending tax.
Frost & Sullivan predicts fewer challenges than originally anticipated in 2010/2011.
This is due to the objectives of the tax becoming more refined, coupled with Industry
concerns filtering through to the legislator. This tax could potentially have massive
implications on Industry from a competitive perspective and it, therefore, becomes
imperative for Industry to stay abreast of new developments. South Africa has the
benefit of learning from countries such as Australia, which is also coal intensive and
recently (July 2012) had a carbon tax implemented. The implementation of carbon
tax in Australia was considered a political rag-doll, being pulled back-and-forth.
South Africa should indeed learn from the justifications used, such as “the cost of not
acting”. From a macro perspective, the question lies in where the money will go: to
the South African government or tax payers, or to overseas jurisdictions in the form
of penalty payments as levied by the European Union.
Independent Informed Advisors
One of the key take-aways from both the PPIB and the Carbon Tax documents is the
importance of the role of informed advisors. Advisors could be found in various forms
(with different objectives): non-professional or semi-professional advisors, such as
interested members of the public, academia and the media, and professional
advisors. For example: consultants, law firms, auditing houses and engineering
firms. The role of the advisor is crucial: effectively being responsible for those areas
where the company does not have capacity, insight or competency to identify or
address challenges.
The general public, by way of interested individuals, academia and the media, will
provide the first layer of information which the company can act on. The professional
advisors should be able to add an additional layer of knowledge, by evaluating the
current status quo. If the policy is finalised, then the advisors can provide
implementation strategies. However, if the policy is still in draft phase, then the
advisors can recommend amendments or alternatives, using the company as a
conduit to effect changes in the policy – in the best interests of both the company
and the country. Raising the overall level of information and ethics should, in theory,
raise the level of responsibility towards accountable and responsible outcomes.
Conclusion and Recommendation
Policy is supposed to be driven by economic and social objectives in the interest of
the country. Too often, however, policy is fuelled by short-term political and
commercial objectives where voting power and financial returns are the main
motivators.
Generally speaking, with the level of dissemination of information in South Africa
currently increasing (due in part to the rise of internet users having access to media

5. and more importantly, the rise of education levels), the result is that the average
knowledge base is growing wider and deeper. South Africa is in need of informed
advisors, pushing-back on policy that is not in line with positive long term growth
strategies. The other side of the coin is that informed advisors will drive positive
policy with enthusiasm, rather than be apathetic about it. Granted, both the carbon
tax and the PPIB are more than likely driven by International influences, with the
European Union throwing around its weight to enforce international compliance with
their own policies, by levying penalties. However, it is still up to the local players to
determine, to a very large extent, the detailed content of the policy going forward.
Companies should be aware of all policy changes affecting not only them, but also
those in the broader commercial playing field they are active in. And subsequently,
when policies are being developed, that stand to affect their company, it is crucial to
obtain the guidance and insight of trusted advisors to ensure that market share and
growth targets are maintained in the long run. Playing the “wait and see” game could
result in massive penalties, with (for example) indications that the same penalty
system as found in the South African Competition Commission could be introduced
in the case of non-compliance with the PPIB.
Contact:
Samantha James
Corporate Communications – Africa
P: +27 21 680 3574
F: +27 21 680 3296
E: samantha.james@frost.com
http://www.frost.com