BBBEE model is on the rocks

2011-11-19 09:50

Ten years ago, a large group of emergent black business people and intellectuals led by Cyril ­Ramaphosa crammed into the ­African eatery Tsa-Afrika in Randburg to launch the Broad-Based Black Economic Empowerment (BBBEE) Report, the mother ­document of the ­Black Economic Empowerment (BEE) codes and legislation.

After months of discussions, the mood was festive, idealism was high and a sense of expectation was in the air.

Ten years later, some of them gathered in Johannesburg – ­approximately R600?billion in ­empowerment deals later – some heavily indebted capitalists without capital, exhausted from corporate and political battles, their best-laid plans lay in ruins. The mood was tense, filled with whispers of “we need to talk about an economic Codesa”.

The current model of BBBEE is on the rocks. Its pillars – black ­corporate ownership, preferential procurement, employment equity, enterprise development, community and social investment – are crumbling under a myriad challenges – mainly the inability of the economy to mobilise growth ­momentum.

Empowerment deal flow has ­become a mere trickle. Employment equity targets are not met, and the numbers of black people in senior and top management fail to rise. Enterprise development ­efforts are floundering.

State procurement has become a discredited charade of cartel building drenched in political ­patronage.

Should South Africa dump ­BBBEE or pump up the intensity of our efforts to do away with institutionalised racial exclusion using the current and legislated model?

Statistics paint a sobering picture of the post-liberation reality. They show class, caste and colour cleave to us as markers of ­economic profile and threaten the democratic transition.

The JSE Black Ownership Survey suggests 72% of shares are in white hands. The figures are contested.

Empowerment rating agencies put the gross value of ­direct shareholding at 8%. Net value is lower.

The Empowerdex BEE rating agency has consistently estimated the net value of black shareholding on the JSE at around 3%.

The Department of Trade and Industry targets are that by now 25% of shares with voting rights should be black owned.

The slowdown in BEE figures is worsened by the UN’s Human Development Index, which indicates black people continue to do worse in living standard measures since the 1990s.

The income gap is one of the largest in the world and this gulf is not due to the emergence of a few black capitalists – as is often erroneously asserted.

Deal flow is drawing to a trickle. Between 1995 and 2009 there was an estimated R533?billion worth of black empowerment deals.

The year 2007 was good as the value of empowerment deals peaked at R96 billion.

This figure declined sharply in 2008 to R61 billion. It fell to R37?billion in 2009.

That year the picture became hazy as Ernst & Young stopped ­accounting for BBBEE deal flow in their yearly survey of mergers and acquisitions.

Since the late 2009 SABMiller deal, no black empowerment deals of great significance have been concluded.
The exception to this is the R8?billion Zakhele retail offer of 4% of cellphone giant MTN.

Three other deals are notable.

Altech’s 25%, R1.5 billion deal is small. The Gold Fields deals were simply a change in black ­owners and a revisiting of the key features of the original Mvelaphanda deal.

The Ernst & Young Mergers and Acquisitions Survey for 2009/10 states that a new phase of BBBEE is emerging – “restructuring of deals that are under water has become a feature of the BEE scene”.

Volumes of deal flow, affected by the global recession, declined ­substantially in recent years.

A decline in activity of 49% was registered for 2009. Existing deals, such as the Holcim­-AfriSam, Lonmin deal (that was rescued by Ramaphosa) and the Sasol deal are all distressed.

The high interest rate climate has not helped as debt continues to dog many BBBEE players. South Africa increased interest rates throughout the global financial crisis, even as the rest of the world slashed interest rates, some to 0%.

This increases the cost of capital, further burdening BEE investors. We share with Brazil the highest cost of capital in the world. The ­picture is similar on the employment equity front.

The Employment Equity Commission Report of 2010/11 indicates top and senior management are 76% white, while black people make up 73% of the unskilled and semiskilled workers.

Stats SA figures indicate that ­almost two of every three unemployed people in South Africa are under the age of 30.

Youth unemployment stands at 65%. Our inability to generate skills and sort out our messy ­education system are legendary.

Dani Rodrik of the John F Kennedy School of Government at Harvard University asserts that despite South Africa’s remarkable transition, “economic growth and employment generation have been disappointing”.

Rodrik says “high unemployment and low economic growth are ultimately the result of the shrinkage of the non-mineral tradeable sector since the early 1990s.

Political economist Moeletsi Mbeki said: “Scrap racial preferences in the economy, and change the basic structural problems that plague it and suppress growth.

“Besides the fact that these have not worked, the constraints to BEE lie in the failure of our chosen growth path.”

The anxiety in black capital and intellectual circles about the direction of economic policy is a rare moment of confluence in class ­interests with the poor.

The tenuous consensus ­appears to be “we have to talk”.

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