BEE feels the crunch

2011-08-06 08:58

Market uncertainty as a result of Western debt crises has fuelled talk that the world is facing yet another global financial crisis and reignited the debate over whether BEE deal structures are still relevant.

The view among some analysts is that the eurozone debt crisis is not good for BEE deals pegged against the share price.

A BEE consultant this week called for the eradication of BEE deals “no matter how they are structured”, pointing out deals that are pegged against the share-price performance as a “false option”.

This has emerged at a time when BEE deals are said to be facing another battering due to an expected volatility in the financial markets.

Paul Janisch, the CEO of Joburg-based BEE consulting firm Caird, told City Press that in these options, black shareholders were often absolved of any risk because they were protected from negative growth.

He said: “BEE deals should be done away with altogether no matter how they are structured.

“The protection of black shareholders arises from the fact that corporates need to retain their ownership point levels.
“What is the point of that?

“You cannot invest in something and only be exposed to the positive side.

“What we need is a new breed of black mega-corporates that will take on the banks and other huge companies at their own game.”

These comments make Janisch one of a few white consultants making a living out of BEE to come out and openly criticise one of government’s efforts to address the economic imbalances of the past.

They come at a time when South Africa’s BEE outlook seems gloomy, as deals face collapse due to the possible onset of another global financial crisis sparked by the Western debt crises.

It is understood that underlying company share prices face the prospects of plummeting in conformity with international markets.

But Sandile Zungu, the chief executive of BEE investment holding company Zico Investments, said calling for the eradication of BEE deals was “outright foolish”.

“This shows the lack of appreciation of the economic complexities these deals are trying to address,” said Zungu.
He instead called for a BEE tribunal along the lines of the existing Competition Tribunal.

The tribunal will be requested to put the terms and conditions of BEE structures under serious scrutiny.

Zungu said: “Through this tribunal, we will see BEE advisers being sent back to the drawing board if these deals are not up to standard.”

Janisch’s comments come almost a year and a half since Deputy President Kgalema Motlanthe implied that BEE had failed.

Motlanthe was addressing the inaugural meeting of the BEE Advisory Council, replacing President Jacob Zuma, who had taken leave after having a torrid time after the media had been awash with reports of his personal life.

The deputy president called on policymakers to “think creatively” about finding ways of increasing the involvement of communities and workers in the economic activities of South Africa.

BEE is a key government policy intended to redress the wrongs of the past that left South Africa’s black majority economically disenfranchised.

Janisch said: “BEE can take big companies at their own game if they follow the Afrikaner model of Volkskapitalisme (Afrikaner capital).

“The starting point is a stronger entrepreneurship class in South Africa – both black and white. To get an idea of this concept you have to ask who is more respected in the economy?

“Is it Herman Mashaba, who started his own Black Like Me business during the very difficult days of apartheid, or Fana Hlongwane (the former adviser to Joe Modise, South Africa’s former minister of defence, whose name has been linked to allegations of wrongdoing related to the arms deal)?”

Ajay Lalu, the managing director of Black Lite Consulting, said South Africa needed to create wealth in black hands first.
“It is not advisable or acceptable to use debt to acquire equity.

“Therefore, we need to create black-owned, managed and controlled businesses and then swop value for value,” said Lalu, also in an exclusive interview with City Press.

“Yes, indeed, this is a much longer-term approach but it will be more sustainable. We must create sustainable empowerment,” said Lalu.

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