BEE flopped in its finest hour

2010-12-23 14:13

This year, black economic ­empowerment (BEE) was a bit like Bafana Bafana. It started the year full of promise after President Jacob Zuma appointed the BEE Council, long regarded as the missing link in the effective transformation of South Africa’s economy. But alas, just like Bafana in the World Cup, BEE bombed out in its finest hour.

You see, after SA Breweries invited its employees, black-owned ­licensed liquor retailers, liquor ­licence applicants and black ­customers to be its empowerment partners in a R6 billion transaction, we thought large companies were starting to view as taboo partnerships that had only politically ­connected people.

It turns out that was a naive hope.

“This has been a forgettable year for empowerment. The BEE Council is a paper tiger. No one knows what it has been doing this year,” says Duma Gqubule, a director at Kio Advisory Services.

BEE was choked by factors ­beyond its control, such as the ­drying up of funds as a result of the global financial crisis.

“The high cost of capital, the ­depressed economy and high ­interest rates have not helped ­empowerment.

“What is happening with ­empowerment is similar to what is happening with house ­prices. House prices will not ­improve until people have more ­disposal income,” says Gqubule.

This year’s largest empowerment deal, the R9 billion ArcelorMittal SA and Ayigobi Consortium deal, was concluded with politically ­connected people (Sandile Zungu; Zuma’s son, Duduzane; and the Gupta brothers) and employees, but not with communities.

Curious circumstances conspired to present the country with this blockbuster deal. Knocked together in six months, with a four-week break for the 2010 World Cup, the deal indicated that the partners must have been very happy to be in business together. Empowerment transactions usually take much longer than this because they are bogged down by legalities, financing terms and agreements.

“The ArcelorMittal deal was ­disappointing. Listed companies think that concluding an ownership deal is enough,” says Keith ­Levenstein, chief executive of ­consultancy firm EconoBEE.

Duduzane Zuma may have grabbed attention with his involvement in the deal, but his cousin, ­Khulubuse Zuma, was the BEE ­highlight of the year. His empire spans gold mines in South Africa, oil exploration in the DRC and logistics with the South Koreans. In what can be viewed as an own goal for empowerment, workers at his mine went ­unpaid for nine months.

The MTN top-up empowerment deal gave cheer to 124 000 people and business entities.

Each person had to invest R2 000 for 100 shares and keep the stake for at least six years.

MTN shares were trading at around R126 this month, higher than the R120 price when ­investors were invited in September.

The price will need to be between R150 and R170 by the end of 2016 to make the deal worthwhile.

We are closing the year with ­Kagiso Trust Investments and Tiso Group planning to merge to form one of the largest empowerment groups. Kagiso Tiso Holdings (KTH), the proposed name of the new entity, will have R12 billion in assets.

Should the merger be ­approved, KTH will have a large ­balance sheet to use to seal empowerment transactions.

The next level of empowerment must be for black companies to be operators instead of just investors.

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