“BEE, was in fact, invented by South Africa’s economic oligarchs, that handful of white businessmen and their families who control the commanding heights of the country’s economy, that is, mining and its associated chemical and engineering industries and finance… The object of BEE was to co-opt leaders of the black resistance movement by literally buying them off with what looked like a transfer to them of massive assets at no cost. To the oligarchs, of course, these assets were small change,” – Moeletsi Mbeki in his latest book, Architects of Poverty.
It is a trite refrain, this endless talk about the economic meltdown. But the adverse effects are just getting more pronounced. The current climate is reminiscent of the bearish market circa 1998 and 1999 when interest rates shot up and the cost of capital rose as a consequence.
A comprehensive look at the BEE dealmaking scene shows that some of the major BEE deals are being assessed and restructured in order to avoid a repeat of the fate that befell some leading empowerment companies in the late 1990s.
These include:
* Absa - where the Tokyo Sexwale-led Batho Bonke consortium has to raise cash in the next few months in order to exercise options to acquire 10% of the bank, which are now five years old.
* MTN - which has delayed the implementation of its empowerment deal.
* Industrials behemoth Barloworld - re-priced its share from R102.87 to R83 a share in August 2008 for the purpose of an empowerment transaction.
* Transport and logistics firm Super Group - After the share price fell by 94%, the company introduced a R1 billion rights offer to rescue a 25.1% stake acquisition by BEE groups in 2004.
* BEE mining group Mvelaphanda Resources - Refinanced R2-billion mezzanine debt of its investment in Goldfields.
And according to Dealmakers, a local authoritative corporate finance magazine tracking activity of all JSE-Securities Exchange-listed companies, empowerment dealmaking has borne the brunt of the current economic recession the most. The publication also attributed the paltry 12 M&A deals to date carrying a total value of R3.5 billion, compared to 41 deals valued at R41 billion in the same period last year and 35 deals valued at R35 billion in 2007 in the same period, to the current economic conditions.
Moeletsi Mbeki, the younger brother of former president, Thabo Mbeki, never gets tired of throwing spanners in the shoddy BEE works. In his latest offering entitled Architects of Poverty he calls for the abolition of BEE on the basis that it has nurtured the culture of corruption, cronyism and entitlement, and stifled sustainable economic growth.
Ever the maverick, he argues that empowerment is a ploy by white business to preserve the status quo eternally.
“BEE tells blacks: you do not have to build your own business, you don’t have to take risks, the whites will give you a job and shares in their company. If we keep on going with these policies, the question is: What will collapse first, BEE or the economy, or the country?”
It is not the first time that Mbeki has heaped calumny on empowerment. He co-authored the seminal work, A History of Inequality, with academic Sampie Terreblanche where BEE was also put under a pejorative prism.
The perennial problem remains that only a tiny elite continue to benefit. This observation has prompted one of the veterans within the ruling ANC, Ben Turok, to argue that empowerment as it stands is pure crony capitalism. In his From the Freedom Charter to Polokwane: The Evolution of ANC Economic Policy, he points out the challenge of expanding the base of beneficiaries.
“The mindset of enrichment and profit-making is growing. Many people with impeccable political credentials have moved from the public into the private sector. They naturally retain their former political and family connections, and clearly benefit from these associations in their new business roles.”
Turok also criticises BEE luminary, Cyril Ramaphosa’s proposition that black businesspeople first become financial investors, then acquire the requisite skills and subsequently gain operational control of companies they are investing in.
Says Turok: “The problem with this strategy is that most of the individuals involved land up in heavy debt, since they have no capital to enter into these deals. Also, some become non-executive directors in order to collect fees, but have no real power to influence the companies.”
While the so-called ‘usual suspects’ are castigated for dominating the empowerment landscape, it is clearly not their fault that they are frequently chosen as partners of first choice in BEE deals by established, mainstream, white business.
Though impressive strides have been made in terms of legislation to promote broad-based empowerment through the involvement of a medley of community based structures such as trusts, community-based organizations and kindred institutions, most deals are still heavily loaded in favour of the main and well-known individuals in the transactions.
A complementary dimension to empowerment and the score card rating system could be added, with a special focus on socio-economic development. The latter can encompass affordable housing developments within communities where the company operates, funding the education of company employees’ dependants and subsidising health facilities.
It may be rightly argued that these are the functions of the democratic state. However, we are in an era of a protracted transition where Government is redefining its priorities regarding service delivery, whilst simultaneously experimenting with various policies to find a formula that will make us a winning nation.
This is why BEE faces a tough test. It is taking place in a landscape of numerous multi-faceted challenges within our beloved country – among them transformation of mainstream business, the global meltdown, service delivery, the construction of a developmental state, development of comparative advantage in the arena of international trade and so on.
It appears we are now in a moment that appears to be BEE’s darkest.
Sello Mabotja writes in his personal capacity
