Giving people more to lose: A BEE Performance Appraisal

The South African government first came up with a Black Economic Empowerment (‘BEE’) Policy after 1994. Its aim is to promote economic transformation so as to enhance the economic participation of Black South Africans in the mainstream economy. This should result in real economic growth from which all South Africans will benefit. But are we making progress with BEE? Res ipsa locitur, the facts speak for themselves. According to a study conducted by the Economic Justice Agency commissioned by the Black Business Executive Circle we are far from where we intend to be.

Of the top 200 JSE listed companies only 5 companies have Black Ownership and/or Equity of 51%. These 5 companies have a market cap of R4.6 billion, of which the BEE component is equivalent to 0.2% of their market cap. Only 22 companies have between 25% and 50% Black equity holding. Their market cap is R18 billion, of which the BEE is equivalent to 0.78%. 27 companies have Black equity of less than 25% with a market cap of R23 billion of which the BEE equivalent is 0.98%. If we add up the number, Black ownership of the JSE top 200 companies equates to roughly 4.7% of the JSE’s market cap.

But if we pierce the ownership veil to establish exactly what percentage figure is truly in Black hands the figures reduce drastically and are nothing short of embarrassing. Consequently much lies ahead of us if we are to achieve the BEE equity goals. What then of other BEE goals such as the participation of Black people in management? Once again I am going to draw from a study by Economic Justice Agency which came up with very interesting numbers. Out of 2 099 directors of the Top 200 JSE listed companies there were only 427 black directors, which is equivalent to an estimated 20% of the total number of directors.

Of the 427, 337 directors, or 80%, are non executive directors. A measly 90 are executive directors with full executive powers to influence the direction of a company. The rest are just non-executive directors who attend board meetings. We can then safely say that on the management front we at least comply with Code 200 which prescribes a 10% target for Black non-executive directors. Thus, there has been a lot of hype and activity in the BEE space, but to very little effect. What has been achieved is compliance with non-executive directors’ appointments. Other than that we really have very little to show as a country. But why is it imperative that BEE succeed in South Africa?

As in many developing countries South Africa has a huge disparity between the “have” and the “have not”. What makes South Africa’s case most pressing is that the disparity is not by accident but by design, the result of previous discriminatory policies. Our natural human instinct to protect and preserve our possessions has influenced political debates over centuries. This is the corner stone of the social contract between the citizen and government in a capitalist society. It is at the heart of our laws that promote peace and stability. Should a sizable number of Black people be elevated to the mainstream economy this will result in them having more to protect, which will mean a greater focus on peace and stability, resulting in more real contributors to the economy, resulting in more economic growth, resulting in more wealth to spread around, resulting in more people with something to protect, and so on. In short, we all benefit.

The contra is that we risk loosing all that we have if the government’s BEE strategy does not succeed. This success can only be achieved with the active support of the South African business community. Why then are we are struggling to empower Black people? In a world without South Africa’s historical baggage business people transact as willing buyers and sellers on commercial terms. This normally implies that the purchaser has money to pay the purchase price, or has the ability to raise the required finance. It is the biggest challenge to the success of BEE. Capital is typically amassed over a period of time, sometimes generations, something which most Historically Disadvantaged Individuals (‘HDI’s) do not have the benefit of. Furthermore, the criteria of South African lending institutions are still based on those of developed economies.

They require the lender to know the borrower’s identity, the borrower’s address, and the borrower’s regular income and assets. Many HDI applicants are not able to provide satisfactory information in this regard. This makes BEE difficult to finance. However, all is not lost. The Financial Service Charter has set financial institutions goals for the financing of BEE transactions and various targeted investment areas. But the need is such that government must also be involved. Granted it has already established a number of agencies such as the National Empowerment Fund (‘NEF’) and the Khula Fund to assist in this regard.

These initiatives are noble and should be expanded upon. Anyone who understands the mandate and the rationale behind the NEF would agree that it should be grown into a mega BEE funding institution. Similarly the government should strengthen and develop the Khula guarantee scheme. This development must go to ensuring that these government agencies are managed effectively and execute upon their mandates. The collective efforts of the private sector financial institutions and government should at least solve part of the BEE funding challenge.

All that is required is for the owners of business South Africa to assist through the provision of vendor and enterprise development finance, and it should be possible to put enough money on the table in order to deal with this highly emotive subject in the BEE space. This entails taking some of the emotion out of BEE transactions and seeing them as opportunities to recapitalise businesses. Tebogo K Mphuti is the Chief Executive Officer of April 27 Corporate Finance Pty Ltd a corporate advisory services company and writes in his personal capacity.


 
 


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