RON DERBY: Still a long way to go for meaningful BEE

In the early years of black economic empowerment (BEE), where every blue-chip company worth its salt was announcing a deal that would see the introduction of black shareholders, many for the first time in their history, there was a common criticism that established business was just picking out an elite.

Among those commonly mentioned at the time as benefiting from what were essentially paper transactions at the time were Tokyo Sexwale, Mzi Khumalo, Patrice Motsepe, Saki Macozoma and current president Cyril Ramaphosa.

PODCAST: Unpacking South Africa's decline

Subscribe: iono.fm | Spotify | Apple Podcasts | Pocket Casts | Player.fm

It was fair criticism.

These gentlemen, and a few women, built up quite significant investment companies that were laden with debt. To correct the picture and keep to the spirit of empowerment, policymakers pushed for companies to increase the number of black beneficiaries from these multimillion and sometimes multibillion-rand deals, which ushered in broad-based BEE as we now know it.

Achieving this seemed rather simple at the time. Black businessmen and women had to ensure that whatever consortia they put together included a trust representing either employees of the company they were buying into or members of communities most affected by its operations. In some of the bigger trusts, beneficiaries can number more than 1-million people.

I recall asking one of the more prominent BEE moguls in the early 2000s whether he could name just one of the people he had listed as a direct beneficiary of his trust. He couldn’t. Yet his deal, and many others like it, passed the ownership test set by verification agencies such as Empowerdex.

But was it really black ownership if the supposed beneficiaries had no idea they were now owners of JSE-listed shares, that they had some rights over a miner operating in their own backyard? The BEE Commission thinks not, and I am inclined to agree.

I think those who were at the forefront of these transactions would admit that in finalising some of the deals, they had their eyes half closed and their fingers crossed. At the time, just how these deals would eventually turn out no-one really knew. What the corporates, especially those reliant on government business, needed was for the boxes to be ticked.

This was important if you were a mining house facing a potential expiry of a licence. The ultimate aim was to get an empowerment verification, to get the stamp of approval on the share sale. For some, achieving the actual goal of empowerment — introducing the black majority to the mainstream economy — was neither here nor there.

Transformation was but an inconvenience to doing business in SA. A classic example of this was Gold Fields’s empowerment deal, which saw the company use business “luminaries” such as Kenny Kunene and Gayton Mackenzie to help structure an empowerment transaction that would include Baleka Mbete, former ANC chairperson and current speaker of the assembly.

That deal exposed the worst of the policy and was eventually subject to a probe in the US by the Securities and Exchange Commission. While the mine escaped sanction, the transaction undermined the intention of the policy. It may also have taught the more unsavoury characters who now blight our business landscape how to do business in SA — sponsor the connected and you can get around all manner of regularity hurdles.

That’s not to say all corporates followed a similar approach when it came to one of the most important economic experiments undertaken, not only in SA but globally. 

Famed French economist Thomas Piketty, author of Capital in the Twenty-First Century should have taken a closer look at SA’s empowerment legislation when he was penning his almost 700-page examination of global inequality. While critics of BEE have focused on the racial aspect of this redress, it does speak to trying to deal with an inequality divide that in SA’s case was set in law.

But back to just how SA went about the experiment of empowering its vast majority over the past couple of decades. The report cards are coming in thick and fast, and while there is no doubting the country is far different from the one that began the process, there is much still to be done.

According to the BEE commissioner, about a third of the empowerment deals over the value of R25m have ownership structures that are not compliant with the Broad-Based BEE Act because of the abuse of trusts. Instead of ownership, some beneficiaries in these trusts benefited in the form of bursaries. Not quite the intention when the country embarked on this course.

So it’s back to the drawing board. Big business will inevitably complain about policy uncertainty, but we have to ask whether there was ever any certainty that the country had managed to negotiate a successful path in its empowerment journey. There are no goalposts in this BEE march because as a country we’ve never defined what the final state should be. 

• Derby, a former Business Times editor, hosts Power Business on PowerFM.