Glenda Daniels
Black empowerment has fared dismally in the past year, but its prospects could improve in 18 months’ time if certain conditions are met, according to a report released by BusinessMap this week.
Deals have dropped dramatically, says the report, Empowerment 2001, and most sectors have performed abysmally. Reported new investments in established black-controlled companies were about R2,5-billion last year compared to R3,4-billion in 1999. The size of deals has scaled down radically over the past two years. In 1998 top deal-maker Sarhwu Investments transacted 15 deals, now BusinessMap says the company is a long way away from that: “A black empowerment company is now fortunate if it concludes more than two deals in a year.”
Some of the better-performing sectors last year include mining (with investments of R968-million) financial services (R648-million) and information technology (R355-million).
The media and publishing sector has been particularly quiet but is expected to gain some momentum later in the year.
According to BusinessMap, New Africa Investments’s media arm, New Africa Media, should be an active player in the coming year.
Times Media Limited in the Johnnic stable “may also be earmarked for restructuring, as a result of Johnnic’s empowerment holding by the National Empowerment Consortium coming up for review in October this year”.
The report endorses some of the findings by the Black Economic Empowerment Commission, especially on the difficulties black businesses experience in accessing finance and securing appropriate business. The commission takes the view that the market will not address these problems and calls for government intervention and support.
“The commission is not wrong about a hostile environment, the reluctance of the white corporate sector to transact business with black firms or the difficulties in securing finance. But whether it is right about an almost total reliance on the state to turn the situation in favour of black business is another matter,” the report observes.
As the perception grew that black empowerment has not delivered, the pressure on the state to deliver has intensified, the report says.
“Yet, it is the heavy reliance on the state to further empowerment aims that has attracted the most criticism,” argues Jenny Cargill of Business-Map. The government may “force the hand” on behalf of black business,but the quality of empowerment that results may not be what the country needs, nor what the black business sector needs to overcome negative attitudes and outcomes.
She says “value-added” is a critical concept for successful empowerment. “The issue of adding value over time must be central to the development of a black business sector that commands respect and has strength in the market.”
If this does not happen, “black business opportunity will in all likelihood increasingly become premised on patronage and political standing ‘the who you know’ will remain paramount, rather than the ‘what you know’ becoming the basis for business transactions”, says Cargill.
BusinessMap believes that if the government steps up privatisation and infrastructure investment through public-private partnerships, advances affirmative action procurement and finalises policy and legislative requirements next year, the number of deals would increase significantly.
However, because of weak and deteriorating world market conditions, empowerment acquisitions will continue to be constrained. The market performance of empowerment companies has never been so bad, the report says.
Kagiso and Metropolitan Life were the only black-controlled companies on the JSE Securities Exchange to have increased their share value in the year to February 2001.
“Despite the many different reasons for poor performance, empowerment companies are unlikely to see quick relief, given less than favourable market conditions. However, within an 18-month timeframe, the prospects look better,” the report concludes.