Johannesburg | Thursday
TOUGH market conditions in South Africa significantly reduced the performance of black economic empowerment firms in 2001 and inhibited new entrants, an economic think-tank said on Wednesday.
BusinessMap, a think-tank that reviews empowerment annually, said in its 2002 report that market capitalisation of black-controlled firms as a percentage of the JSE Securities Exchange fell to a new low of 2,2% from 4,8 a year ago and 9,6 in 1998.
The report said an emphasis on black shareholders as a benchmark for empowerment and the lack of effective funding for empowerment deals were the main causes for the poor performance.
It also attributed the fall to poor share price performance and corporate restructurings in 2001, which saw major empowerment company Johnnic unbundle.
The Johnnic group of companies comprises 85% of the empowerment market capitalisation on the bourse and its fortunes have a huge effect on the empowerment sector, the report said.
The report said the number of listed companies on the Johannesburg bourse fell from a peak of 639 in 1994 to 546 last year, with 85 delisting last year and only 11 listing.
It said the number of black directors fell to 256 from 332 in 1996.
”Overall, the year has been an exacting one for empowerment companies. Difficult market conditions have significantly reduced the performance of many of the established players,” BusinessMap said.
”Even with government increasing its leverage, there is little sign that the business environment will be anything but challenging,” it added.
Black empowerment, introduced after the end of white minority rule in 1994, is designed to give the black majority a bigger role in the economy and has had some success stories as well as high-profile failures.
The emergence of a new breed of middle class blacks means that nearly 10% of blacks are now among the top fifth of earners from two percent in 1990.
Cyril Ramaphosa, who led the ruling African National Congress (ANC) negotiations for a peaceful handover of power, is an example of successful black empowerment.
BIG DEALS IN MINING SECTOR
Ramaphosa runs a business with interests in media and financial services which is lauded as an example of successful black stewardship. But others like Mzi Khumalo, a former political prisoner turned captain of industry, has been demonised for presiding over the collapse of a mining entity.
The report said most of the big deals were in the mining sectors, spurred by pending legislation which seeks to punish existing mineral-rights holders for sitting on rights they do not use. It promises to use those rights for empowerment.
Other notable deals were in the financial and energy services sectors.
Two of the biggest mining deals involved empowerment firm African Rainbow Minerals (ARM), which teamed up with Harmony Gold Mining to buy AngloGold’s Free State gold mining assets for R2,2-billion in a 50-50 joint venture, the report said.
Another empowerment firm, Mvelaphanda, headed by former Robben Island political prisoner Tokyo Sexwale, entrenched itself in the diamond-mining sector by raising its stake in mining group Trans Hex to 24,5%.
The report also outlined a variety of deals in the financial services sector, which ranked second in the entire economy.
The biggest deal was the purchase of 30% of Nedcor’s Peoples Bank by two empowerment consortiums for R557-million, marking the first substantial empowerment investment into a retail bank.
The report said government leverage helped to kick-start empowerment in the energy and oil sector. Government legislation requires that 25% of the oil industry be in black hands in 10 years time.
The report said the defence sector also registered some empowerment deals but it bemoaned paltry deal-making in the IT industry, widely thought to be lacking in empowerment. – Reuters