The David Gleason Column
The recent furore over the attempt by four New Africa Investments Limited executive directors to enrich themselves to the tune of R136-million is simply the last in what’s become a long line of bad news. So what’s really happening in the unofficial black economic empowerment programme and why does so much seem to be going wrong with it?
Some of the failures have now passed into commercial folklore. The first of these (and the most significant, if not the largest) concerned mining house JCI. Spawned by the Anglo American Corporation out of its original controlling holding in Johnnies, JCI was concentrated at first in gold, coal and base metals. But it came apart when its first controlling partnership of Mzi Khumalo and Brett Kebble didn’t see eye to eye on strategy and when JCI’s board found itself confronted with a “done deal” negotiated behind its back by Khumalo and taking it into a misconceived venture in heavy minerals (since shelved).
In the process of reversing Khumalo’s plans, including halting the sale of one (Western Areas) of its two most precious gold assets to Anglo, JCI dumped Khumalo. It is now restructuring and some of the material injury has been repaired but the real damage (to public perceptions of black business capability) will take a lot longer to restore.
The Johnnic saga is similarly (if not as luridly) depressing. Black shareholders, who borrowed heavily to effect control over this industrial holding company, need the share price to climb above R50 a share (currently R40,50) by October this year if they are to repay their loans. The classic mistake made by this company in its efforts to turn itself into an operational unit was to dig itself too deeply into debt. To be fair though, there’s evidence the market is better pleased with Johnnic’s recent restructuring and retirement of debt and the share price has certainly enjoyed the Johannesburg Stock Exchange’s recent happy time.
And just about everyone will know something of the endless cellphone saga, a tale of confused government bumbling and commercial ship-jumping. In November last year, the Cabinet approved two new cellphone licences, each valid for 15 years, both intended to be issued in July this year. The rationale for this expansion to four licenses was to create black empowerment opportunities (the minimum black stake was set at 26%).
Three months later, an independent report by accountants KPMG found that two new licences would add up to economic disaster. The South African Telecommunications Regulatory Authority (Satra) denied this. But within weeks international pressure forced a reassessment and an ignominious climb-down. Now only one licence will be issued and the possibility of a fourth will be revisited in 2001.
Meanwhile, at least nine black empowerment consortia have emerged and within many of these the jostling for position and power has been quite extraordinary. Whichever is ultimately successful needs to be certain of its ground and ability (estimates of the costs of establishing a cellphone network capable of rivalling Vodacom and MTN is in the region of $1,5-billion (around R9,3- billion) and Satra wants a down-payment of $400 000 (nearly R2,5-million) on day one.
The list goes on. One is the much- publicised failure of the Congress of South African Trade Unions’s investment arm Kopana ke Matla to raise the R93-million needed to buy the government’s Aventura (a small disaster which underlines Stella Sigcau’s dreadful performance as minister of public enterprises charged as she has been with overseeing the whimpering privatisation programme).
Then there was the R420-million failure of Pepsi bottler New Age Beverages and the repeated smashes at National Sorghum Breweries.
The successes (which are never, of course, considered newsworthy) tell their own story. Afric Oil, Real Africa, African Harvest, African Heritage, Kagiso, AMB, Theta and Sun Air all have in common a readiness to keep their corporate heads below the parapets and concentrate on growing shareholder wealth.
It’s easy of course to criticise and condemn, and the more excuses that are made the more these attract further hostility. Ego-mania may account for some of the crashes; get-rich-quick opportunism for others. The government’s own conspicuous short-comings (the failure of its March Mopani 2 summit intended to unify black business among them) simply adds to the problems.
What’s clear is that those empowerment projects which appear to have succeeded best embrace the philosophy of partnership or joint ventures with white business. There’s nothing wrong with any of this (so long as genuine skills transfers do take place and black South Africans are given ample opportunity to demonstrate their capabilities).
At the heart of all that’s gone wrong it may be that too much money has been made too easily available at too low a cost. It is, after all, an accepted commercial axiom that whenever anything is given too cheaply there’s inevitably a heavy price to pay somewhere in the cycle.
All of which may underline the concept that modesty in the pursuit of wealth is no bad thing.