BLACK empowerment must submit to the harsh rules of the market. From the lofty heights of 1998, when BusinessMap described it as a “moving experience”, black economic empowerment has attained a tinge of sober pragmatism, which is probably why in its annual review of this important economic transformation process, the business think tank called its latest report Empowerment 2002: The State Steps In.
We are entering a new phase of empowerment, driven by a prevalence of common sense and characterised by a 53% growth to R3,8-billion in the value of empowerment transactions concluded last year. This is the first time since the 1998 deal boom of R21-billion that growth has been positive.
One of the main problems of the pre-1998 phase of empowerment was the use of flawed finance-structuring methods. Popular versions of these were special-purpose vehicles. A black consortium would acquire shares with borrowed cash and, as the value rose, sell off a portion that would allow them to repay without significantly diluting their shareholding. Former University of Cape Town economics Professor Brian Kantor named this group as distinct from the have-nots: the have not paid for what they have.
The first issue to be addressed is whether legislation can drive empowerment and whether we need a black economic empowerment (BEE) Act. If there is one thing that the recent hearings at the rand commission has shown, it is that legislation can be circumvented.
The director of BEE in the Department of Trade and Industry (DTI), Andy Brown, mentions that around May or June, the department will table a Cabinet-approved policy statement that will not be prescriptive but provide guidelines in a range of key empowerment areas. One of these is the formation of a BEE advisory council as mooted in Cyril Ramaphosa’s BEE commission. Indications are that the council will be located in the presidency, with the DTI acting as the secretariat. Brown notes that the council will seek advice on the need and feasibility of enacting a BEE Act.
The next step would be to strengthen the regulatory environment through strict enforcement of policy and to review existing legislation such as the Companies Act.
Since 1994 one of the most consistently performing economic sectors has been export. The Reserve Bank estimates that between 1994 and last year exports grew by 280%, aided by a competitive international price due to a devalued currency.
Yet apart from mining and perhaps in small isolated pockets, there has been no concerted effort to make the export sector embrace the notion of BEE.
David Moshapalo, chairperson of the Black Business Council, reflects the kind of thinking, also espoused by BusinessMap, which must guide the empowerment process: that empowerment goes beyond ownership of capital interest. It is now characterised by broadening the base of those who acquire an interest; the previously disadvantaged must also have a hands-on controlling interest, accompanied by tangible transfer and development of skills.
Moshapalo would like to see a “measured, deliberate and planned” empowerment process backed by legislation that requires companies to disclose progress.
“There is no excuse for public companies, listed companies and larger corporations not to disclose progress even without being forced by legislation,” says Brown, who confirms that the upcoming strategy deliberates extensively on disclosure requirements with a standardised measurement method. This is essential. For instance, Anglo American recently reported that in the 2001 fiscal year it procured goods worth R1,3-billion from black-owned small and medium enterprises (SMEs). This represents a 23% increase from R1-billion recorded the previous year and includes a R250-million coal-procurement programme from 129 black businesses.
An impressive figure. But until companies tell us how they define a black-owned business, what percentage of total procurement to SMEs this accounts for and what percentage they hope to achieve by, say, 2005, players can disclose their statistics to suit their needs. Anglo American?s Nick van Rensburg says the figure represents 10% of total procurement. Anglo defines a black SME as one that has 40% black ownership and control with turnover of less than R40-million a year and fewer than 200 employees.
Another important element of empowerment is setting ownership targets. RenÃ