The controversial empowerment deal dubbed “Mzigate” was unlikely to happen now because of a new stakeholder approach to black economic empowerment, officials and industry analysts insisted this week.
The approach was embodied in new legislation and the mining charter, which sought to entrench “broad-based” empowerment.
Internet financial news portal Moneyweb this week published allegations that entrepreneur Mzi Khumalo had “hijacked” a 2001 empowerment deal between a black consortium and Harmony Gold Mining. Moneyweb said Khumalo had become an overnight billionaire by selling shares he had acquired from other consortium partners.
The Khumalo billion had its roots in a proposed R400-million empowerment deal involving the discounted sale of 10,7-million ordinary Harmony shares to the Industrial Development Corporation (IDC) and the option to acquire a further 11-million shares over the subsequent five years.
The IDC then extended a loan of R392-million to Simane, which replaced the original empowerment partner Komanani after it was unable to raise R10-million in equity capital.
Moneyweb and its sister website Mineweb claim that Khumalo acquired immediate control of Simane after securing a R10-million loan from a commercial bank. Later, by allegedly strong-arming the shareholders, he secured full ownership of Simane at a fraction of its true value.
Reports described the transaction as a “deliberate hijacking of an empowerment transaction that had been enthusiastically welcomed by the government”.
An undisputed fact at the time of the transaction was the clear absence of any charter or regulatory framework that governed the extent and nature of empowerment.
Why, then, did the Department of Minerals and Energy not second an official in the negotiations between Harmony, the IDC, Khumalo and Simane?
Department spokesperson Kanyo Gqulu said “business people are expected to negotiate, conclude and administer business dealings away from government hands.
“At best, the government can only oversee dealings [concerning] the implementation of empowerment. The difficulty has been the fact that there was no legal framework assisting government in ensuring the smooth running of empowerment-related deals. Prior to the advent of the mining charter, most deals were done without the involvement of the department,” Gqulu said.
“It is precisely challenges similar to those alluded to by Mineweb that made government conclude that the best way is to develop a proper framework governing empowerment deals. These include the Mineral Development Act, the mining charter and the scorecard approach.
“In addition, the department has also established a unit that will oversee the deals between the established mining companies and those that are owned by previously disadvantaged people. The department has also engaged the National Empowerment Fund in a process of establishing its own monitoring and evaluation entity,” Gqulu said.
Experts interviewed by the Mail & Guardian noted that the advent of the mining charter and the introduction of the Broad-Based Economic Empowerment Bill cemented a new approach that would make it difficult to “hijack” an empowerment deal.
BusinessMap Foundation director Reg Rumney agreed that the new regulations would facilitate empowerment with broader benefits, but he remained sceptical about the extent to which companies would buy into the programme.
His scepticism is partly rooted in the small number of companies with black shareholders at the “top”. The best way to lock in shareholders was to ensure they were strategically involved by, for example, filling executive positions in the companies they run, Rumney said.
He said too many companies viewed black empowerment as a kind of tax, rather than as of a way of adding value to their business and the economy.
Choosing credible empowerment partners whose contribution will be greater than just the right political connections would also enable established businesses to gain more than political mileage or compliance with laws or regulations.
A mutually beneficial relationship was more likely to be lasting, Rumney said. One of the problems of broad-based empowerment had been that the smaller organisations might need to realise their investment, or could not come up with the necessary cash in the first place. As with a company, “there should be some examination of durability and the commitment of the smaller empowerment consortium members”, he said.
BusinessMap has also said the government can help by encouraging transparency.
Lionel October, Deputy Director General in the Department of Trade and Industry, said the first phase of empowerment in the early Nineties was generally unsustainable.
“We have since tried to accelerate empowerment into becoming more broad-based. If it was left to the market, the result would continue to be narrow-based empowerment.”
According to October there has been a “massive” increase in broad-based transactions since the advent of “interventions” especially in the mining and financial services sectors.
BusinessMap’s 2003 Empowerment Awards took a tough stance on candidates. This included the level of risk undertaken by empowerment partners, increasing economic interest, business value added, operational involvement, financial per- formance, employment equity success and learning skills development success.
Ironically, the winners of the awards included the IDC as “Top Financier”, while the “Established Company Leader Award” went to Bernard Swanepoel, the MD of Harmony.