The black economic empowerment strategy should not be allowed to fail in its mission of reversing the skewed ownership of economic power in South Africa. Results that are anything short of change are too ghastly to contemplate.
The strategy offers South Africa a unique opportunity to break the cycle of underdevelopment and continued marginalisation of black people from the mainstream economy. Successful integration of the majority into sustainable economic activity would launch the economy on a course of sustained growth.
Although strides have been made in the implementation of black economic empowerment (BEE) it does not take a rocket scientist to see that the programme has not yielded the desired results. Only a handful of black-owned companies are listed on the JSE Securities Exchange so far. These include Tokyo Sexwale’s Mvelaphanda Resources and Patrice Motsepe’s ARMGold.
At the same time, trading conditions have forced some empowerment companies to delist. And a serious concern is that the empowerment drive has only managed to create a small pool of black elites.
Ordinary black people and aspiring entrepreneurs either have to make do with the crumbs or are reduced to envious spectators. This, surely, calls for the strategy to be modified.
I believe that while the government has demonstrated good intentions by passing corrective legislation it can do a lot more to show the corporate world the way forward.
For a start, the government, particularly at the provincial and local levels, needs to tighten the conditions that allow companies to qualify to bid for its contracts. These conditions should, among other things, preclude big companies from using empowerment partners as bait to secure contracts.
The forced marriages between black entrepreneurs and big business, known as joint ventures, do not work. At best they slow down the march to true economic transformation.
The answer lies in awarding empowerment companies long- term contracts that afford the opportunity to build sustainable capacity; short-term contracts cannot do this because they are inherently uncertain.
Big business has used joint ventures to its advantage by offering pseudo-majority shareholding to black entrepreneurs that, in the end, count for nothing, while the corporations smile all the way to the bank.
In desperate bids to secure lucrative contracts some big businesses even loan money at a huge premium to aquire a stake in the empowerment company.
In most instances the return on investment for the empowerment company does not even service the interest on the loan.
The empowerment company may strike it “lucky” and not be expected to repay the “debt”, but despite what was supposed to be a 51% stake in the deal is often left with zero equity and little to show for the relationship. In the event that more money is needed for the business the empowerment partners’ shareholding is further diluted because it is unable to raise funds. It is only then that the empowerment partner realises it has been used as a front.
Loans that are given to empowerment partners by companies wishing to do business with the government or parastatals should be closely scrutinised. If the government looked into the funding mechanisms of partnerships as a criterion for granting tenders it could eliminate the debt in which empowerment partners are often trapped.
Another flaw is that large companies have many divisions aside from the department that may need to partner with an empowerment firm. In these situations the company usually fails to transform as a whole and empowerment remains a pipe dream.
However, the government and empowerment players have the power to change all this. Instead of awarding contracts to big business, which dupes black entrepreneurs into suicidal relationships, the government should simply offer contracts directly to black entrepreneurs. Empowerment companies should be given these contracts on condition that they are able to aquire the competencies they lack within a specified period. Failure to do so would mean that they lose the contract. We need a carrot and stick approach. Although this may sound naive I believe it can work.
As an example let us assume that that an empowerment auditing firm is awarded a tender. Because it is in the position to call the shots it would be able to approach an established firm, such as Deloitte & Touche or KPMG for arguments sake, to become a partner. As part of the deal the empowerment company could specify that the partner needs to transfer certain competencies within an agreed time frame.
The intention of empowerment companies should be to bring big business on board, with the eventual aim of diminishing its dependence on its partner.
White-owned companies need to realise that empowerment companies are not in the game for hand outs, but that there is value being added.
It is also important that empowerment companies avoid passive relationships and actively aquire skills and get to know the businesses with which they have partnered.
It is then up to the empowerment companies to employ young black staff who will aquire the skills to manage the companies in the future or start their own businesses.
If empowerment companies are passive and just wait around for the financial year-end to get their dividend without having done anything to generate revenue, then the object of black economic empowerment is being defeated.
The aim of empowerment is not only to have a piece of the action, but also to be an active participant and aquire the ability to run these businesses. In that way, the future of this country is safe.
Paul Nkuna is CEO of the Mining Investment Company.