The term ”broad-based” is on everyone’s lips again in relation to big black economic empowerment (BEE) deals. The sale of Transnet’s 5% and the latest Absa BEE deal both feature broad-based consortia. We’re talking here of ”broad-based” in the sense of numerous small groupings, such as trusts to help the disabled, women’s groups, Umkhonto weSizwe veterans and rural community organisations.
Yet all evidence suggests broad-based BEE is fatally flawed. Best encapsulating this was the sale of 7% of Harmony gold mine to the Simane consortium involving Mzi Khumalo. Soon afterwards, it seems, Khumalo bought out other consortium members to become the sole — or at least majority — share owner.
One reason broad-based groupings fall apart seems to be their very reason for existing: because they are poor, they lack finance. It’s easy to buy them out cheaply.
Another example was the broad-based BEE consortium put together to win the country’s only free-to-air TV licence. It was apparently the deciding factor in the broadcasting regulator granting the licence to e.tv, and the consortium leader, Hosken Consolidated Investments (HCI).
When many of the small groups could not pay for their stake, HCI took over their shares and placed them in subsidiary Sabido Investments, the controlling company of Midi-TV, e.tv’s parent.
Another twist is that Venfin, born out of the Rembrandt Group, in March last year got the right to convert a loan in Sabido Investments into a 29,5% stake. Not exactly broad-based empowerment.
HCI’s empowerment shareholder (17,5%) is a union investment company whose dividends benefit South African Clothing and Textile Workers Union members, so at least benefits flow to workers. Other bidders for the free-to-air licence felt bitter that the broad base disappeared once it was won, however.
Then there’s the broadest base of all, the National Empowerment Consortium (NEC), comprising many small shareholders assembled to take over the industrial rump of unbundled Johannesburg Consolidated Investments.
The NEC, according to published reports, owns — or rather votes through a pool arrangement — 25% of Johnnic Holdings, which in turn has stakes in MTN and Johnnic Communications. Some of that vote may have been ”lent” to the NEC by other shareholders. Members of this consortium appear to have narrowed considerably since they held 35% of Johnnic at the start of the exercise.
Why the stress on broad-based BEE equity when empowerment’s focus is supposed to shift to a broad-based, scorecard approach that de-emphasises ownership, making it just one thing companies are supposed to do?
It is much easier to do a deal with one of the new black tycoons, who have capital, are well versed in deal-making and know the corporate environment.
The reason for the persistence of broad-based equity deals is political. Narrow empowerment is a hard sell when unemployment is 40% and the government has made little impact on poverty. The constant reappearance of the same names causes distaste, certainly for the union left.
But if broad-based capitalism is the order of the day, let’s demand transparency about who the small organisations are and how sustainable their involvement is. Let’s watch these consortia and see which are still broad-based in five or 10 years’ time, and whether those small groups making up the broad base benefited. It’s the least civil society can do to check if a fast one is being pulled.
And what about the small groups that make up the broad base? Who are they and who are their members? Who comprises the business groupings that will be part of the Absa deal, for instance? Are they representative, or simply a few fat cats trading on the name of a business organisation? How many members do these organisations have? Will they pass on the benefits of the BEE deal?
We need to start asking more questions about broad-based BEE.
Reg Rumney is the executive director of BusinessMap Foundation