The sumptuous wood-panelled room in the heart of London seems an incongruous setting for a debate about poverty and economic empowerment in Soweto.
But the South African embassy off Trafalgar Square was playing host to some of the world’s richest investors, and it is their cash that is needed to transform a country still riddled with inequality, even though tomorrow will be the 10th anniversary of the day apartheid was formally eliminated by the first truly democratic elections.
The men in suits had come in search of reassurance, amid fears about the impact of Black Economic Empowerment (BEE) initiatives sweeping industry and finance from Johannesburg to Cape Town.
The South African government believes positive discrimination is the only route to wipe away the years of injustice caused by apartheid.
Banks, insurers and fund managers there have established their own BEE charter – promising at least a quarter of all companies in the sector will be owned by black people by the end of the decade. There is also a commitment to ensure that 33% of all board members and 25% of all executives will come from the black community in an unprecedented corporate shake-up.
The moves — and similar ones in other sectors such as gold mining and even wine making — have unnerved conservative institutional investors in London and other financial centres who fear social engineering is taking precedence over profits.
They see BEE as a recipe for pushing up costs and have slapped a heavy discount on the value of companies with substantial exposure to South Africa.
Yet the country is in desperate need of foreign investment. The ruling, and recently re-elected, African National Congress has seen unemployment rise from 19% at the end of apartheid to 28% and annual economic growth rates have failed to meet the 6% target many believe is necessary for a country to climb out of poverty.
Signatories to the BEE financial services charter include Investec bank. Its deputy chairperson David Lawrence, who is white, is happy to bang the drum about a strategy he believes will bring economic as well as social advances. ”They are tough targets but they are do-able and necessary,” he argues.
Investec has achieved 25% black representation on its board but only 10% of its executive management team is from formerly disadvantaged sections of the community. Investec, which has a dual-listing on the London and Johannesburg stock exchanges, says its BEE moves are enabling it to push into new areas of busi ness. Black board members and executives are bringing new ideas, establishing links with local communities and opening up different markets such as lending to a new breed of black entrepreneurs, says Lawrence.
Investec is also moving into government and state work it was excluded from in the past because it was not Afrikaans-run. ”We are now seen as an appropriate entity to deal with,” he said.
David Adomakoh, executive director of the Tiso Group, says that apartheid excluded the majority of South Africans from participating in the mainstream economy, leaving both sides impoverished.
”These groups [so-called blacks, coloureds and Indians] were denied access to capital as well as the skills necessary to transform assets into productive ones,” he argues.
Tiso has taken holdings in Investec and industrial group Alstom but only on firm commercial grounds.
”There is no smoke or mirrors in any of this,” says Adomakoh, who boasts that Alstom — previously part of the French group of the same name — has seen operating profits grow from R99-million in 2002 to a forecast R193-million in 2004.
Even inside the country the BEE strategy is controversial with the president’s brother, Moeletsi Mbeke, questioning whether it is just creating a small black elite and doing little to tackle more widespread disadvantages among the black community.
The opposition Democratic Alliance has even stronger criticisms. Industry spokesman Mark Lowe is reported to have said: ”It is immoral and obscene that people will qualify for top positions because they are black.”
Nevertheless, companies are pressing ahead, even inside bastions of white business such as the wine industry. One of the the country’s oldest wineries — Boschendal, founded in 1865 — has announced plans to sell a 30% stake to Kovacs Investments 608, run by two former ANC politicians.
Last year mining group Gold Fields struck a deal to sell a 15% shareholding to BEE group Mvelaphanda Resources for more than R3-billion. At the same time the South African arm of French oil group Total handed over a quarter of its voting rights to a black empowerment team.
Geoff Miller, an analyst with emerging investment bank Bridgewell which organised the South Africa House meeting, says the prejudices of the City investment community mean Investec shares run at a 50% discount to rivals such as London-based Close Brothers. ”There is still a perception in London that black empowerment is political correctness gone mad and that the next step is nationalisation and another Zimbabwe,” he explains.
”But if you go over there you will realise this is one of the best managed economies in the developing world.” – Guardian Unlimited Â