One of the salient points black business pioneer and former chaiperson of New Africa Investments Limited Nthato Motlana made when he addressed the BusinessMap Empowerment Awards dinner recently was that when he started out on the capitalist path, black economic empowerment (BEE) was unknown — it was all about “black business” back then, Motlana, approaching his 80s, pointed out.
What happened to black business? When Motlana first did his seminal deal with Sanlam visionary Marinus Daling, the ideas were of vibrant, new black businesses — just as there had been new Afrikaans businesses back in the 1930s and 1940s and after, before South African businesses saw their first “de-racialisation” and became simply white businesses (though old connections and fealties die hard, and Afrikaners have done well out of the new South Africa, one black businessman comments with some bitterness).
By starting and running their own businesses, Afrikaners learned the hard way about the difficulties of entrepreneurship. Rembrandt thrived, but not all ventures backed by Afrikaans capital and supposedly supported by the state flourished.
Black business, and the need to foster it, except through procurement, has taken a back seat to empowerment. Even Black Like Me founder Herman Mashaba announced a BEE deal last week. More importantly, charters and other pressures have meant white businesses have gobbled up independent black businesses.
One blow to black business was that a few new, black-owned and black-managed businesses couldn’t crack it. Mostly, it was not their fault. Pepsi Cola bottler New Age Bottlers effectively took on SA Breweries — always a bad move — as did National Sorghum Breweries. And then the Liquid Fuels Charter ensured that Shell swallowed Thebe subsidiary Tepco and Engen Afric Oil. Operational black companies and black brands were swapped for almost passive shareholding in white companies. In anticipation of the Information and Communication Technology (ICT) Charter, DiData undid its joint venture with Choice Technologies, in which it held 49%, as it began to look for black shareholding in its South African business.
Now the R225-million deal that will create Business Connexion out of a merger between Comparex Africa and Business Connexion Solution Holdings (BCSH) sees another operational black firm folded into a white company.
Comparex Africa really needed this deal. It saw its main BEE shareholding of 50% vanish when Real Africa’s National IT Acquisition Consortium (Nitac) disinvested from the company in December 2001. It needed a BEE partner to do business with the government — 40% of its business was done in this way. Why did BCSH need it? This is not obvious, although I suppose it is a chance to play in the big league.
This was a vendor-financed deal, although the financing was reportedly on commercial terms. Business Connexion Solutions was to be issued 11,82% of Comparex. It would then buy an additional 13,19% for R117-million, bringing the shareholding to 25,01%.
This is a neat solution to the problem of funding, but is only possible where there is a black company to merge with, which presupposes the existence of black businesses. They will have to grow from small businesses through procurement.
No longer an Afrikaans company, Comparex has a black deputy and a blacker image. Moreover, staff had been motivating for an empowerment deal two years before it took place, so it had buy-in. The balanced scorecard emphasises transformation of companies, including a more racially representative management, so this will help the Comparex deal, as it is rated in the new ICT Charter.
But how seriously are the other targets of the balanced scorecard being taken by the industry in general? The most recent draft of the ICT Charter even goes the other way, specifying equity targets for foreign companies even if they rate highly on the other measures in the scorecard. Some of whom have made their displeasure with surrendering equity well known.
On the other hand, if the scorecard is applied selectively, it can no longer be called “balanced”.
The IT industry is notorious for fronting, which is why there was so much suspicion of joint ventures, so the emphasis on internal transformation will be welcomed by black professionals.
If the focus is going to be on rainbow businesses rather than black or white businesses, then we had better start contemplating “change management.”
This means grappling with important but truly difficult phenomena — such as accepting truncated career paths or being labelled an affirmative-action appointee.
It means helping staff adjust to big changes for the continued survival of the business. It might just be more difficult than finding the right funding mechanism.