If you judged the world by newspaper headlines, black economic empowerment (BEE) is all about gargantuan deals with complex financing, titanic battles between white and black groups in charter negotiations over equity targets, and monstrously easy money for a few politically connected people.
Unfortunately, this fixation on the ”Art of the Deal” neglects the many small shifts at every level that are gradually changing the colour of South African business.
An example was the announcement this week of a cooperation agreement by automotive parts supplier Midas and three taxi associations representing 4 000 taxi owners to tap the township market.
The Gauteng Taxi Council, the South African Long Distance Taxi Association and the Greater Alberton Taxi Association will be able to own and run franchises. Midas MD Gordon Odgers says Midas will assist with IT and training, which is true empowerment. He adds that the associations will get cheaper parts, depending on sales volume, in terms of the preferential supply agreement.
The deal, says Odgers, is not driven by any possible charter or pressure to land more state business. ”It just makes sense.” Midas is ”pretty dominant in the white areas”, so the opportunity for growth lies in townships and taxis.
How the deal pans out remains to be seen, but there must be growth potential. Some taxis clearly need access to quality spare parts and the franchises will operate 24 hours a day because taxis are often serviced at night.
The deal should boost Midas’s turnover — about half of which reportedly comes from franchise businesses. Moreover, it will have a spin-off for domestic parts manufacturers.
Spare parts smack of the grease, sweat and grime of the real economy. Franchises offer a go at the kind of realistic wealth most South Africans can aspire to: wealth through hard work rather than luck.
The deal vindicates an earlier Midas decision to bring in soccer icon Jomo Sono as a 30% empowerment partner. Sono, who bought his first Midas franchise in 1998, put the taxi deal together, says Odgers, and paid full value for the shares. This differs vastly from past patterns of discounted shares for former politicos.
The Cosmos boss is famous, but can’t be expected to ”open doors” through his political contacts. Rather, he is a former athlete who has decided to specialise in empowerment deals in the transport industry. He can help Midas with his knowledge and contacts in the black community.
BusinessMap has long counselled white companies looking for empowerment partners to look for people who really can add value to their businesses, rather than only those with political credentials. Sono’s acquisition of the Midas stake seems to fit the bill. He is an enterprising businessman, whose first deal was to buy Highland Park and rename it Jomo Cosmos in 1982.
The motives behind the taxi deal and Sono stake are in stark contrast to the pressures driving the charters. They also suggest a different way of tackling empowerment in the automotive industry.
Some foreign IT companies object to allowing minority stakes in South African operations, because their strategy is to run wholly-owned subsidiaries. The automotive industry may be even more adamant about not ceding minority stakes. So far, its approach to empowerment has been to make more franchises black-owned.
Will the motor industry escape pressures for equity transfer? If DaimlerChrysler pulled out because of demands for BEE stakes, the pain would be immediate.
The industry has attracted large amounts of foreign direct investment to expand manufacturing capacity for export. The surge in exports of cars such as right-hand drive C-Class Mercs is something of which the government is justifiably proud, since it comes about through the Motor Industry Development Plan.
So motor firms have more clout when it comes to local regulation than other foreign firms.
It has been suggested foreign firms be exempted from the ownership requirements of the Balanced Scorecard, focusing instead on employment equity, training, procurement and social investment.
But this crosses the policy of national treatment, whereby foreign and local firms are largely subject to the same regulations.
There should be no favouritism, and letting foreign firms off the hook would lead local firms to cry foul.
Then again, President Thabo Mbeki stated in his State of the Nation address that the government will not encourage charters in every sector. So the motor industry might be off the hook on equity. It will, however, have to show it is helping black people move into the economic mainstream.
BEE deals driven by business realities such as growing black buying power seem more genuine than those done to win government tenders. Both types of deals have their place. Let’s just not forget that to be truly broad-based, BEE will have to mean more of the less glamorous but far-reaching minor deals, as well as changes in major companies.
Reg Rumney is director of the BusinessMap Foundation