The value of black economic empowerment (BEE) deals last year will easily be the highest value of deals recorded by the BusinessMap Foundation, surpassing the 1998 and 2003 peaks of about R21-billion.
Last year’s BEE deal-making activity is unlikely to be replicated this year. Deal-making last year was driven largely — but not only — by the Financial Services Sector Charter and the Mining Charter.
The three biggest deals were in the retail banking sector. They were the Absa, Standard Bank and FirstRand deals. Also, the Standard Bank deal was accompanied by a mirror-image BEE deal for Liberty Life.
Despite being subject to the same charter, each of the banking deals adopted a slightly different approach, underlining the varying philosophies of each bank. In each deal 10% was set aside for transfer, though FirstRand deliberately made this 10% of the entire operation, rather than only the South African assets.
Absa’s BEE deal was very broad-based, and reliant on Tokyo Sexwale to choose the beneficiaries. It was initially criticised for not setting aside enough of a stake for black staff, but this was later rectified.
The Standard Bank deal came in for criticism for not being broad-based enough, despite employees and a community trust getting about 60% of the 10% share of Standard. The other 40% involved Saki Macazoma’s Safika and Cyril Ramaphosa’s Shanduka. In an atmosphere of antagonism to the ”usual names” benefiting from empowerment deals, the focus was on them, not on the broad-based section.
The First National deal was one of the biggest BEE deals to date, at R6,8-billion, and certainly the most ”broad-based”, including none of those frequently empowered names. Yet, oddly, it too came under fire for being ”corporate social investment” rather than BEE, because the beneficiaries were trusts rather than businesses.
In essence, this brings up yet again the debate about ”broad-based” empowerment in BEE deals, which has been simmering for years. The broad-based argument, associated with the union movement, is that BEE deals should financially benefit as many black people as possible. The Absa deal tries to do this. This is a redistributive approach to empowerment, as opposed to the commercial idea of empowerment, where the emphasis is on the black stakeholders being, often prominent, businesspeople and adding value to established companies.
In the First Rand deal, each of the three trusts — Kagiso Trust Investments, the Women’s Development Bank Trust and the Mineworkers Investment Trust — have investment arms, run by extremely capable business people, though they may not be as well known as the big names. These include Eric Molobi and Paul Nkuna. FirstRand will likely draw from this pool of talent to augment its board. So the deal is not purely broad-based.
The government’s own BEE strategy definitely does not insist on broad-based empowerment in the sense of giving stakes to every Tumi, Mandla and Mpho in the country. The Department of Trade and Industry’s BEE strategy defines ”broad-based” empowerment differently, as a range of measures, including affirmative action (or employment equity), to racially transform companies internally.
All companies, including BEE companies, should be subject to the affirmative action and affirmative procurement targets in terms of charter scorecards. In other words, whether a company is black-controlled is less important — for the purposes of employment equity — than it used to be. There is no assumption that black control will automatically lead to transformation.
The pressure to spread the benefits of BEE deals around will not go away. But there may be a shift from broad-based deals to, say, employee share ownership schemes, or stakes for black management. And this was a feature of some of the biggest confirmed deals.
This year will presumably see Nedcor do its BEE deal, and it will be interesting to see what approach it follows, in the light of the experiences of the ”big three” banks.
Reg Rumney is a director of the BusinessMap Foundation