Twice over the past few years small black economic empowerment (BEE) deals in agriculture have trumped multi-million rand deals to win the BusinessMap Empowerment Awards. The latest is the purchase by Grasslands Development Trust of 100% of Grasslands Agriculture.
This is the real deal, with the trust, comprising 49 Grassland Group farm workers, buying a 478ha dairy farm. Turnover is only R7,5-million, but in the panel’s view it represented a desirable form of empowerment.
Why do these agricultural deals score so highly and what does this say about empowerment? Overwhelmingly in its favour is that in this transaction outright ownership, with all that this entails, has passed to the participants.
Outright ownership also means that one of the requirements of a BEE deal is immediately fulfilled: that of risk taking. This is a basic business equation: reward is proportional to risk.
So in each BEE deal, the black participants have to do something to earn their shares, to justify their being chosen above others. They can bring in new skills, new energy, knowledge of the black market, or all of these.
BEE deals remain commercial transactions, with a willing seller and willing buyer. Some money generally changes hands, but there is almost always a discount of some sort, either on the shares themselves, or implicit in the financing arranged by the established company.
The trouble is that the new draft BEE codes of good practice (specifically Code 100), published towards the end of last year, take a stand against the financial instruments that make BEE deals possible.
Preference shares and other instruments that transfer ownership over time are banned. Encumbering the shares in any way is penalised, as is locking in black participants through an exit penalty.
One view is that the codes mean the black participants must end up with ownership, or the deal will not be counted. Effectively, then, the established company must guarantee the success of the deal.
This means there is no risk to the black participants. Any talk of the black company or grouping or individuals earning their stake is nonsense.
Thus the only way of guaranteeing success in a BEE deal is to give shares away. If a company is forced by law to do this, even if the law is the “soft” law of buying and licensing power, it is the equivalent of expropriation.
If this view is correct, this is a revolution in, rather than evolution of, BEE, which started off as voluntary acts by white business nudged along by ad hoc legislation and the hope of fending off revolution.
This may be an incorrect interpretation: the language of codes is the tortuous language of the legal profession.
What is certain is that the three main charters, so painstakingly crafted, will have to be junked or rewritten.
Do the unintended consequences of the codes arise out of the deep mistrust that bedevils our society and economy? Dr Mamphela Ramphele referred, at the awards last week, to a “trust deficit” being a legacy of apartheid.
So white people are believed to be deliberately structuring BEE deals to fail and devalue the shares of the new owners: many established businesses, suspicious of government motives, have been too reactive to pressures for transformation.
In any case, some of the codes do represent a fundamental shift in government’s approach. As it stands, the National Economic and Development Labour Council needs to be revived from its torpor so that the codes can be debated there before they simply slip into law.