Being called a “hard-nosed sceptic” is one of the greatest compliments you can receive as a journalist or economic commentator. To be described thus by the president of the country is a rare honour — and I am not engaging in the searing sarcasm the president has visited on those he deems out of line.
For I am among those President Thabo Mbeki chose to criticise in his most recent column (“Cementing economic transformation”, November 24 to 30) in ANC Today. My offence is “almost hostile” commentary in this Big Deal column on the proposed Holcim BEE deal that aims to transfer 46% of Holcim SA’s shareholding to BEE consortium Afrisam, headed by former South African ambassador to the European Union Professor Elias Links. But before my vanity gets the better of me, let me turn to the interesting questions the president raises.
It is hard to summarise the 2 411 rather rhetorical words — including dragging in an irrelevant Winston Churchill phrase about a “bodyguard of lies” — he has devoted to this topic in ANC Today.
He seems to be saying we should simply accept the stated official motive of Swiss-based Holcim selling all but 8% of its majority stake in Holcim SA, forget that it is disinvestment, and celebrate the creation of a major black-controlled cement firm.
I’m with him on celebrating true, sustainable transformation — if that is indeed what the deal represents. I am not entirely sure why I should be pleased about a foreign company engaging in a massive disinvestment from South Africa.
Almost R7-billion will leave the country. South Africa’s record on foreign direct investment is poor, and any disinvestment should be viewed with guarded concern.
For that is what the Holcim deal also indisputably is, despite the opinion of an unnamed financial adviser quoted by Mbeki.
The adviser said: “It is in our opinion unfortunate that this proposed transaction can be misinterpreted as disinvestment, simply because the controlling shareholder that wished to maximise the benefits of economic transformation for its regional operations happens to be a foreign parent rather than a local company.”
There is no misinterpretation. As I pointed out previously, when a foreign company sells its stake in a South African company, this is disinvestment, period. It might be for the most noble reason, but the Reserve Bank will still call it disinvestment.
I guess the reason for the sensitivity around the Holcim disinvestment is the question lurking in the background: is BEE deterring investment, or even causing foreign firms to flee the country? Even raising the question raises hackles, since BEE is one of the pillars of government policy.
BEE has, in several instances, been associated with disinvestment, most notably the sale of the foreign stake in Telkom. But no big disinvestments have been laid at the door of BEE itself.
The answer to questions about whether BEE is affecting investment is not straightforward. Companies tend not to be frank on certain issues. Either they lie by omission, or they use corporate “spin”, which is akin to bullshit but much fancier.
So, firstly, you will not lightly get a company to admit it has not invested in South Africa because of BEE, or that it is leaving because of BEE. They would much rather use weasel words supplied by an army of clone consultants and advisers.
Secondly, many foreign companies seem quite happy to do BEE deals as part of complying with the local regulatory environment. Barclays bought Absa in the knowledge it had already done such a deal.
Thirdly, and even more importantly, the South African government has let foreign companies dodge the equity transfer side of BEE to some extent as long as they show some other kind of commitment to transformation.
Were it not for this last let- out, we might well see some significant foreign direct investment bloodletting.
Mbeki approvingly quotes “one of Holcim’s financial advisers” as saying, “Holcim accepted that, regardless of precedent transactions in the South African market, its own approach to BEE should seek to maximise the opportunity for its regional business as a result of BEE, rather than seeking to minimise the impact of BEE on it[self] …”
It is sometimes said that if you see a Swiss banker jumping through a window you should jump after him, because there is bound to be money in it. If we broaden this to Swiss companies, I suppose all foreign companies should show their commitment to BEE by taking their money out of South Africa.
I have always said that social responsibility should be part of a company’s core business, but not to the absurd lengths of getting out of the business altogether.
A number of other unanswered questions relate to the financing, which is at the heart of all BEE deals. How will the BEE shareholders pay for this stake? This is not a gift from Holcim, after all.
The deal is supposed to put 46% of the company in black hands, but we have enough experience of BEE deals unravelling along the way, leaving black shareholders either with smaller stakes than they expected or nothing at all.
How much of a stake will the white staff have, specifically white management? The answer to this question will reveal how real that 46% target is in the first place.
What is the structure of the Afrisam BEE consortium? Are the broad-based shareholders there for decoration, vanishing at some future stage to leave one or two new tycoons in their place? Is anyone in government benefiting? Who will actually pay for this deal, and is the cost acceptable to shareholders?
All these questions show why scepticism — not cynicism — has its place in discussing BEE deals. Sometimes the attitude seems to be that, since BEE is good for South Africa, all BEE deals are good for South Africa. This is a fallacy. Some BEE deals have only been good for the shareholders selling iskorokoro investments to black shareholders.
Yet, the same principle, that hard questions must be asked, applies to any corporate activity, including social responsibility. I originally founded the Investing in the Future Awards to try to see behind the gloss applied by companies to their social responsibility, and recognise those companies that showed excellence in this field.
The president’s defence of Holcim has given us all an opportunity to shine a light on what is actually happening in this BEE deal. If no skeletons tumble out, well and good. I am not, however, prepared to redefine economic terms to call it anything other than a disinvestment.