/ 17 November 2012

Sugar giant talks indigenisation vs empowerment

Tongaat has almost doubled its production of sugar
Tongaat has almost doubled its production of sugar

"If there's any dilution of our equity, that will be a step backward in the recovery [of the Zimbabwe sugar industry and black small-scale cane farmers]."

That was as close as Tongaat Hulett's diplomatic chief executive, Peter Staude, came to a threat of retaliation in the face of the move to force the company to indigenise in Zimbabwe by handing over 51% of the shares of its companies there.

Staude was addressing analysts following the release of Hulett's financial results, which show that its Zimbabwe operations are roaring ahead and accounted for a third of the entire group's operating profit in the latest half-year to the end of September.

Last month Tongaat received a letter from Zimbabwe's National Indigenisation and Economic Empowerment Board, which stated: "We would like to advise that the ministry's patience is running thin and that should we not receive a proper compliant plan within the prescribed period, the ministry and government would take it that the shareholders of Triangle [Sugar] are not interested in continuing to do business in the country."

Tongaat Hulett's sugar operations in Zimbabwe comprise the wholly owned Triangle Sugar operation and its 50.3% holding in Hippo Valley Estates.

Staude described to analysts how much Tongaat had done to help small farmers recover since the dollarisation of the Zimbabwe economy in early 2009. Before that, during the time of hyperinflation, he said, farmers and workers had often been paid in sugar. Because of the debasement of the Zimbabwe dollar, Tongaat had to sell its sugar locally at the equivalent of $7 per ton, against a world price of  about $500.

Profitable production
The situation for Tongaat's 18 500 employees in Zimbabwe and its small-farmer suppliers of cane has improved dramatically since 2009.

Tongaat has almost doubled its production of sugar, from about 259 000 tonnes in 2009 to an estimated 460 000 to 490 000 tonnes in the current year (to the end of May 2013) and it foresees further increases in the years ahead.

Most important is that the production is increasingly coming from black small-scale farmers (often with 20 hectares of land) who had been reduced to producing virtually nothing in 2009. Tongaat had helped them return to profitable production and it was getting requests from many more for assistance, he said.

In perhaps Tongaat's first reaction to the indigenisation threat, Staude announced that it would not be expanding its own estates, but would be looking to increase its supply from small-scale farmers.

Staude said Tongaat was also involved in a number of projects developed through consultation with communities and their chiefs.

Tongaat seems to be arguing that any expropriation would impair its work in empowering Zimbabweans, with the subtext that Zanu-PF might lose votes as a result. It is a different angle to arguments that were unsuccessfully advanced by platinum mining companies recently indigenised.

With the indigenisation board's deadline already here, jittery investors will know soon whether this approach has made any difference.