Cyril Ramaphosa’s long delays in appointing the new BEE Advisory Council shows he has little interest in allowing others to cash in on the BEE deals that earned him his fortune. Photographer: Waldo Swiegers/Bloomberg via Getty Images
Three decades after the first black economic empowerment (BEE) deal on the JSE, the ANC’s 1994 election pledge to deracialise the commanding heights of the apartheid economy is on its last legs and may never recover. President Cyril Ramaphosa’s newly appointed BEE Advisory Council is unlikely to inject a new sense of urgency to transform the economy to a reluctant government that has no political will to revive the project and confront powerful corporate interests, especially in mining and finance, which bullied it into making fatal policy compromises.
The ANC went to the first democratic elections with a blueprint called the Reconstruction and Development Programme (RDP) which said: “The domination of business activities by white business and the exclusion of black people and women from the mainstream economic activity are causes of great concern for the reconstruction and development process. A central objective of the RDP is to deracialise ownership and control completely through focused policies of black economic empowerment.”
Since he became head of state four years ago, Ramaphosa has seldom said anything about transformation, though he led a commission that presented recommendations to former president Thabo Mbeki in 2001. The recommendations paved the way for the current BEE policies. It took more than 30 months for him to appoint members of the new council after the previous one’s term ended in October 2019. A sign of the times and the lack of interest in achieving the RDP’s objectives is that the ANC’s discussion documents for its policy conference at the end of July say nothing about BEE.
In 1994, the ANC inherited an economy that had developed around a mineral-energy complex, a system of accumulation around a core set of industries and institutions that had developed around mining, according to authors Zav Rustomjee and Ben Fine. There were “six axes of capital” — powerful conglomerates which had interests in mining, finance and industry and controlled almost 90% of the shares on the JSE. After 1994, the conglomerates restructured operations, expanded offshore and sold shares to black companies. Four historic JSE deals by pioneering black companies New Africa Investments (Nail) in 1993, Real Africa in 1995, the National Empowerment Consortium (NEC) in 1996 and the African Mining Group in 1997 kickstarted the first wave of BEE transactions until 2002.
These black companies and transactions unravelled for various reasons, including an unfavourable macroeconomic environment and an emerging market crisis during the late 1990s, which reduced share prices. There was a second wave of transactions between 2003 and 2008, which took place within the context of an improved macroeconomic policy environment — higher GDP growth, lower interest rates and a boom in world commodity prices — and a new BEE policy framework. The department of trade, industry and competition developed the BEE codes, a measurement system for transformation. There was a proliferation of sector charters, which had different rules and measurement systems.
After 2009, there was a liquidity freeze in empowerment financing and a dramatic slowdown in BEE transactions and deal flow. There was an initial slowdown in the wake of the global financial crisis of 2008 and 2009. But the situation became chronic due to uncertainty about the application of the “once empowered, always empowered” principle and later the finalisation of amended charters in mining and finance. There were fewer transactions within the largest JSE companies. There was also a reversal of transformation as many large transactions unwound at the end of their 10-year funding periods. For the empowerment process to continue, companies should eventually conclude new transactions after the exit of black shareholders. In this way, there can be liquidity in empowerment finance.
However, the amended 2018 mining charter allows companies to have recognition for their past BEE transactions in perpetuity after the exit of black shareholders using the “once empowered, always empowered” principle. The 2017 financial sector charter gives companies a “get out of jail” card. They do not have to conclude new BEE transactions to achieve their ownership shortfalls against a lower 15% ownership target if they provide financing to black businesses — a strange target since this is a bank’s core business. In the rest of the economy, there is a 25% black ownership target.
The BEE codes were a political compromise between the stakeholders who developed them and established and emerging businesses. Like most political compromises, the result was a mess. Companies have found ways to game the system and get high BEE scores without showing real transformation. The measurement of black ownership is a sham and has lost all credibility. There is no relationship between scores that companies get on their BEE verification certificates and the actual levels of black ownership as disclosed by companies in their annual reports.
A study by the BEE Commission, which looked at verification certificates, found that the average ownership score for 150 JSE-listed companies was 31.5% in 2019. This is impossible and absurd. In a recent paper, which looks at actual scores as disclosed by companies in their annual reports, I found that black companies owned shares worth R245-billion within the top 50 companies on the JSE at the end of December 2020. This was equivalent to 1.7% of the R14.2-trillion market capitalisation of the top 50 companies. After excluding the value of foreign assets of the JSE’s top 50 companies — an astonishing 75% of their market capitalisation — this was equivalent to 6.9% of the value of South African assets.
Mining and finance companies accounted for 74% of black ownership. However, the mining and finance charters have closed the empowerment finance liquidity tap. Rampahosa, a former director of Nail and chairman of the NEC who later established the Shanduka Group, made a fortune after selling shares in mining company Assore and Standard Bank. But the two charters have kicked away the ladder that allowed him to make their billions. Assore and Standard Bank will never have to do another BEE transaction. The government has effectively killed its own policy. If the BEE advisory council does not rectify this sham system of measuring black ownership and reverse the fatal empowerment policy compromises, South Africa will never achieve the RDP objective of deracialising the economy.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.
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