The JSE's bull run is both good and bad for black investors on the JSE. Those who got in early have benefited; for the rest, it is now that much more difficult to get in.
The black economic empowerment (BEE) fraternity is grieving over a lost opportunity to redress inequalities inherited from apartheid. Had more deals been done at the early phase of the bull run, they would now be sitting pretty, having made a dent in the huge disparity between black and white control of listed companies.
But the figures still look bleak: direct black ownership now accounts for 6,3% of the JSE's total market capitalisation; there are 20 black-controlled companies on the JSE out of almost 400; black directors (executive and nonexecutive) make up about 17% of the total directors of JSE-listed companies.
Chia-Chao Wu, executive director of BEE rating agency Empowerdex, says: "If we had done more deals between 2003 and 2005, they could have benefited from the current market conditions. It is now becoming more expensive to fund BEE deals."
But the trend is going in the right direction. Empowerdex figures show the JSE's black direct ownership moved from 1,6% in 2003 to 6,3% at the end of June this year. The balance is not in white hands - much is owned by institutions, which invest the public's savings, and by foreign investors. A figure for direct white ownership has never been calculated, but would probably be around 20%.
The total number and value of BEE deals concluded each year ha s been increasing, from 101 in 2001 to 238 last year. The Ernst & Young mergers & acquisition survey quoted the total value of BEE deals at R42,2bn in 2003, R49,9bn in 2004 and R56bn last year.
Ownership and control via board positions is just one component of the broad empowerment measures captured by the codes of good practice which will be enacted early next year. While ownership has been the focus of the empowerment debate to date, the broad scorecard will shift the focus to the full ambit of BEE, including employment equity and skills development.
Real long-term ownership is also going to be difficult, if the JSE has reached its peak. Most deals are funded on a non-recourse basis - they depend on the total return from the investment (share price and dividends) outpacing the costs of funds. That will be more difficult with limited upside on the overall market. If investment returns don't cover the cost of debt, the shares simply revert to the vendor or financier, leaving the company's ownership unchanged. That helps no-one in the long term.
But, from certain quarters at least, the pressure to bring in black owners will remain. In a presentation to the Black Management Forum recently, Public Investment Corp CEO Brian Molefe said: "One needs to question whether black control in the JSE could increase beyond the 2%-4% in which it has ranged over the past five years. Clearly, this is a matter that needs urgent attention. If it is not attended to, I am afraid we run the risk of leaving the indigenous people out of the mainstream economy." Black Business Executive Circle chairman Peter Vundla is another lobbyist for faster progress: "We are disturbed by the slow pace of BEE implementation," he says.
However, the emphasis is swinging towards broad-based BEE transactions, says Wu. More deals are including employees and women. Highlights of this trend include the R1,1bn deal concluded by retail group Massmart. The transaction will transfer about 8,6% of Massmart's issued shares to 14 500 employees.
Wu adds that many small companies have concluded BEE deals that did not make headlines. He says he has heard of concrete BEE plans by a number of large corporations too.
Colin Reddy, research director of the thinktank BusinessMap, says: "I think this year has also seen the making of BEE companies which can stand on their own because of a strengthened balance sheet. This is important because these companies will be able to raise cheaper capital in the future."
Reddy says the finalisation of the codes should encourage more companies to jump on the BEE bandwagon next year.
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