Black entrepreneurs navigating the empowerment space may be forgiven for believing that, in this time of economic crisis and a dearth of capital, they are on their own.The picture is bleak. According to empowerment ratings agency Empowerdex, R41bn worth of potential empowerment deals have been wiped out due to unfavourable trading conditions in the past two years.
But the idea of bailouts for empowerment deals that are underwater because of falling share prices is not up for discussion. Last year, Black Management Forum president Jimmy Manyi told an ANC gathering that bailouts should not even be considered.
Manyi argued that bailouts would benefit a handful of investors, but ignore broad-based beneficiaries who depend on dividend payouts and employment equity beneficiaries who may lose their jobs as a result of the economic crisis.
Zungu Investments Company chairman Sandile Zungu concurs with Manyi, arguing that black entrepreneurs must "appreciate risk and reward".
Finance minister Trevor Manuel argues that the economic crisis is little more than a failure to learn from history. He points to the 1998 crash when many empowerment deals, financed using then popular special purpose vehicles, unravelled.
But it's not all bad news. Government's infrastructure spend offers a valuable opportunity to black entrepreneurs, even during these tough economic times. It is spending R787bn on new infrastructure.
However, taking advantage of the opportunity may be difficult - lax controls could mean those who are politically well connected will win the best contracts. That's because a regulatory framework to ensure that the spending is directed to empowered suppliers is either not in place, or not strong enough, depending on who you ask.
Zungu says the framework is nonexistent. He points to the soon-to-be-completed 2010 World Cup stadiums as a missed opportunity to have helped establish a black-owned, black-managed and black-controlled construction company that by now would have been able to use the money earned and experience gained to compete for contracts in Dubai or South Korea - at least, that was the theory before the economic crisis knocked the stuffing out of the global construction industry.
Trade & industry director-general Tshediso Matona says a framework is in place in the form of the codes of good practice, though he concedes it may need strengthening.
Zungu calls for the establishment of a black economic empowerment advisory council, something which has been discussed for some time. But Matona says that though such a council might form part of a solution, it will play a policy role and would need a centralised technical body.
Entrepreneurs will also find that funding options have dried up since commercial banks are taking strain, while development finance institutions will be under pressure to fund infrastructure projects.
"When you have limited budget, you cannot do everything," says Industrial Development Corp (IDC) CEO Geoffrey Qhena, adding that the corporation's ability to fund empowerment deals will be determined by the level of its own commitment to infrastructure spending. But he notes that the IDC will not abandon deals that are already concluded or abandon dedicated initiatives, such as the R1bn entrepreneurs' fund established last year, or the R400m trucking industry scheme it runs with Absa.
Empowerment will also benefit from the IDC's general funding. Qhena says the corporation is still prepared to provide funding in instances where it bridges the risk gap - where commercial banks are not prepared to fund an entire project because of their adversity to risk.
There are still other sources of funding for empowerment deals, such as the National Empowerment Fund, which, according to its last annual report, published in March 2008, was processing 45 transactions with a value of R1,1bn. The irony of course is that the fund's turnaround is largely due to the success of the Asonge share scheme, whereby discounted MTN shares were sold to black investors. The scheme netted the fund a surplus of R951m, up from R110m in 2007. So, a fund that is a beneficiary of a share price boom may now have to help rescue businesses that are suffering after that boom.
Zungu says the tough times will mould black entrepreneurs into better ones. He says they must look for ways of contributing to the ANC's commitment to the creation of 5m jobs and play their part in development.
All this, and "not ask for a cent" in bailout money.
