The days when Black Economic Empowerment (BEE) credentials were a financial accounting feature achievable at a stroke of pen seem to be coming to an end.
There is glimmer of hope that BEE will become a sustained programme of action defined primarily by human development measures and not valueless scripts held by a few individuals.
The shift comes after loud protests that BEE has been hijacked by a few powerful individuals and has become irrelevant to the majority section of the previously disadvantaged communities.
"As we enter the second decade of democracy, SA is faced with numerous challenges (growing inequality and poverty) that to a significant extent are the result of the reparations programme (BEE)," says businessman and social commentator Moeletsi Mbeki.
Last year saw significant movement towards making BEE, a programme with meaning for the millions of apartheid victims.
The Department of Trade and Industry (DTI) released a complete draft of the BEE codes of good practice. Designed to provide a standardised definition of basic BEE principles, the codes have been written in a language that only understands broad based empowerment.
The codes draft document notes that "Transactions which were concluded during the first wave of BEE in the late 1990's reveal a need for the transformation of BEE deals themselves."
There is a need to address the lack of participation by black women and broad based structures in BEE consortia. The documents raises a concern on the reversion of black equity into the hands of the original white owners following the collapse of BEE deals owing to onerous structuring and repayment terms.
In anticipation of the codes, most high profile BEE deals of last year came bearing a conspicuous BEE tag. These included transactions proposed by Old Mutual, Sasol, Kumba, De Beers, Murray & Roberts, Imperial and Alexander Forbes.
Interestingly, non of the groups which concluded major BEE deals last year feature on the Top Empowerment Companies' (TEC) top 10 list. A first sign that BEE is not simply a financial accounting feature.
Releasing the full draft document of the codes in December last year, trade & industry minister Mandisi Mpahlwa said: "With these codes I hope there will be a shift of balance in terms of the BEE approach and understanding."
He said BEE should not be concerned with only a transfer of equity.
Raymond Ndlovu, CEO of stockbroking firm Noah Financial Innovation, concurs: "It is clear that BEE can no longer be only about equity transactions, but needs to focus on broad-based empowerment."
TEC's top 10 list features companies that have been on the empowerment agenda for some time. Sekunjalo Investments, which emerged as the TEC's most empowered company on the JSE, upstaging Telkom, has been on the empowerment path since its establishment in the 1990s and therefore measures well on the broad-based scale.
Sekunjalo CEO Iqbal Survè and his team have come out on top despite difficult conditions which led to Sekunjalo's share price tumbling from a high of 230c in 1999 to 10c in 2000. They steered the group back to health following a near-collapse caused by the liquidation of its largest investment, a R200m stake in LeisureNet.
Sekunjalo's share price has recovered to approach the 100c level.
The story of Sekunjalo's long-standing empowerment record applies to hotel group the Don, which came second in the TEC rankings. A black bloc led by Thabiso Tlelai bought into the struggling operation with a mission of turning it around. Years of hard work at operational level enabled the group to retire the mountainous debt inherited from the previous owners. The share price of 25c may be a far cry from the 1996 record high of 550c but the share carries more real economic value for shareholders than before.
The others in the top 10 list are Sun International at third position, followed by Enaleni Pharmaceuticals, Telkom, Mustek, Adcorp Holdings, GijimaAST, Group Five and Bytes Technologies.
The financial sustainability of BEE deals concluded by these companies played a significant part in their rankings. Unlike in the past, they were not awarded ownership points based solely on their intentions. The ranking took into consideration net equity value accruing to their black equity partners.
The net equity value principle is one of the significant measures that came with the codes of good practice.
Though the ownership aspect of the scorecard draws a maximum of 20 points, a significant portion of these points accrues only when a sustainable path to net equity value can be established.
A certain portion of ownership points can be gained only with the inclusion of women, broad-based formations and new empowerment players.
More points come outside the ownership aspect (20 points) of the scorecard. Black representation at board and management level commands a maximum of 10 points; employment equity 10; skills development 20; preferential procurement 20; enterprise development 10 and a further 10 from the residual element.
Since the release of the draft codes in 2004, we have already seen a marked shift away from how BEE deals are structured. This was evident in some of the BEE deals announced in 2005, says DTI acting BEE director Polo Radebe.
The codes are out for comment and due to be made law during the course of this year. That will remove a veil of uncertainty with regards to the BEE regulatory framework, which should encourage more BEE activity, says Business Unity SA COO Vic van Vuuren.
Many of the deals seen in 2005 were clearly pre-empting the code's scorecard.
The empowerment consortium that clinched the R7,2bn Old Mutual transaction consists of a group led by women-controlled empowerment formation Wiphold and another group led by Cape Town-based empowerment group Brimstone Investment Corporation.
The transaction will deliver 13,4% of Old Mutual SA shares to the black groups concerned. It will transfer 9,3% of Old Mutual's banking division, Nedcor, to the black partners and 11% of Old Mutual's insurance division, Mutual & Federal.
Petrochemicals giant Sasol has proposed a R1,45bn deal which will purportedly benefit 150 000 direct beneficiaries. The deal seeks to transfer 12,5% of its 50% stake in liquid fuels operation Uhambo Oil to a consortium called Tshwarisano.
Anglo American subsidiary Kumba's deal came on stream last year to become the largest BEE deal in value to date. The R9,2bn deal led to the splitting of Kumba into two operations: iron ore and a coal and minerals company.
Construction groups M&R and Group Five also produced broad-based BEE deals during 2005. The deals reflected a bias towards their employees and community-based groups. M&R's R494m transaction will transfer 10% of its equity to its employees and community-based organisations.
Group Five proposes to transfer 26,1% of its shares to a three-tiered entity, including Mvela-phanda, which will acquire 10,8% of Group Five. The iLima Consortium will get another 10,8%.
Diamond group De Beers announced a BEE deal in which it will sell 26% of its SA operations for R3,8bn to a consortium led by former Northern Cape premier Manne Dipico. The consortium, called Ponahalo, represents a cocktail of interests, including 18 000 De Beers employees and pensioners, women's groups, disabled people and communities near De Beers Consolidated Mines.
There is growing concern that overenthusiastic broad-based BEE may defeat the fundamentals of the empowerment agenda. Black entrepreneur Mzi Khumalo said last year in an interview with the FM: "BEE faces the danger of becoming a simple charity and social responsibility programme devoid of any commercial sense."
Businessman Saki Macozoma has consistently warned that broad-based BEE should not replace capital accumulation by black entrepreneurs.
These views are a counterblow by the new black elite, who have been criticised for amassing millions while the majority in previously disadvantaged communities live in poverty. As broad-based empowerment grows, threatening the economic prospects of the black elite, the gloves are coming off.
