We are in the middle of the second significant wave of black economic empowerment (BEE) in SA since the ANC government came to power - and there seems to be more questions than answers.
Sensing problems regarding the definition and concept of BEE, the Black Business Executive Circle, led by Peter Vundla, last year commissioned research on the implementation of black empowerment in the SA economy.
What they found was worse than what they had suspected. According to Sithela Ndaba, one of the researchers engaged by the BEE Monitor, attached to the University of Cape Town (UCT), only five companies on the JSE are black empowerment companies. That is, they are organisations with more than 50% of their equity in black hands.
This was the case as at market capitalisation figures on June 30 2005.
The researchers found that the market capitalisation of black chips was a mere 0,098% of the total market capitalisation of the JSE.
When this "famous five" were subjected to a flow-through analysis - which seeks to arrive at exactly how much of the benefits of the company, in terms of equity and management flow through to black people - they found that even in these companies, little ends up in black hands.
It had been hoped that the cumbersome and burdensome special purpose vehicles of the first wave of empowerment had disappeared. These involved black people and business groups taking on large amounts of debt without the certainty that they would share in the upside.
There are still remnants of this kind of deal-structuring in many second-generation deals.
Secondly, it was hoped that the SA BEE landscape would by now show distinct signs of being seasoned, settled and matured. It was hoped that a second generation of entrepreneurs, who possess hard technical skills and expertise, would have been developed to control BEE companies.
The Asian crisis during the late 1990s caused a brief dry spell. But many analysts believe that a cadre of black professionals should have been in place by 2002, when the second wave of empowerment began.
However, the figures released this year by Empowerdex indicate that the performance of top black companies in this regard has been lacklustre.
In fact, some companies, including Mvela-phanda, have been singled out for criticism by BEE monitors and experts. "They are not controlled by black people. Their directors are distant from everyday business and white people are making the decisions there. This is cause for concern," says Loyiso Mbabane, a UCT lecturer and economic justice expert.
A trend towards having insufficient critical mass of black executive managers in empowerment companies is reflected in the tables in this publication.
What is even more disappointing is that far from leading on leadership practice, human resources development, affirmative procurement and social investment, top black companies are lagging in the areas identified as crucial by the BEE codes of good practice introduced by government last year.
The spectre of crony capitalism, the rise of oligarchs and the notion of the same old faces - together with worrying anecdotal evidence of how some entrepreneurs produce government letters of sponsorship and support of particular deals to financiers - dog the second wave of empowerment today.
While heavily criticised by some, this development has, predictably, been fiercely defended by some serial beneficiaries.
Nevertheless, the empowerment landscape boasts a number of top companies that, if not exactly seasoned, can be described as empowered and experienced.
Some of these companies have demonstrated great deal-making ability and appetite in the past year. They have embarked on acquisition sprees that have gained them access to the balance sheets of significant pillars of the SA economy. While some have managed to amass capital and influence over the past year, others have done such novel deals that they have begun to reshape the empowerment game. Some of the companies mentioned have gone beyond legislation and created models in the implementation of black empowerment. These are the reasons they are considered top dogs.
When the first wave of black chips went crashing through the floor of the JSE, bringing the total market capitalisation of such chips down from about 5% to 1%, some companies managed to survive, and even make a sizeable haul.
These were Mzi Khumalo's JCI, Johnnic, Nail, Thebe and later Tokyo Sexwale's Mvela-phanda and Patrice Motsepe's African Rainbow Minerals.
Many but not all of these companies have:
- Consolidated their assets by acquiring a foothold in financial services;
- Introduced a stronger degree of focus in terms of the sector of interest and expertise;
- Looked beyond the borders for assets to render their portfolios more bullish;
- Entered strategic and lucrative joint ventures;
- Introduced innovative funding models to deals, including share-swapping, paying cash, and vendor financing.
These developments have not only made these companies more solid and resilient - they have defined the second wave of empowerment. These companies include:
Mvelaphanda Holdings
Sekunjalo
Royal Bafokeng Nation
African Rainbow Minerals
Metallon
Wiphold
Pamodzi Investments
Telkom
Hosken Consolidated Investments (HCI)
Safika
Tiso
Amabhubesi
Mvelaphanda
At the time of going to press, Mvelaphanda founder Tokyo Sexwale announced that he was sitting on a "war chest" of R1bn and was poised to embark on a dramatic acquisition. SA business will just have to watch this space to see what it is.
Mvela began 2006 w ith the unbundling of its separately listed assets, effectively raising R763m. The assets have been sold to Incwala, a black-controlled company operating in the resources space and chaired by the former head of Billiton, Brian Gilbertson.
Wiphold
Women's empowerment group Wiphold's resurrection was led by co-founder Gloria Serobe.
Two recent deals concluded by the group grabbed headlines and defined Wiphold's destiny. They were: acquiring a stake in Old Mutual and another in Telkom.
Explaining the deal to the public, Serobe said: "In the SA context, it makes tremendous business sense for Old Mutual to team up with Wiphold, because women make up a significant portion of the SA population who make consumer spending decisions."
Sekunjalo
This company astounded critics by recovering vigorously when its plans went belly-up after it lost its flagship asset, LeisureNet, in a governance scandal.
The pride of the Sekunjalo stable is Premier Fishing, over which it has full control. It has played a role in cleaning up the industry and trying to lead by example.
Sekunjalo's empowerment philosophy is to take only controlling stakes, giving it meaningful operational involvement. Vigorous training schemes and corporate social investment complete the picture. CEO Iqbal Survè says that his company was born of political and social activism, hence its ethos where the leader and staff see themselves as social entrepreneurs.
Telkom
Few companies equal the sheer scale, reach and social impact of the empowerment activities of Telkom.
The public company has delivered value to its millions of shareholders all over the world, and was considered to be the most empowered company on the JSE last year.
There was some debate about whether the Public Investment Corporation's (PIC) 15% stake should be factored in as an empowerment stake. The PIC is the manager of government pension funds.
At the retail level, Telkom has many black shareholders, whose investment has been well rewarded.
The black community has also benefited from Telkom's large affirmative procurement drive. The company spent more than R4bn on BEE suppliers, and communities across SA have benefited from its social corporate investment.
Training and human resources development have also won Telkom applause.
HCI
Cape-based HCI is exposed to what it calls "high-growth technology industries", including cellular communication, through Vodacom; media; gaming and financial services.
Though its organogram is constantly changing, HCI is one of the older and more experienced empowerment companies. It recently led a strong resurgence of empowerment in the Cape.
Its value on the JSE has tripled and some estimates place its market value at R3bn. Revenue has increased by 60%.
Its much-publicised bid for a controlling stake of Johnnic late last year has added weight to the company's credentials.
Tiso Investments
Tiso has a unique approach to the two sectors in which it is mainly involved - financial services and resources. The empowerment holding company is owned 56% by staff, 20% by the Tiso Foundation and 24% by Investec.
Tiso has been busy over the past three years, totalling up deals worth close to R3bn. Their under-the-radar style of buying into unlisted entities or into the underlying assets of companies which are listed on the JSE has meant that their deals, though sizeable, have not attracted as much media attention as the purchase of listed entities would have.
Tiso seeks direct access to the entities it buys stakes in; access to the cash flow of a business has enabled Tiso to go on a recent acquisition spree.
Almost two years ago, Tiso did a deal worth R938m with an unlisted carbon manufacturing company. It also embarked on a transaction backed by Rand Merchant Bank , acquiring a significant portion of The Fuel Group, a provider of logistics to the manufacturing sector.
The deal that Tiso struck with Investec, acquiring 6,8% of the banking group, consolidated its foothold in financial services.
Safika
Safika is an investment holding company with strategic investments in communications, IT, resources and financial services.
Though its leadership is impressive, it has lower acquisition levels.
It is difficult to understand why, given the credentials of its founders - entrepreneur Vuli Cuba and former Robben Island prisoner turned businessman Saki Macozoma - its deal appetite seems suppressed.
The investment holding company consists of many companies within a labyrinth of shareholding in numerous entities. Many of its assets are not of great national significance.
However, the deal in which Safika secured 25% of the R3bn revenue listed computer systems company, Mustek, is important. Its 51% of Newco also has some significance because Newco is a consortium led by Safika which has a significant share of iron ore giant Sishen.
The historic significance of Nail cannot be overlooked. Safika won Nail - the first black chip, and the grandfather of most empowerment companies - in an epic battle.
Safika and ex-government communications boss Andile Ngcaba secured 25% of the London-listed IT firm Didata, in a deal valued at a bout R380m.
In June last year, Safika sold a stake of 20% to Standard Bank - a move which many dubbed a fundraising deal. The amount paid by the bank remains undisclosed.
Standard Bank and Safika created the ill-fated Andisa Capital, a financial services company.
The latest Safika deal is a relatively small one involving risk and credit management firm TransUnion.
For Safika, the deal involved the private equity arm of the group acquiring a 25% stake in TransUnion's Receivables Management - basically a tout's deal involving lots of business development to be embarked on together.
Metallon Corporation
Metallon is the corporatisation of the economic and commercial interests of mining entrepreneur Mzi Khumalo and his family. Khumalo, a loner in ther empowerment scenario, who rose through resources and financial services, has divided the corporation into several parts, involving mainly mining, financial services and lately property development.
Khumalo has consolidated significant assets across the border in Zimbabwe on the premise that the situation in that country will eventually improve and he will then profit.
Khumalo ended a five-year shopping spree in Zimbabwe with the completion of the purchase of five gold mines previously owned by Lonmin. The purchase was worth US$15,5m.
Since moving in to consolidate its resources assets in Zimbabwe, Metallon has flirted with issuing paper, worth an estimated R2,01bn, on the market in Toronto.
Hiccups back home, however, have hindered the speed with which this decision would have been made.
Meanwhile, Khumalo has acquired a taste for large leisure properties and, when he is not negotiating with the construction companies he has engaged, he prospects for new development ventures.
