Over the past 12 months or so, the black economic empowerment (BEE) deal market has been bedevilled by rumour mongering of the worst kind. This should stop, here and now.
With the publishing of the 2009 Top Empowerment Companies (TEC) edition, the health of SA's economic redistribution plan, BEE, will be known.
TEC has grown to become the ultimate BEE barometer. A significant portion of companies listed on the JSE are now falling over themselves to participate in this annual survey. In years gone by many companies rushed for cover at the sight of questions about their BEE credentials. Now many are opening up, which signals an acceptance of BEE.
TEC is based on data mined by leading rating agency Empowerdex. The agency applies the broad-based BEE scorecard to companies listed on the JSE and then produces the TEC list. This year sees the introduction of the AltX BEE list.
This sixth edition of TEC comes just in time to address many deluded opinions about BEE and its prospects. Many seem to think a number of BEE deals have collapsed, subjecting the entire BEE process to undue criticism.
Rumours of collapsing deals as well as global market turmoil have caused a great deal of uncertainty. These are tough times and in such uncertain times, mavericks tend to flourish. People are vulnerable. It was under similar circumstances - though arguably more pronounced - that Adolf Hitler managed to drag the German nation and the whole of Europe into a disastrous avenue.
No doubt, the world is once more in trouble. The credit crunch is sinking into the real economy. Consensus has it that the world economy is in for the roughest ride since the 1929 depression. The local economy is surely going south and will take with it the BEE deal market. Already, the annual value of BEE deals concluded in the past two years has been severely hit.
And rumours of ailing BEE deals are not helping the situation. In theory, these rumours are credible. BEE transactions are known for financial witchcraft, to borrow a phrase from Duma Gqubule. BEE equity holders are borrowed to the hilt at a ludicrously high cost of capital nogal. Many are not adapted to withstand the global market storm. Falling asset prices and weaker income statements expose the fundamental weaknesses in these BEE transactions. That has been the basis of the doom and gloom surrounding BEE in the past few months. A repeat of the late 1990s where BEE deals collapsed en masse has been predicted.
Despite all the noise, deals have not collapsed in large numbers. Only one BEE transaction - The SA Corporate BEE deal - was fed to the dogs. It is only new deals that find it hard to take off. That should not be a shocker in a market where normal commercial transactions fail to make the grade.
Certainly, things have changed. BEE is no longer a nice to have. It has become a business imperative. Companies have realised that BEE will not go away as long as their initiatives do not yield real benefits. Leaving BEE deals to collapse will simply shift the goalposts. Companies are holding on dearly to their BEE transactions.
In any case, the BEE deal market speaks to one aspect - ownership - of the broad-based BEE scorecard, which has a total of seven elements. There are suggestions that the inability of certain companies to conclude BEE deals will drive them into high performance in other aspects of the scorecard. These include essential areas like employment equity, skills development, enterprise development and preferential procurement. This movement is visible from the TEC data. Despite a dramatic decline in the BEE deal market last year, TEC shows a general improvement of total BEE scores. There is a marked increase in the number of companies that have achieved level 4 status, which draws 100% recognition in preferential procurement.
It's not all doom and gloom. Forget the rumours, here is the real BEE deal.
