Throughout the past six years, we were able to continuously report on the improvements made by JSE listed companies towards their broad-based black economic empowerment (BEE) status.
This year, the overall BEE scores of the top JSE listed companies have improved further. Despite the fact that government still has to adopt the department of trade & industry's (DTI) BEE scorecard in its own procurement decisions, the scorecard's adoption by the private sector, and a handful of large state-owned entities, seems to be what was needed to tip the scale in favour of broad-based BEE.
There are now five listed companies whose BEE scores are more than 80%, while a total of 35 listed companies have already exceeded the important level of 65% - the level at which the DTI scorecard recognises a company to be fully compliant. In 2005, our analysis yielded only one company above 80% and four above 65%.
These gains in BEE have taken place during a period characterised by strong and stable economic growth. For this reason, many people doubt whether this progress will be sustained when enterprises have to navigate the choppy waters of the global recession.
There are predictions that there will be no progress in 2009 and in the worst case scenario gains made over the past few years will evaporate. Though these concerns have some merit, we believe that they will be proven wrong.
As long as the companies are rewarded for their improved BEE status in the form of new contracts, the JSE listed companies will prove that BEE is not vulnerable to this economic downturn. Creative and resourceful companies with a good understanding of the codes can maintain and even improve their BEE status.
It would be irrational for companies to reverse their BEE initiatives. That would be equivalent to squandering their initial investments.
Our observations give us the comfort that the broad-based BEE programmes are robust and likely to withstand the tests of the current economic environment.
As an example, though the number of new BEE ownership transactions has dwindled due to low equity prices and the global credit squeeze, there are few situations in which the BEE shareholders have had to be foreclosed.
Unlike the collapse experienced in 1997 and 1998 where most BEE transactions were unprotected leveraged buyouts, the new wave of BEE transactions often involves a complex three-way partnership between the funder, the BEE shareholders and the vendor who sold the shares. The lock-in provisions have also made BEE shareholders long-term investors who are less affected by any short-term fluctuations in the market. As long as the three-way partnership works jointly to maintain the existing structures, the loss of BEE ownership during the worst financial crisis of the century may be insignificant.
Chia-Chao Wu is an executive director of BEE rating agency Empowerdex
