BEE deals channel R52bn to charities
Black economic empowerment (BEE) deals undertaken by the JSE’s 100 largest companies have channelled nearly R52bn to charities, trusts and foundations, most of which has yet to be spent, a study released on Wednesday shows.
The value created for charitable beneficiaries through these deals was potentially a game changer that could help alter the country’s fortunes if the money was well spent, said Sizwe Nxasana, chairman of the FirstRand Empowerment Foundation and former CEO of the banking group.
Nxasana was speaking on the sidelines of the launch of the study, undertaken by Intellidex and the first of its kind.
The Empowerment Endowment report examines what portion of the value created by the country’s largest BEE deals since 2002 has gone towards public benefit organisations.
The report challenges the widely held view that BEE deals have benefited only a handful of politically connected elites, but have had little to no broad-based effect on the majority of black South Africans. It could go a long
way towards revealing what really happened in the BEE space, Nxasana said. It was not a good idea to kill broad-based programmes in favour of “radical economic transformation” that benefited only a few.
Of the JSE’s top 100 companies, 87 had conducted BEE deals and 35 of these included public benefit organisations as beneficiaries. In total, these deals returned R51.6bn to beneficiaries, or about 16% of the R317bn in value, net of funding, created by BEE deals at the end of 2014.
Of this, R32.6bn in endowments was now held by 27 foundations that were set up for these deals.
A considerable number of these deals had matured only in the past two years, said Stuart Theobald, chairman and founder of Intellidex. Many of the new foundations were still establishing themselves and had spent little of their endowments, indicating considerable future effect, he said.
The stated spending priorities of newly created foundations were overwhelmingly education, with R24.8bn (67% of an initial R37.1bn) going to this cause. Community projects followed at R3.9bn (10.6%), with entrepreneurship the next single largest spending priority at R3.1bn (8.4%). Other priorities included children and youth, women and skills development.
Most of these foundations had been designed to exist in perpetuity, along the lines of the Rockefeller and Ford Foundations in the US, Theobald said.
In almost all cases, independent trustees, who were not connected to the sponsoring companies, sat on the foundations’ boards.
Trusts needed permission to dispose of shares in the sponsoring companies, which wanted them to remain longterm investors in order to maintain black ownership figures.
This posed significant concentration risk for the foundations, since their investments were almost entirely focused on only one share, Theobald said.
Funds would need to invest in a more diverse portfolio in the long run.
Existing data on philanthropy in SA suggested that the money endowed to these foundations was considerable in the context of the sector, Theobald said.