What hap­pens when the IDC be­comes ‘black’?

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

The coun­try’s most prom­i­nent black busi­ness lob­bies have crit­i­cised a plan by the In­dus­trial De­vel­op­ment Cor­po­ra­tion (IDC) to get it­self des­ig­nated black.

At stake is the des­ig­na­tion of about R100 bil­lion in eq­uity in South African com­pa­nies as “black-owned” – with­out any black in­vestors ac­tu­ally be­ing in­volved.

The Black Busi­ness Coun­cil and the Black Man­age­ment Fo­rum ar­gue that the IDC will be crowd­ing out ac­tual black en­trepreneurs if it gets the “broad-based BEE fa­cil­i­ta­tor sta­tus” it is look­ing for from the depart­ment of trade and in­dus­try.

A num­ber of state en­ti­ties have this sta­tus, whereby they are de­fined as 100% black­owned when they en­ter into trans­ac­tions or own shares in other com­pa­nies. The IDC’s ap­pli­ca­tion was pub­lished for com­ment in the Gov­ern­ment Gazette last month.

Un­like most ex­ist­ing fa­cil­i­ta­tors, the IDC is a nexus for state in­vest­ments in a va­ri­ety of com­pa­nies, all of which could sud­denly get big – and, ar­guably, un­de­served – boosts to their broad-based BEE scores when the IDC be­comes “black”.

On the JSE, the IDC owns 8% of Sa­sol, 8% of Arcelor­Mit­tal SA, 13% of Kumba Iron Ore and 5% of Life Health­care and oth­ers.

Th­ese largely his­toric stakes were worth R45 bil­lion last year.

The IDC also has a large port­fo­lio of un­listed in­vest­ments, which in­cludes a ma­jor­ity stake in Scaw Met­als, and be­tween 20% and 30% of alu­minium group Hu­lamin, tim­ber groups York Tim­ber and Hans Meren­sky, Mer­afe Re­sources, Pal­ab­ora Cop­per, KaXu So­lar One and many more.

Th­ese un­listed stakes were val­ued at about an­other R47 bil­lion last year.

If the IDC gets des­ig­nated, it would tech­ni­cally sum­mon al­most R100 bil­lion of new “black” own­er­ship into be­ing – ob­vi­at­ing the need for all th­ese com­pa­nies to ac­tu­ally get black part­ners.

Ac­cord­ing to the IDC, the fa­cil­i­ta­tor sta­tus is meant to “im­prove the broad-based BEE sta­tus of qual­i­fy­ing com­pa­nies where the IDC holds eq­uity, thereby giv­ing them ac­cess to mar­kets”.

This in­cludes new start-ups that the IDC funds, black in­dus­tri­al­ists who can get an even higher broad-based BEE score, as well as “dis­tressed clients – thereby sav­ing jobs and pre­serv­ing in­dus­trial ca­pac­ity”, the IDC said in an emailed re­sponse to ques­tions.

The boost in “black own­er­ship” would be par­tic­u­larly con­tro­ver­sial at Arcelor­Mit­tal SA, which has been in­fa­mously slow to in­tro­duce any em­pow­er­ment un­til this be­came a re­cent con­di­tion of state sup­port.

Ac­cord­ing to Mo­hale Ralebitso, CEO of the busi­ness coun­cil, it would be “in­ap­pro­pri­ate” for the IDC to get des­ig­nated. The re­sult would be the crowd­ing out of black en­trepreneurs, given that com­pa­nies seek­ing in­vestors could get money and broad-based BEE sta­tus from the IDC, he told City Press.

“The IDC should rather fund black en­trepreneurs to take the stakes. The fund­ing risk re­mains the same, af­ter all. Black en­trepreneurs should be the fa­cil­i­ta­tors.”

State-owned min­ing com­pany African Ex­plo­ration Min­ing and Fi­nance Cor­po­ra­tion is also in the process of get­ting des­ig­nated. In its call for com­ment ear­lier this month, the com­pany ar­gued that it would use the sta­tus to en­ter into joint ven­tures with pri­vate sec­tor min­ing com­pa­nies – with­out di­lut­ing its broad-based BEE sta­tus.

“The sta­tus will en­able African Ex­plo­ration to ac­cess some of the funds that are held by var­i­ous or­gan­i­sa­tions for de­vel­op­ment pur­poses,” it said.

This is ex­actly the kind of crowd­ing out that the busi­ness coun­cil is warn­ing against with re­gard to the IDC, but the case against African Ex­plo­ration get­ting des­ig­nated is not nec­es­sar­ily as strong, said Ralebitso.

“There is a role for the state when there are mar­ket fail­ures, or it is a very cap­i­tal-in­ten­sive sec­tor. There are mar­ket fail­ures in min­ing ... but it can­not be a per­ma­nent ar­range­ment,” he said.

The de­cline of the Na­tional Em­pow­er­ment Fund pro­vides a cru­cial piece of back­ground.

The fund and its CEO Philisiwe Mthethwa have been out­spo­ken cham­pi­ons of greater state sup­port for black busi­nesses – and have, in turn, been vo­cally sup­ported by black busi­ness.

The fund has, how­ever, been re­quest­ing large re­cap­i­tal­i­sa­tion from the state for years. In­stead of get­ting what it wants – the abil­ity to is­sue bonds it­self – the fund is now be­com­ing an “arm’s-length sub­sidiary” of the IDC.

This ar­range­ment would see the IDC al­lot­ting fi­nances to the em­pow­er­ment fund with some level of over­sight – but in the main, leav­ing the fund to its own de­vices, ac­cord­ing to a par­lia­men­tary pre­sen­ta­tion by fund ex­ec­u­tives in March.

The man­age­ment fo­rum’s ar­gu­ments against the IDC’s fa­cil­i­ta­tor ap­pli­ca­tion in­clude the as­ser­tion that the IDC will un­der­mine the em­pow­er­ment fund.

Once given fa­cil­i­ta­tor sta­tus, the IDC will “com­pete for fund­ing” with the em­pow­er­ment fund, it says in its sub­mis­sion.

The man­age­ment fo­rum also claims that “run­away con­ta­gion” will oc­cur, whereby ev­ery other state en­tity will also try to get fa­cil­i­ta­tor sta­tus.

Many state en­ti­ties, how­ever, al­ready have this sta­tus. Be­sides the em­pow­er­ment fund, the cur­rent broad-based BEE fa­cil­i­ta­tors in­clude PetroSA, Denel, the Pub­lic In­vest­ment Cor­po­ra­tion, the Ma­pun­gubwe In­sti­tute for Strate­gic Re­flec­tion, the East Lon­don In­dus­trial De­vel­op­ment Zone and the SA Na­tional Mil­i­tary Veter­ans As­so­ci­a­tion.

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