Exxaro CEO Mxolisi Mgojo encourages miners to engage in the transformation of black economic ownership in the country
It’s been a positive start to the year after a tumultuous 2016, which for us included the milestone achievement of Exxaro’s 10th anniversary since its creation and listing on the JSE on November 28. The anniversary also marked the coming to an end of the company’s BEE ownership structure through the Main Street 333 consortium. As a result, we had to consider a replacement BEE structure.
For Exxaro, empowerment through broad-based black ownership is a strategic imperative, alongside the other transformation pillars of the Mining Charter and Broad-Based BEE Codes of Good Practice.
You would have read in the media various perspectives on the restructuring of our black ownership structure, which will result in a reduction from a gross 50% to a gross 30% broad-based ownership level.
The concerns raised by commentators are not about Exxaro, but rather point towards larger unresolved issues in relation to transformation of economic ownership in the country.
Our goal is to create sustainable black ownership, which reinforces the foundation of transformation, while adhering to the spirit and ambition of legislation.
I need not point out to you that the South African economy is one of the most unequal in the world.
I also need not spell out to you the risks that such economic exclusion and inequality mean for South Africa and, in particular, in our mining communities, which are already hotbeds for social and political unrest.
French economist Thomas Piketty made this point in the opening paragraph of the first chapter of his book, Capital in the Twenty-First Century, by citing Marikana as an example of how extreme inequality leads to violence if not addressed. Let me start by providing a brief historical perspective of BEE. To not have a repeat of such shocking tragedies, it is worth reminding ourselves of the historical evolution of the South African economy, which has been predicated on the “domination, exploitation and marginalisation of the black majority”.
This is a quote that comes directly from the BEE Commission Report of 2001, which was the first attempt at a blueprint for an empowerment policy framework.
The problem, though, was that it was clear there was something shaky about empowerment as it was shaped then.
The Black Management Forum (BMF) knew this and pushed for the establishment of the commission so that black entrepreneurs, professionals and policymakers could be the drivers of a vision of sustainable empowerment.
In the report, the then chairperson of the commission and now deputy president of South Africa, Cyril Ramaphosa, said: “The BEE Commission Report presents South Africa with an opportunity to break the cycle of underdevelopment and continued marginalisation of the black majority from the mainstream economy.” We must honestly evaluate what has worked and what has not. One of the key challenges of the first wave of empowerment was that, on the surface, these entrepreneurs had built impressive-looking black-owned and controlled conglomerates.
However, many turned out to be unsustainable as they were controlled by the whims of financial markets and the understandable profit motives of the funders.
There is a second related lesson that we seem to have forgotten: the BMF’s call for a commission on the empowerment of black people was about determining sustainable options.
In designing legislation to effect BEE, and in providing financial leverage in the absence of black capital and collateral, we inadvertently disempowered professionals and entrepreneurs. Further, mining is cyclical. So if a transaction was structured at the bottom of the market, when commodity prices were low, and matured in an up cycle, you would have hit the jackpot as black shareholders.
But, if you were off on your timing and locked in without any liquidity options, the chances of successful black value creation would have diminished exponentially. Much work is going into finding the right balance between the size and level of black ownership with appropriate funding structures. Less rigid structures, that limit the cost and dilution to minority shareholders, will ensure that the business is more sustainable and able to invest for future expansion.
The conversation needs to move from rigid, reductive and restrictive ideas about fixed black equity in white companies.
At the core of these issues are conversations that are deeply emotional and political on matters that are technically, economically and financially complex.
Ultimately, they should be encouraged to build and be the major empowerment champions of this nation. As a country, we must relook at policy interventions to ensure that these are not too restrictive for entrepreneurs and enterprising entities, thus stifling job creation; that they do not unintentionally create a permanent underclass; or that they cripple our society and encourage corruption and fronting.
We must agree on the purpose of economic transformation – is it to create real wealth and value, and for whom?
What is clear is that the debate cannot just be about regulatory compliance.
As I conclude, there is an urgent need for clarity on the goals of empowerment policy and legislation, particularly regarding the building of black wealth – we are confusing issues around the level of black control and ownership of the economy as a transformation imperative.
BEE is a national policy and a fundamental tenet of transformation – it is right that citizens should have a say in how companies are embracing and promoting it.
I am saying that, yes, by all means, let’s talk about the evolution of BEE, but let the conversation be less emotional and reactive, and rather be more measured, informed and constructive.
I’ve said this before: I want to be part of this conversation as we find new solutions and create new paths into the next phase of economic transformation and sustainable ownership of the country’s economy. Mgojo is CEO of Exxaro. This is an edited version of the speech
he made at the Mining Indaba in Cape Town this week
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