Sus­tain­able EMPOWERMENT

Exxaro CEO Mx­olisi Mgojo en­cour­ages min­ers to en­gage in the trans­for­ma­tion of black eco­nomic own­er­ship in the coun­try

CityPress - - Business -

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

PHOTO: MICHAEL PROBST

ALL THAT GLITTERS The old­est gold bar – minted in 1917– in the Ger­man cen­tral bank is val­ued at €442 000 (R6.3 mil­lion). On Thurs­day, it was dis­played at the bank’s head­quar­ters in Frank­furt, Ger­many. The coun­try’s cen­tral bank has com­pleted an ef­fort to bring home 300 tons of gold that was stashed in the US as part of a plan to repa­tri­ate gold bars kept abroad dur­ing the Cold War

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