SWELLING THE RANKS OF SA’S BLACK INDUSTRIALISTS
BY MONDE MAOTO
With the boom days over for big empowerment transactions with listed companies, government is increasingly using state spending programmes, incentives and legislation to drive its empowerment agenda.
The new Broad-Based Black Empowerment (B-BBEE) Amendment Act and Codes of Good Practice have been designed to place a much bigger focus on black ownership, and also criminalise offences such as fronting. The idea is to enforce a change in spending by government departments and state-owned enterprises like Eskom and Transnet (see box)
he department of trade and industry (dti) has committed to creating 100 black industrialists by 2017, including through the establishment of its own financial support programmes and altering legislation to enforce change in spending and the awarding of licences by government departments and state-owned enterprises.
Sectors that have been identified in order to reach this ambitious target i nclude clothing manufacturing, renewable energy, car manufacturing, industrial chemicals, agro-processing, forestry and advanced manufacturing.
The dti defines a black industrialist as a black person who is directly involved in the origination and creation, significant ownership, management and operation of an enterprise that derives its value from the manufacturing of goods and the invention of solutions and the provision of services on a large scale. This is with the express aim of forming globally competitive, risktaking ventures that result in the creation of jobs within the local economy.
The jury may still be out as to whether the dti would be able to help build black industrial conglomerates, but there are already black-owned industrial companies ‘f lying below the radar’ that bear testament to government’s stated intentions to enhance black participation in South Africa’s economy, says Ajay Lalu, managing director of black lite consulting.
Examples include Swifambo Rail Leasing, which was awarded a R3.5bn contract by the Passenger Rail Agency of South Africa (Prasa) for 70 locomotives, and New Africa Rail and Ubumbano Rail, partners of the Gibela Consortium, winners of a R51bn, 10-year contract to deliver 3 600 coaches to Prasa.
A number of black companies will also benefit from Transnet Freight Rail’s R50bn contract for locomotives. While the contract was awarded to China South Rail, Bombardier, General Electric and China North Rail, 60% of locomotive components must come from local suppliers.
Th e nu mber s involved in government’s infrastructure spending programmes are huge. It has budgeted R208.4bn for infrastructure spending on logistics, energy and water next year and R222.4bn for 2016. .
Lobbying by the BlackT Business Council for t he for mation of a government department that supports the development of small businesses also highlighted a growing appetite by entrepreneurs to actively participate in the operational activities of the companies they invest in.
This i s opposed to t he arm’slength approach that entailed board representation, which in some instances entailed non-executive directorships,
that where adopted in previous BEE transactions.
“Forget about what they have done. Let’s look at what they have achieved over the years to become operationally involved,” says Lalu.
As the availability of black capital remains a challenge, it is also using its f inance institutions, such as the Industrial Development Corporation (IDC), the National Empowerment Fund (NEF), the Development Bank of Southern Africa (DBSA), Land Bank and the Public Investment Corporation (PIC), to help drive change
While a number of major JSE-listed companies still haven’t done empowerment deals, for example ArcelorMittal South Africa (Amsa) and a number of retail players, it is largely players in unregulated sectors that are not hugely reliant on government spending.
Others, notably mining companies, have been under more pressure to comply with B-BBEE legislation. The Mining Charter, for example, requires 26% black ownership by year end, leading to a f lurry of recent deals as companies try to build up points, notably Lonmin and Northam Platinum.
Although the past 20 years have seen a number of heavily encumbered empowerment partnerships being formed, there is also evidence of black-owned entities that have morphed their shareholdings into value-creating assets to create diversified industrial groups, Lalu said.
Examples include Shanduka Holdings, Kagiso Tiso Holdings and Royal Bafokeng Holdings, which used the opportunities created by B-BBEE legislation to diversify their holdings. Shanduka and Kagiso Tiso have also been expanding outside SA, leveraging their strong balance sheets.
While the new B-BBBEE rules have been widely welcomed by black industry bodies, critics say that it will add to the regulatory burden and may stif le much-needed direct investment.
Nigerian Aliko Dangote, Africa’s richest man, has been one of the highest-profile international critics of the
country’s BEE laws, comparing it to a “forced marriage”. In an interview last year with Business Day, Dangote said it creates an obstacle to investment into SA from the rest of the continent while it fails to create real broad-based economic empowerment. Only about 5%-10% of South Africans benefit from B-BBEE, Dangote said.
Anthea Jeffrey, researcher at the South African Instit ute of Race Relations and author of the recently published BEE: Helping or Hurting, said that the new legislation is unlikely to bring about rea l broad- based empowerment while creating more uncertainty for investors. The definition of fronting, for example, is very vague and the offence carries heavy penalties, but it is not clear how the rules will be enforced in practice, she said.
“If you look at South Africa currently, where we sit with labour instability, poor growth, poor skills and then on top of that you place very strict empowerment rules – that is a bad message to send out.”
The focus should instead be on economic empowerment for the disadvantages, looking at key inputs such as education. “If you give parents a voucher of R12 000 a child to pay for education, which is roughly what government spends a year, you will suddenly see schools competing to attract learners and the quality of education going up.”
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