Book-entry BEE grows no black wealth

BBBEE codes allow this sleight of hand, but that doesn’t make it right

THE final broad-based BEE codes took a critical new direction by allowing companies to include, in their calculation of black ownership, what are known as mandated investments.

Basically, these are investments made by or through any third party regulated by legislation on behalf of the actual owner of the funds.

In simple English, this means that companies can claim black ownership points from medical schemes, pension funds, collective investment schemes or “pooled funds” if such funds have black beneficiaries or members.

So, by way of example, the Public Investment Corporation manages about R1.8-trillion of the Government Employees Pension Fund’s money. The vast majority of the members of the GEPF, in number and in value, are likely to be black people.

This means that any company that has the PIC as a shareholder may claim a big chunk of the PIC’s shareholding as black shareholding and therefore claim valuable BEE points for ownership.

This principle was brought to reality a few weeks ago when MultiChoice South Africa announced that 40% of the company was owned by black South Africans.

I did not understand what had changed in the share register to warrant the announcement, but chairman Nolo Letele told me that they took the opportunity to remind everyone of their impressive black shareholding as they were preparing to dish out a R1.3-billion dividend to their 20% shareholder, Phuthuma Nathi, at their AGM.

The truth is, Phuthuma Nathi is a great story of BBBEE.

According to the company, “if a shareholder bought Phuthuma Nathi 2 shares in 2007 for R1 000 at R10 per share, the shares were worth R14 800 on June 24 2016. In addition, the shareholder would have received dividends amounting to R5 418 to date for their R1 000 investment. This means a shareholder who invested R1 000 in Phuthuma Nathi in 2007 would have made a total of R20 218 — meaning their investment has grown 20 times over the past nine years.”

Since 2006, the scheme has paid dividends of R6.5-billion, excluding this year’s big cheque.

So we know the 20% shareholders of MultiChoice South Africa. They are the more than 90 000 black South Africans who have unencumbered shares in the company via Phuthuma Nathi.

The other 20% shareholder is not that clear.

MultiChoice South Africa is 80% owned by trillion-rand powerhouse Naspers. According to the company, Naspers’s South African ownership splits into 26% black South Africans, with 23% through mandated funds and 2.2% through retail investors which hold beneficial ownership on behalf of black South Africans.

Can you believe this? Naspers is 26% black-owned? That’s a quarter of a trillion rand owned by black people.

We have become so obsessed with scoring BBBEE that we have forgotten why we even measure black empowerment in the first place.

BEE is a deliberate programme meant to redress the inequalities of apartheid by giving black people economic opportunities previously not available to them.

The BBBEE codes measure the implementation of this policy.

How is it possible that, in the pursuit of redressing the inequalities of apartheid, we allow mandated funds to count as black ownership?

What new economic opportunities accrue to black people from their pension funds being invested in the JSE? Can we identify these quartertrillionaire black shareholders in Naspers, as we can identify the Phuthuma Nathi shareholders?

Pension funds have always invested in the JSE, even during apartheid. Why reward them with BBBEE points when they have done nothing fundamentally new?

The irony is that those who decide where the pension funds invest their capital, and the asset managers who deploy this capital, are more instrumental in transforming the economy than any member of any fund, and yet the asset management industry remains largely controlled by white managers.

As it relates to meaningful transformation, it is of no consequence who the beneficiaries of a fund are, and therefore no black ownership points should be awarded on this basis. It’s just not credible. Khumalo is chief investment officer of MSG Afrika Group and presents “Power Business” on Power 98.7 at 5pm, Mondays to Thursdays Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za