Sustainability the real key to BEE success

DOES BEE have an expiry date? That’s essentially the question posed by the “once empowered, always empowered” dispute between mining companies and the Department of Mineral Resources.

The dispute was inevitable given the funding mechanism used in the early empowerment transactions, and we need to ask some hard questions about the most significant economic project yet undertaken in this country.

The government took mining firms by surprise on Friday by releasing a revised mining charter that demands a perpetual minimum 26% black ownership per mining right.

Mining companies have argued that they should not be compelled to continually replace empowerment deals that have lapsed.

They argue against the expense of undertaking these transactions and the amount of management time necessary to choose the “right” partners for the business.

I would suggest that the latter is not much of an argument, especially considering the small pool of mostly politically connected individuals from which the country’s new black mining barons are drawn.

Mining companies, perhaps selfishly — or, to be kind, in a bid to protect their shareholders — also argue that just how markets play out isn’t in their power to control, so there can be no guarantee of a happy ending. As in the case of Tokyo Sexwale’s Mvelaphanda Resources, which lost its stake in Gold Fields in the aftermath of the 2008 financial crisis, it is, simply, a matter of bad luck.

What has further led to the evaporation of some of these deals is the number of rights issues undertaken in the past decade as the businesses have struggled under the weight of a slowing global economy and low metal prices.

In most cases, black investors have found it near impossible to exercise their rights, leading to what the National Empowerment Fund has called a “bloodless coup d’état against the BEE movement”.

But should global asset prices excuse mining companies from future attempts to transform the ownership of South Africa’s mining industry?

I am uncomfortable with the notion of giving mining companies a lifelong goldencircle pass on the question of empowerment on an equity level once a deal — no matter how cynically constructed — has been struck.

The project of transforming the economy is not a simple matter of advisers, bankers and lawyers piecing together a deal that equates to a minority 10-year shareholding for black investors, who, if the deal fails, should blame the market.

What has been achieved by following this path?

In most empowerment deals, all that has happened is that an indebted consortium, led by an especially indebted black entrepreneur in the pursuit of a

Black investors have found it impossible to exercise rights

broad-based transaction, claims to represent a million unnamed individuals who, over the course of the deal, were supposedly owners — owners who never had any say in management of the company, let alone dividend flow that may have helped successfully fund the deal.

I cannot support the idea that the first round of empowerment deals — the bulk of which were disastrously constructed — is good enough for mining companies to receive a gold star for responding to the constitutional imperative of transformation.

The word “perpetuity” features in the revised charter, but sustainability ought to be the central feature of deals.

The real question is how to ensure continuous and rising black shareholding throughout the country’s industries.