R450-billion in BEE deals, but little to show for it, writes Jana Marais

Very few productive black economic empowerment companies have been created by the state's policy framework, with "transfer" of ownership still getting more attention than "transformation", critics said this week.

"Even if there is 50% ownership, it wouldn't translate into transformation today. The idea is not to deliver wealth immediately," said Sandile Hlophe, managing partner: restructuring, at KPMG.

"We need a broader shift to other areas to deliver on transformation. Things like employment equity, skills development and enterprise development should be given a lot more priority.

"There is a general misunderstanding of what the ownership element (of the empowerment scorecard) is designed to do. There is a perception that share ownership is the panacea of empowerment."

Jenny Cargill, a specialist in transformational investment and author of a new book on BEE, said at least R450-billion worth of black economic empowerment (BEE) ownership deals have been done over the past 15 years.

Ownership remained a "fundamentally important" requirement for transformation - despite many other areas addressed in the scorecards, she said.

Including nondisclosed deals, the figure is estimated to be as high as R600-billion, Cargill said. Other areas of transformation, such as affordable housing and land, have only seen capital allocated of around R150-billion, she said.

"If we're going to put that amount of capital into BEE ownership, you must make sure it works, and that it makes sense for the South African economy. Capital is a scarce commodity and there are trade-offs to be made," Cargill said.

"The fact that the Kumba-ArcelorMittal mining rights debacle blew up in the public domain is because there is so much money involved, but it has been happening for some time. Prospecting rights are transferred to individuals or shelf companies who have very little interest in building a productive mine. It only adds a layer to the cost of mining in SA, and is a loss to black South Africans," she said.

A study by the JSE into black share ownership, released this week, found that black South Africans currently directly hold 8% of listed companies, acquired through BEE deals.

The study did not look at shares held by black retail investors, or black investors' holdings through mandated investments such as pension funds and unit trusts. It also did not look at the debt portion financing these stakes, or at the voting rights associated with it.

When the Department of Trade and Industry's scorecard is used to measure ownership, blacks own 18% of listed companies. Of the 22% held directly by South Africans - excluding foreign ownership of about 32%, cross ownerships (for example Old Mutual's stake in Nedbank) of 11%, mandated investments' stake of 34% and government ownership of 1% - black South Africans own 36%, the study found.

"I think 8% is still pretty low after 15 years of democracy, but it is not surprising and is higher than expected," said Hlophe.

If it wasn't for the "tough" economic conditions over the past two years, ownership percentages would probably have been higher, he said.

Hlophe said the rules of who qualifies for ownership should be reviewed. Instead of allowing any black South African to participate, which opened the door for fronting and abuse, a certain level of education and experience should be required.

"Applicants should hand in their résumés and demonstrate their track records and knowledge. What this will bring are shareholders who are active in the company and make the right noises - people who can ensure further transformation on the other elements of the scorecard," he said.

The public should be allowed to participate through broad-based schemes. These community trusts should be used to invest in areas where there is a need, such as education, health and skills development, said Hlophe.