BEE deal makers get a lot for relatively little commitment
December 15, 2006
 By Quentin Wray
There is one major problem with the broad-based black economic empowerment (BEE) codes of good practice that were published yesterday by the department of trade and industry: the codes do not hold black people accountable for the outcomes of the BEE process.
Take the once empowered, always empowered principle. In terms of this principle, a company will be allowed to claim ownership points after the black investors have sold their shares in the company.
This is subject to some criteria, including that black shareholders must have owned the shares for at least three years; black investors must have made a profit on the deal; and the company must have achieved a certain level of transformation (in terms of the other six scorecard points) by the time the black shareholder sells the shares.
These criteria arise out of the BEE experiences of the late 1990s, when many black investors were left with very little to show for their BEE ventures after share prices went south in reaction to the Asian crisis and the dotcom bomb.
Black investors have since blamed onerous financing structures, which resulted in the shares being handed back to the financiers.
The codes effectively mean that the companies that undertake BEE deals will have to ensure that black investors make a profit from these deals. The codes are silent, however, on what black investors must do to ensure that they make money on these deals.
Also, the codes say nothing on what obligations the BEE investors have to ensure that the company they have bought into achieves certain transformation targets, such as more than 40 percent of management being black or buying more than 70 percent of goods and services from BEE suppliers.
These two points are important because the basis of broad-based BEE is that black investors are expected to use their equity ownership and their board seats to ensure that the other 80 percent of the transformation scorecard is achieved. But as the codes stand, it would appear that the government is giving much to the BEE deal makers but expects very little of them in return
ANGLO AMERICAN The resources giant continued this week to implement the restructuring that it announced in October last year, by selling down Tongaat-Hulett and increasing its interest in its core platinum mining interests.
In terms of yesterday's deals, Anglo will reduce its holding in Tongaat-Hulett from 51 percent to 38 percent, and in Hulett Aluminium from 50 percent to 39 percent. Anglo has been looking to completely exit from the two units.
Earlier this week, Anglo increased its stake in Anglo Platinum (Angloplat) by 1.1 percentage points to 75.4 percent.
Many resolutions require a 75 percent shareholder approval to be passed. Thus, the stake that Anglo has taken in Angloplat gives it the opportunity to pass any resolutions it may seek to have passed, without considering minority shareholders.
Once Angloplat completes its empowerment deal, Anglo may move to buy out and delist Angloplat. Anglo has identified Angloplat as a key differentiator for the group compared with its traditional peers such as BHP Billiton and Rio Tinto.
To complete the restructuring, Anglo still has to sell down its stake in AngloGold Ashanti. Anglo has a 41.8 percent stake in AngloGold.
Another leg of Anglo's strategic review was the unbundling of paper and packaging group Mondi. Anglo is looking to list the company in London and Johannesburg early next year.
It will interesting to see what course incoming chief executive Cynthia Carroll embarks on once she becomes head of Anglo in March and has completed the restructuring started by her predecessor, Tony Trahar.
ECONOMIC REPORTS Useful publications come packaged, such as the national treasury's annual budget review or the Reserve Bank's Quarterly Bulletin. They are authoritative, serviceable and easy to navigate.
Emerging South Africa 2006, despite its glossy cover and the hype that surrounded its launch, is none of the above.
The publication, released yesterday, is published by the Oxford Business Group, "a UK-based publishing, research and consultancy services organisation" and it is unwieldy and inaccurate.
The publication was released at a presentation at the Industrial Development Corporation headquarters in Sandton by, among others, Tshediso Matona, the department of trade and industry director-general. The department is a partner in the venture.
The 200-page review does offer useful viewpoints written by finance minister Trevor Manuel, public enterprises minister Alec Erwin and Reserve Bank governor Tito Mboweni, among others, as well as interviews with a range of prominent people.
But the quality of the analysis sandwiched between these features is questionable - partly because the information it is based on is not always correct.
In the section on the economy, the text refers to the "Growth, Employment and Redistribution (Gear) Act of 1997". In fact, Gear was a policy framework published in 1996, setting out targets to be achieved over five years. It had no accompanying legislation. The report also states that inflation is 3.9 percent - a level last seen in May. In October, inflation was 5.4 percent - a matter central to the concerns of policy makers.
The document is obviously aimed at an overseas audience, which may not immediately see its flaws. It is unfortunate that the department's name gives a stamp of authority to something that has none.
This is the last Business Watch for 2006. It will resume on January 15
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