Black economic empowerment, the involvement of black people at all levels of business management in South Africa, is a hot topic in post-apartheid South Africa. Political freedom was eventually achieved in 1994, with the country’s first democratic elections. Economic freedom is proving more elusive. The majority of South Africans do not have a stake in the economy, and business is still largely dominated by white businessmen.
There are now at least 16 black-controlled groups on the JSE, with a market capitalisation of just under R 26 billion compared with R4bn in June, 1995. This represents approximately 9% of JSE market capitalisation. Three JSE stockbroking firms are black-owned.
In 1996, there were 45 (23 in 1995) black empowerment transactions with a total value of R 7 billion (R 12,4 billion in 1995, including the value of the JCI unbundling, as controlling shareholder Anglo American’s aim is that it should result in black shareholders acquiring a major stake in the unbundled interests).
The values of many smaller deals were not disclosed. But these deals were important in expanding back business representation into new business sectors, creating a platform for growth and establishing a new generation of role models for black entrepreneurs. The government’s planned privatisation programme should also provide an opportunity for greater participation by blacks in the country’s economy.
To date the major black empowerment acquisitions have been JCI and Johnnic from Anglo American and Zenex Oil from the Zenex Trust.
During August 1996, Anglo American and the National Empowerment Consortium (NEC) signed an agreement for Anglo to sell most of its stake in Johnnic to the NEC over the next 18 months. It was agreed that the first tranche of shares – at least 20% of Johnnic’s 30,4 million shares – would be sold at R50, a 7% discount to recent prevailing prices on the Johannesburg Stock Exchange. The NEC was granted an 18 month option (until Q3 1997) to buy additional Johnnic shares (up to a 35% shareholding) at an agreed formula-based price. During the interim period, it was agreed that Anglo and NEC would put shares in a voting pool, with NEC having voting rights and Anglo minority protection. Johnnic’s board would be enlarged to 20 members, with 10 (including the chairman) being appointed by NEC. The issue of the editorial charter for TML, previously an obstacle to the deal, was resolved amicably.
The African Mining Group (AMG) put together a consortium, including Capital Alliance whose chairman, Mzi Khumalo, played a leading role in the negotiations, to bid for JCI. The AMG offered R 54,50 per share, which represented a 7% premium at the time, but rose to 20% as the share price dropped during negotiations. As a result, the financial institutions were reluctant to provide the necessary financing. However at the end of the day, the financing was achieved through restructuring involving Saflife. Mzi Khumalo’s Khumalo Holdings and Brett Kebble’s Consolidated Mining Corporation later reversed into NK Properties, with Khumalo Holdings retaining control. NKP bought a 34,9% share in Saflife, in which JCI has a 13,5% shareholding and the AMG 6,5%. AMG will buy 67,3% of Wit Nigel which has the option to buy 4,9% of JCI. Mzi Khumalo has been appointed chariman of JCI. JCI is in discussions with Lonrho.
Worldwide African Investment Holdings (WAIH), assisted by the Energy Finance Division of Standard Corporate and Merchant Bank, purchased a majority stake in Zenex Oil from the Zenex Trust, with the company management also acquiring a stake. WAIH is already the owner of Afric Oil and no doubt there are plans to merge the two operations so that they can compete in the highly competitive local industry, particularly if deregulation takes place.
Corporate black empowerment has raised a number of questions:
- Is ownership being distributed to the previously disadvantaged black masses or simply to a small black elite?
- What is the capacity of the banks to continue to support high gearing of black empowerment groups?
- Why are there so many non-blacks active at board and senior management level in the black companies?
The one spectacular failure of the black empowerment process has been the liquidation of New Age Beverages which had been established in partnership with Pepsi. The largest single group of investors in NAB, with about 45%, is a group of prominent Afro-Americans, with Pepsico International (25%), trade union investment funds (15%), Standard Bank asset management fund (5%) and management and staff holding the balance of the shares. At the time of liquidation, the company owed R 419 million (just under $US 100 million).
Another sign of black empowerment has been the appointment of high profile black personalities to senior positions both in parastatal organisations and the corporate world. However as a result of the high demand for qualified black managers and professionals, salary packages have risen fast and there has been very high job mobility.
Ernst and Young has analysed significant black empowerment deals which took place before mid-1996.
Issues surrounding black economic empowerment
Within the black community, there are those who feel proud of the notable achievements of prominent black businessmen such as Dr Nthato Motlana of Corporate Africa, the controlling company of New Africa Investments Ltd (Nail), and Mr Don Ncube of Real Africa Investment Ltd (Rail), while others feel that such successes represent the pursuit of self-interest before the interests of one’s brothers, leaving the vast majority of black South Africans as economically disadvantaged as they were before South Africa’s first democratic elections in 1994.
The investment community has remained largely sceptical of listed black companies such as Corporate Africa, Nail and Rail, arguing that they are merely pyramid holding companies, adding little value to the underlying companies and assets. As a result, these companies tend to trade at a discount to net asset value on the Johannesburg Stock Exchange.
Affirmative action continues to be a thorny issue. There are some companies which have well thought out programmes, with processes which are designed to correct the inequities of the past and accelerate the development of historically disadvantaged employees to a position where they can compete on equal terms with their white counterparts. Others, in an attempt to be ‘politically correct’, make affirmative action appointments which leave their incumbents very well-paid (between 30% and 50% more in some fields) but often protected from real decision making. The latter practice is exacerbated by the relative scarcity of skilled black candidates, and leads to frustration for all involved.
Major black-controlled companies in South Africa include:
- Companies listed on the JSE
- Corporate Africa, its subsidiary New Africa Investments Ltd (Nail)
- African Bank
- Kilimanjaro Investments
- Mathomo Group Ltd
- Stablemates Real Africa Investments, Real Africa Holdings and African Life Assurance
- Unlisted companies
- Black Like Me
- Capital Alliance
- Dynamo Investments
- Herdbuoys, South Africa’s first black advertising agency
- Kagiso Trust Investment
- Kunene Brothers Holdings
- Khulani Holdings
- Msele Bank Holdings
- Msele Hosken
- National Sorghum Breweries
- New Age Beverages, bottlers and distributors of Pepsi in Southern Africa
- Thebe Investment Corporation
- Women’s Investment Portfolio
- Worldwide Africa Investment Holdings
Black business organisations include Black Management Forum, the National African Federation of Chambers of Commerce (NAFCOC) and the Federation of African Business and Consumer Services (FABCOS).
Prominent black business people
The ‘glass ceiling’ is evident as much in the new South Africa as it was in the old, with black male managers and entrepreneurs significantly outnumbering their female counterparts.
Black businessmen who frequently make the headlines include:
- Dr Oscar Dhlomo
- Mr Vusi Khanyile
- Mr Mzi Khumalo
- Mr Moss Mashishi
- Mr Sam Montsi
- Dr Nthato Motlana
- Mr Lot Ndlovu
- Prof Wiseman Nkuhlu
- Mr Cyril Ramaphosa
- Mr Willie Ramoshaba
Prominent black women in business include:
- Ms Wendy Luhabe
- Ms Felicia Mabuza-Suttle