KGANKI MATABANE: Passive B-BBEE compliance a failed project in the SA ports economy

President Cyril Ramaphosa and the public enterprises ministry have announced that R100bn worth of investment is required to transform our country’s freight logistics network. Key to this will be leveraging private sector participation in key infrastructure projects such as the deepening of the Maydon Wharf channel in Durban to allow for larger and modern vessels.

The president has identified the new investments in SA ports as one of the key drivers of economic recovery, growth and job creation. Not only will the investment lower the cost of doing business, it will also increase the competitiveness of our port system.

Inasmuch as the global economy has a huge impact on business, SA black business has been disproportionately affected. A number of our members have experienced hardship as the economy fell into recession, resulting in the narrowing of market opportunities and declining demand.

Black business has consistently supported efforts to reignite the SA economy, including participation in initiatives led by the president with other social partners. However, it would be naive of us to assume black equity participation is inferred when private sector participation schemes are announced. Unless clear and measurable targets are set for black ownership, and managerial control is set out from the onset, it is our experience that little is achieved in this regard.

We see the unlocking of the investment potential of our ports' economy as an important frontier for black equity participation and control. Section 30 (b) of the National Ports Act instructs the Ports Regulator of SA that it, “must provide equity of access to ports and facilities and services provided by the ports”. More than a decade and a half since this act was promulgated the state of black participation in terminal licensing and the ports value chain is less than desirable.

In 2016 the Ports Regulator published a report, “Equity of Access in SA Ports”, which looked at the performance of the sector with respect to the broad-based black economic empowerment (BEE) scorecards. The picture sketched by this report demonstrates that our ports remain a hive for almost exclusive white minority participation, with limited involvement of black and women-owned enterprises. This state of affairs has to be fought hardest in the discourse on private sector participation.

Transnet, through its entities the National Ports Authority and Transnet Port Terminals, occupies 63% of the terminal area of SA. State-owned enterprises account for 24% of the terminal operator licenses. While foreign ownership accounts for 35% of the terminal operator licenses, 20% are owned by private unlisted entities, and 23% by JSE-listed companies.

At first glance and without further interrogation, the private sector ownership of terminal operator licenses suggests that there is transformation in the sector as 74% of the companies collectively achieved a BEE rating of level 4 and higher. However, this is a very deceptive picture that fudges the true picture of transformation in several sectors in our country.

Many white-owned and controlled companies in SA use, and in some cases abuse, the weaknesses of the BEE legislative regime to avoid equity participation of blacks and women. A lot of the companies benefit from the systemic weaknesses of our verification regime to increase their scores using a bare minimum approach.

This approach overstates companies’ contributions in terms of skills and enterprise development and preferential procurement to undermine the imperatives of black ownership and managerial control. 

When you zoom in to look at operator license ownership, it becomes clear that transformation remains a pipe dream in this important sector. SA has a coastline that stretches for 3,000km, yet its largest population group is largely excluded from participating in the economic value of this great national asset.

Even though simply looking at the ownership of operator licenses obscures the view of the true value of ownership in that it does not account for the relative worth of each license, it is still a useful measure to unveil the desperate state of ownership of our ports.

Excluding the two SOEs that control 21 terminal operator licences, it soon becomes clear who are the main beneficiaries of our port's economy. Only 24 terminal operators have a level of black ownership that is above 0%, while only 10 have ownership above 50%. Terminals operators with the highest black ownership occupy only 0.06% of the nation's total terminal operator area.  Companies with limited black ownership, that is less than 20%, collectively account for two-thirds of the terminal operator area.

This is just unacceptable for a country whose constitution imposes the obligation of transformation and redress. The sector should hang its head in shame for failing in terms of black ownership and meaningful participation. When we speak about meaningful economic participation, we do not just mean the passive participation of black businesses to tick boxes on BEE scorecards. We mean debt-free ownership that is held by black-owned entities, dividend participation and capital appreciation, including voting rights.

This picture is even worse when you look at women's participation in the sector. It exposes the true state of affairs that the sector remains a haven of white male ownership and control. Only two of the 37 terminals have women ownership above 30%. Thirty-one terminal operators have zero women ownership. This is unacceptable and imposes on all of us the responsibility to see to it that this picture changes sooner rather than later.

Though the picture may be better for commercial and terminal leases, it is less than impressive because those leaseholders with more than 50% black ownership only held one lease agreement each. And the majority of leaseholders held less than 30% women ownership. The commercial leases highlight the value chain participation outlook of the sector as they account for port activity licensing for diving, waste disposal, vessel registration, bunkering, and stevedoring. Even on the value chain black business is largely excluded or only passively engaged.

As black business leadership we support the president's efforts to unlock value in this sector through the use of the private sector participation model, but we want the transformation to be intrinsic to this process. This can only be achieved by the setting up of clear transformation objectives for the sector and making ownership and managerial control key requirements for private sector participation.

In the past government has used some legislative and regulative instruments to support black participation, but these have been inadequate. For example, in 2004 the government, through the introduction of the “Quattro” export scheme, reserves 4mt/year of the Richards Bay Coal Terminal for black empowered junior miners. However, the scheme has failed as a result of several structural and systemic impediments. Since the scheme was established it has underperformed and averaged only between 1.8mt/year to 2.2mt/year of volume.

This underperformance is due to several issues, among them being the limitation that only junior miners in operation or those that will start within a period of 12 months of a mining right being issued are allowed to participate. Coal traders, logistics and marketing companies are excluded. Few black-owned junior miners are involved in the export market, while the majority occupy the challenged Eskom supply market.

Even the minority of black-owned junior miners with international offtake have to rely on the majors to access rail to transport their coal to the terminal. This comes at a huge cost to their value proposition, undermining their profits, with others completely relegated as they lose their market competitiveness. Quattro has failed at transformation and essentially empowered the majors, which are dominated by foreign and white ownership and control.

This experience must serve as a reminder to all of us, in particular government, that cosmetic solutions that are simplistic and ignore visibility of the whole value chain will only result in failed transformation outcomes.

Black businesses must be meaningfully engaged on how the sector is going to be revived and transformed. There is no mutual exclusivity between economic recovery and black economic participation and control.

As leaders of black business we stand ready to fully contribute to changing this devastating state of affairs. The necessity to transform the sector and make it more efficient by unlocking value through private sector participation could not have come at the right time for meaningful black and women ownership and control.

The days of bare minimums must be put behind us; passive compliance with BEE scores should be undermined by clear and measurable targets. It is justifiable to call for requirements of a minimum of 30% black ownership in new concessions, licensing and commercial and terminal leases.

Without this, we will be reflecting another decade and a half later on how we have underperformed in terms of ownership and managerial control of our ports economy.

• Matabane is CEO of the Black Business Council.