Don’t lose sight of BEE in investment drives
It should be part of our national discourse to talk about empowering black businesses when talking about economic growth
Since his appointment as commander-in-chief of the country, President Cyril Ramaphosa has embarked on a number of initiatives aimed at improving our economic growth. The three-day international investment summit intended to draw international investments of more than R1-trillion ($100bn) should be welcomed by all and seen as a first major step in directing our economy towards significant growth.
Government is walking a tight fiscal rope and significant efforts by many in the government and business have been made to share the message with international investors that we are open for business and that we mean it. Certainly, all of us who see ourselves as a winning nation realise that much can be achieved if we can attain higher levels of economic growth.
Initiatives to both spur and support economic growth have, rightly, become important parts of our national and public discourse. Part and parcel of this conversation should be that we may be presented with renewed opportunities to redistribute wealth to black South Africans. One could very well argue that growing the “cake” and sharing it by means of redistribution is one way to keep economic growth going over the longer term. After all, it is much easier to redistribute wealth in a growing economy than in a stagnant one.
However, one should not lose sight of the fact that BEE transactions are, or at least ought to be, premised on business principles, and in business there are no guarantees of success. Rather, success in business is the collective outcome of opportunity and risk management on various levels.
The more pertinent question, though, is: with the government and private sector initiatives under way to improve our fortunes, are broad-based black economic empowerment (BEE) businesses ready to capitalise on this opportunity? Providing answers to this question may well be much more difficult than asking it.
SA has about 20 years of experience doing BEE transactions, with disparate levels of success. On the one hand you have very successful schemes such as the Sanlam and Ubuntu-Botho transaction, which delivered real value in terms of an unencumbered asset of R15bn, turning more than 700 individual participants into rand millionaires after the lock-in period had expired in December 2013.
Banking group FirstRand also delivered exceptional returns to participants in its empowerment scheme. On the other hand, we have examples where beneficiaries received a nil, or close to nil, return at the end of the lock-in period.
Where participants borrowed funds at a huge personal financial cost to enable them to participate, one can understand the disappointment if the scheme did not deliver any real financial benefits to participants. However, one should not lose sight of the fact that BEE transactions are, or at least ought to be, premised on business principles, and in business there are no guarantees of success. Rather, success in business is the collective outcome of opportunity and risk management on various levels.
When BEE partners have initiated transactions with borrowed funds, an unsuccessful transaction has the potential of leaving them with a suffocating debt overhang they find difficult, or even impossible, to service. Needless to say, the risk of having wealth destruction — as opposed to wealth creation — is real. Given these realities, we also have to acknowledge that BEE has become an acceptable mechanism for redistributing wealth over the past 20 years or so.
We have a very limited range of tools at our disposal to make rapid, though sustainable, wealth transfer across generations successful while satisfying the financial requirements, given the Western commercial framework within which we operate. Meaning, if money is borrowed it has to be repaid. The prolonged period of meagre economic growth the country has experienced over at least a decade may have resulted in it becoming difficult for many BEE players to stay afloat, let alone flourish, which stymies wealth redistribution efforts. In the process, the burden of servicing debt costs has grown faster than the revenue of many businesses.
Initiatives to kick-start economic growth and shift the country’s growth prospects into a higher gear should be seen as an opportunity to up the success rate for black businesses. This can only happen if they are capable and in good financial shape to seize the opportunities with which they may be presented.
Empowerment players should be given as much support as possible to remain operational and, in the process, remain a vehicle for wealth transfer.
The type of support can be varied. A key ingredient, though, is the level of commitment the (white) partner is prepared to make to ensure the transaction is a success. Equally, black business people, like any one of us, carry the real and important responsibility that one can only benefit from opportunities if one is financially healthy. This is often much easier said than done.
BEE is a fact of life in SA. Let’s make ensuring it is successful part of our national discourse.
• Van der Merwe is co-CEO and Matyolo is COO at African Rainbow Capital.