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Time for a new wave of BEE

South Africa’s persistent wealth inequality has shone the spotlight on the pitfalls of black economic empowerment policies. These policies are often criticised for benefitting a few individuals.

The mining industry cannot escape the criticism. For centuries, mining has been the face of inequality in terms of race and gender. Industrialisation, propelled by mining, was characterised by a few white and wealthy individuals called the Rand Lords, cheap black labour and the exclusion of women. Sadly, some of these attributes persist in different forms.

It does not help that BEE deals struck in this sector, ostensibly to rectify some of these historical legacies, have reinforced the perception of mining as a source of economic exclusion and entrenched the view that BEE benefits a few, often politically-connected individuals.

This does not augur well for a sector that has inherent capacity to contribute to economic development. South Africa’s prosperity has been anchored on its mineral resource endowments. The mining sector and spin-off industries have contributed to growth and job creation. At its peak in the 1980s, mining’s contribution to economic production was about 21%.

Although mining now contributes about 8% of South Africa’s Gross Domestic Product, it is far from being a sunset industry. But the sector needs to hold itself to a higher standard of developmental impact. It should be measured against three indicators of development which can contribute to growth and positive perceptions.

New players

Firstly, BEE deals should facilitate the participation of new black entrants. The measurement of economic transformation should no longer be how many meaningful BEE deals have been struck or whether a company is empowered. Rather, it should measure the number of new players.

BEE should also fast-track gender transformation. It cannot be that despite being almost 60% of the population, women’s participation in mining remains largely less than 20%. The Minerals Council estimates that in 2017, women constituted 12% of the labour force, 14.9% of top management, 18% of skilled technical professionals and 18% of professionally qualified and middle-management positions in the mining sector.

In terms of ownership, a few women have participated in BEE deals and have since become repeat deal makers. The participation of women should go beyond a few who have become household names.

In the mining and energy sectors, we are once again hearing of the same names of already empowered men and women, including those that are set to be record billionaires. We should not be surprised if BEE is once again attacked simply because it’s not done correctly.

Government decides on transformation policies in consultation with the industry, as was the case with the successful finalisation of the Mining Charter III. Business leaders, however, must lead in making sure that in the course of restructuring, merging and disposing of businesses, they facilitate the entry of black people who have never been previously empowered.

In addition, sound employee share-ownership schemes and development programmes should not only focus on the mining workforce, most of whom are men. They should go further to include their partners and girl children. Shares held by communities in mining companies, established in terms of the new charter, should preferably be controlled by women-led trusts.

No more overconcentration

The second indicator of transformation is the reduction of overconcentration. In his State of the Nation address, President Cyril Ramaphosa correctly stated that one of the constraints that inhibited the growth of the economy was the high level of economic concentration. "The structure of our economy was designed to keep assets in a few hands," he said.

Ramaphosa is right. The mining sector is a good example. In all the subsectors – gold, platinum, coal and others – participation should not continue to be the preserve of a few actors. In the coal sector, for example, some companies already enjoy close to 40% market dominance. The risk of overconcentration is heightened by Eskom’s dependence on coal.

Technical capacity

The third indicator of sustainable mining is technical capacity. Historical association of black miners exclusively with low-paying underground labour must change. Mines need young people who have talent in various aspects of mining-such as engineering, environmental science and management. They should be groomed from the mines’ workforce, host communities and the children of employees. These are the rightful future senior, executive and board level leaders.

So, how do we take BEE forward? We must first understand where we come from, evolve and learn from the ever-reliable benefit of hindsight.

READ: Black industrialists - key players in government’s commitment to grow SA

Four waves

The 2018 Empowerdex BEE report captured four waves of BEE since 1993. The first was characterised by transactions between large historically-white companies and a few prominent black South Africans, and the funds would come largely from the seller. BEE partners typically enjoyed voting rights, but the seller enjoyed the performance of the underlying shares. This wave failed around 1998 when interest rates soared and BEE partners could no longer service their debts, triggering a review of BEE and ushering in the B-BBEE Act of 2003.

In the second wave, employee share ownership schemes involving blacks and whites were utilised as BEE vehicles, but sizable transactions remained largely confined to a few individuals’ ownership. Black buyers borrowed money to buy stakes in companies and used their dividends to pay off the debt. Once again, high interest rates and declining cashflow led to the failure of this wave.

The third wave looked substantially different from the first two. It comprised companies that were started by black business owners, whose growth and cashflow depended largely on procurement and enterprise development policies of large companies. These entrepreneurs were hands-on but that often meant that they depended on their businesses for personal economic survival, leading to few businesses surviving.

Mining must align itself to the new, fourth wave of BEE. This is where black entrepreneurs particularly new entrants, engage the state, corporate executives and banks to create enterprises that are genuinely empowered and create jobs. This should happen in the context of an increasingly competitive economy where new players have a fighting chance.

The time is now for companies to structure deals that eliminate the mistakes of the past and restore the battered public image of BEE.

Dr Ngwenya is the Chairperson of Sibambene Coal and Director of Phuma Phambili Engineering. Views expressed are her own.

Source: https://m.fin24.com/Opinion/time-for-a-new...