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Chris Bishop | 13 February 2023

‘The BEE Billionaires’, by Chris Bishop book cover. Image: Supplied / The Reading List

In ‘The BEE Billionaires’, Chris Bishop hopes to answer one question: Has BEE achieved what it was set up to do, or, in the long term, will it prove more of a hindrance than a help?

South Africa is in the eye of a slow-building economic storm: political upheaval, junk status, civil unrest, spiralling unemployment, State Capture and the fallout from Covid-19. There is no better time to assess the impact of one of the biggest economic experiments in Africa that began a quarter of a century ago: black economic empowerment, or BEE, the legislation-backed effort to transfer wealth to black people and to facilitate their broader participation in the economy to redress the inequalities created by apartheid.

In The BEE Billionaires, veteran journalist Chris Bishop gets up close and personal with some of the biggest names in BEE. By examining their struggles and the impact of BEE on their successes, Bishop seeks to uncover the ways in which BEE as an upliftment scheme has both succeeded and failed. Because while BEE has made billionaires of some, it has ruined others and remains one of the most controversial policies born in those first heady days of democracy.

Bishop is the founding editor of Forbes Africa and Billionaire Tomorrow, a former head of programming at CNBC Africa, and is the author of the bestselling book Africa’s Billionaires. Read the excerpt.

The Bee Sheriff on the Trail of the Bad Guys

She is supposed to be the all-powerful sheriff with the big guns, tall in the saddle, hunting down the bad guys – the frauds and the cheats – trying to sidestep their black empowerment obligations, in the interests of the people. Instead, to stretch the metaphor, she sits with precious few bullets astride a scrawny horse, limping along with a fraction of the money needed to hunt down the bandits on the dodge; struggling on the trail of the lonesome prosecution.

This is the unenviable lot of Zodwa Ntuli, the current B-BBEE commissioner. As the independent regulator, it is her job to oversee compliance in the implementation of black empowerment policies in South Africa, in the face of indifference, chicanery and confusion over the rules. It is a tough job, to say the least, as she battles through penury and pandemic.

‘In 2021, the B-BBEE Commission published an eighteen-year review, delving into the figures that measure its effectiveness. What they found was a world where white males still dominate the corridors of power …’

‘The first thing that I must say is that we actually are encouraged by the fact that there are so many B-BBEE initiatives that are being implemented in this country,’ she tells me with a whiff of optimism on a cloudy day in Pretoria, between meetings. ‘That tells us that, increasingly, more and more entities are trying to actually comply with the legislation and get the entities more transformed, and to meet their targets … even during the Covid pandemic, in 2019 and 2020, we still saw activities, we still saw ownership deals that were reported to us, because, by law, any major B-BBEE transaction – that is a transaction that is R25 million and above – is required to be reported to the B-BBEE Commission.’

Ntuli is a fairly low-profile and pragmatic civil servant. She has a ready smile and scarce biographical details on the internet but takes a professional and serious approach to a tricky and thankless job. In her position, no matter who you are, you are hardly going to be liked. Lawyers and businesspeople mutter that Ntuli is difficult to deal with and sometimes doesn’t listen. In November 2020, an editorial in the Business Day accused her of abusing her powers and going ‘rogue’ in her approach to transformation. Even Wiphold, the legendary women’s investment outfit, founded in the 1990s with the avowed intention of garnering black empowerment deals for women, had harsh words for Ntuli and the government.

Louisa Mojela, a Wiphold founder, complained about the regulatory confusion around the broad-based schemes after Ntuli had questioned whether these schemes fit in with the legislation.

‘You talk to the commissioner and she says one thing. You talk to the minister and the minister says another thing,’ Mojela commented to the Sunday Times in November 2020. ‘You have a commissioner who seems to be fighting and wanting to come up with her own interpretation of this policy. Then you talk to the department and they seem to be understanding and supportive of our broad-based ownership.’

These broad-based schemes, aimed at bringing ownership and wealth to communities, were at the heart of the second issuing of the BEE codes. According to lawyer Caryn Leclercq, they can be successful, but are difficult to manage and often beset by squabbles. ‘I think they are a beautiful thing,’ she says. But, as she points out in Chapter 7, one of the main problems ‘is managing the expectations of the community’, who are unlikely to see any returns for a long time.

Employee schemes in companies can be fraught for the same reason, because of having to lend workers capital, through vendor financing, to be repaid by foregoing share dividends.

‘You would have vendor finance and [the employees] would have to pay off their dividends,’ Leclercq explains. ‘That didn’t really work, because then [they] wouldn’t see dividends for ten years and you have unhappy employees, of course. I have certainly seen that, which is why they used the trickled dividend device; even though the dividends are still paying off the debt, you push some of the money through to the employees to keep them happy – show them the money, in other words.’

All part of a day’s work for the commissioner. Yet, you get the feeling Ntuli is determined to slay any dragon that threatens the future of black empowerment – especially the beast of fronting. On public platforms, she has railed against fronting, calling it fraud, thieving, rent-seeking and money-laundering.

‘It takes a very simple form, at times, a very straightforward form, where an unsuspecting black person, who is either a worker or a domestic worker [or] a gardener, is then listed as a shareholder, just for the purpose of the company looking black,’ she says. ‘But then it also [works] in a sophisticated manner, when deals are structured in such a way that even with people that are knowledgeable of these deals … the financing arrangements that are involved are such that the deal will never actually result in a transfer of that particular shareholding into black hands. Because basically the transaction is structured [in] such [a way] that the black people will never be able to repay that loan that was attached to that particular date.’

As we saw in Chapter 7, the penalties for fronting are stiff. The law has the power to imprison a director for up to ten years, fine a company up to 10 per cent of its turnover or ban it from doing business with government for up to ten years. Yet it remains stubbornly part of the black empowerment scene, undermining those schemes that are designed to really transform.

Fronting schemes are structured ‘to circumvent’, says Ntuli. ‘[They] are designed in such a way that when you assess it and test it, you can clearly see that in ten years, there is no way these black people that are said to be 51 per cent black owners would be owning this stake. Because the funding arrangement is so severely restraining on the black shareholders, but also, you find that the arrangements include restrictions on the dividend flow, that maybe for the duration of that particular arrangement there would not be any dividend flow.’

Ntuli warms to her theme with further explanation: ‘When there are no dividend flows, what that means, essentially, is that the black people [who] did not even have the real funding, and were vendor-financed for the deal, will not be able to receive any income for the duration of that particular deal up until they fully repaid the loan, but then they will not be able to repay the loan because there is no dividend flow. There is no money that is coming through to them for them to service the loan. So, you find those types of deals that clearly tell you that the way it is structured, there’s absolutely no way that ownership [can be] transferred.’

The problem of fronting goes deeper, Ntuli says, in that often the appointments of black managers in companies are not what they seem. This is ‘window dressing’, when black people are appointed to what appear to be senior positions, but all the decisions are made by others within the organisation. Ntuli says this undermines the intention of the legislation, ‘because the intention is to make sure that your votes are reflective of the demographics, and that black people do participate in decision-making structures’.

In 2021, the B-BBEE Commission published an eighteen-year review, delving into the figures that measure its effectiveness. What they found was a world where white males still dominate the corridors of power, and where white and Indian managers are over-represented. The picture was both encouraging and unsettling for Ntuli and her team. They found that the commission had been operating on a zero budget since 2016, with a mere 22 per cent of the approved staff complement of 113, and with scant resources for investigation into compliance. Furthermore, the war on fronting – Ntuli’s holy grail – appeared to be faltering. Of the thirty cases referred to the police and the National Prosecuting Authority (NPA), not one had been processed.

There were some bright spots, however: On ownership patterns, our Annual National Status and Trends on B-BBEE Report for 2020 shows that black ownership moved from 29% in 2019 to 31%, with black women ownership up from 12% to 14%, but still low compared to the 2016 benchmark study of 32%. Closely related to this was a slight increase in management control from 39% in 2019 to 57%. The report also shows that the least transformed sectors are the property, financial and tourism sectors. In 2019 only 3.3% of the JSE listed entities were 100% black owned, fast forward to 2020, the report shows 0% …

‘What is worrying is when we regress,’ says Ntuli in our interview. ‘The question is, why are we regressing? We should be pushing towards more inclusion, as opposed to regressing … Are we becoming relaxed about it? Because even if we become relaxed, the inequality gap does not necessarily change itself; it will not dramatically change by itself. There needs to be a conscious effort to change the ownership patterns in this country and to bring inclusivity in a sense that black people must be part and parcel of this economy, and in real terms.’

Ntuli argues that the commission should be given greater administrative powers to prohibit specific practices and provide remedies. Her request has so far fallen on deaf ears. On a more positive note, the commission has issued findings on the violation of the B-BBEE Act to 505 entities, some of which have been made to pay out black shareholders who were denied economic benefits and restore participation of excluded black people. Eight of the entities have appealed and the commission is defending.

‘What we picked up is that it is how people choose to implement it – that is a problem – and not what needs to be implemented,’ explains Ntuli. ‘In those cases, where it is a problem, they are trying to create schemes that are designed to circumvent it. To make it look like they are complying when they’re not complying. The tick-box exercise of just looking for a consultant to give you the quick way of getting the points but without doing what is necessary.’

Ntuli says the regulator has also successfully concluded twenty-two alternative dispute-resolution agreements, resulting in over R100 million in compensation being paid to black shareholders. It is also pursuing the cancellation of contracts and licences of entities found to be fronting or misrepresenting.

What about the accusation that those deals that do pass muster are merely for the ‘usual suspects’, the politically connected elite? Ntuli strongly denies this. ‘I would like to implore you … to go onto our website and just look at the list of the registered measured BEE transactions. Those are the transactions that we have registered since 2017. And then to look at the parties involved in those transactions and begin to see whether it is true that the majority of the people that are involved are politically connected people,’ she says. ‘In the analysis that we’ve done, more and more, the initiatives are becoming broad-based. More and more employees are [able] to get into these initiatives.’

With a mountain to climb – on the back of a scrawny horse – Ntuli could be forgiven for being downhearted. Yet, she does not appear to be so, even though she stresses in our interview that, as a civil servant, she is not allowed to give her personal views.

‘Sometimes we lament so much, on maybe the wrongs or the things that do not go right with B-BBEE,’ she says thoughtfully, ‘but I can tell you that a majority of people that are in business right now, and that are occupying positions – senior positions in the public and the private sector – they actually have the legislation to thank; certain things were made possible because government has made the framework to bring about that inclusivity.

So, there are gains, but we must accept that they’re not coming as quickly as they should … But to say that there is no benefit would not be honest of us. And we do believe that we can work better; we can improve on it.’

Undoubtedly, that is what many people in the black majority want to hear, but their question is likely to be: When?

‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.


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