BUSINESS LIVE / 04 DECEMBER 2018 - 05:07 / DUMA GQUBULE
Mining and finance are now exempt from certain fulfulments, which could derail SA's transformation journey
At its conference in December last year the ANC committed to “radical socioeconomic transformation”. In his state of the nation address six months earlier former president Jacob Zuma said radical socioeconomic transformation referred to “fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female”.
Picture: THE HERALD/MIKE HOLMES
This is the only definition of radical socioeconomic transformation the party has provided.
However, over the past year the government has gazetted two charters for the financial and mining sectors that will end BEE transactions in two sectors that have created the majority of black ownership in the economy over the past 24 years. Since he became president in February, Cyril Ramaphosa, my former boss at the BEE Commission, whose recommendations paved the way for the country’s empowerment laws, has said nothing about economic transformation. Ramaphosa’s Shanduka Group created most of its value from investments in finance and mining. But the message from the top is that empowerment is off the table. The government will prioritise investment over transformation.
In December last year the department of trade & industry gazetted a charter that allows the “once empowered, always empowered” principle to apply in the financial sector. In September this year, the department of mineral resources gazetted a similar charter after a court ruled in favour of the minerals council on the issue. According to the principle, companies do not have to replenish their levels of black ownership by doing another BEE transaction after the exit of empowerment shareholders. They keep all their empowerment credits forever.
In the rest of the economy, where the amended BEE codes of 2013 apply, the “continuing consequences” principle allows companies to keep up to 40% of ownership credits after the exit of black shareholders under certain conditions. In practice, the principle gives companies time to conclude a new BEE transaction after the exit of black shareholders.
At the end of December last year there was black ownership of R134bn within the top 20 financial-sector companies. This was equivalent to 6.4% of the market capitalisation of the top 20 companies.
After excluding the value of foreign assets, it was equivalent to 7.4% of the value of SA assets. There was black ownership of R104bn within the top 25 mining companies. This was equivalent to 4% of the market capitalisation of the top 25 companies. After excluding the value of foreign assets, worth about two thirds of the market capitalisation, black ownership was equivalent to 15% of the value of SA assets.
The above finance and mining companies had a market capitalisation of R4.7-trillion, equivalent to 32.2% of the market capitalisation of the top 100 companies on the JSE. Excluding foreign assets, the market capitalisation of the above finance and mining companies was equivalent to 51% of the value of SA assets within the top 100 JSE companies. Crucially, black ownership within mining and finance was R238bn. This was equivalent to 58% of total black ownership within the JSE top 100 companies.
Since radical transformation requires liquidity, the application of the “once empowered, always empowered” principle in finance and mining has shut the door on future BEE transactions within most of the top 100 JSE companies. There is still not a single black-owned company within the top 100 JSE companies.
After more than R600bn of BEE transactions since 1994, the credibility of the government’s new empowerment rules, including the BEE codes, will be questioned. People will start to ask why the banks, insurers and mines should have a different set of rules to what applies in the rest of the economy. The future of empowerment itself is at stake. Another court ruling could bring to a premature end more than two decades of BEE transactions in the whole economy long before the country has achieved meaningful transformation of apartheid ownership structures. If this were to happen, the government should be blamed for failing to provide leadership on the issue and align the finance and mining sectors with the BEE codes.
• Gqubule is founding director at the Centre for Economic Development and Transformation.
LINK : https://www.businesslive.co.za/bd/opinion/columnists/2018-12-04-duma-gqubule-new-sectoral-charters-threaten-transformation-and-empowerment/
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER