End of the dream for black business?
The collapse of the century-old mining house, JCI, barely a year after it had been taken over by a black entrepreneur, has sent powerful emotional tremors throughout South African society and Africa as a whole. Is this the end of a long cherished dream or merely a blip on the road to ultimate success? Tom Nevin has been finding out.
When JCI collapsed in the last days of January analysts and investors scurried off to see if there were cracks in the seams of other major black empowerment enterprises. They discovered that many of the so-called 'black chips' had out-performed the Johannesburg stock exchange's (JSE) all share index since 1995, yielding 27.3% a year for the two years to 23 January. They also found that others had not fared as well and cautioned against complacency.
Outstanding performers over the past 24 months came from the Real Africa stable. Real Africa Holdings was up 467%, African Life 463% and Real Africa Investments 400%. The New Africa Investments Ltd. (NAIL) group has also substantially out-performed the JSE. NAIL rose 225% and its biggest subsidiary, Metropolitan Life, increased 199%.
But there have also been notable failures. Amongst the most visible is New Age Beverages, the franchise holder for Pepsi Cola in South Africa. Its chief-executive officer, Mr Khela Mthembu, found that mismanagement, antiquated accounting practices and bad control were the major contributors to the company's collapse.
Corporate South Africa has undergone radical change in the past four years, most of it at top management and boardroom level -- this has brought euphoria to some, trauma to others.
There is a rush to be seen to be correcting colour imbalances in the corridors of corporate power, and indecently hasty attempts by companies to have their racial equilibrium in place before new laws force it upon them. These include the Employment Equity Bill (see box on page 12) currently before parliament. Companies are also striving to avoid lucrative government contracts passing them by for want of black representation, influence or ownership -- real, apparent or engineered.
Whatever the reasons, thousands of black firms have mushroomed on South Africa's wide businesscape -- some good, some bad; some genuine, some phoney.
In 1994 there were no black-owned companies on the JSE, today blacks control or have influence over 45 companies on the South African bourse with a total market capitalisation of around R67bn, or nearly 7% of the exchange's R1,000bn capitalisation.
On the surface, that's the upside. A 1996 FSA contact survey however showed an increase of only 0.4% of black senior managers and 0.1% of black middle management over the previous four years. During the same period, white senior management rose by 2% and 1.9% among white middle managers. A Breakwater Monitor survey conducted in November last year revealed pretty much the same. These figures indicate that affirmative action has not been implemented as rigorously or in such numbers as is generally supposed. The noise and fanfare that accompanied each appointment exaggerated the process.
So much for affirmative action, although the newly-published Employment Equity Bill, which borrows liberally from its US counterpart and the Sullivan Code, should see white-run companies and institutions brought closer to heel.
Black empowerment is a horse of a different hue.
According to Mr Sello Moloko, deputy chief-executive officer of Capital Alliance asset management, the success of the black chips was fuelled by the appetite on the JSE for black companies because of their strong ability to attract deals and the favour they found through government policies in awarding tenders and business. "The performance of the black chips probably reflects expectations of windfalls from such policies," he says.
There's the rub. When it became apparent that lucrative government business depended not so much on having a black face in management or at the boardroom table, but that black-owned corporations would be odds-on starters in the race for government contracts, the age of South Africa's black empowerment was born.
While Mr Phinda Madi, South African academic and author, was researching his book Affirmative Action in Corporate South Africa, he discovered that "not only were many white companies 'cheating' on affirmative action, but the shenanigans had extended to the new arena commonly known as 'black economic empowerment', in which a group of black people would either enter into a joint venture with white companies or would acquire a chunk of equity in them. What emerged was that a number of supposedly 'black' companies had been set up largely at the behest of white companies which the new company would front when there were lucrative government or parastatal...