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Manuel critiques BEE favours

Nov 13 2016 05:59
Justin Brown

The contractions related to employment equity law and broad-based black economic empowerment (BBBEE) were highlighted by the fact that the Gupta family, who came from India, had never had any BBBEE qualification issues, Trevor Manuel, Rothschild deputy chairman, said this week.

“There is something seriously untoward about this contradiction,” Manuel said at the annual conference of the Association of Black Securities and Investment Professionals (Absip) held in Johannesburg.

On the other hand, he used the example of a senior executive in a local company, who was born in Zimbabwe and arrived in South Africa in the 1990s but was only naturalised after 1994.

“Despite the fact that he is married to a South African and their children are distinctly South African, he does not qualify as black for employment equity purposes. It is important to raise this sensitive matter,” Manuel said.

He said that it was obvious that empowerment was a critical imperative for South Africa to reverse the injustices of the past.

“In spite of 13 years of legislation and regulation and eight years since the introduction of the first BBBEE codes, and an even longer history of discussion of empowerment charters and vast sums of money committed to BBBEE, the evidence on performance suggests that the best endeavours have produced patchy outcomes, at best,” Manuel said.

“There is a huge lacuna of intellectual leadership in transformation, and I want to appeal to Absip to consider how it can step into the breach,” Manuel said.

“Perhaps one of the most immediate challenges is to ensure that we have an agreed survey method, survey frequency and an approach to measurement that is uniform and binding on all,” he said.

“There are at least four survey reports available and generally in use – the Jack Hammer Executive Report; the Alternative Prosperity Report; the NEF Ownership Survey; and the Empowerment Trailblazers Survey.

“I experience profound difficulty in traversing across these and seeking common method and agreed outcomes,” Manuel said.

“I often pause while using these reports to question whether the analysts are even using the same raw data sets... Regrettably, therefore, all these reports are treated with a dose of cynicism and they are considered unreliable,” he said.

Turning to the ownership element of BBBEE, Manuel said that there was a trend among empowerment shareholders to feel enriched for little effort, which he referred to as “money for jam”, and not wishing to jeopardise their newfound dividend stream, they tend to be silent.

A key downside from the fact that empowerment deals are done at a discount means that pensioners – the majority of whom are black South Africans – are poorer each time an empowerment discount is passed.

“Consequently, there is an understandable resistance to repeating the discounting after a group of shareholders has cashed out,” Manuel said.

A key challenge related to empowerment deals was funding. The limitations on the pool of available BEE equity capital hinders the transfer of real economic value, he added.

“The funding structures are almost always highly geared... Too frequently, the new BEE shareholders end up with transactions under water, and themselves highly indebted,” Manuel said.

In the mining sector, it was estimated that R400 billion in BEE deals had been done without much to show for these transactions, he added.

Turning to skills development, Manuel said that this area was showing slow progress.

“Management control has decreased since 2007, while significant progress is being made at the level of nonexecutive director,” he said.

“The talent available to financial sector corporates is incredibly shallow for a country with a sector as large as we have,” Manuel said.

“So, we have a skills mismatch, black with all manner of technical financial skills abound in fund management while corporates try and make do with a dearth of skills for all of the rest of management,” he said.

Turning to the empowerment enterprise and supplier development pillar, Manuel said that suppliers needed “genuine support”.

“We must embark on genuine consultations about how we develop the sector for small, medium and micro enterprises. [By] merely reflecting in the scorecard without a genuine support system sets the entire system up for failure. We must recognise that this system imposes enormous additional costs that will have to be borne in the interests of broadening and diversifying the base of our economy,” Manuel said.

gupta  |  trevor manuel  |  economy  |  bbbee  |  bee

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