Preface
The tale below is probably the exception. Most BEE deals are made up of reluctant and antagonistic original shareholders who select people who are not interested in the business, won't put any skin in the game and want benefits. These deals will definitely find themselves underwater at the next verification. If you were to do a deal, it would be best that you live the fairy tale below.
Many years ago Someone started a business that targeted a certain power utility in a land not so far away. Business was good, Someone called all the shots, employed a large number of people and made a lot of money. One day the power utility stopped placing orders. When Someone inquired as to why, Someone was told that the power utility now only did business with businesses that included a Somebody in their shareholding. The power utility went so far as to suggest that they knew of a Somebody who would be suitable as a business spouse. Someone resisted the temptation to entertain a power-utility approved person and found a suitable lady that he could groom as his ultimate successor. He name was Somebody
We can't pretend that this was an easy union, Someone was quite set in his ways and did not take to a much younger woman (from a different culture) as a co-shareholder. Similarly Somebody struggled with Someone who refused to consider her input in markets that Someone barely understood. The purchase price was set based on the value of the business at its most successful period. The financial deal involved a distribution of dividends that would service the debt for the shares as a priority.
All was forgiven when the first BEE scorecard produced a level that pleased the power utility. The ownership points flowed like natural honey. Business continued, even though payment periods dragged out a bit after it was discovered that three Princes from Orient had made off with the power utility's frankincense, myrrh and, especially, gold. Payments for the shares met prescribed ratios and Somebody was due to be an unencumbered shareholder within a few years.
AND THEN a pestilence descended upon the land. This pestilence created a great fear all around the known world, the king sensing a great crisis and predicting that many of his subjects would be smitten by this blight ordered his kingdom to cease all economic activity. Someone and Somebody were forced to inform all their serfs that they would not be able to expect more than half of their monthly salaries, the enterprise could not afford more. The business was now holding on for dear life but managed to make it through the worst of times.
A while later the BEE police arrived to consider the ownership of the enterprise. A few days later they sent a piece of paper telling Someone and Somebody that they had become non-compliant, they had dropped because their ownership net value calculation fell below the subminimum.
Alas this is the end of the fairy tale, the sad thing is that this scenario is not a fairy tale, it is in fact a reality.
To meet the BEE requirements under ownership a company needs to score more than the required submimum for net value. Net value is complicated calculation that considers the ownership level, the current value of the shares and the outstanding debt. A shareholder that bought into a business before the advent of the Great Pestilence will inevitably find that the value of the shares has dropped because a company that doesn't trade for a number of months drops in value. The value of the black person's shares drops considerably. If the value drops enough then the deal is underwater, if the black shareholder doesn't renegotiate the deal the scorecard will suffer.
(Author's note: I had been thinking about this story for a while. Whilst I was thinking about it Ashleigh Hale published a story about BEE and COVID. For the record, I didn't pinch the idea from her but I would recommend that you read her article. I've not met Ashleigh but I appreciated the article.)
Thus we get to black economic empowerment's Achilles Heel. As this fairy tale adequately demonstrates, BEE was designed only for the good times. It does not have the capability to weather the current storm we are in. This is partly BEE's fault and partly the fault of those larger companies, both SOEs and private, that set high targets for their suppliers to meet. This is an opportune time for the DTIC to look at the demands of the codes and revise them down to help re-grow the economy. Budgets, if they haven't disappeared, have been slashed. Now is the time to get the country working. BEE considerations must become less of a priority.
We can only but hope. The initial utterings from the DTIC are showing that they will still be taking the hardline that they have in the last ten years. It would come as no great shock if they made the targets more onerous by insisting that the private sector starting meeting larger social commitments in the name of points. There may be a glimmer of hope from Mboweni's October MTBS where he recognised that redtape needed to be reduced in order to do business. BEE in its current guise, is endless redtape, an apt reference to its creator, our former minster of trade and industry who apparently doesn't appreciate the name Bolshie Bob.
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