The world economy taking its toll on BEE

About R41 billion worth of potential BEE deals have been wiped out due to unfavourable trading conditions in the past two years, according to statistics from the BEE rating agency EmpowerDEX. Last year alone the total value of BEE deals sealed on the Johannesburg Stock Exchange declined five-fold from R66 billion in 2007 to R13 billion.
KPMG BEE services director Sandile Hlophe, who deals with multinationals grappling with BEE in their South African operations, said current valuations aren’t meeting people’s expectations and many have adopted a wait-and-see approach.
As a result the global financial crisis is likely to delay progress of transferring 25% of the country’s wealth to black people by 2017.
Deputy general secretary of the South African Communist Party Jeremy Cronin recently said more than 80% of BEE deals in South Africa have failed because black “investors” get shares through loans, on the assumption share prices will always increase and investors will be able to service their debts. Cronin compared the situation to sub-prime lending in the US.
Both Santam Agriculture head Tobias Doyer and CEO of the Agricultural Business Chamber Dr John Purchase, however, feel BEE is under threat because of the economic crisis, rather than because of irresponsible business or lending practices.
Doyer said sub-prime lending was a ridiculous strategy to help Americans buy homes. BEE, on the other hand, is aimed at correcting past injustices by addressing employment inequalities in land ownership. The lending criteria in each case are also significantly different.
Dr Purchase said BEE projects in the mining and agricultural sectors weren’t based on irresponsible business practices, and that there have been huge growth opportunities in both sectors over the last three to four years because of the commodities boom. Few financial experts foresaw what was going to happen in the world because of business malpractices in especially the US.
Dr Purchase said nothing is without risk which would increase as the economic crisis deepened. However, he remained optimistic most agricultural businesses would be able to overcome risks, which are manageable.
Doyer said the economic crunch should be a lesson. “We must remember BEE is not about what we do, but the way we do it. It should always be built on sound economic principles.” – Glenneis Erasmus