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Last Updated: Tuesday, 10 October 2006, 21:27 GMT 22:27 UK
The contradictions of Black Empowerment
By Jamie Robertson
BBC World business reporter in South Africa

South African women
Real black ownership of the economy remains elusive

The biggest criticisms to be levelled at South Africa's attempts to transfer ownership of the economy into black hands have been those of cronyism and the fostering of a get-rich-quick culture and a new wealthy black elite.

In the years following the end of apartheid, traditional South African companies rushed to find themselves black investors - so they could qualify as Black Economically Empowered - or BEE - companies.

The public saw many of their leaders, ANC stalwarts, being offered and getting lucrative positions on the country's most powerful boardrooms.

For many that was not surprising - the brightest and the best who fought against apartheid could well be expected to turn their minds to industry once the struggle was over.

More disheartening though was the sight of black investors who simply sold out as soon as they could to make a tidy profit.

Real black ownership of the economy seemed as remote as ever.

A fishy tale

Oceana is South Africa's biggest fishing business.

In 1994 it thought it had found the perfect black partner, Real Africa Holdings to whom it sold just over 22% of the company.

As chief executive Andrew Marshall explained, Real Africa didn't stay in black hands for long.

Oceana fish works
Employees of Oceana are among its new shareholders

"The problem was that, over time, as the Oceana share price appreciated, the value of Real Africa appreciated as well and the black shareholders in Real Africa decided to cash in their shares and sold their holding to institutions that are predominately white - and so the net effect to Oceana was that we lost our black shareholding."

Oceana has done a new deal - this time its new partners are tied in, unable to leave, or transfer their shareholdings.

That's made easier by the fact that its own employees are some of those new shareholders.

But another black investment group, Brimstone, is now tied in for the long term.

Other approaches

Other companies are giving their new shareholders extra incentives to stay involved.

Old Mutual, the Anglo-South African financial services group lent the Brimstone group the money to buy a stake in Old Mutual.

If the economic growth rate in South Africa were to go down companies will not be able to pay the dividends that the debts are being serviced with
Soria Hay, Bravura

Chief executive Jim Sutcliffe said: "The rate of interest on that loan depends on the contribution they make to our business.

"What we sought to do was not to have a faceless or artificial arrangement with somebody, but rather enter into a partnership with some people who will help us grow our business."

But some financiers are claiming that the BEE deals are storing up problems for the future.

Debt problems

Black investors are getting deeper into debt as they buy up more and more of white corporate South Africa.

For the moment they can pay off the loans using dividends they earn from their new shares.

But what happens when the company hits a bad patch and can't afford to make these dividend payments.

Where does the cash come from then?

South African cityscape
Black ownership deals in SA have a new level of commitment

Soria Hay, the executive director at a debt and equity specialist Bravura explains: "If the economic growth rate in South Africa were to go down companies will not be able to pay the dividends that the debts are being serviced with.

"For that reason black empowerment transactions will be unsuccessful in a down-turned economy. In that situation you will have an untransformed but economically unhealthy environment."

This is perhaps the most worrying aspect of the new black ownership deals that are being forged in South Africa.

They do seem to have a level of commitment not seen a decade ago.

But they depend upon continued growth.

Just like someone with a big mortgage depends on being in work to pay off the debt on their house, so South Africa's new black shareholders depend on their companies and their country to keep on working.

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