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South Africa: Black Empowerment Broadens Its Reach
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Business Day (Johannesburg)
26 March 2008
Posted to the web 26 March 2008
Mathabo Le Roux
Johannesburg
SA's biggest empowerment deal to date by petrochemicals group Sasol, valued at R25,9bn, is aptly dubbed Inzalo -- meaning new beginning. In choosing the name, it is likely Sasol tried to signify the wealth that could be unlocked for new black investors.
But the name also heralds a new type of empowerment deal . "We will make a difference by creating significant economic opportunity for more than one million potential beneficiaries from individuals to rural women's groups," CEO Pat Davies said.
When the concept of empowerment was first introduced, it often translated into deals with small consortiums of politically well-connected black business people.
Part of a new generation of empowerment deals , Sasol's deal will see a diverse range of people obtain shares in the group.
The group will sell 3% of its equity to the black South African public at an 11% discount; 1,5% will be made available to empowerment groups involved in Sasol's business, broad-based black empowerment groups with a skills development focus and women's groups. A further 1,5% is earmarked for the Inzalo Foundation to facilitate skills development; black managers and nonexecutive directors will receive 0,3%.
The biggest beneficiaries, however, are Sasol's 27000 employees, who will receive a 4% stake, the financing of which will be facilitated by the group.
Introduced by the likes of Nampak, Naspers and Nedbank, empowerment deals have now graduated to more democratic ownership programmes. And since the National Empowerment Fund opted to sell MTN shares at a discount to black people through its Asonge initiative, more firms are now also opting for a retail component with their empowerment schemes.
Empowerment deals that include workers are not only just but make economic sense, says Solidarity deputy director-general Dirk Hermann.
Deals with an Esop (employee stock ownership plan) component align empowerment transactions with company goals by encouraging productivity, he says.
But he laments a tendency by companies to simply announce empowerment deals without negotiating with workers. This renders them mere beneficiaries, rather than taking ownership of the deals. The mining industry, Hermann says, is a good model of negotiated empowerment deals. That is why these transactions have evolved into sophisticated schemes geared at accruing value to workers.
"There is a growing tendency with the new deals to encourage the diversification of workers' trusts. As value is realised these trusts tend to diversify their capital, often by buying shares in other companies. So the trusts are building share portfolios through which more value is unlocked for employees," Hermann says.
National Union of Mineworkers general secretary Frans Baleni is concerned that some companies may regard the inclusion of workers in an empowerment deal as an opportunity to curtail their bargaining power. "We've had such instances," he says.
Independent analyst Reg Rumney echoes Baleni's concerns: " You want to incentivise workers, but the stake cannot be too big (75% or more) because then you have a co-operative and that presents its own problems".
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But the new type of deal is a better option. "They leave less of a bitter taste than deals that propelled politically connected people to million airedom," he says. Yet there are some caveats.
Unlike the old-style empowerment deals where banks put up guarantees and empowerment partners carried little financial risk, investors now have to put up capital to participate.
New deals tend to be vendor-financed. Gryphon Asset Managers' Abri du Plessis says the cost to shareholders is a difficult balancing act but one worth paying to ensure the future of a company.
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