How Black Economically Empowered Millionaires disappeared from the Johannesburg Stock Exchange
Date Posted: Wednesday 06-Feb-2008
I was talking to someone today who spent some time doing some investing and who played around on the Johannesburg Stock Exchange last year. The result was one of the most bizarre stories I've heard in the long time.
In South Africa, the Govt created legislation which went beyond Affirmative Action. They created what they called, "BEE" - Black Economic Empowerment. And it really have very little to do with helping the poor black masses. Its real aim was to create black businessmen. The problem was that often the beneficiaries of BEE were blacks who had political connections with the ruling party.
Affirmative Action forced racial quotas on all companies. Only a certain percentage of employees in South African companies are allowed to be white. The BEE legislation forced companies to be OWNED partially by blacks.
Since Blacks did not normally have enough cash to buy whole portions of large companies various schemes were devised to basically give them their portions for free. Often the big companies chose blacks with political connections in the hope that they could do business deals with the Govt. e.g. get tenders.
The Govt also made it illegal for a 100% white owned company to win any Govt tenders or contracts. The aim was to force all companies above a certain size to have a partially black ownership one way or another.
The way it was implemented was that most companies found suitable black candidates and then gave them millions of rands worth of shares for free. According to law, these blacks were forced to keep their shares in these companies for a minimum of 5 years before they could sell any of them.
In some companies the blacks served merely as window dressing. They were given high ranks, big salaries and big cars but nothing that really amounted to real responsibility. They were put in positions where they could do little to interfere with the way the company was being run. This was not just due to inate "racism" but also because these blacks had little in the way of usable skills they could contribute at a high level. But this was not always the case.
I have told before of how I've watched the way meetings at big corporations work. I work for a big corporation and I can see how things go. I attend many technical meetings and what few blacks are there, often have little or nothing to contribute simply because the matters being discussed are very complex. The non-whites with the most input are the Indians. They are quite at home working with complex matters. Then the next group one sees giving input are the Coloureds. But Blacks have the least to contribute at meetings or planning sessions.
One company I worked for some years ago, which was not that big battled to get BEE partners. They would get one, and these partners would PRETEND to have all sorts of skills and connections... but they would flunk out. They would then have to find new BEE partners. The company was trying to ensure that its Black partners weren't complete duds, so it put some clauses in there which were aimed at ensuring their Black partners actually delivered SOMETHING in terms of services or sales. They went through one BEE partner after another.
A friend of mine told me how a wealthy woman in the Advertising industry with a very successful company gave away 25% of her company to her BEE partner.
The blacks got lots of money, even if they just sat around and did virtually nothing to earn it.
The problem for the Whites was what to do with these new Black partners who were unskilled and so most of the time it was hoped that by having a black face on companies that these companies would then get big contracts, especially from Government.
The blacks in their turn often pretended to have more contacts and influence than they really had.
So in the end, it was a case of each pretending something just to ensure that the company was not fined heavily by Govt.
This lady I was talking to told me that if you study the share prices of many South African public companies then you'll see a time when the price drops sharply and then rises again. She said that as far as she could make out, what was happening was that when the 5 year term was up, the Black BEE partners would sell their free shares and then split with the money! There would also be White insiders who would wait for this. They would go and buy up the shares at discount prices when the Blacks were dumping them!
The problem thus was that there are less and less publicly listed companies in South Africa with black ownership because the black multimillionaires have cut and run with their money!
Apparently even Alec Erwin, (that white minister who lies through his teeth at the drop of a hat), has raised this as a problem. Apparently the BEE component of companies is GOING DOWN!
Now the Govt is sitting with a problem because they've forced companies, literally at gunpoint to get black ownership and these companies have followed all the legal processes and have complied, except that these newly rich blacks have cut and run with their free millions! Now that they're gone the companies are not BEE compliant - but its through no fault of their own!! But what will Govt do now? Those companies did follow all the legal steps.
So according to this lady, if you go and study the JSE and its ownership, you'll see that there are very few public companies with black owners any more.
And so another ANC social experiment falls flat on its face.
I did pull out some quotes from Rich Dad, Poor Dad with regard to screwing the Rich. The quote will be found in here: The Massive DeBeers Monopoly Mining Company is quietly abandoning S.Africa completely
In many ways this is really identical to what Robert Mugabe did with the White Farmers in Zimbabwe. The blacks there got the farms and now the farms are totally destroyed. The buildings are stripped down to mere walls and the farms are completely unproductive.
In the end, it really is the Whites who WANT to do business and who want to build the future. The blacks just want to get free money, then run away and spend it. If this is what the blacks do, then the future is clear: The blacks will never amount to anything. They will remain at the bottom of the food chain forever. If this is the irresponsible way they behave when given responsibility and big chances, then they is no hope for them.
For me, it proves once again that what REALLY MATTERS are sound skills and a sound work ethic. Getting free handouts won't take failures and turn them into successes.
Robert Mugabe proved that Blacks really aren't interested in farming.
Now President Mbeki has proved that Blacks really aren't interested in business.
Of course in both instances there are a handful of successes, but the handful of successes are the exception. The majority will probably never amount to anything. They will probably waste their money and end up right back where they started. I've seen how the blacks waste all the money they get, so I have little doubt that most of the "newly rich" blacks will soon be the "newly poor" blacks.
Posted By: Jan
