Finally Getting A Leg Up
Black South Africans are learning to harness their economic power--50 cents at a time. Building on the tradition of savings clubs, in which township dwellers pooled resources to pay for events such as funerals, the Women Investment Portfolio uses tiny contributions from groups of black women to buy stakes in commercial ventures owned by whites. In just over a year, WIP's 30,000 members have invested in a luxury-car dealership, a rose farm, and the local consortium that partnered with PepsiCo Inc. on its return to South Africa. WIP's long-term goal: to sign on 5 million women to invest just two rand--about half a dollar--each. That would bring in $2.5 million in investable funds.
A mostly white minority of less than 20% of the population still holds 80% of South Africa's wealth. But wedges like WIP are being used to pry open doors and allow blacks greater participation in the economy. The process is slow and often controversial. The government of President Nelson Mandela is urging white business owners and investors to form partnerships with black entrepreneurs who often have little capital and even less experience. Yet without such partnerships, blacks cannot enter the economic mainstream--and South Africa's political transformation will stop in its tracks. "Without economic emancipation, we will not be able to enjoy political emancipation," says WIP Executive Director Louisa Mojela.
CUT RATES. Although the government has not written it into law, the basic mechanism for wealth redistribution is clear: White-run businesses bidding for government contracts must join forces with black-run startups to win deals. Foreign investors vying for chunks of state-run companies being privatized must also back black empowerment.
So while South Africa's black entrepreneurs may not have much cash, what they offer is nonetheless important. "We bring in, for lack of a better word, political capital," says Mashudu Ramano, who is creating an investment company for the black-controlled National African Federated Chamber of Commerce. While white companies may seem to be selling assets at cut rates or taking on partners who lack experience, it is a calculated move. Says Keith Lockwood, an economist with the South African Chamber of Business: "The issue for each company is, `Is that business important enough to incur those costs?"'
The gaming industry, until now dominated by white-run leisure companies, is one area where partnerships are taking off. Southern Sun, a white-owned hotel group, has formed a joint venture, Tsogo Sun Gaming & Entertainment, with a black consortium that includes Ramano's group, unions, and others. Sun International, the white-run company that built the well-known Sun City resort, has also created African Sun International with partners such as the Women Investment Portfolio. Both groups will be well positioned when the government awards casino licenses later this year.
SUITORS. But finding a black partner can also take a long time. In what would be the biggest deal yet, conglomerate Anglo American broke up its Johannesburg Consolidated Investment Co. into three holding companies and offered two for sale to black investors last May. One company is a mining house; the other's holdings include stakes in giant South African Breweries Ltd. and a major media group. Each is worth an estimated $500 million to $760 million--and the price climbs as their shares rise.
Yet none of the black suitors has been able to come up with a financing package to buy either of the companies, despite regular talks with Anglo. Anglo remains committed to putting together a purchase, probably with international financing and a man-agement partnership, says spokesman Michael Spicer. "It takes a great deal of effort to get it right and make it commercially viable," says Spicer. "This is not a giveaway."
Anglo isn't acting out of altruism. Like the other five enormous, white-run conglomerates that dominate South Africa's markets, it is under pressure to loosen its grip. Mandela said in a television interview recently that the conglomerates had "choked" the economy. While the government won't break them up by force, officials are rewriting competition laws to limit further monopolistic practices. They are also criticizing the cross-holdings that give conglomerates their might. The belief is that as these knots of power are unraveled, black capitalists can pick up more and more threads.
Ironically, though, black entrepreneurs are finding that to leverage their few assets, they need to build similar structures. For example, Mashudu Ramano's business is a trust 100% owned by the National African Federated Chamber of Commerce. The trust will take a 20% stake in a holding company, with the remaining 80% to be held by various black business owners. The holding company in turn will form subsidiaries with other partners to enter the auto, leisure, communications, and financial-services sectors. Ramano, an accountant who develops new business for Ernst & Young, hopes to parlay the contributions of the chamber's small-business operators into a $25 million kitty.
"OBSCENE?" The gradually increasing black presence on the Johannesburg Stock Exchange shows a similar pattern (table). Of the JSE's 650 listed companies, 13 are black-controlled. And like their white counterparts, the listings of the black-held companies don't really represent 13 separate endeavors. For example, Real Africa Investments, listed in March, 1995, has 51% control of Real Africa Holdings, which in turn owns 51% of African Life Assurance. Corporate Africa, listed in October, 1994, holds 51% of New Africa Investments, which has a controlling stake in insurer Metropolitan Life.
Such concentrations of wealth have already drawn fire. Real Africa and New Africa, known as RAIL and NAIL, are run, respectively, by South Africa's first two giants of black business, Don Ncube and Nthato Motlana. Both were well-connected businessmen who forged ahead despite apartheid's barriers and were well positioned when the barriers started falling. Their rarity has subjected them to unusual scrutiny, and Motlana, for one, is enraged at the suggestion that he should not follow the ways of white business. "I've paid my dues to my community and country," he said recently. "Is it obscene to make money?"
Although it contradicts policy, the government is likely to allow black entrepreneurs to use cross-holdings. Unless they can leverage their assets, the argument goes, they can't amass the capital to reach the big leagues.
In many ways, black businesspeople have little choice. For example, Ncube and Motlana each hold nine places on different corporate boards. That still doesn't approach the 20-plus directorships held by at least 10 different white business leaders. And although the number of directorships held by blacks rose from 290 in 1995 to 389 this year, whites still hold over 8,000. With so much catching up to do, black business will continue to push for all the leverage it can get.