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Date : 20/06/2003
Source: Department of Public Enterprises
Title: Radebe: Nafcoc North West's conference


SPEECH BY JEFF T RADEBE, MP, MINISTER OF PUBLIC ENTERPRISES, AT THE NAFCOC NORTH WEST CONFERENCE, Mmabatho, 20 June 2003

RESTRUCTURING OF STATE OWNED ENTERPRISES: BRINGING DEALS TO FACILITATE BLACK ECONOMIC EMPOWERMENT

Thank you, Programme Director
Honourable President of Nafcoc, Mr Patrice Motsepe
Members of Nafcoc and Allied Business Organisations
Funding and Sponsoring Partners of the Conference
Honoured Delegates
Distinguished Guests
Friends
Ladies and Gentlemen

I am extremely honoured and privileged to have been asked to speak to you at this august conference that carries the aspirations of black business, especially after the Sun City conference in September 2003.

We are inspired by developments within the black business sector in general, and the positive turn of events within Nafcoc in the recent past. Government has, on numerous occasions, emphasised the importance of unity within the South African business community. We welcome the steps that are being taken by the various chambers towards achieving the goal of ensuring that the business community speaks in one voice, and it is appropriately positioned to take advantage of the economic opportunities arising out of the unfolding transformation in our country as well as major changes taking place in the global economy.

However, government recognised the critical, strategic role of black business if unity is to be consistent with our agenda of economic transformation. I am delighted that black business, and Nafcoc and its members in particular, have taken it upon themselves to ensure unity within their ranks and ensure that you become the catalyst for economic transformation in our country. There must be recognition that black business brings with it to the business environment new and different values, experiences and outlook, which are vital to the process of economic change and management. The participatory manner in which you go about this important task will strengthen your organisations for the future.

The Nafcoc provincial conferences come at a very opportune time. They come at a time when black economic empowerment has been given new impetus in both the public and private sector. Almost everyday, we read of new deals that are being entered between established white companies and black economic empowerment companies across all sectors of the South African economy. This is a positive trend that should be welcomed by all of us.

It is also sobering to note that we have just come out of the Growth and Development Summit (GDS) and as we discuss deals and broaden empowerment tonight, we need to encourage grassroots entrepreneurs, and black and white business organisations to participate in the broad-based empowerment Bill released by government, the ongoing discussions on sectoral charters to bring empowerment to bear and vigorously implement the decisions from the GDS. We view the Strategy for Broad-based Black Economic Empowerment as a cornerstone of South Africa's economic transformation.

I wish tonight to deal with a few elements that underpin the thrust of black economic empowerment as envisaged in the both the Strategy and the restructuring of state owned enterprises (SOEs), and share some thoughts with you about the role that state owned enterprises, and particularly the restructuring of SOEs play in the acceleration of broad-based BEE in our country.

The key, underlying driver of the new impetus on black economic empowerment derives fundamentally from the recently-released government strategy on achieving broad-based black economic empowerment, recently released by the Department of Trade and Industry (the dti) on behalf of the government. I must emphasise that black economic empowerment will always remain a cornerstone ANC economic policy and its agenda for thoroughgoing economic transformation.

A critical feature of the Broad-based Economic Empowerment Strategy is the adoption by government of a more focused and practical than ever before. The government has avoided a wider definition of bEE, whilst at the same time ensuring that black economic empowerment goes beyond the narrow confines of the earlier period. The broad-based strategy also provides for the establishment of a council. I would assume that some of the best brains that emerged out of the black business community would take forward their struggles and assume their positions in this important body.

We all should recall the criticisms levelled against black economic empowerment in our country. The constant criticism, posed by even those opposed to black economic empowerment and change, is that it benefited and created an elite. The mass of the people continues to live in abject poverty and are not benefiting from this process. This is a criticism that we will ignore at our own peril in the context of South Africa.

The "accelerated agenda" of restructuring SOEs seeks to do exactly that by promoting the meaningful economic participation of historically disadvantaged individuals and support the broad-based empowerment strategy. It through this focus that we will build a unified business force, improve business practices at grassroots level, facilitate growth of industries and strengthen the business community for globalisation.

Black economic empowerment has recorded some impressive gains over the past five years in our country. However, we should recognise that the model that became dominant and defined black economic empowerment during this period was a narrow one. It was black persons who acquired some equity in established companies. This model was financed by borrowings from the very dominant forces within the South African economy. There were serious shortcomings with this particular model.

The acquisition of equity did not necessarily lead to the transformation of established companies. Black people were not involved in the day-to-day running of these companies other than their share. In this context, it became business as usual with cosmetic changes being the order of the day in established companies. Related to this, the difficulties experienced in financing these acquisition has also meant that the dominant economic players re-acquired the very stakes that they sold. The result was that we were getting daily lectures about the failure of black economic empowerment from the established, dominant players in our economy.

We should also take cognisance of the fact that there was a deliberate strategy to co-opt black business into an anti-transformation agenda through this earlier version. The exclusion of a number of critical success factors, including the adoption of more proactive, genuinely empowering options, meant that black economic empowerment was doomed to fail. The failure of bEE must be seen for what it is: a failure for all of us. The broad-based BEE strategy document reminds us quite forcefully that:

"despite the economic successes and a broad range of state policy, strategy and programme interventions aimed at overcoming economic disparities, entrenched inequalities continue to characterize the economy and act as a deterrent to growth, economic development, employment creation and poverty eradication".

There are some among us that have fallen into the trap of the opponents of transformation. In the name of the poor, they have adopted positions, objectively speaking, that are against black economic empowerment. We must insist that black economic empowerment and fundamental social transformation are not mutually exclusive. The ANC government has always emphasised that the eradication of poverty and inequality, as well as underdevelopment, remains the single-most important challenge that confronts our society, and this primary task defines the nature, character and social forces of the struggle for change in South Africa. In the language of the national liberation movement, there can never be genuine freedom without the transformation of the socio-economic conditions of the majority of poor people.

In the economic policy of the ANC, political change is interconnected to social and economic transformation. As a matter of fact, it is the ongoing political transformation in country that has made it possible to pursue the objectives of black economic empowerment in the first place. To those with short memories, let us remind them that bEE grew out of the fundamental contradictions inherent in our economic development that we have inherited from a colonial and apartheid past. Because it is connected to the very character of our society, black economic empowerment is an objective necessity in our country. The point is that the debate should not be whether or not there should be black economic empowerment in our country, but rather its character and programme. There are lessons and mistakes that have been committed by all of us. The government's strategy of broad-based black economic empowerment sought to take forward the work of the Black Economic Empowerment Commission lead by Cyril Ramaphosa, whilst taking on board the lessons and shortcomings in this process.

BEE is but one instrument of change. In the hands of a government committed to an active development role and function, and supported by the vast majority of South Africans, BEE will not be allowed to become merely a sop to aspirant black capitalists, nor will it become so ineffectual to leave the bulk of our people untouched.

Black economic empowerment within state-owned enterprises was not a separate practice. It suffered from similar weaknesses, albeit in many different forms depending on the history, size and strength of the specific enterprises involved. In a same vein, BEE within SOEs will benefit from some of the specific refinements and benefits emerging from the government strategy on broad-based black economic empowerment. Government's restructuring programme has gone a long way towards advancing the goals black economic empowerment over the past five years.

I must state from the onset that my department, Enterprises, has over the past few years grappled with the need to give concrete meaning to broad-based economic empowerment. The restructuring programme has seen the emergence of a critical BEE features.

At the one level, there was the opening up of state-owned enterprises for private sector participation, including acquisition of equity through strategic equity partners (SEPS), the participation of black business has been encouraging with government setting aside minimum percentages for the participation of black business. In other instances such as the forestry sector, it was chiefs, communities, and women, who live adjacent to these forestry assets who acquired these businesses.

At a different level, we have also made provisions for employees and communities to participate in these important processes. A common feature of the restructuring programme is the setting aside of shares for employees through the Employee Share Owners Scheme (ESOPS). We have finalised policy to give effect to our experiences in state-owned enterprises such as ACSA, South African Airways, Safcol and Telkom.

Opportunities have also been given to poor communities to reap the benefits of the government's restructuring programme. This has taken two specific forms: on the one hand communities, through community trusts, are acquiring equity in the various businesses undergoing restructuring. For example, a 10% stake has been set-aside for the community in the restructuring for Alexkor Limited. On the other hand, restructured and efficient state-owned enterprises have been able to rollout infrastructure and provision of services to our communities. The example of Eskom, Telkom and Transnet in extending critical infrastructure and services in electricity, telecommunictions and transport sectors is a direct result of the transformation of our economy.

The recent Telkom IPO where stokvels and hundreds of ordinary South Africans participated in the stock exchange is unparalleled in the history of our country. This milestone was also critical to encouraging a culture of saving.

The restructuring of state-owned enterprises has also provided opportunities for the participation of black professionals in the economy. Black professionals such as firm of attorneys and chartered accountants have been central in providing services and joining with established firms as advisors in this process, resulting in the transfer of skills as well as creating much-needed capacity within our economy.

The example of the Telkom IPO is useful in this regard. Government is firmly of the view that the Telkom IPO, structured as it was to encourage both institutional investors and to prefer black people through its special Khulisa share offer, was a means to draw in thousands of new investors from the ranks of the historically disadvantaged, including stokvels, and enable them to participate in one of the major activities of modern economies, share trading.

The use of the IPO route for possible restructuring options for SOEs in the future is an option that we will pursue on a case-by-case basis. We will focus on domestic retail offerings that increase and deepen the number of families, households, group investment schemes (stokvels), and individuals who own equity in state owned enterprises. As in the case of Khulisa offer, we will provide mechanisms for increased BEE participation. The state-owned it company, Arivia.kom, is an extremely attractive SOE in the ICT sector that would readily lend itself for a significant bee participation in the not too distant future.

The disposal of Safcol, the state's forestry entity, incorporated specific agreements negotiated with local communities, traditional leaders, and labour that provide those communities with downstream revenue as well as business opportunities associated with the forests.

In the situation of the ports, the restructuring of port operations performed by the South African Ports Operations ("SAPO"), a division of Transnet, provides a powerful vehicle for black economic empowerment in the maritime sector. The precise terms for BEE participation in each of the intended transactions will be set with regard to the relevant commercial factors that prevail for a particular terminal operation. BEE firms would be expected to acquire at least 15% of the equity of companies formed to run concessioned cargo handling operations.

Preparatory work is underway to provide for the concessioning of port operations currently run by SAPO. The Durban Container Terminal will be the first operation to be put up for restructuring in a transaction that will commence shortly. Thereafter terminals grouped by similar cargo type will be concessioned in waves to maximise the competition for the concessions to be awarded to private sector operators.

In due course the DPE will publish the high-level plan that caters comprehensively with restructuring of all of SAPO's operations together with the principles that will govern the terms on which investment and operational risks will be transferred to the private sector as concessionaires of port operations.

The various business opportunities in the maritime sector, the ports, include the following downstream industries: bunkering (filling ships with fuel and ballast water; freight forwarding; ships' agency; storage and warehousing; marine engineering; ship repair and maintenance; shipbuilding and professional services.

Government, through the Department of Trade and Industry is commissioning a study to investigate, in detail, the BEE opportunities that may arise in port and downstream as a result of reform initiatives.

Our proposals for the state's diamond mine, Alexkor, contain specific community interests, and subject to the conclusion of the land claim proceedings, should be implemented soon. These are examples of BEE endeavours that are rural, located among the poorer sections of our community, and not normally considered when we talk about BEE in the corporate environment. But we ignore them at our own peril.

There are of course other areas where SOEs play a dynamic role in promoting BEE that I would like to emphasise. Two of the largest state entities, Eskom and Transnet, have for some time been considered models of BEE in the corporate sector.

As we are all aware, Eskom quite literally is South Africa and the continent's powerhouse. It has a large workforce. It administers numerous joint ventures across Africa. By its very nature it interacts with the coal-mining sector, the liquid fuels sector, and a host of engineering and components manufacturers.

Eskom's total discretionary budget aimed at procurement has risen substantially over the years. Since 1996, for example, to the present it has risen from just over R10 billion to reach over R25 billion in 2002. In 1996 however the BEE portion was a mere 1.8% of the total amount. In 2002, some R5,4 billion, or 21.2% was procured from BEE firms.

For its part, Transnet also has a major presence in South Africa and the region, and is slowly beginning to expand to the rest of the continent as well. Transnet stands as a colossus as South Africa's premier transport logistics provider and it is no exaggeration to say that the majority of South Africans come into contact in one way or another with Transnet (and, of course, Eskom) on a daily basis.

Transnet's discretionary budget for procurement reflects similar growth to Eskom's, but with a major difference. In 1996/7 the budget was just over R2 billion, of which 8.9% was allocated to BEE firms. By the end of January 2003, the budget had risen to R6.5 billion, and BEE accounted for 54.6% of the total.

Perhaps consideration must be given to the different nature of the two entities, Eskom and Transnet. It would appear therefore, that the amount of BEE spend by each, reflected in percentages, also provides us with some indication of the inequalities that still exist in the South African economy as a whole. Transnet's procurement needs are more diverse than those of Eskom, as I shall illustrate shortly, and in Eskom's part at any rate, the reliance on heavy industrial output of raw material and manufacture reflects a more difficult row to hoe, as it were, than does Transnet.

A critical element of BEE procurement relates of course to the nature of the services acquired. I recall that at an earlier period, BEE firms were considered only sufficient for the provision of what might be called hospitality or 'soft' services, such as catering, cleaning, guarding and security services. Here, once again, the performance of both Eskom and Transnet illustrates how far we have come since the early days.

If I may just use the example of Denel, the state armaments and weapons manufacturer, that operates in a procurement environment dominated by high technology and high precision engineering specifications. The procurement budget for Denel is around R1.7 billion, with a forecast rise to some R2 billion in 2003. Some 15% of its budget went to BEE firms, but the bulk of the procurement was for professional services, spanning strategic consulting services to auditing and legal services. Denel has set itself a target of 20% for bee procurement for 2003, with about 40% earmarked for BEE procurement in the manufacturing sector. This is an ambitious but worthy necessary effort that serves to reinforce the view that the foundations have been laid that have brought black ownership and control into even the high-tech areas of our economy.

I offer these examples not to suggest any complacency on our part, either as government or as state owned enterprises. Because embedded within the generally positive developments towards the advance of BEE within state enterprise procurement are a number of challenges and needs. Let me highlight just a few of these in the spirit of encouraging debate and discussion.

We have learnt a great deal over the past few years, particularly with regard to state procurement, that fronting or even false declaration of ownership still presents us with problems. At the same time, some in the private sector have confused equity issues and BEE programmes as reverse discrimination, or have ignored the requirements for gender and the disabled. We cannot allow that to continue, and we believe that once the proposed legislation is debated, publicly and in parliament, we will have developed a practical solution to these problems.

Another critical area, however, reflects on a major challenge to our tertiary institutions and industrial and technology in-house training programmes. One element of the global interaction that our economy now witnesses, is the need to improve competitiveness at a whole range of levels, which in turn places an incredible burden on the supply of skilled and innovative people in the economy. We cannot produce engineers and scientists and design specialists overnight. At the same time we cannot allow the excuse that people are simply around to hold back transformation. We need to secure an adequate balance between these two realities. BEE can present one way forward if the resources are marshalled in strategic ways, and if we do not lose our newly trained personnel to international destinations.

I want to close this brief overview with an endorsement of the comment made in the BEE strategy document and make a plea for people such as yourselves to think seriously about what you can do to assist this campaign of national development importance:

The absence of a strong and coherent voice for business, and in particular, black business is a lesson we should learn. The black business community has not played a co-ordinated leadership role in what is essential process for the long-term security of business. Even in the area of small and medium business the divisions and weaknesses of long-standing black business organisations have had an impact.

Let me add, that as you go about your deliberations about how BEE can be implemented so that all of its development potential can be realised, you do not forget that we are all mere participants in a much wider struggle to ensure that all our people secure a better life for all.

I thank you.

Source: Department of Public Enterprises (http://www.dpe.gov.za)

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