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 * sector review: Black Empowerment**

=**BEE comes of age with phase two of codes**=

Business Report, Johannesburg, December 22, 2005

 * By Wiseman Khuzwayo**

Johannesburg - This year saw black economic empowerment (BEE) come of age. This week the department of trade and industry (dti) released the second phase of its codes of good practice to wide approval, although the new codes exempted multinational companies from having to sell equity to black people and instead emphasised the capacity building aspects of BEE.

The final codes of good practice are a huge improvement on the original codes that were published for consultation. The dti hopes the codes will put a stop to phantom transactions in which the same black faces appear time and again, while claiming to represent broad-based beneficiaries.

Under the codes, broad-based schemes have to comply with strict criteria for the transactions to be recognised. The new rules are an attempt to bring the rights of members of broad-based BEE schemes in line with those of shareholders in private companies.

Black women executives in companies are now allocated more weighting. The codes have also clarified a contentious pension funds debate, stating that a company would not score BEE points for direct ownership by pension funds, even if members are black.

The dti says workers could invest in a company through a trust, and this would count as empowerment. Blade Nzimande, the general secretary of the SA Communist Party (SACP), continued to lead the band of critics who feel that BEE has benefited only a small number of players.

He was giving his political report before a central committee meeting of the party. He described BEE as an aggressive sponsorship of certain sections of the black middle class by various key financial conglomerates of domestic capital.

However, even in the face of such criticism of BEE deals, players continued to enter them, both big and small. The most controversial BEE transaction of the year was Telkom's, in which the Public Investment Corporation (PIC) decided to warehouse 15.1 percent Telkom shares for a BEE consortium. This caused a public outcry and charges of cronyism.

The Elephant consortium is led by Andile Ngcaba, the former director-general at the department of communications. At the end, Elephant could only raise 10.1 percent of the Telkom stake, leaving the PIC a R1.5 billion profit.

Cosatu opposed the deal. When the deal came before the portfolio committee on finance in parliament, members expressed concern that a perception in the market was that the transaction was done either because of political pressure or because the PIC's investment committee had not considered the conflict of interests when deciding who could vote on it.

Committee members said little had been done to explain how the Telkom deal could eradicate poverty, while the PIC's failure to include a strategic plan in its annual report made it very difficult to judge how it was performing against set targets.

The biggest empowerment deal to date in South Africa was worth R9.2 billion. Anglo American South Africa, the country's largest company, created an empowerment company, Newco, with a value of R16 billion.

The transaction split Kumba Resources into two companies: one a pure iron ore company and the other a diversified mining company with the coal assets of black-owned company Eyesizwe and the mineral sands and some zinc assets of Anglo injected into it.

The new iron ore company will have 26 percent black ownership and is compliant with empowerment targets set in the mining charter for 2004, while the diversified mining company will boast 58 percent black ownership.

The three executives of Newco are Lazarus Zim from Anglo, Sipho Nkosi from Eyesizwe and Con Fauconnier from Kumba. This will be the status quo until June, when the management structure is expected to be finalised.

The empowerment partners are led by Eyesizwe with 54.48 percent, Basadi ba Kopane with 11 percent, and Tiso and Eyabantu with 9.7 percent.

In November, De Beers announced it would sell 25 percent of its South African operations to a consortium made up of its staff, prominent former politicians and business people for R3.8 billion.

De Beers, which is 45 percent owned by Anglo, revealed in 2004 that De Beers Consolidated Mines (DBCM), which houses its South African mines, was making a loss in five of its seven local mines, threatening 10 000 jobs.

The deal was with Ponahalo, which is headed by former Northern Cape premier Manne Dipico. Other members of the consortium are DBCM board member Barend Petersen, former high commissioner to London Cheryl Carolus, businesswoman Wendy Lucas-Bull and former head of Spoornet Dolly Mokgatle.

Staff and former staff will hold 50 percent of Ponahalo Investment Holdings. In the first year, Ponahalo must invest at least R10 million to create jobs and new businesses in communities affected by diamond mining.

This escalates by 5 percent each year for the next nine years. It must also donate at least R5 million a year of its dividends to trusts for the disabled and disadvantaged women and communities over that time without escalation.

Interestingly, Debbie Goodman, the managing director of Jack Hammer Headhunters, reportedly said that after a rush of skilled black people out of the corporate world to take advantage of BEE deals in smaller companies, many were heading back to the corporate sector because of a perceived lack of money making opportunities.

From: http://busrep.co.za/index.php?fSectionId=566&fArticleId=3043293