How broad-based is broad-based black economic empowerment?

Abstract

Common perceptions about broad-based black economic empowerment (BBBEE) have been that it is nothing more than a tool for the already affluent to access further wealth and has limited potential to address the economic exclusion of the most marginalised. An analysis was conducted of data on black economic empowerment (BEE) deals between 2004 and 2009. The findings demonstrate that although the elite continue to benefit from deals, broad-based beneficiaries, particularly employees and women, are also beginning to benefit to some extent. This suggests that empowerment policies have some potential to promote private sector involvement in addressing the state's social transformation agenda. However, a closer analysis of the BEE transactions shows that the BEE landscape is far more complex and nuanced than commonly thought. Further research is necessary to understand the real impacts of BEE on the ground.

Keywords:

• broad-based black economic empowerment
• social and economic policy
• beneficiaries of black economic empowerment
• pluralist institutional arrangements

1. Introduction

Although many analysts and journalists continue to claim that broad-based black economic empowerment (BBBEE) benefits only the elite (see Lowe, 2003; Mangcu, 2004; Khuzwayo, 2005; Southall, 2007; Ramphele, 2008; Mbeki, 2009), this article argues that the picture is more nuanced and that BBBEE may be beginning to benefit more than the ‘usual suspects’. It argues that BBBEE demonstrates an economic policy's potential to contribute to social transformation.

South Africa's BBBEE policy (2003) combines neoliberal market-oriented economic policies with redistributive social policies (Isaacs et al., 2007; Ponte & Van Sittert, 2007) and notions of social inclusion and social and economic justice. There are inherent tensions in such a policy, evident in its implementation. After all, it is a policy that asks the private sector operating in a neoliberal economic context to contribute to the state's social transformation agenda.

Empirical research into the extent to which broad-based beneficiaries are actually benefiting is limited. In this study therefore, we aimed to establish the extent to which the social transformation agenda of the policy is being met through black economic empowerment (BEE) deals. To identify the beneficiaries of BBBEE deals to date, we analysed data collected by BusinessMap of 1105 BEE transactions concluded between 2004 and 2006 and scanned newspapers and company websites up to 2009. It should be noted that the research focused only on deals concluded after the implementation of the Broad-Based Black Economic Empowerment Act of 2003 and these deals are referred to as BBBEE deals (deals concluded prior to this would have been guided by earlier legislation and are referred to as BEE deals). This research is of an exploratory nature and identifies overall trends with a view to stimulating intellectual interest and further research in this area.

We first provide an overview of the broad-based nature of the policy and legislation. We then conceptualise BBBEE from a social policy perspective and review the role players and approaches to welfare politics in South Africa. We situate the analysis within an understanding of the pluralist nature of South Africa's social policy framework, made up of state, market and civil society actors, also referred to as a form of ‘collaborative governance’ (Hamann et al., 2008). We follow this by describing our methodology and findings, and we conclude by considering what the private sector can contribute to achieving wider social development goals.

2. The Act and the changing role of the private sector

South Africa has a long history of economic exclusion of the majority of the population through colonialism and apartheid. These two historical processes ensured that economic power remained in the hands of the white minority while the black majority were legally denied opportunities to enter the market in any capacity other than to provide menial labour (ANC, 1994; Terreblanche, 2002; Ramphele, 2008; Mbeki, 2009). In the early 1990s, with the collapse of apartheid, the transformation that was required to ensure that South Africa could re-enter the global market competitively while still addressing the inherent inequality in the market led to the development of a number of related policies. Affirmative action, employment equity, land reform policies, the establishment of sector education and training authorities and the introduction of BEE policies were all aimed at rectifying the inequalities in the economy and society across all sectors. This paper is concerned with the efficacy of BEE policies, notably BBBEE.

BBBEE is defined in the Broad-Based Black Economic Empowerment Act of 2003 as the ‘economic empowerment of all black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated socioeconomic strategies’ (RSA, 2004). BBBEE attempts to achieve socioeconomic transformation by bringing about a significant increase in the number of black people who manage, own and control the country's economy, as well as a significant decrease in income inequality and poverty (DTI, 2004).

BBBEE is framed as an economic policy aimed at dealing with social and developmental problems caused by apartheid and racial capitalism. Southall (2007) contends that BEE policies flow logically from the history and national liberation politics of the African National Congress (ANC) as well as the nature of the democratic settlement of 1994. In its formulation of the 1994 Reconstruction and Development Programme (ANC, 1994), the ANC promoted the role of the developmental state and saw the potential of a market-based economic system to contribute to social transformation, with government guidance. In the context of its broader vision for a post-apartheid South Africa, the ANC (1994) explicitly acknowledged the need for BEE as a tool for economic growth and social change. Iheduru (2004) notes that should BEE become more broad-based, it would in fact have the potential to contribute to such social and economic change.

However, in the following years, the need for South Africa to integrate successfully into a worldwide economic globalisation process dictated that government abstain from unnecessary interference in the workings of the South African economy and implement a fairly standard neoliberal economic policy in line with the Washington Consensus (Habib & Padayachee, 2000). As a result, BEE's initial impact was very narrow, since it benefited few and led to increased inequality (Beall et al., 2005; Mbeki, 2009). Mbeki in fact claims that early forms of BEE were designed by the white elite to buy support from the ANC government in order to influence economic policy and discourage any ‘radical economic ambitions’ (Mbeki 2009:68) the ANC government might have had. Thus, BEE enriched the politically well connected and did little to change the economic landscape (see also Nattrass & Seekings, 2010).

In response, the roll-out of the BEE agenda drew increasing criticism in the media and from the ANC's own support bases, and a call was made to ensure that BEE would be more redistributive. While many of the charters in the different economic sectors go beyond the requirements of the Act in terms of social change, they are also framed within the dominant neoliberal economic thinking that characterises South Africa's economy. Thus, all the sector charters indicate that while BEE is necessary, it should not compromise global competitiveness, growth or the ‘interests of established corporations’ (Hamann et al., 2008:22). Nevertheless, as Hamann et al. explain, the charters demonstrate the dual role that state and business can play in promoting the social good and the compromises needed to achieve both economic competitiveness and social transformation.

3. Understanding BBBEE from a social policy perspective

As a socioeconomic policy, BBBEE can also be understood from a social policy perspective. Broadly, we take social policy to refer to the actual policies and programmes of governments for improving the well-being of the population (Hall & Midgley, 2004). South Africa's developmental social welfare policy combines a rights-based approach to development with economic and social development, citizen participation, human agency, a commitment to pro-poor strategies and pluralism involving the state, market and civil society (Patel, 2005). Our interest here is in assessing the extent to which BBBEE can improve the welfare of the population (broadly defined) and the freedom that its members may enjoy in a more inclusive society that is in keeping with Sen's (2009) idea of justice.

If we are to understand the potential of BBBEE to lead to genuine social change in terms of broad-based ownership and reduced poverty and inequality, then it is vital to understand the nature of welfare politics in South Africa and who the key role players are. Baldock et al. (2007) outline four approaches to welfare politics. The Marxist approach argues that ‘the group with the most power in the system to shape the way in which social policy develops is the business community’ (Baldock et al., 2007:44) and that where there is conflict, social policy will always tend towards economic interests. At the other end of the scale, the pluralist approach suggests that the political system is open to influence from a variety of sectors including trade unions, business and civil society groups, and thus that social policy will represent the needs of most citizens. In reality, power to shape policy is usually neither as widespread as the pluralist approach suggests nor as centralised as proposed by the Marxist approach. The elite approach holds that policy is developed through policy networks that are profoundly shaped by a group of influential individuals or elites in a society; the elites share common assumptions and values about society that will underpin social policy. The corporatist approach concurs that social policy is shaped by a society's elite but suggests that this elite is less culturally integrated and is rather generated through the ‘corporatist structure of power in modern industrial societies’ (Baldock et al., 2007:44). The three key groups of elites in this structure are business, trade unions and the state. The state in this analysis is supposed to mediate the tension between business and working class interests.

With these perspectives in mind, how does one understand the development and trajectory of BBBEE? While BEE certification may be integral to the long-term profitability of a company (BusinessMap, 2005), including broad-based partners seems counter-intuitive from a business perspective. Sartorius & Botha (2008) note that there are various types of potential BEE partners, including operational, influential and broad-based partners. It could be argued that involving operational partners such as BEE suppliers and business associates makes good business sense in terms of streamlining business operations and having established business partners to bring new ideas to the company. Similarly, influential partners bring their political connections and influence (Sartorius & Botha, 2008; Nattrass & Seekings, 2010). In contrast, broad-based partners do not bring any obvious advantages to the business. In addition, as Sartorius & Botha (2008) point out, external partners, which would include broad-based partners, are often more difficult than internal partners to bring on board because of the need to source third-party finance. Thus it can be argued that bringing broad-based partners on board is at odds with the way the private sector usually operates. Furthermore, there is always the risk that companies in an era of globalisation may choose the ‘exit option to shift their assets to less restrictive markets’ (Iheduru, 2008:333), should the burden of satisfying social transformation agendas become too onerous.

Those who take the Marxist approach would suggest that the interests of capital shape policy profoundly. Mbeki (2009) advocates this theoretical viewpoint. However, if this is the case, how does one explain the involvement of the private sector in broadening the base of the economy?

The elite approach provides a framework within which to understand how BBBEE has been shaped by well-connected individuals in the ruling party, and thus how these individuals have been able to take advantage of the policy and benefit profoundly from it. The role that Cosatu (Congress of South African Trade Unions) continues to play in the tripartite alliance, namely contesting the narrow base of BEE beneficiaries and the respect afforded to the business sector by government, suggests that South Africa will continue along the trajectory of corporatist arrangements of power. Bargaining between these groups, therefore, ensures that working class interests as well as business interests are moderated and accommodated. A review of the formulation of the mining and finance sector charters conducted by Hamann et al. (2008) confirms this analysis. Hamann et al. argue that the sector charters are indicative of a collaborative governance approach that relies on interest-based negotiation in which businesses are understood to make a ‘public benefit contribution as good corporate citizens’ (2008:21). However, they point out that negotiations and bargaining characterised the development of the sector charters where local businesses and foreign investors swayed the balance of power in their own favour. They contend that ultimately business was still able to frame the outcome positively as being voluntary and serving their long-term business interests.

Theoretically, if policy were to be developed according to a pluralist framework, a broader base of partners might have their interests represented. However, broader civil society in South Africa has increasingly been weakened, particularly in its ability to lobby government to protect group interests (as opposed to its service delivery role). With reference to the Mbeki era, Andreasson claims, there was ‘an increasing willingness by government to assert its authority, to marginalise and de-legitimise those critical of its abandonment of inclusive governance’ (2006:303). It can thus be argued that currently socioeconomic policies such as BBBEE are shaped predominantly by business and political pressures and interests and that the potential for popular or third-sector involvement is limited. The involvement of civil society organisations representing socially excluded groups in BEE deals not only blurs the line between the profit and the non-profit sectors, but also serves to weaken the independence and critical eye of civil society (Patel, 2003). However, the revision of the BEE policy in 2003 was in part driven by the critical voice of the broader public, particularly through the media and trade unions and some civil society groups, who contended that BEE had failed to deliver on its transformative agenda. The private sector has also increasingly focused on being more responsive to employees and the broader public, and on policy imperatives, including the social, economic and governance provisions of the King III report.

The business sector also recognises that inherited inequality (of class, race and gender) is not a viable basis on which to build a stable democracy and a capitalist economy with more inclusive and responsible markets, as advocated by the King reports (IODSA, 1994, 2002, 2009). This suggests that, from a pluralist perspective, the voices of civil society, although weaker than those of the state and the private sector, have had some say in reframing the policy to become more focused on redistribution and social goals. Nevertheless, this weaker voice raises concerns about how favourable the bargaining process can be for marginalised and vulnerable groups such as youth, the rural poor and people living with disabilities, and to what extent these groups can leverage power to benefit more from BEE deals. Scepticism persists about the way in which all parties – white business, black business, trade unions and NGOs that claim to represent black workers and communities – have shaped the BEE agenda in their own interests (see Du Toit et al., 2008).

Despite BEE being widely contested and commented on in the media and public forums, our literature search produced only a small corpus of academic literature on the subject. The policy models discussed above approached policy analysis from a normative and a political economy perspective (Baldock et al., 2007). Sartorius & Botha (2008) assessed how BEE has changed the face of black directorship and ownership in companies listed on the Johannesburg Securities Exchange, and concluded that while there has been progress it has been fairly limited, particularly in relation to broad-based partners. Primarily due to a lack of reliable data, very little is understood about whether or not the intended broad-based beneficiaries are actually benefiting from the implementation of BEE and, if they are, to what extent. It is essential to understand how far BBBEE has gone in broadening the base of ownership and what the potential is for this policy to address social inequality, social change and development in creative and sustainable ways.

While most commentators have tended to understand BEE from a predominantly Marxist perspective, the analysis below demonstrates that the policy can be understood from a pluralist perspective, particularly since companies are responding to the pressures of both government and the broader public to become more socially inclusive in their empowerment deals.

4. Method

Our purpose in this research was to conduct an exploratory study using available data to ascertain who has been benefiting from BBBEE deals since the implementation of the BBBEE Act of 2003. However, data in the field of BEE are scarce, particularly when it comes to the nature of the beneficiaries. We therefore used data obtained from newspaper reports to assess the nature of BBBEE deals between 2004 and 2009 and to develop a descriptive analysis of the trends over these years. In addition, we selected a purposive sample of these deals for more in-depth analysis.

4.1 Trends in the deals 2004–09

The analysis of trends for the six-year period relied on secondary data collected from newspaper sources. BusinessMap collected data pertaining to BBBEE deals entered into between 2004 and 2006.1 The database includes information on the type of deal, the main partners, the stake that went to the empowerment partners and, in some instances, the value of the deals. BusinessMap staff captured the data electronically; it was updated regularly as information on the deals was released by both listed and unlisted companies via newspaper reports. BusinessMap stopped collecting data on these deals at the end of 2006 and a similar comprehensive database of deals concluded from 2007 onwards is not available. In an attempt to fill this gap, the authors independently scanned newspaper articles from 2007 to 2009 in order to discover further trends.

A descriptive and exploratory analysis was conducted of the full BusinessMap database, made up of 1105 deals (2004–06), to determine the volume and value and type of the deals, and how many were reported to include broad-based partners. These data were analysed descriptively using Microsoft Excel to provide an overview of the deals. Where there was insufficient information to determine whether broad-based partners were included, deals were counted as not having included them. There may thus be under-reporting on the number of deals that did involve broad-based partners. The same questions that guided the analysis of the 2004–06 deals were applied to the information collected between 2007 and 2009. Data about the nature of the deals were triangulated with reports from various newspapers and company websites between 2007 and 2009. The data are presented in tables and charts and case examples are used to illustrate particular points.

4.2 A closer look at the beneficiaries

Because the BusinessMap database contained comprehensive data for many of the deals brokered between 2004 and 2006, it was possible, using a sample of the deals, to assess more closely the types of broad-based beneficiaries who benefited from the deals. A purposive sample of 105 broad-based deals concluded between 2004 and 2006 was therefore selected for closer analysis of the deal structure and beneficiaries. Only deals that benefited broad-based partners as defined in the Act and the Codes of Good Practice (RSA, 2007) were included in this sample. A descriptive analysis of this sample was conducted, focusing on the groups of broad-based beneficiaries and how they were constituted.

4.3 Definitions

For the purposes of analysis the term ‘empowerment partners’ is defined as those partners who have been long-standing beneficiaries of BEE deals, usually major BEE investment firms such as Mvelaphanda Holdings. ‘Broad-based partners’ are defined as those beneficiaries identified in the Act. Sometimes we found an overlap between empowerment and broad-based partners. Women, for instance, have benefited extensively from deals with long-standing black women-led empowerment companies. These may be considered to be empowerment partners, but they also fit the category of broad-based partners. Where black women-led empowerment companies are named in the data, they are included as broad-based partners rather than empowerment partners.

Our study revealed a shift in how deals were constructed in the periods 2004–06 and 2007–09. For the purposes of description, the term ‘first wave of deals’ is used for deals concluded between 2004 and 2006 and ‘second wave of deals’ for those concluded between 2007 and 2009.

4.4 Limitations

There is an inherent limitation in using secondary data of this nature. Firstly, use of newspaper sources is often criticised because of bias. In addition, there may be bias in the way that companies present information about their deals. However, in the absence of primary data, analysing newspaper reports is considered an acceptable method in exploratory research (Earl et al., 2004; Kripendorff, 2004; De Vos et al., 2005), provided the data are treated with caution. The data used here pertain only to the value of the deals and the type of partner included in the deals – independently verifiable information that is publicly available because listed companies are compelled by law to publish financial and related data on a regular basis.

Secondly, the value of the deals was not available in all cases, which restricted the type of analysis that could be conducted, and some deals may have been missed in our follow-up scan of newspapers between 2007 and 2009. In this case, we relied on estimates of other companies that are maintaining databases, such as Ernst & Young (see data sources in Table 1) and we are confident that these are representative of the large deals concluded between 2007 and 2009.

Table 1: Number of BEE deals between 2004 and 2009

	2004	2005	2006	2007	2008	2009	Total
Number of deals	327	421	357	153	83	58	1399
Sources: BusinessMap database (2004–06); Ernst & Young cited in Khuzwayo (2008); Davie (2009); Shongwe (2010).

These limitations point to the need for continued monitoring of BBBEE deals and the obstacles identified above will need to be considered carefully by future researchers in this area.

5. Findings and discussion

This section outlines the trends, volume, value and types of BBBEE deals that were transacted between 2004 and 2009.

5.1 Trends in BBBEE deals 2004–09

The BusinessMap database for 2004 to 2006 reported a total of 1105 deals in what has often been referred to as the first wave of BBBEE deals (BusinessMap database 2004–06). The results, therefore, indicate that the BBBEE legislation enacted in 2003 significantly increased the number of BEE deals (Thomas, 2008). However, the professional services organisation Ernst & Young tracked deals between 2007 and 2009 and reported that fewer of these deals (294 in total) were concluded during this period (Ernst & Young cited in Khuzwayo, 2008; Jacks, 2010 ). Although this may in part be accounted for by under-reporting, the decline is significant enough to confirm that the number of deals decreased from 2007 onwards, though the values of the deals increased (Mtshali, 2007; Khuzwayo, 2008). The total number of deals concluded between 2004 and 2009 was 1399 (see Table 1).

While 2005 was a peak period in terms of the number of deals concluded, 2007 had fewer deals, but the total value of the deals was higher (R96 billion compared to R56 billion in 2006 and R56.2 billion in 2005), which was why it was dubbed the year of the ‘mega-deal’ and marked the beginning of the second wave of deals (Mtshali, 2007; Khuzwayo, 2008). However, the number and value of the deals decreased between 2008 and 2009 because of the difficulty of raising finance for larger transactions in the context of stricter credit markets caused by the global economic crisis (Rose, 2009; Cargill, 2010; Shongwe, Ernst & Young cited in cited in Jacks, 2010). The global recession has caused some companies to cut back on BEE ownership deals (Business Day, 2009/10:20).

An analysis of the business sectors that concluded BBBEE deals was conducted using the BusinessMap data. The three top business sectors, mining, financial services and real estate contributed 16%, 15% and 9% respectively to make up 40% of the total BBBEE deals between 2004 and 2006. See Figure 1.

Figure 1: Distribution of BBBEE deals by business sector 2004–06 (n = 1105)

With regard to the black ownership stake in the deals, the period after 2003 shows progress. The BusinessMap data indicate that in 2004 the average stake in the company made available for BEE deals went well beyond the 25.1% requirement of the Act and on average stood at 44% for companies that disclosed the percentage. This average dropped in 2005 to 38% but rose again in 2006, when an average stake of 42.4% was made available for BEE deals. It is important to consider the percentage of deals where a controlling stake, implying 50% or more of the company, was made available for black ownership. In 2004 and 2005 around 28% of the deals that disclosed this information had a stake of 50% or more. In 2006, this percentage declined to 19%. Between 2004 and 2006 a total of 147 (or just over 10%) of the deals involved a 100% stake. This trend continued into 2007 when half of the top 10 deals offered a stake of more than 25.1% (Ernst & Young cited in Khuzwayo, 2008).

Regarding the types of deals, most of those concluded in 2004 were equity stakes and acquisition deals (82%). The picture was similar in 2005, when 70% were acquisition deals. Again in 2006, acquisition was the main type of deal (78%) (BusinessMap database 2004–06).

Contracts, partnerships, projects and preferential procurement are all BEE transactions that lend themselves to empowerment of individuals as they promote small business access to the market. Small business development initiatives appear to have been less successful; the fishing industry is a case in point (see Isaacs et al., 2007). The BusinessMap database shows that there have not been many of these types of deals. In 2006 for instance, only 15% of deals were contracts, partnerships and preferential procurement projects. However, this may well have changed as companies are required to meet predetermined targets by 2014.

5.2 A closer look at broad-based beneficiaries

The structure of the deals involved empowerment partners (black investors) who formed consortia made up of individuals and their companies. These companies were the key dealmakers and received the bulk of the ownership share in the first wave of deals. The empowerment partners were mainly individuals who were well connected politically and in the business community, confirming that BBBEE does continue to benefit these key players. However, their consortia also included broad-based partners such as non-governmental organisations (NGOs) representing designated broad-based target groups, and trade unions. In addition, the structure of the deals included other groups such as company employees, managers, and community and educational trusts who were beneficiaries of the empowerment transactions.

Figure 2 shows that there was a slow but steady increase in the number of deals that benefited broad-based partners in the early years. Of the 310 deals shown in the BusinessMap database for 2004, only 7.6% could be considered to have benefited broad-based partners. The picture was similar in 2005, when only 6.4% of the deals included broad-based partners. In contrast, 2006 saw an increase in the percentage of broad-based deals, with 14% of the deals indicating that broad-based partners had benefited.

Figure 2: Deals disclosing the inclusion of broad-based beneficiaries 2004–06

From this overall analysis, it can be inferred that BBBEE still benefits empowerment partners most significantly and that there is a great deal more work to be done in reaching society's most marginalised groups. And while it is encouraging to see a slow increase in the inclusion of broad-based partners, assessing their involvement in deals is only one side of the story. The other side is finding out how much they benefited compared with the empowerment partners.

A closer examination of the BusinessMap sample of 105 deals between 2004 and 2006 shows that the broad-based partners tended to receive more, in terms of value of deals, than the empowerment partners. In 2004 for instance, 57% of the value of the deals was allocated to the broad-based partners, a similar figure to that of 2006. In 2005 this figure was slightly lower at 52%. It should be noted, however, that in most cases the consortia involved a range of broad-based partners, with only one or two empowerment partners. This means that, in terms of real value, the individual groups of broad-based partners received significantly less per partner than the empowerment partners. The following example illustrates this. AngloGold Ashanti closed an acquisition transaction, negotiated with three trade unions in 2006, that amounted to a 1.9% stake in the business for employees, who received the lion's share of the stake (74%). The remaining 26% went to the Izingwe Holding Consortium led by Sipho Pityana, a former senior public servant. A total of 3.84 million shares were issued to approximately 30 000 employees (at an average of 120 shares per employee), while the empowerment partner and its consortium received 1.4 million shares spread among one individual, his companies, other companies in the holding company and broad-based partners. This demonstrates the discrepancy between the benefits accruing to the individual employees and those accruing to the empowerment partners.

An encouraging trend we identified in the sample was the increase in the number of deals where the full stake went to the broad-based partners. In 2004, broad-based partners received the full value in eight of the deals. This increased to 13 deals in 2006.

Our analysis of the BusinessMap sample of 105 deals suggests that from 2004 to 2006 the nature of the broad-based partners involved in consortia began to diversify. This was probably due to the introduction of the sector charters and in anticipation of the Codes of Good Practice. A slightly wider range of broad-based partners began to be included in empowerment consortia, including development and education trusts and NGOs.

In 2004 and 2006 there was a trend towards involving employees as the broad-based partners. In 31% of the deals across these years, employees were the primary broad-based beneficiaries. As Figure 3 shows, women's groups (19%), community trusts (16%) and development or education trusts (13%) benefited, although to a lesser degree than employees. Some groups, however, continued to be marginalised, such as people with disabilities (6%) and youth (1%).

Figure 3: Types of broad-based partners 2004–2006

The highest value of deals was recorded in 2007. Sasol, AngloPlat and Telkom made share options available for purchase to the wider black public at significantly reduced rates to extend the base of their business ownership. The largest BEE transaction in South Africa was concluded by Sasol in 2007 and involved a 10% stake in the company worth R17.9 billion. The transaction signalled a major shift in broadening the base of the beneficiaries: 4% was allocated to Sasol employees, 3% to the black public who could buy shares in the company, 1.5% to BEE groups selected by Sasol and 1.5% to the Sasol Inzalo Foundation. In October 2010 the mobile phone company MTN closed its R8.1 billion black empowerment deal that translated into black ownership of 29% of the company's South African operations. This transaction consisted of a public offering where black people were invited to subscribe for shares in a black investment company which was specially created for this purpose. The shares were offered at an 80% discount of the share price. In addition, 0.1% of ordinary share capital was issued to an employee share ownership plan (Fin24 Companies, 2010; Rumney, 2010). This deal illustrates the trend towards broadening the base of BEE, particularly by involving the broader public in BEE deals.

We observed an upward trend, with broad-based partners benefiting from deals that were closed after 2007. However, a closer examination of these beneficiaries revealed that the picture was far more complex when it came to employees and women. This situation is discussed in more detail below.

5.2.1 Employee beneficiaries

While employees are a key group targeted in BBBEE deals, these beneficiaries also include middle and senior managers, executives and non-executive directors. An understanding of who the employees are gives a better picture of how broad-based these deals are. An analysis of the purposive sample of 105, which included employee beneficiaries, shows that in 46% of the deals closed between 2004 and 2006, blue-collar employees were specifically targeted as broad-based beneficiaries. This trend continued in the second wave of transactions from 2007. Examples include Anglo Platinum's employee share ownership scheme, designed to benefit more than 43 000 employees, and Impala Platinum's Morokso Trust, which holds 2.6% of the shares on behalf of 28 000 lower grade workers (De Ryhove, 2007). The share allocation to employees was generally low but covered a broad spectrum of the workforce. However, in a further 27% of the deals only directors and managers benefited, and in some instances managers benefited more than blue-collar employees. Many of the transactions do not disclose the breakdown between employees' and managers' allocations and provide only an overall figure. If we are to determine the extent to which the most disadvantaged benefit, there needs to be greater transparency about how much is allocated to employees and managers, and to blue collar and white collar employees. Companies contend that the allocation to employees serves as an investment in human resources. They argue that a higher allocation to managers is justified because managers add more value to the business than employees, managerial capacity is scarce, and there is a need to attract and retain black managers in a highly competitive business environment. This reflects the ongoing tension between the transformative and competitive goals of the business sector.

5.2.2 Women beneficiaries

In the delineated categories that the Codes of Good Practice provide for, there is a mix of individuals who should benefit from BEE. Since companies do not account for the heterogeneity within these categories, particularly in relation to class and gender, many of the same individuals stand to benefit by being counted as broad-based beneficiaries. Women are a case in point. The purposive sample of 105 includes deals that involved women's groups. A closer analysis shows that 70% of these actually involved women-led companies rather than more disempowered groups such as women's community-based organisations, rural women's groups or women employed at lower levels in the companies. The intentions of the Act and the Codes of Good Practice suggest that marginalised women and women's groups should be the main beneficiaries. From this perspective, women-led companies should in fact be considered strategic empowerment partners rather than broad-based partners. However, not all women's companies can be considered empowerment partners; some have indeed evolved from being simply groups of previously disadvantaged and marginalised women. An analysis of the socio-economic position of beneficiaries is imperative in future BEE ratings to ensure that the most disadvantaged women benefit from the deals. The way deals are structured is complex, and it is rarely evident who the beneficiaries are among the disadvantaged groups, as some of the companies also have their own broad-based partners.

5.2.3 Community and education trusts

Limited information is available on the various trusts and foundations, and it is unclear who in fact benefits from this allocation. One example of a very successful community trust that has been party to many lucrative deals, primarily due to their rights to land with rich platinum deposits, is the Royal Bafokeng Community Trust. This trust has helped the community develop a clinic, schools, early childhood development centres and recreational facilities. Such an example represents perhaps the best realisation of the BBBEE policy. Trusts of this kind are most prevalent in mining and in the paper industry, where communities surrounding the plants benefit through local foundations. However, further research is needed to understand the impact of BBBEE at this level.

6. Conclusion

This study showed that while claims that only a small black elite has benefited enormously from BEE appear to be true, the base of BEE beneficiaries seems to be changing slowly. Employees of companies involved in these deals are the main beneficiaries, followed by women and a range of community, education and development trusts. Youth and people with disabilities benefit to a far lesser extent. This conclusion should, however, be read with the following caveats. First, data limitations did not allow us to quantify the extent to which some groups benefited in relation to others. Secondly, the categories of intended beneficiaries provided for in the Codes of Good Practice do not take account of the race, class and gender heterogeneity within groups. Consequently, it is difficult to determine who really benefits, how they benefit and to what extent. Thirdly, only limited information is available on who the broad-based beneficiaries are, how and why they were selected, the intended impact of the BBBEE deals and how beneficiaries view the policy and its outcomes.

Research to monitor how BBBEE trends are changing and to assess its social and economic impact is crucial in order to keep the social goals of BBBEE on the public agenda. Public discourse, contestation and pressure will remain important factors in influencing how far redistribution through BEE is likely to go. BBBEE transactions that offer shares to the public may signal a new direction in BBBEE. Whether these initiatives will serve to reduce aggregate inequality or contribute to rising intra-race group inequality remains a critical issue for those concerned with the study of stratification in society on the one hand and social and economic policies that mitigate poverty and inequality on the other. Lastly, the question must be posed as to when and how race-based empowerment might be replaced with empowerment of all disadvantaged groups, irrespective of race.

Acknowledgements

The authors would like to thank BusinessMap for making their databases available to us for analysis.

Notes

¹This database was made available to the authors by BusinessMap and is referred to in this article as the BusinessMap database (2004–06).