The official stats on BEE ownership vs. what’s really going on

In this article we look at the official stats on the BEE ownership, contrast them to what we know, and see what this tells us about the ‘lay of the land’. Hint – it’s not what the BEE commission think it is…

Energy showcase:

In his recent budget speech Minister Mboweni did not paint a rosy picture of the South African economy, however his only reference to BEE looked positive: “Recently concluded power-purchase agreements will create an estimated 61‚000 jobs and enable investment of R56-billion. Through the renewable energy IPPs‚ we have secured equity for local communities‚ who will receive about R29.3-billion in net dividend income over the life of the projects. For recently signed projects‚ 53 per cent is owned by South African shareholders while black shareholders own 34 per cent of the equity.

While everyone will appreciate that it does not represent anywhere near the demographics of South Africa, it is clear that if 34% of 53% is black owned that this is approaching BEE ownership levels of 64%…on this project at least.

But what about the rest of the economy?

From the horses’ mouth – the BEE commissions own numbers:

This would be much higher than the latest statistics published by the BEE Commission, who has published BEE stats and they make interesting reading.  Their latest report (dated 31 March 2018) is available online here. For this article we’ll only be looking at the ownership side of BEE.

These statistics indicate BEE ownership levels in excess of most sector codes.  This table sets out the Commission’s reported average BEE ownership levels.

Large EntitiesQSEs
Agri Sector4%6%
Construction Sector45%21%
Financial Sector43%19%
Forestry Sector15%15%
Generic Codes34%24%
ICT Sector30%33%
Integrated Transport Sector34%39%
Marketing, Advertising & Communication Sector33%22%
Property Sector35%34%
Tourism Sector41%7%

Note that mining is covered under ‘Generics’ above – as the charter wasn’t final at the time of the report.  

The low levels of BEE ownership in Agriculture are not surprising – the issues here are twofold: (a) these are typically multi-generational family businesses (who’ve seen governments come and go and dislike external interference) and (b) ownership is tied to land rights which ties back to (a)…

Forestry too is typically a land issue, but the long life cycles of timber growing also don’t make financing forestry transactions easy. The other sectors are far more urban and far more service oriented, where it’s easier to do BEE. (A look at how the scorecards are constructed across all elements across industry sectors would offer far more insight).

The Commission’s numbers can be broken down into levels of BEE ownership too:

Large EntitiesQSEs
100% Black Owned13%15%
Majority Black Owned13%5%
25% Black Owned28%16%
10% Black Owned9%5%
No Black Ownership37%30%

Based on the BEE commission report, it would seem that the majority of certificates in the generic and QSE space show black ownership and that ownership levels, on average, exceed those required by the Codes and Charters.

Celebration time?

On the face of it these results suggest policy is working. But are they realistic? From a selfish perspective – if BEE is already ‘done’, what opportunity is left for Tusker if our market have already sorted out their ownership scores?

Not so fast – sample size counts:

The Commission’s numbers must be contextualised first.  Even though BEE Certificates are meant to be lodged with the Commission, its latest statistics are based on only 1 686 sector certificates and another 36 with specialised score cards (1 722 in total).

Per the Commission’s Report this shows the following compliance levels:

Large entitiesQSETotal
Total population11 87134 11845 989
Reported8718511 722

The BEE commission believes that there are 11 871 large entities (i.e. Generic), and have scorecards for 871 of these. That’s a pretty low level of reporting/scorecard gathering even before we consider SARS’ vat report, which shows that there are almost 25,075 companies in SA who turnover more than R50M (i.e. Generic).

Thus the BEE commission is basing their report on about 4% of the Generic companies.

It’s a similar pattern for QSEs: the report is based off 34K QSEs but SARS VAT returns 55 873 entities with turnovers of between R10 and R50 million. So the BEE commissions ‘2%’ coverage is closer to half that.

Bear in mind that QSEs and Generic companies together contribute around R3 trillion – or 65% of South Africa’s GDP. These are the companies that drive the economy.

The Commission shows statistics for the EME space shows cover levels of less than 1%, which is maybe not so surprising given (a) the voluntary nature of BEE (b) automatic level 4 for EMEs and (c) that reporting is done by affidavit and not by a verification agency.

What’s mainly concerning about these numbers is that (a) the DTI/BEE commission doesn’t cross check their numbers against SARS and (b) policy decisions are being made off this stuff. Very small sample sizes can be very misleading.

The fish rots from the head:

How are big companies doing? What about government departments themselves?

The report shows 30% coverage by JSE listed companies (who are a special category in terms of s13G of the Act) and would be expected to better comply.  If anyone from the JSE is reading this we’d love to know the full story.

But even that is not as surprising of the state’s coverage – remembering that the state is the champion of champions for BEE.  The report states that only 4 out of 299 State-Owned Entities and Organs of State Entities submitted their annual Compliance Reports.

Yes, you read that correctly. The government doesn’t care enough about BEE to get verified.

We have to question how seriously the state takes BEE if just over 1% of state departments bother to submit returns. Maybe something opposition political parties or civil sector bodies want to take up?

In an ideal world, where government takes BEE seriously, then they wouldn’t get their budget allocation from treasury without providing a certificate, and/or every tender would have the BEE certificate of the government department included in it? Government departments need to be held to account on BEE matters too.

What if we ask the same questions of the Tusker database?

The BEE commissions’ report seems to reflect a very small sample and a 50% under-estimate of the total landscape. We know this because in Tuskers’ database we have over ±20K currently valid certificates (of which ±10K are Generic) – suggesting that analysis of our database might get some more accurate insight.

Generic ownership – analysis by Tusker 2018


Indeed, the graph above shows that of the nearly 10K Generic scorecards in the Tusker database, there is loads of potential for BEE ownership.

About 600 companies have 100% ownership. Another 777 have ownership higher than 52% – then there is a flattening of the curve with about 400 companies on exactly 51%. About 70 companies sit on the 50% mark exactly, and from there it drops rapidly to 30% (likely a sector requirement, or Black Female ownership only) then 25%, after which it falls off a cliff – sub-minimal ownership, or perhaps recognition for prior ownership deals.

If ownership was purely an economic thing the graph would probably be smooth and far more of a power law. Instead, the graph does clearly show the levels at which policy is set – 100%, 51%, 30%, 25%…and that ownership lower than this is rapidly worthless.

So what’s the potential?

Of the 25K Generic companies, we have scorecards for ±10K. Of these, 3.5K have 0% ownership. What about the other 15K companies for which we don’t have scorecards? While we don’t really know, we’d guess that most of them don’t have any significant ownership and that there are about 18K companies for whom BEE ownership remains mostly or entirely something to do.

What about QSEs? If one uses our database together with the Commission’s 30% of QSEs who have no black ownership then we believe there are well over 17K QSEs with zero BEE ownership – and a lot of BEE ownership deals to be done.

Plus, the existing companies can increase their ownership. The majority of those with scorecards in our DB have less than 51% – which as we’ve explored before is the ideal ownership target for any company. We also know that many of the structures used to achieve the reported ownership to date would fail to meet ‘substance over form’ tests and probably need to be redone.

We know statistics can say whatever you want them to say.  But what is clear is that there is still a massive BEE ownership need and it’s not insurmountable.

We can eat an elephant, one bite at a time…please contact us if you’d like to learn more.



Trusts in BEE deals

Many companies use trusts as part of their BEE ownership structures, but these are often abused and as a result the BEE Commission does not react well to structures that include trusts. In this article we explore the origin of trusts, the nature of discretionary trusts (and related problems in terms of BEE ownership requirements), and how Tusker approaches the problem.

How did trusts come about?

Trusts started in the middle ages when the Lord of the Castle was going off to foreign lands to fight a war and still wanted to look after his lands and family.  He asked someone he trusted to look after his castle and wife.  Trust was key because while he was away that person could do everything the Lord was allowed to do – well hopefully not quite everything.  The trustee could decide which serfs could do what, how much to pay them, what to do with the harvest but hopefully not for the trustee’s own benefit and enjoyment (if you know what we mean).

Not everyone liked trusts, even then:

By the time Napoleon came, large parts of Europe were under the control of trustees and he introduced some EWC of his own, pretty much banning trusts in the Napoleonic Code.  That spurred the English to promote trusts even more and even while they were still fighting Napoleon they took over the Cape and introduced trusts to South Africa.

The status and usefulness of trusts:

Centuries later trusts are still used around the world, even though they are under siege again by those pesky Europeans and Americans who don’t like this English idea because of the lack of transparency.

You want to plan a terrorist attack or launder money you could do it a lot easier through a trust than through a company where directors have to be registered with CIPC and you have to play by the rules in a complex Companies Act.  Why not write your own rules (a trust deed), avoid “silly” things like audits and IFRS and decide how to share the profits in a flexible way rather than all the regulation of a formal juristic person like a trust.  Oh and why not have the trust away from all the law as an offshore trust?

While tax authorities and regulators are doing everything possible to make trusts less attractive, people still use them for many reasons – estate planning, protecting against nasty things like insolvencies and divorces.

How trusts work:

Trusts work with someone giving something away (called a donation in trust parlance) so that it doesn’t belong to the Donor (or Founder) when he dies, gets sequestrated or divorced.  And if it doesn’t belong to him it doesn’t get affected by any of these events.

But who does it belong too?  Clearly he doesn’t want it belonging to the taxman, his creditors or his disgruntled ex.  Chances are he still wants to exercise some kind of control and, using a trust, he can even do this after he has gone, because he can spell out how it is to be used in the wording of the trust deed.

Discretionary trusts:

In a discretionary trust the Founder gives the trustee discretion to use it as he sees fit within the rules he has set.  Typically, the Founder sets the rules to say for whose benefit this must be done.  The people for whose benefit the trust is set up are called the Beneficiaries.  E.G. If the Founder says that a trust must be for the benefit of his children (the beneficiaries) after his death but if he gives discretion and there are two children A and B, then the trustee could give them each 50% or one 90% and another 10% or one everything…the system is based on trust but open to abuse by the all-powerful trustees.  All discretionary trusts have this power in the trustees with very little the beneficiaries can do about it.

What do beneficiaries get?

What is the beneficiary entitled to?  Well, until the trustee decides to make an award to him, nothing is guaranteed.  He must take what he gets given.  This sounds clever for trust fund kids who would otherwise want to blow their inheritance: the trustee can force their benefit to be spent on education, or in extreme examples give it all to the super talented child or the one needing it to treat a potentially terminal disease.  This is what the founder trusted the trustee would do to look after things.

The trust assets do belong to the beneficiaries but who and how is unclear.  Imagine the Founder’s lovechild (why the ex is the ex) becoming entitled to everything and his other children getting nothing (because the mistress is the trustee).  Well, if that’s what he wanted?  If that’s what the trust deed provided for what can the other beneficiaries do?  Not much.

Trusts in BEE ownership structures:

The usage of trusts has continued to evolve (despite Napoleon’s best efforts) and we have seen them used in South Africa for many BEE transactions.

The BEE Commission is looking carefully (generally unfavourably) at their use and in particular at discretionary trusts.  While not all discretionary trusts are problems one needs to consider if they actually achieve empowerment.

What the Commission looks at includes:

  • Are there criteria to being beneficiaries that can mean one can be and then not be? So if the beneficiaries are defined as being ‘employees’ is potentially not as strong as being defined as ‘black female employees’.
  • Are the beneficiaries even aware they are beneficiaries? If women are the beneficiaries how many know that?  And if they don’t know that they are beneficiaries how can they exercise any rights?
  • Are the beneficiaries entitled to anything? Or does it require trustee support?  If beneficiaries can’t act without trustee support and trustees can act without beneficiary support who has the deed empowered?
  • If the trust is set up to fund education for black people, then what is the entitlement of a black person who receives a bursary this year but doesn’t next year? What ownership or voting rights do they have?

Company structures in comparison:

The Beneficiaries of discretionary trusts must be contrasted to company shareholders who once a shareholder cannot have their shareholders taken from them without their consent, death or insolvency.  Their shareholding is recorded in register with their name and address (that they chose) and they have rights in terms of the Companies Act and the company’s MOI whether the directors agree or not.

This is clearly not the case in discretionary trusts, hence why they are problematic in proving BEE ownership.

Do trusts still have a role to play in BEE?

Yes. In theory a discretionary trust can still work and they are still allowed by the act. However, there are other types of trusts besides discretionary trusts, such as bewind and business trusts, which may be far more suitable.

In such trusts it is imperative to have clearly named and identified individuals.  The assets actually belong to the beneficiaries with the trustees managing the assets.  Sometimes this is because the beneficiary cannot himself (like where the beneficiary is a minor or incapacitated such as severely handicapped) or because he wants a professional manager to look after his and other beneficiaries’ assets.

But when all is said and done the real question for the beneficiaries is the trustee trustworthy?  Because the whole system is still just based on trust…

Does Tusker use trusts in any of our ownership structures?

Yes. The Tusker Trust is a bewind trust (i.e. not a discretionary trust).

bewind trust is a trust where the founder makes a bequest to the beneficiaries and vests the administration of the assets in the trustees. The beneficiaries acquire ownership of the assets, while the trustees only have the administrative control thereof.

In other words, a bewind trust offers all the benefits of legitimate ownership with all the benefits of trusts. It’s ideal for BEE  and addresses all the BEE commissions’ concerns about trusts.

Our beneficiaries have real ownership rights in terms of economic interest (dividends and capital gain) and voting rights. These are assigned at the time of each deal and the trustees work to manage the assets of the beneficiaries, for the beneficiaries. We can easily identify how the ownership rights of each deal accrue to specific black people in our structure, including the beneficiaries of The Tusker Trust.

The Tusker Trust complies with all ‘additional requirements’ of the BEE act and is consistent with substance over form tests. We welcome scrutiny.

Please send us an email ( if you’d like more information.


Stakeholders > shareholders?

Who do you serve?
The journey of a business leader is often about ego. “I founded this business”, “I closed that deal” or “I employ 350 people”. This stuff may feel true but it turns people off.

Real leaders leave their ego at the door.

Real leaders serve others through their business; they realise that the business they lead now does far more than scratch the itch it was first designed to do…that it serves many different people and that the business has a responsibility to each of these stakeholders.

As a leader of a business so do you.

Stakeholders are far more than just shareholders:
South Africa’s new Companies Act made one very significant but often overlooked change to our corporate landscape. Under the old 1973 Act, a company was there to serve the interests of its shareholders (normally by making them money). Now, it is there for all stakeholders.

Besides looking after shareholders, companies are expected to be model corporate citizens and look after many more stakeholders such as their workers, their customers and society as a whole. This was to make sure they do not abuse the environment that they operate in (as tends to happen with good old-fashioned unadulterated capitalism).

Companies are expected to consider whether they are of public interest and if they are to have Social and Ethics communities. They must look after the environment – both physically, by not directly polluting etc, and the environment including the broader community.

This applies to every company in South Africa, and every company director.

It applies to you.

In racially-skewed South Africa, there are many communities living off corporates, where the corporate’s workers support a big portion of the community. This is therefore necessary, legally required (in terms of the 2008 Act) and simply astute.

The stakeholder approach supports BEE:
Yes, there may be problems with BEE implementation (read corruption on all sides) but the intention is both easy to see and honourable.

No company is obligated to adopt BEE but every company has to consider all its stakeholders, and those with big public interest scores have to have a Social and Ethics Committee which (per Regulation 43) has to consider “social and economic development, including the company’s standing in terms of goals and purposes of BEE”. This Committee is a board committee and each board member needs to consider what the Committee does. Directors also have to act in the best interest of the company, “in good faith and proper purpose”.

So, turning the question around – can a company do nothing about BEE?
You might think so but who can truly say it’s in a company’s interest to ignore it?

At the very least every company should consider BEE and its impact on all its stakeholders in terms of BEE goal and purpose. These are set out in section 2 of the BBBEE Act (and yes, records of this consideration process must be kept).

Doing BEE properly is a directors’ responsibility; doing it wrong carries risk of criminal sanction:
Directors also have to act in good faith and for proper purpose.
BEE cannot just be a tick box exercise and if BEE is done it has to be done properly (as our parents always said “if you’re going to do something, do it right”).

If the purpose is to get a certain contract or land some funding, was it proper purpose? If it was to pretend to empower (front as a BEE-compliant company) it cannot be proper purpose (and the director hasn’t acted in good faith).

Criminal sanction including jail and fines:
Fronting is crime for which the director can go to jail for ten years, and the company could be fined 10% of turnover (not capped) – which is clearly not in the company’s interest – which means the director has also breached his statutory and fiduciary duties to the company (which is also a criminal offence).

Directors should tread very warily.

Are prosecutions happening?
Yes. These are just two recent cases of fronting investigations that have made the press (we know of many more that are happening away from the public eye, so far):

The most likely complainants in a BEE fronting case will be the empowered partner who feels like they are not getting their fair share of the deal. However your competitors would also love to see you face the cost and distraction of an enquiry…

What to do if you suspect fronting:
You can email either : or (we’re not sure of the difference in purpose between these two email addresses, so try both).

The key message:
The Companies Act requires all companies and their directors to consider all stakeholders, and to consider BEE. No company is required to do a BEE deal (see why we think you should here), but every company must consider it…and if you’re really considering your stakeholders then why would you not do a BEE deal?

In many of the companies we’ve met at Tusker, the key reason to do a BEE deal is to ‘leave something behind for the workers who’ve helped a company achieve X’ or ‘to keep my customers in business because if we leave the country many people there will lose their jobs’.

The stakeholder-approach, as required by the Companies Act may just be more important than specifics of the BEE act…it’s the stakeholders who helped you get here. Your business exists because of, and through them.

What legacy you leave is your choice.

The Companies Act requires all companies and their directors to consider all stakeholders, and to consider BEE. No company is required to do a BEE deal (see why we think you should here), but every company must consider it…and if you’re really considering your stakeholders then why would you not do a BEE deal?

In many of the companies we’ve met at Tusker, the key reason to do a BEE deal is to ‘leave something behind for the workers who’ve helped a company achieve X’ or ‘to keep my customers in business because if we leave the country many people there will lose their jobs’.

The stakeholder-approach, as required by the Companies Act, may just be more important than specifics of the BEE act…it’s the stakeholders who helped you get here. Your business exists because of, and through them.

What legacy you leave is your choice.

Entrepreneurial success, Gamblers’ ruin and partial diversification

As an entrepreneurial business grows, its shareholders face a continual choice around how much of profits should be reinvested. Given entrepreneurial optimism, early or continued success and a while to go before retirement, most re-invest profits continuously for years, if not decades.

The result (if things go well) is that successful founder-shareholders end up with most of their personal wealth tied up in the business – and are very exposed to business risks.

Fire remains a significant business risk

Although successful entrepreneurs tend to be far more risk-averse than popular belief would suggest, we should remember that every business started either eventually goes under or is sold. Few achieve the latter.

Don’t bet everything on the last roll of the dice:

To keep reinvesting all one’s earnings is not too dissimilar from a gambler betting against the house. The statistical phenomenon called Gamblers’ ruin suggests that if a player (entrepreneur) with limited funds keeps betting against an opponent with unlimited funds (that is, a casino, or the global economy), he will eventually go broke, even if the game is fair. All lucky streaks come to an end, and losing runs are fatal.

To get around this, the wise man betting in a casino takes chips off the table at every opportunity…and leaves them off the table, walking out with a share of the winnings earned along the way rather than risking everything on the final roll of the dice…

Entrepreneurs rarely diversify as they go: when we value their shares in the business and compare this to other assets they own then in most cases 99% of their personal wealth sits in the business.

Why entrepreneurs find it hard to diversify risk:

This extreme asset concentration is a global phenomenon.

It exists because it’s really hard to sell a minority stake in a privately-held company: there is no ready market of buyers who want a minority (non-controlling) stake in an illiquid investment where information is hard to get, the price is negotiated over months with loads of legal and accounting complexities (i.e. high transaction costs) and where there’s little external scrutiny or regulation.

The alternative is to sell the whole business; to diversify all in one go and bank on the final roll of the dice. This too is problematic – the business must be built into an asset of value and then sold outright. The process can take years. Valuation expectations are often unreasonable – and when confronted with the reality of a 3 to 4 earnings multiple, many entrepreneurs chose instead to work for another 3-4 years and take all dividends off the table. They remain exposed to the concentration risk along the way.

What has this got to do with BEE you ask?

The BEE act forces privately-held companies to transfer minority ownership stakes – something that’s very hard to do.

It’s hard because the business needs to find trustworthy BEE shareholders to whom they’ll effectively be “married” for a long time. These partners need to add value to the business. They probably don’t have money, so the business will need to vendor-finance the deal…and there’s a valuation, due-diligence, and loads of legal agreements to get through. The BEE shareholders will want to sell at some stage too, in which case the company needs to re-do its BEE deal and the exiting BEE shareholders need to find someone who wants to buy shares in a private company. Not so easy actually.

Our models show that most BEE deals (vendor-financed) destroy value and concentrate risk: selling 25% of a business to a BEE partner typically destroys 30% of value and leaves the entrepreneur with a bit more cash but still with most of their wealth in less of the business.

Join the Tusker herd:

Tusker was initially conceived to be a diversification play for the shareholders of large, privately-held companies; we wanted to create a system to help unlock private capital and reduce the risk to successful entrepreneurs. When we looked at the rules around BEE we realised that we had a superior way of financing legitimate BEE ownership deals that achieved both a far higher ROI (an increase in value of ±40% is typical) and significant shareholder diversification.

If you are looking to diversify risk, and/or do a legitimate BEE ownership deal, then please contact us for confidential analysis of your business.

Are BEE-share schemes discriminatory to your white staff?

Solidarity, a 120-year old trade union with 140 000+ mostly white members, has engaged in a legal strike against the Sasol Khanyisa (BEE) share scheme which it claims is discriminating against white Sasol employees.

Context: the rise and fall Sasol Inzalo:

Khanyisa is Sasol’s second attempt at BEE.

The Sasol Inzalo Scheme was launched about a decade ago when Sasol shares traded around R400 per share and oil cost about $100 per barrel – with predictions that it would go much higher. Sasol effectively offered investors, including its staff (black and white), Sasol shares at R366 each.

At first Inzalo looked very successful: it attracted 208 000 people, making it one of the biggest ever BEE transactions, worth R28 billion.

The deal was straightforward: Investors put some money down (R18 to R44 per share, depending on the quantity) and Sasol arranged bank funding for the balance (using the shares as security). To reduce the risk for the investors the interest rates on the debt were fixed for the scheme’s ten-year life span.

Unfortunately the oil price fell to $55 per barrel and Sasol shares only traded 0.7% up a whole decade later. Shares values need to appreciate substantially to make vendor-finance viable…

In September 2017 Sasol announced that Inzalo would be wound down. Sasol would take the hit on R12 billion still owed to the banks– and with this the market responded by wiping another R7 billion off Sasol’s value the same day.

New schemes for old:

Sasol’s solution is a replacement scheme – Khanyisa – with Sasol offering Inzalo shareholders various options including swapping Inzalo for Khanyisa shares.

Sasol learned from Khanyisa and Inzalo has some key differences:

  • It’s vendor-financed (there are no banks lending the money – Sasol is),
  • It isn’t linked to the Sasol share price but Sasol dividends instead, and
  • The new shares are also only available to Blacks, as per the BEE Act.

The link to dividends (controllable to a large degree by the company) is far less risky than relying on share price (which can be entirely dependent on emotion and other market irrationality) and is a major improvement.

That the shares are only available to Blacks has got Solidarity upset.

Why is Solidarity striking? Why now?

The Inzalo Scheme disappears this week – which explains the timing of the strike.

Solidarity claim that since white Sasol employees cannot acquire shares in Khanyisa (as they could under the Inzalo Scheme) that this is effectively discrimination.

What case does Solidarity have?

While union members’ rights as employees will be determined by our labour laws, within the context of BEE laws things may look different:

There are now three ways to buy/trade Sasol shares:

  • Sasol shares (SOL on the JSE). These are highly liquid, available to anyone and 100% tradable. Sasol is one of the JSE’s blue-chips.
  • Sasol BEE Shares (SOLBE1 on the JSE – Empowerment Section), and
  • Khanyisa shares (which will not be on the JSE and cannot be traded before 2028).

While SOL can be freely traded, the restricted shares look far less attractive: They cannot be bought by anyone (as Solidarity says) and therefore because there is less demand for them, they inevitably will trade at a discount to the SOL shares of which they are a derivative; and the Khanyisa shares cannot be liquidated for ten years.

The issue is really that Sasol is giving funding to Black investors to buy the Khanyisa shares. There is no mention if they will provide funding for White workers to buy Sasol shares directly – but it’s possible.

Will Khanyisa work?

Sasol may still have a loss on Khanyisa as it did with Inzalo.  The difference will be that any loss will not all be at the end (2028) but over the ten years.  It is vendor-finance after all, with all the risks that entails.

An investor decision:

Sasol shareholders voted to go ahead with Khanyisa (not Sasol management): the decision wasn’t taken as an employer, but as an investor and the distinction is important.

Maybe Solidarity will prove that this is wrong in the workplace, but on capital markets, the shareholders (including many foreigners with little SA history) have decided to promote BEE as being good for Sasol. They believe it better for all sorts of reasons. Ironically some will believe it will improve industrial relations. Some will believe it opens markets. Some believe it’s a responsible and sustainable course of action. But the majority voted that BEE is a good investment.

Let’s hope that the economics work out this time.

Where does this leave Solidarity? Time will tell – they are not the first or last group of potential investors in a company to feel hard-done by the easy access to funding that black investors have – but what other options would Sasol have had?



Why do a BEE ownership deal?

There are 2 reasons to do a BEE ownership deal:

  • To contribute towards making South Africa a more stable, racially inclusive economy.
  • To grow your South African business (the reason most BEE deals are really done).

So how does a BEE deal help you grow?

As a recap, the BEE Act is effectively a set of government policies aimed at transforming the economy. The Act sets targets (scorecards) for black participation in ownership, management, skills development, supplier development and more. Companies need to measure and report on their level of achievement against the scorecard agreed to for their industry. In this way government can see the efforts and results of BEE.

The SA government uses its immense spending power (±R800 Billion p.a.) to effect this change – by incentivising its’ suppliers to be BEE. Tenders responses are typically scored out of 100 points, of which either 10 or 20 are based on BEE score with the balance coming from fundamentals (e.g. the ability to deliver the work and the price proposed).

Unless you are supplying highly scarce and unique resources in a non-competitive environment, it’s highly likely that your ability to win a juicy government contract depends on the competitiveness of your BEE score.

The effect of this is that if you want to supply government – the biggest customer in the country – then you need to be able to compete on price, quality and BEE score.

Many companies don’t directly supply government, so why do they need to worry about their BEE scores?

Trickle-down economics and BEE scores

The answer is in trickle-down economics: Government mostly does business with big companies. Big companies are supplied by medium companies who are supplied by small companies. You get the picture – business trickles down.

BEE scores trickle down too, but in a more severe way: the scorecard of a supplier (Company A) to government depends to a degree of the who supplies Company A…and for Company A to get the best BEE points so that it can compete with others for government work, its’ suppliers must have the highest possible BEE score.

51% ownership through a proper structure:

The net effect of this: whereas the target BEE ownership score for your industry may be 25,1% your customer may demand that their suppliers (i.e. you) have ownership scores of 51% because that’s what they need to be competitive. If you don’t then no deal. If not now, then later. If you still think that 25,1% ownership is enough then we have a bridge to sell you…

Further, the nature of the ownership is important and increasingly scrutinised.

We know that big suppliers to government (e.g. SASOL) not only demand 51% BEE ownership from their suppliers but also interrogate the structure by which this is achieved to make sure that it’s not ‘soft’ – i.e. that it will withstand scrutiny by a verification agency and meet the requirements to comply with both letter and spirit of the BEE act.

To grow in South Africa, shrink, or go offshore?

As BEE trickles down (at least 25% of the biggest 20K companies in SA are already 51% black-owned) the pressure mounts.

The choice becomes:

  • Get your BEE ownership sorted out and grow your South African business ahead of your competition.
  • Compete with other ‘white’ businesses for an ever-declining market in South Africa.
  • Go offshore – with all the risks and costs (always underestimated) that this entails.

What we do know is that BEE isn’t going away; that with Zuma out the way and corruption under scrutiny less of the R800 Billion spent by the SA govt will be wasted in future; that ownership is increasingly emphasised above other scorecard measures…and that transferring a minority (or controlling) interest in privately-held companies remains massively challenging on technical, financial and emotional levels.

That’s the why. What about the how?

Black unicorns or Vendor-finance:

If your business is growing fast enough (30% pa plus) to afford their cost of capital, and if you can find one, then maybe a “black unicorn” will emerge from the fog and guide your business to the hallowed lands of level 2. Most companies have no such luck and resort to vendor-financing the purchase of their shares by a BEE counter-party. (For those that haven’t yet experienced this pain, it means you – the seller – lends money to the BEE shareholder so they can buy your shares, which they repay via dividend flow).

Our models show that these deals almost always destroy shareholder value.

The Tusker alternative:

If you are considering a BEE ownership deal, or are unhappy with your existing deal, or are a black shareholder wanting to sell your interest in a privately-held company then we’re ready to help.

Tusker offers:

  • Value creation through governance and growth.
  • Long-term BEE ownership deals from 25% to 51% and/or
  • Significant diversification of shareholder risk.
  • A fair price and a highly standardised deal that’s quick to execute.
  • Structures where you retain effective control.

Please visit and complete the contact form – one of our Directors will call you back.

Couple face criminal charges due to fronting.

In a classic case of fronting, the owners of a panel-beating shop could face criminal charges, blacklisting by Treasury from getting government tenders and an investigation by the Companies and Intellectual Property Commission for violating the Close Corporations Act.

The B-BBEE Commission found that Willie and Petronella Saunders were trying to divert profits earned by Elegant Square Panelbeaters to ESP Body Repairers – an entity they created “with prejudice to the business of [Elegant Square] and Masana”.

The commission found the couple breached an agreement they had with Masana by making changes and company decisions without involving him and that they misrepresented the B-BEEE status of Elegant Square Panelbeaters.

“They attempted to intimidate and/or influence the commission in the exercise of its powers by making unfounded allegations of bias, which they failed to provide evidence of.”

Tusker writes:

The BEE Act must be complied with in letter and in spirit. We’ve no doubt that are many ‘BEE deals’ like this in existence and that fronting is rife. These deals lead the business, directors and shareholders open to risk, litigation and potential criminal charges. They are simply not worth it. Especially when viable alternatives exist – for example the Tusker structure – which doesn’t destroy any shareholder value in the process of a BEE ownership deal and complies 100% with letter and spirit of the BEE Act…

The ‘least-worst’ alternative

We recently met with a large-Ngo (>200K members), whose mandate means that they are clearly and outwardly opposed to BEE ownership. This is primarily because they regard it as government interference in a free market.

We presented the Tusker structure as a way for their members, who might be opposed to BEE ownership because of the loss of value that it typically causes, to understand that it is possible to 100% legitimately comply with the BEE act, get a proper BEE ownership structure in place, while taking some money off the table, and do this in a fair deal where value is preserved rather than destroyed.

Having a good understanding of all other BEE ownership options out there, their CEO described Tusker as the ‘least-worst’ option.

Given how opposed they are to BEE on principle, we’ll take that as a compliment!