South Africa: Trooping the Color
Haddock, Fiona, Global Finance
Part one of a two-part series looking at black empowerment in business in South Africa and its changing corporate landscape.
South Africa. Wars rage in its neighboring countries, crime is spiraling in its cities, the rand looks plain pathetic. The price of gold, the core of South Africa's financial well-being, is plummeting to all-time lows, threatening to create a whole new generation of poor black South Africans. Worse still, the cream of South Africa's corporations are packing their bags and heading for London's stock exchange.
These are rocky times for South Africa, particularly for black-empowered companies. Black empowerment has been the catch cry of South Africa since the African National Congress took office in 1994. It refers to a policy of bringing South Africa's historically disadvantaged into the mainstream economy-through black ownership and investment, black training, employment, and management.
As South Africa opens its doors to the outside world, opportunities for black economic advancement are expected to rise. But before the country can transform the color of its corporations, it needs to rectify the ills of its sick economy.
"If you want to translate the political miracle in South Africa into an ongoing process, you have to transform the economy," says Leon Campher, chief operating officer of black-owned African Harvest in Newlands, South Africa. "And the only way to [do that] is to involve in a meaningful way those people who historically have been precluded from ownership.You have to bring more and more of those people into the mainstream economy; otherwise, the country won't succeed:'
Black South Africans have long struggled to access investment capital: a commodity made even scarcer by skyhigh interest rates and astronomical bank fees. Says Campher: "A lot of the black-owned companies are short on capital.They've had to rely on traditionally white institutions to do a lot of the funding.
A scarcity of assets in which to invest is similarly holding back black business. Exchange controls imposed by the outside world on South Africa during the apartheid years fostered the growth of large, unwieldy local conglomerates. With no foreign competition and no opportunity to expand beyond their borders, these white, family-owned companies have become obese.They've gobbled up masses of South African businesses with their surplus cash, usurping the country's financial market along the way.
Now that exchange controls are lifting, many of these bloated companies are bolting through the exit door to join the international fray. Billiton, the world's second-largest commodities group, South African Breweries, the world's fourth-largest brewer, and Anglo American, the mining and industrial giant, have all moved their primary listings from Johannesburg to London and gained places in the coveted FT-SE 100 index.
Questions remain over whether this exodus of leading blue chips bodes ill for South Africa and whether or not it will give more black-owned companies the opportunity to muscle in on the local financial market. The executive president of the Johannesburg Stock Exchange, Russell Loubser, is concerned. "It's a natural progression, but I am worried. The way things are structured today, the market of your primary listing is where most of the trading eventually occurs. It's not good that trade moves away from the JSE."
On the other hand, the listing of South African corporations on foreign exchanges may attract welcome attention to South African business. "In a weird way, it could actually do a lot of good," adds Loubser. "We have this emerging market label. If we hypothesize and say 40 of our largest companies suddenly migrate and are included on the FT-SE 100, then it becomes quite difficult to continue to classify us as an emerging market."
Similarly, a London listing requires a company to adopt international accounting standards, which could have a spillover impact on the rest of South African business. …