Cementing economic transformation!

Earlier this year, on 24 August, the Swiss cement and building materials company, Holcim, the second biggest cement company in the world, took our country by surprise. On this day, the company announced that, effectively, it had decided to sell Holcim South Africa, its subsidiary, to a black consortium. Its statement said:

"Since political transformation in 1994, the government of South Africa has introduced legislation and supported industry self-regulation aimed at ensuring an equivalent economic transformation, termed Black Economic Empowerment (BEE). The goals of BEE are to bring about a significant increase in the ownership, management and control of the economy by South Africans from historically disadvantaged communities.

"Holcim has been fully supportive of the process of transformation in South Africa and has committed itself to ensuring meaningful and sustainable BEE in its South African Group company.

"As a result, Holcim has signed a conditional agreement to sell 85% of its stake in Holcim South Africa to a BEE Consortium based on an enterprise value of R15.5 billion. Holcim would maintain a 15% share in the newly founded AfriSam, which would hold a 54% stake in Holcim South Africa. Holcim would continue to provide technical assistance.

"AfriSam Consortium is a broad-based BEE company established specifically for the proposed transaction. Its shareholders will include all employees of Holcim South Africa, as well as a number of charities and broad-based groups, and will be led by a new entrant BEE group, Bunker Hills Investments. Completion of the transaction is subject to, inter alia, regulatory approvals and the completion of AfriSam Consortium's financing process. Holcim expects to be able to conclude the transaction in 2007..."

Explaining itself in another document, Holcim said: "Rather than deliberately undertaking a complex re-organisation of (our) operating structure (covering plants in South Africa and six other SADC countries), to restrict BEE to a minority interest in regulated parts of its South African operations alone, Holcim believes that an approach which includes all of (its regional) operations is more consistent with the imperative for economic transformation, by enabling real shareholder participation by Historically Disadvantaged South Africans."

Our media correctly concluded that when it is finalised, the agreement between Holcim and AfriSam would create the leading black-owned and black-controlled business in the building materials industry in Southern Africa. It also observed that apart from exceeding the 26% black ownership visualised in the mining sector, this deal would constitute one of the largest BEE transactions in our country since 1994.

On the face of it, in principle this transaction should have been warmly welcomed by those who truly support the objective of the creation of a non-racial South Africa, which Holcim said, correctly, would include both "political transformation" and "economic transformation". But interestingly, the Holcim August announcement has attracted comments that verge on the hostile.

This is despite the important statement made by Tom Clough of Holcim during an interview, in which he said: "There are certain requirements for us under the rules and the philosophy of (South Africa), and they have an impact on our mining licences, etc. Now we could have gone along with the minimum of that and said that that's all we are going to do. But if you take a longer view and you consider carefully the sort of whole strategic future of Holcim South Africa - and remember, as major shareholders that's something we have to do - and if we look at that future we see that, rather than sort of do the minimum, but if we immediately go into it wholeheartedly and say, OK, we will have this as a black-controlled company, then what we see is a great competitive advantage and a great future for Holcim South Africa. At the end of the day that's our responsibility."

And there lies the rub! Holcim had taken the decision that it made good commercial sense for Holcim South Africa to be black owned and controlled. Since it had come to the conclusion that BEE was not a threat to commercial success but made good business sense, it saw no reason why it should accept black South Africans only as minority shareholders, or engage in a protracted, step by step progression to black ownership of its Southern African subsidiary, if this was its fundamental intention.

It therefore took the decision that it was strategically correct that a major global company such as Holcim has the capacity both to demonstrate its unqualified commitment to the building of a non-racial South Africa, and to create the best conditions for the growth of its erstwhile subsidiary, by turning it into an African company, rather than retain it as a subsidiary of a Swiss company.

It also made the determination that the longer term interests of Holcim in our country and region, would best be served by having a strong partner, but independent African company with which it could enter into joint ventures, constituting a true African-Swiss equitable corporate partnership.

It is clear that some in our country consider the projected Holcim-AfriSam agreement to be too good to be true! There has to be a catch somewhere! There has to be some underlying negative intention on the part of Holcim, cunningly disguised as Black Economic Empowerment! Drawing on Winston Churchill's advice concerning the all-important Normandy landings during the Second World War, which had to take Nazi Germany by surprise, Holcim has decided that its less than noble intentions will have to be protected by "a bodyguard of lies"!

Necessarily, this construct contains the assertion that Holcim's BEE partners have allowed themselves to be used as dupes or a black front in the perpetration of a fraud. Within this context, and unkind as it might seem, the question must arise - at what price were these black partners in deceit bought!

From this perspective, it is clear that in the view of some in our country, what would have been good and acceptable would have been for Holcim to do the minimum required, and sell only 26% of its equity to its BEE partners. To facilitate black ownership and control despite the current and future excellent market conditions, with virtually guaranteed good profits, has made absolutely no sense to those intensely focused on 'the bottom line' of the annual financial statements.

In this regard, one of our commentators has written: "Two burning questions about the deal are: why is (Holcim) selling now and why is it selling all but 8%?

"The first question arises because the cement market in South Africa is strong and looking stronger. It has been suggested that local cement buyers pay almost double what other developing countries pay for cement...

"South Africa is on the verge of a construction boom, with government committing itself to huge sums in infrastructure spending. As it is, the major companies have to import cement to meet demand.

"Secondly, the parent company reports that Holcim South Africa had an operating profit of about R1,4 billion on sales of R5 billion last year. That looks like a successful company to me...The fact remains that there is no obvious reason for Holcim's departure now."

Obviously unable to penetrate the "bodyguard of lies", this commentator decided that Holcim had decided to disinvest from our country. He wrote:

"We may never know exactly why Holcim is disinvesting from South Africa. There is an intriguing possibility - and this is only speculation.

"The reasoning is as follows. The company now has two owners, parent company Holcim and Aveng. One of them has to give up a stake to allow black investors in.

"Aveng might be unwilling to have its stake diluted, because Holcim SA is an attractive investment. Could it be that, faced with having to give up 26% of its 54% stake in Holcim SA, leaving it with less than a controlling stake, Holcim decided it might as well go the whole hog? BEE would then be the reason for Holcim's disinvestment as well as the means. How terribly ironic."

Another commentator was less hesitant. Under the title "Broadstrokes: Dressing up disinvestment as BEE", he wrote:

"When is a disinvestment not a disinvestment? I've always gone with the analogy that if it looks like a horse, neighs like a horse and kicks like a horse, it is a horse; but a couple of recent transactions in which foreign principals have tried to deny that they're disinvesting have to make one wonder.

"The more important of these is the proposal by Swiss firm Holcim, the second-biggest cement producer in the world, to cut its holding in Holcim SA - previously known as Alpha, and before that as Anglo-Alpha - from 54% to 8% by way of a BEE deal.

"This is a particularly odd deal in that Aveng, successor to Anglovaal Industries, which was Holcim's local partner ever since - under its own then name of Holderbank - it opened its first factory in SA at Roodepoort in 1934, had been told as a courtesy that Holcim was considering a BEE deal, but given no inkling that Holcim intended virtually to sell out.

"This decision too is odd, as Holcim had always considered its SA investment as important in its global strategy...

"The timing too is significant, at the start of a surge in infrastructure spending that will bring a corresponding increase in demand for cement...

"Holcim may deny that it's disinvesting, on the grounds that it's retaining a vestigial interest and will continue to provide technological back-up, but even those convinced by that flimsy argument must concede that the ploy will relieve it of most of the need to take part in major pending capex...

"Of course, foreign companies have every right to disinvest. But they must be honest about it, not try to dress it up as a BEE deal..."

Another commentator said: "No one can deny that the Swiss are an ingenious nation: from the art of Genevan watchmaking to the 1934 secrecy laws that made stashing your cash in a Swiss bank account, the preferred option for the publicity averse.

"No less innovative overseas, it is remarkable that it has taken a Swiss company to come up with a notion of using black economic empowerment as a cloaking device to spin a disinvestment into a rosy tale of glittering opportunity."

And yet another said: "For all the spin being put on the Holcim black economic empowerment deal announced yesterday, one is left with one nagging thought. And that is that the Swiss cement group is pulling out of South Africa, even if it does so with panache...

"The Holcim deal is one of the biggest empowerment deals in recent memory...That should not hide the fact that the Swiss company is packing its bags and heading home. But that fact will likely be swept under the carpet because Holcim is using its departure to do a very good deed indeed."

With regard to the foregoing, one of Holcim's financial advisers has said: "Holcim accepted that regardless of precedent transactions in the South African market, its own approach to BEE should seek to maximise the opportunity for its regional business as a result of BEE, rather than seeking to minimise the impact of BEE on it(self)...

"It is in our opinion unfortunate that this proposed transaction can be misinterpreted as disinvestment, simply because the controlling shareholder that wished to maximise the benefits of economic transformation for its regional operations happens to be a foreign parent rather than a local company.

"We have confirmed elsewhere that everything will be done to ensure that any receipts are remitted in a way which is sensitive to the SA Reserve Bank, and...Holcim remains keen to consider suitable additional investment opportunities in the region, but we hope to ensure that the AfriSam Consortium can be seen to be genuinely assuming control of Holcim South Africa in an arms length transaction.

"From an advisory perspective, we also hope that applying this approach on such a prominent transaction will ensure that more South African and international companies recognise that BEE does not have to be entered into using the traditional transaction structures and BEE partners.

"Instead, we believe that, as with Holcim, the prerogative of economic transformation can be put at the heart of a company's overall corporate development strategy so as to maximise the potential for growth and stability, which is where we believe it, (economic transformation), was intended to belong."

The negotiations to close the Holcim-AfriSam deal have not as yet been finalised. It is virtually guaranteed that this transaction will continue to be attended by controversy, in good measure driven by a sense of disbelief among the sceptics.

The fundamental matter at issue among these is, to them, the unfathomable puzzle that an eminently successful global company, such as Holcim, could actually come to the conclusion that "the prerogative of economic transformation (in South Africa), can be put at the heart of a company's overall corporate development strategy so as to maximise the potential for growth and stability, which is where we believe it was intended to belong."

What is a puzzle to these hard-nosed sceptics will be celebrated by others who are committed to non-racialism and human fulfilment as a major and unprecedented step forward. The latter will be excited that a major international corporation gets truly inspired by its social responsibilities, leading it to reach out to our nation beyond the commercial imperative to make immediate financial profit.

They will be moved that Holcim decided, deliberately, to accept as its own responsibility the task to advance the challenging non-racial transformation agenda of democratic South Africa, as an integral part of its overall corporate development strategy. When all is said and done, as has happened, it does indeed seem that, after all, it is true that one man's meat is another man's poison!

Whatever will happen in the end, which will determine who owns Holcim South Africa, and given the imperative for this company to continue to supply its products throughout our region, and retain and increase its workforce, it is very inspiring that the Managing Director of Holcim South Africa, Karl Meissner-Roloff, could say:

"I know I speak for the whole of the senior management team of Holcim South Africa when I say how excited we are about this comprehensive BEE transaction. I know ASC (AfriSam Consortium) shares our enthusiasm for this business and its potential, and we are now looking forward to working with them to create the leading black-controlled building materials producer in Southern Africa."

Umrabulo

Building a caring society

The challenge to the democratic movement, and to all South Africans, is how to order economic and social relations in a manner that builds a caring society. This is the principal theme taken up in the latest edition of Umrabulo, the ANC's political discussion journal, published earlier this month.

This discussion takes as its starting point President Thabo Mbeki's address at the 4th Annual Nelson Mandela Lecture on 29 July. Introducing the topic of his address, Mbeki said: "I believe I know this as a matter of fact, that the great masses of our country everyday pray that the new South Africa that is being born will be a good, a moral, a humane and a caring South Africa which as it matures will progressively guarantee the happiness of all its citizens."

The lecture was widely welcomed as a valuable contribution to the development of the national discourse as the nation begins its second decade of freedom. Yet the lecture also poses a number of challenges, both to the democratic movement and broader South African society, not least of which is the challenge of forging a caring society in an environment where "personal pursuit of material gain, as the beginning and end of our life purpose, is already beginning to corrode our social and national cohesion".

In the latest edition of Umrabulo, a number of writers have sought to respond to some of the questions posed by the President's address. As the editorial notes: "Some have answered Mbeki's challenge directly, others more obliquely. They have taken different approaches and emphasised different elements in the unfolding debate. Is a caring society most appropriately pursued in the terrain of economics, through the social policies of government, or by forging a new approach to matters of the soul?"

One of the contributors, ANC Member of Parliament Ben Turok, asks whether, in the aftermath of apartheid, the government led by the liberation movement will be able to regulate the capitalist system so that all South Africans benefit: "Will the ANC be able to 'manage' the system so that we remove the obscene inequalities, poverty and joblessness that are still so pervasive?"

This is an important question, he suggests, particularly in light of the experiences of decolonisation of a number of post-independence African states where "colonial capital and the colonial state managed to create a comprador neocolonial class that abandoned the social and economic objectives of the national liberation movement".

Another contributor, Khehla Shubane of the BusinessMap Foundation, suggests that the officials of the democratic state have not done enough to engender the values of a caring society. In fact, he argues, many have done the opposite.

"What evidence is available suggests the state has not taken existing values in South Africa and deliberately nurtured these into shared social values. Indeed officers of the state have, by their behaviour, displayed the very traits that encourage greed and negative values. Good values are deliberately cultivated; they are just not embraced by the population out of the goodness of people's hearts," he says.

Shubane argues the promotion of a caring society would be promoted by the availability of quality public services to all: "Failure to invest in entities that provide public consumption goods encourages a desire to accumulate wealth to privately provide for those needs that could easily be provided by facilities geared to serve the public. Good and well-managed public institutions have the advantage of being meeting places for both the poor and the well off; they work to destroy the walls created by unequal access to money with which to fund goods and services supplied by these entities."

The ANC Commission for Religious Affairs explores another approach to this issue, arguing that a "theology of transformation" is required to build a caring society. In a discussion document, the commission says that though not all people are religious, all are spiritual human beings "alert to compassion, cooperation and vision".

It says the focus of the revolution needed in today's secular world of politics, economics, culture and human relations should be the capacity of human communities to "move from a negative to a positive spirit".

Another article, by Jerry Vilakazi, Chief Executive Officer of Business Unity SA, considers the challenge of building a caring society within the context of black economic empowerment and the economic clauses of the Freedom Charter.

"Black economic empowerment is not a panacea for all the social ills confronting our society. Centuries of exploitation cannot be reversed by just twelve years of empowerment initiatives. We must accept the consequences of the policy choices we have made to reconstruct and develop our post-apartheid economy, and devise innovative means to deal with the unintended consequences generated by our policy choices... Black economic empowerment is contributing to the realisation of the economic vision of the Charter, though its implementation has been fraught with contradictions," he says.

Much of what is contained in these articles is likely to be echoed in discussions in coming months as ANC structures conduct a review of the organisation's Strategy and Tactics document. This is part of the process of preparation for the 52nd National Conference, due to be held in December 2007.

In this context, the Umrabulo editorial notes that the democratic movement has "historically identified a good, moral, humane and caring society as the antithesis of white minority domination. Through the defeat of colonialism, the achievement of democracy and the eradication of the material legacy of apartheid, we would forge a new society that would uphold the rights and promote the well-being of all its people."

"Yet, though we have defeated apartheid and made significant progress in addressing the social and economic devastation that it caused, we have inherited an economic system and a complementary set of values that give rise, in the words of Mbeki, to the 'deification of personal wealth as the defining feature of the new citizen'.

"Any society held hostage to rampant market forces, to borrow the terminology of the ANC's Strategy and Tactics, would find it difficult, if not impossible, to adequately tend to the well-being of all its people. It would certainly be impossible for a society, like ours, that is struggling to overcome such severe inequalities.

"In engaging in these discussions, it would be important to remember President Mbeki's assertion that 'because of the infancy of our brand new society, we have the possibility to act in ways that would for the foreseeable future, infuse the values of ubuntu into our very being as a people'."

More Information:

• Umrabulo 27, November 2006

What the media says

Trying to prove the people wrong... again

An article that appeared in the local media this week, originating from the Agence France Presse (AFP) news agency and distributed by the South African Press Association (SAPA), revives the wearily familiar theme of the supposed decline of popular support for the ANC.

Under the headline 'String of scandals hammers ANC image', the article begins: "An unprecedented string of scandals has led to the haemorrhaging of support for South Africa's ruling African National Congress which can only be reversed with a purge of the leadership, according to analysts."

"With its former chief whip in prison, his successor accused of sexual harassment and deputy president under a cloud after his financial advisor was jailed, the party which has dominated power since the end of apartheid appears intent on dragging itself through the mud on a weekly basis."

Interestingly, not a single fact, figure or even opinion poll finding is put forward to support the dramatic claim that the ANC is losing support at a rapid rate. The sole sources of this information are three 'analysts' -Frederick van Zyl Slabbert, Aubrey Matshiqi and Xolela Mangcu. And to be fair to these commentators, not one of them is quoted as saying that the ANC has lost support. Only one says that voters who had previously backed the ANC "may look elsewhere".

So where do the news agencies get their information? Indeed, where do so many media institutions get their stories about South Africans' attitudes to the ANC?

Barely nine months ago, South Africa held its third local government elections under a democratic dispensation. In the build-up to those elections, many media institutions and commentators adopted a similar stance to this week's report.

An article appeared on the front page of the Sunday Times on 19 February 2006 with the headline: 'Voters desert ANC over delivery'. The first paragraph read: "Voters in South Africa's six major urban areas will send a strong signal of discontent over service delivery in next month's local government election, reducing the ANC's majority but keeping it in power."

In the same week the Mail & Guardian reported that "the ruling party's monolithic hold on power is showing distinct cracks" and "the party has lost the unquestioning struggle loyalty and the patience of its grassroots". Putting aside the exaggerated language and shallow understanding of why people vote for the ANC, the article's meaning is plain: the ANC is losing support.

The situation was so bad, the article claimed, that ANC President Thabo Mbeki "has launched an unprecedented charm offensive, criss-crossing the country in the past week in a bid to bolster ANC support in areas where it is under threat... And in another unprecedented step, Mbeki is giving a series of interviews to the Sunday press".

What the article conveniently ignored was that this was exactly the same kind of "unprecedented" activity that had formed part of the ANC campaign in the previous election, and the one before that, and the one before that.

Nevertheless, these articles were typical of the general tone of reporting that preceded the elections. There was no doubt in the minds of the media and commentators that the ANC was in for an electoral hiding. Of course, the voters thought differently.

As it happened, the ANC not only increased its share of the vote. It also increased the absolute number of people who voted for it compared to the previous local government election.

In each of the six metros where the Sunday Times predicted a "strong signal of discontent", support for the ANC actually grew. The only two cities where the ANC lost support was Buffalo City and Mangaung, where the actual number of votes received by the ANC dropped by 5% and 1% respectively.

Even when the results were in, many media institutions had trouble shedding their conviction that the ANC was losing support. Some went further, insulting and belittling those who had voted for the ANC.

The Business Day of 4 March 2006 said: "The ruling ANC, hamstrung by growing disaffection from the poor underclass that is its voting fodder, has nonetheless emerged as the undisputed victor in this week's local government elections."

The ANC has consistently refused to take its support for granted. It has always worked hard to respond to the needs of the people, and to take seriously the views and criticisms of communities. It knows that a mandate from the people is a profound responsibility that demands progress, commitment and accountability.

This does not however excuse the great disservice that journalists are doing to their readers by claiming political shifts were there are none, or by projecting their prejudices and preconceptions onto the South African electorate.

What they fail to recognise is that the ANC remains popular because it does not allow itself to be deflected from its task of building a better life for all. Amid the media furore that accompanies the "scandals" cited in the report, the ANC remains focused on its key tasks. It also stands by its principled position that any allegations of misconduct be subject to the appropriate legal or disciplinary process.

The ANC does not rush to judgement on individuals. Nor does it accept that anyone is above the law. It has therefore been consistent in its approach to dealing with such allegations, reinforcing respect for the rule of law and for the principles of common justice.

Contrary to what the article suggests, that the ANC is intent "on dragging itself through the mud on a weekly basis", the energies of the organisation have been focused on the challenges of effective governance and organisational growth.

In addition to the boost that the local government elections gave to the process of local development, the ANC-led government has spent the past year implementing a programme that is making a tangible difference to the lives of South Africans, particularly the poor. Government briefings over the last two weeks, together with the economic overview presented in the Medium Term Budget Policy Statement, confirm that progress is being made in realising the mandate given to the ANC.

At the same time, the ANC has been working hard to revitalise its branch structures and energise its membership. Although many challenges exist, the membership of the ANC is growing and its engagement with communities is improving. The Imvuselelo Campaign, launched in various provinces earlier in the year, has been yielding positive results for the political life of the ANC branch.

There still remains much work to do, both in strengthening the ANC's organisational capacity and in harnessing all sectors of society in a people's contract to create work and fight poverty. In tackling these tasks, the ANC will not be distracted by those who are determined to do everything they can to prove the South African people wrong.

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