BEE Partner, South Africa Economy Watch

There are three answers to this question. A Black-owned business would obviously take the points. A white-owned business needs to consider how much benefit it can derive through incorporating Black ownership. Businesses contracting directly with government are going to receive benefit from having Black ownership. Apart from direct dealing with government, where a Black party can bring new value to a business, it then makes economic sense to sell to a Black participant and score on the ownership points.

Contracting directly with government

A business contracting directly with government, regardless of what BEE says otherwise, will receive more contracts if it has Black ownership. Ignoring the ownership element exposes the business to the risk of reduced future cash inflow. If the business is a monopoly and the government department has no option, ignoring ownership becomes a calculated risk. Businesses operating in competitive sectors have little option but to partner with a Black person, as the proactive business is going to gain an advantage over the competition.

Contracting with the private sector

A business contracting with private companies who are merely looking for high preferential procurement recognition, does not have the imperative of choosing ownership participation. Businesses dealin_gwith the private sector should not negate the potential of Black ownership participation. The client’s requirements will drive the necessity while certain clients may insist on Black ownership.

A business contracting directly with the general public has the least motivation for selling equity to a Black partner. Children buying ice- cream from a corner store are not going to ask for a BEE verification certificate before handing over their cash.

Why would a business engage in ownership if its customers are indifferent?

Where customers do not require a business to choose the ownership contribution there are still valid reasons for participation. Selling ownership is based on simple business principles:

* Gaining access to new markets by combining businesses often presents synergistic qualities. Most white South African businesses focus on catering for the white South African market, which is one tenth of the South African market. Previously, the business logic was that the wealth is centred in the white population, making it a more attractive market.

Catering for the white market is an outdated approach in the current South African economy, and limits profitability. The Black middle class represents the growth sector.

Businesses looking to gain white market share have to win that client from a competitor. The Black market presents an open ocean of new opportunity where Black people with money are waiting for the market to cater to them.

What is creating this new market? Black economic empowerment. Who is going to be able to capitalise on this new market? People who understand it. Who understands the market? Black people. Businesses partnering with the right Black entrepreneur stand to gain access to three or four times their existing market.

BEE does not promote giving equity away to someone who is going to lie under a banana tree and get a monthly dividend cheque. It is about creating new opportunities for those who choose to participate. If BEE is a horse that can take business to a new market, Black ownership represents the reins controlling the horse.

Access to complementary skills is another business reason for selling equity. If a business lacks a certain skill then an opportunity may exist to bring in a Black shareholder who can provide the complementary skills to the business.

* The BEE deal represents a merger of businesses stimulating growth through synergy.

An example of a successful BEE deal is where a white person buys shares in a Black-owned business and contributes to the future success of that business. Instead of paying cash for the business, the white person trades a percentage of ownership in the white-owned business for a percentage of ownership in the Black-owned business.

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