Private equity embraces South Africa’s black empowerment program

A recent survey by Deloitte suggests that South Africa’s private equity investors are embracing a program established by the post-Apartheid government to promote economic opportunities for black entrepreneurs and businesspeople.

Since the African National Congress took power in 1994, South Africa has pursued various courses of action to redress the injustices and wealth imbalances endured by politically and economically oppressed groups – mostly black South Africans, but also Africans of Indian decent and white non-Afrikaners.

The most ambitious course of action, the Black Economic Empowerment program or BEE, requires businesses, including foreign-owned subsidiaries and joint ventures, to provide genuine opportunities for black South Africans to get involved in the mainstream economy. The requirements vary across industry sectors, and the government allows companies to choose the arrangement that suits them best.

Shaun Strydom, a partner at Deloitte, said that the economic empowerment initiatives have made business opportunities accessible to a broader swath of South Africans. For private equity investors, BEE has unfettered a wellspring of entrepreneurs whom Apartheid prevented from taking part in the country’s economy.

Deloitte’s survey, conducted with the South African Venture Capital and Private Equity Association, found that 88 percent of private equity fund managers believe BEE will create more opportunities for investment and deal activity, and expect to include black owned or managed businesses in their portfolios this year. Sixty percent plan to set specific goals for increasing the number of black businesses in their portfolios. In general, fund managers are optimistic about the near-term with 62 percent expecting transaction volumes to increase in 2005.

US companies with established bases in South Africa have already found ways of making BEE work for them. "General Motors South Africa has been involved in black empowerment initiatives for a number of years,” said Evan Dold, Director of Procurement and Engineering. “GMSA has grown its spending with BEE suppliers over the last three years, and in the past year alone, increased this spending by 133 percent.”

General Motors has also met BEE program goals by working with black-owned car dealers. “GM’s South African dealer network consists of 147 independent dealers of whom 27 or 18.4 percent are black economic entities,” Dold said. By the end of 2005, he hopes to have at least 30 black dealers working with GMSA.