S. Africa's new goal: economic equality


Disparities: Ten years after gaining political freedom, blacks seek a foothold in an economy controlled by the white minority.

April 27, 2004|By John Murphy | John Murphy,SUN FOREIGN STAFF

JOHANNESBURG, South Africa - When Peter-Paul Ngwenya, executive chairman of Makana Investment Corp. decided to buy a new car last month, he paid cash for a BMW 5-Series and had the dealer deliver the gleaming automobile to the front door of his spacious home nestled in the formerly all-white Johannesburg suburb of Fourways.

When he was handed the keys, Ngwenya says, he had to pinch himself to believe how his fortunes had changed.

Born in a black township during the most oppressive days of apartheid, he grew up smuggling grenades, AK-47s and bombs for the struggle against white rule before getting caught and banished to Robben Island prison, where he dreamt of political freedom, not the economic success he enjoys today.

"Sometimes I wonder whether I'm going to wake up and find out this has been a very long dream," says Ngwenya, sitting in the boardroom of his company's Johannesburg offices.

Ten years after the demise of apartheid, Ngwenya, 50, is at the forefront of South Africa's next revolution, seeking to transfer control of an economy still dominated by the white minority into the hands of the underprivileged black majority.

Ngwenya's company is one of South Africa's most celebrated examples of new black business enterprise. Started in 1997, Makana Investment has interests in more than a dozen businesses, including telecommunications, shipping, radio stations, an airline and a ferry service that transports tourists to Robben Island, a museum that draws 500,000 visitors each year.

Owned in part by a trust of former Robben Island political prisoners, the company uses part of its profits to benefit the 4,000 former inmates and their families. Its success has made Ngwenya a millionaire.

Ngwenya is part of a small minority. For most blacks, the economic struggle continues. President Thabo Mbeki describes South Africa as two countries, one largely black and poor, the other rich and mostly white.

More than 40 percent of the people are unemployed, the majority of them blacks living in the squalor of townships where there is often no electricity, no running water and no toilets.

Whites, who make up 10 percent of South Africa's 45 million people, hold the best jobs, live in the most expensive homes and control the bulk of the country's capital.

"We are still faced with the challenge of overcoming economic disparities and entrenched inequalities that characterize our economy and act as a deterrent to growth, economic development, employment creation and poverty eradication," Mbeki said in speech last month.

Merging South Africa's two economies into one is the goal of South Africa's Black Economic Empowerment program, which encourages South African companies to hire more blacks, promote blacks to senior management and executive positions, use black-owned subcontractors and suppliers and form joint ventures with black investors.

In the past two years, the initiative has sparked dozens of partnerships between black investors and white-owned businesses in mining, banking, financial services, wine-making and other sectors.

Last month, Makana Investment paid more than $6 million for 10 percent ownership of the top-rated financial-services group Cadiz Holdings.

The deals are mutually beneficial, Ngwenya says. The black investors secure a foothold in the economy, gain experience in the marketplace and accrue capital to invest in other industries. By proving that they are empowering previously disadvantaged South Africans, the historically white-owned companies are allowed to compete for lucrative government contracts.

In some industries, the government has set ownership targets. It wants 26 percent of mining capital to be in black hands within a decade, for example.

At first, these empowerment proposals caused market jitters as business leaders worried that there would be too much government interference in the marketplace. But after negotiations between government and business leaders, corporate South Africa has embraced the idea. According to a recent Ernst & Young survey of empowerment deals, more than $6 billion worth of mergers took place last year, up from $1.9 billion the year before.

"In Africa, this is the way you do business. You have to have partners," says Brian Croock, managing director of BD Sarens, a crane rental and transportation logistics company that sold a $7.6 million share of its company last month to Bowman Trading, a new, black-owned company.

"It made so much sense to do this deal," says Croock. "If we didn't, we would have stagnated at the level we are at now."

Still, black-owned businesses have a long way to go before achieving parity with their white counterparts. A new economic survey found that blacks control 3 percent of the market capitalization on the Johannesburg Securities Exchange.

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