Wednesday, 26 May 2010

The relevance of Black Economic Empowerment (BEE) to the implementation of competition policy and law in Namibia

Windhoek, Namibia 
26th May 2010 

Mihe Gaomab II is the Secretary and CEO of the Namibia Competition Commission. He is the Founding President of the Namibia Economic Society and remains an honorary member. This Article was adapted from a NES speech presented at a Seminar on BEE in South Africa organized by DELTACON, a BEE Auditing and Verification Company on the 4th November 20009. 

Madam Moderator and Facilitator
Distinguished Panelists
Ladies and Gentlemen,

Good Morning and allow me from the onset to thank NES for making it possible
for me to present to you a contemporary yet crucial topic which is the Black
Economic Empowerment in Namibia. This presentation of this topic is pioneering
in the sense that I have been requested to present the relevance of BEE from a
Competition Policy and Law perspective.

Competition Policy and Law in Namibia

As you are aware, at independence, Namibia realized that it faces developmental
challenges based on an economy which was dualistic with high unemployment
and an economic structure which is enclaved and concentrated around few
sectors. The developmental challenges which are to reduce poverty, create
employment, reduce inequalities across individuals and regions thereby ensuring

balanced economic growth became a prime driver of focus for our government.

This developmental objectives have been addressed at varying levels to a large
extent by our government but government further realize that to ensure that this
developmental policy objectives are addressed, it needs reorientation or rather a
transformation of the economy. These are clearly espoused in the development
plans and Vision 2030. Hence the need also to create a regulatory environment
that would cater for private sector development. But more importantly an

institutional process that would assist for in ensuring a market based outcomes
that optimizes efficient allocation of our resources be it in form of capital and
labour. Such outcomes were already focused on private sector to expand its
manufacturing base through the development of white paper on industrial policy
in 1992, EPZ Act of 1995, Foreign Investment Act 1990, Manufacturing Incentives,
and host of other measures.

There were other policies done for other sectors as well is indeed commendable
on the part of our government. These include the promotion of SMEs through
enacting SME Policy in 1996, promoting employment through enactment of 2007
Labour Act, and looking after a broader based of us Namibians by drafting the
Transformation Economic and Social Framework (TESEF), especially those of us
that were historically lessened or deprived due to skewed policies of that time.

Now empirical data and experience points to the fact that by creating a
competitive economy especially among business or the private sector, a country
is able to develop faster, withstand external shocks, and even assist in rates of per
capita growth through employment and investment promotion. There are
documented facts that in countries such as Peru, Australia and South Africa, who
started off well with competition authorities in the 1990s, the impact assessments
shows that by having a competition law and policy as well as entrenched
competition culture, despite costs encountered, the economic benefits are
enormous with welfare implications for consumers, wage incomes and
employment creation leading to overall economic growth and government

The question that still needs a lot of advocacy on is what is competition policy and
law. Competition Policy refers to a set of government measures that details the
strategic direction of the Ministry of Trade and Industry to regulate the
competitive behaviour of firms and business in the country. The government put
in place competition policy as far as the late 1990s to assist in reorientation and
re-structuring of the economy, with the ultimate aim to reorient our economy
towards higher growth as envisioned in Vision 2030.

The policy is thus a integral part of the overall macroeconomy of which our
Commissioners have been entrusted to use as a policy that is supportive and is
cross appealing across aspects such as trade measures, industrial, investment,
finance, planning, poverty reduction, employment, growth, and welfare

Regulation of competition issues was introduced in 2003 through the Competition
Act of 2003 (Act No. 2 of 2003) in the country. In the past, competition issues in
Namibia were regulated by the Regulation of Monopolistic Conditions
Amendment Act, 1958 (Act 14 of 1958). However, this was a South African Act,
which was not applied in Namibia after independence.

The main overarching objective for the implementation of the Competition Law as
a competition policy instrument is to enhance the promotion and safeguarding of
competition. The urgency of having a competition policy and law rests
fundamentally on three key issues.

Firstly, Namibia’s economic competitiveness still needs a lot of work on as it is
consistently ranked not among the top five of countries which are Botswana,
Tunisia, South Africa, Mauritius, and Egypt.

Secondly, although Namibia’s competitiveness is characterise as a lower middle-
income country with an average per capita income of above US$3,000 and its
macroeconomic fundamentals are sound and proper, the Namibian economy is
characterised by a large, non-tradable sector (government services), and an
export oriented primary sector, mainly fisheries, agriculture and mining. Namibia
is also a small open economy heavily relying on imports, which are sometimes
subjected to distorted pricing, dumping of undesirable and defective products
and anti competitive behaviour.

The economy therefore remains enclaved and is structurally biased in terms of
service and production towards satisfying external markets rather than
domestically. Currently, there are no meaningful transformation with albeit lack
of forward and backward linkages between key sectors, an important
precondition for any restructuring from a micro economic point of view of
sectoral transformation and development. Here the need for a competition policy
becomes more urgent to regulate by law the competitive behaviour of industry,
firms and business in terms of ensuring a just, orderly, safe and optimal
competitive process in the economy.

Lastly, there is also general recognition by our government that economically
there has been instances of market failures i.e. private sector sometimes not
doing what it ought to do in terms of proper and orderly competitive conduct in
market place. There is anecdotal evidence that a market economy with a thriving
and robust private sector can be the key to economic growth and development.
This situation can hold long term sustainable increases in consumer welfare.
However, it is proven empirically that markets can fail because of anti-
competitive practices. Hence the need for developing competition policy that
creates a just orderly conduct of the market place allowing for a fair production
process through an efficient competitive process that benefits the customers and
the economy as a whole.

It also proven that an effective competition law and policy will encourage the use
of the most efficient methods of production, and will guide resources to the uses
society values most highly and can give rise to continuing incentives for
innovation to increase productivity and general efficiency of markets through
improved transparency of the rules that apply to business transactions.

The Namibian Competition Commission has been established in terms of the
Competition Act (Act No. 2 of 2003). It is tasked with promoting competitive
market conditions through investigation and prosecution of anti-competitive
activities, reviewing and approving mergers and exemption applications, and
disseminating information to businesses, consumers and other stakeholders.

Namibia’s competition law not only covers the three major competition concerns
of anti-competitive agreements, abuse of dominance, and anti-competitive
mergers, but it also takes into account the public interests provisions on
protecting consumers by safeguarding competitive prices and product choices as
well as promoting employment, investment and advancing the social and
economic welfare of Namibians. It also has special requirements of its economy,
which are the protection and promotion of small undertakings as well as
promoting a greater spread of ownership of historically advantaged persons.

The essence of decisions that NaCC is empowered to make is therefore analyzed,
investigated and adjudicated upon taking into account that there needs to a BEE
component to ensure localization and involvement of Namibians. This particularly
applies to Merger approvals of some odd 60 000 odd businesses in the country.

The Commission is cognizant however that at the time of writing, the
empowerment emphasis was on the word ownership. But we all know that the
word BEE should amply read BBEE to encompass broadness broad based. The
Competition Act of 2003 has been therefore futuristic to include the essence of
broadness by indicating the promotion of a greater spread of ownership of
historically advantaged persons.

We are considerate that TESEF will aim to ensure that all relevant definitions and
analytical interpretations will assist from a legal and policy point of view to clearly
articulate such terms and words from a BBEE implementation point of view, of
course using the SWAPO Manifesto, NDPs and Vision 2030 as guiding documents.

The reasons are that there is a lot of debate on the concept of Broad based BEE
within the context of the development of Southern Africa, notably in South Africa,
Namibia, Zambia and Zimbabwe. There are increasingly a lot of controversy and
confusion regarding the term and the definition, nature, form, implementation
and conduct BBEEE has today, Namibia needs to avoid this by implementing our
Presidents call for having a well targeted BEE policy and law in the country that
aims to empower most Namibians (never mind the word Black) within the
mainstream in Namibia.

Madam Moderator

Is BEE an Imperative in Namibia, lets rather firstly look at the historical context
of BEE developments. The origin, imperative and the need for having a BEE policy
in place within Southern Africa can only be predicated on the basis that an
economy can only flourish if it can meet the needs of all its economic citizens,
people and their enterprises in a sustainable and developmental manner. Such
predicaments are evidenced in Benhabib, Jess and Mark M Speigel in “The Role of
Human Capital in Economic Development: Evidence from Aggregate Cross Country
Data,”, Journal of Monetary Economics, 1994, 34, 143-173.

The conclusions of this scientific research are broad ranging in the sense that
human and economic development can only be possible if the systems be it
economic, social, legal or political builds on the full potential of all persons and
communities across the length and breadth of a country.

The colonial historical context of the countries in Southern Africa in particular
South Africa and Namibia witnessed a period of protracted economic
development which even though created a necessary capital infrastructure which
is commendably in place today created a human capital that is largely unskilled,
uninformed and restricted from meaningful participation in the economy. The
historical context of appreciating human capital towards economic and
development shows however that where, human capital was suppressed or
alienated from the economic developmental process, it had a profound effect on
the standard of living of its people and status of developing an economy.

This is clearly proven empirically in Nathan Nunn (2007) where the effect of
human capital suppression and its long term associated effect on Africa’s
development are well researched in “Slavery, Institutional Development, and Long
Run Economic Growth in Africa”. The evidence suggests that slave trade as a form
of human capital suppression had an adverse negative effect on economic
development in Africa. Of relevance will be to consult the Bertocchi, Graziella and
Fabio Canova (2002) titled “Did Colonialism Matter for Growth in Africa” where it
empirically explore the historical causes of Africa’s development due to
Colonialism. European Economic Review, XLVI. Pages 1851 – 1871.

In Southern Africa, the assets, skills, positions and opportunities of millions of
people were directly and indirectly restricted either through some sociopolitical/
economic policy. Such a process created a capital accumulation process
where it confined the creation of wealth to a minority population and constricted

underdevelopment and poverty on the majority of the population. In South Africa
and Namibia for example, the result is an enclaved and skewed economic
structure that today, in essence, still excludes the vast majority of its inhabitants.

Imperative for BEE in Southern Africa

Madam Moderator

The basic vision of an economy that meets the needs of the people in a more
equitable manner goes back to the ANC’s Freedom Charter of 1955 in South Africa
and the Swapo’s Manifestos in the 1960’s of Namibia. Since the political
transformation in 1990 of Namibia and 1994 of South Africa, the respective
economies have undergone rapid consistent economic growth, albeit for the East
Asia Financial Crisis 1998/09 and the Global Economic and Financial Crisis in

Generally, these countries had profound macroeconomic stabilisation which has
provided largely a platform for a sustained economic growth rates. Compared to
pre 1990’s, both economies has become increasingly integrated into regional
(SADC and SACU) as well as global markets (EU, US, BRICS, East Asia, MECOSUR)
and both countries became a successful exporter of base metals and minerals
(Gold, Uranium, Diamonds etc) and for instance in case of South Africa,
manufactured goods and value-added services have proliferated.

Because of that sustained economic growth, in terms of GDP and GDP per capita,
Namibia is increasingly been viewed as a upper middle income country and South
Africa is now able to position itself as an emerging manufacturing economy.
Further, both economies have consistently put in place appropriate broad
economic strategies to transform the economies.

In Namibia, National Development Plan I, II, and III which serves as a five year
plans for economic development with an explicit target of around 7% on average
according to the long term plan Vision 2030 was continuously emphasised. In
South Africa, the Reconstruction and Development Programme (1994) and GEAR
(1998) has been the focus of a broad strategies along with others such as the
Microeconomic Reform Strategy, Integrated Manufacturing Strategy and the
National Research and Development Strategy that has underpinned the South
African miracle of economic growth of close to around 5%, a visible improvement
taking into account negative growth it encountered in the 1980’s.

Despite the sustained economic growth successes and a host of developmental
plans, policies and strategy introduced and implemented, there is another
statistical picture that paints a grim reality of entrenched income inequalities
characterising both economies. Once could argue that this pervasive inequality
act as a deterrent to future economic growth, economic development,
employment creation and poverty eradication.

There is no denying the fact that there is still evidence of vast racial and gender
inequalities in the distribution of and access to wealth, income, skills and

employment. The end result is that these unequal income hinders economic
development and we all black and white alike loses out because our economies
continues to perform below its long run economic potential thus robbing us of
future growth dividends for our next generation and for ensuring a sustainable
growth path that we can be proud of as South Africans and Namibians.

This grim picture of the South African and Namibian situation shows further that
the economy has not re-oriented or transforms to cater for an absorption of the
population towards a majority segment. These could be because the economic
structures of both countries are still fundamentally rigid in the sense that it
neither has nor fundamentally transformed itself from the historical years of
skewedness in terms of resource endowment, entitlement, capital, positions and

The virtual economic exclusion of ensuring the inclusion of the majority of the
population means that the economy is not growing on a broad based basis and
that any growth is only as a result of the hitherto structurally enclaved sectors
(mainly in agriculture, mining, fishing and to a lesser extent manufacturing) that
are not link on a backward and forward basis, to the rest of the economy to cater
for or absorb the economic potential of the population. Such an enclaved growth
further explains the susceptibility of the South African and Namibian economies
to the global and regional forces as evident from the recent global economic and
financial crisis as well as the economic effects of climate change.

Madam Moderator

Once could argue that the current turmoil of economic crisis in Namibia and
South Africa are over but still it does not bring comfort to justify that we need to
attain and sustain high levels of economic growth than what we have currently.
These high levels of economic growth unfortunately cannot be realized without
the presence of broad based participation of the majority of its population.

In order to grow and develop the South African and Namibian economy, there is a
need to empower on a broad and shared basis by encouraging through
appropriate mechanisms the economic and social re-engineering of wealth and
opportunities to the majority of the population.

Developments of BEE in South Africa and Namibia

The Black Economic Empowerment is and continues to be an unfolding process
happening in Namibia and South Africa. Despite its controversy, BEE seem to have
taken root in South Africa where a comprehensive and focussed strategy has been
drafted and consulted upon with stakeholders ironing out the economic analytics
of the day on BEE in 2004. The essence of that strategy rested on policy statement
and policy instruments that the government will consistently and predictably use
including the formalisation of partnerships and ‘charters’ with the private sector;
the use of a ‘balanced scorecard’ approach to gauging success; and an Act that
allows for the formalisation of guidelines and codes and the establishment of an
Advisory Council. In addition the introduction of an exclusive BEE fund as a
financial support measure were also introduced and aligned with the BEE strategy
developed in 2004.

At the current moment, BEE Policy in Namibia in the form of TESEF, the
“Transformation Economic and Social Framework” has been developed, and
consulted with stakeholders in 2008. This has been submitted to the Prime
Minister’s Office. TESEF in a sense learns from best practice employed by South
Africa and includes the formalization of partnerships and ‘charters’ with the
private sector; the use of a ‘balanced scorecard’ approach to gauging success.

From the experiences of South Africa and Namibia for example, the strategic
policy thrust of BEE are centered around six key pillars: (a) direct ownership,
management, control of enterprises and productive assets (b), SME enterprise
development (c) human resource and skill development, (d) achieving employment
equity, (e) preferential procurement or balanced tendering, (f) and corporate
social investment in social related programmes and community development

Controversy surrounding BEE?

There is no need to go into each of these pillars as you all are familiar with it and
are Masters of Trade when it comes to the development and selling of BEE as a
viable instrument. However as you are all aware, there are controversies
surrounding the concept, nature and implementation of BEE.

In terms of the concept, the word Black Economic Empowerment (or Swart
Ekonomiese Bemagtiging) is in essence just what the words encompass but it
seem to be termed divisive and ascribed to a zero sum game. This means that BEE
is been viewed as a means of an economic empowerment of those people
previously disadvantaged at the expense of the previously advantaged. Hence the

definition of "black" that refers from a policy perspective to the previously
disadvantaged communities and individuals that were subjected mostly to
exclusion in the historical past are increasingly been seen as the “Swart Gevaar”.
The sensitivity of “Wat gebeur met die Wittes as Swartes bemagtig word” seem to
be the stereotype surrounding the word “Black” and what it means to economic
empowerment for the benefit of all South Africans and Namibians alike. I am here
to inform you that there is no need to despair, provided we follow certain
principles that I will outline further below.

The nature of BEE is also increasingly questioned. BEE is viewed as a front for
“Black Elite Enrichment”. There are notable worthy names that got rich through
the process of implementing BEE as legislation in South Africa and de facto in
Namibia. When those names are mentioned, there are negative sentiments
expressed that they are neo-whites or that they are a Black Skin in White Wool
and that they enriches themselves and are becoming billionares whereas the rest
of the country is still in a poverty trap. Unfortunately, there is an increased
realization that BEE can only take root if there is a Championing process on a
Black Empowerment process. It is unfortunately the first phase of a successful BEE
transformation. Take the example of WEE or “White Economic Empowerment” as
it were. WEE can be termed a success ceteris paribus if ascribed to capital
accumulation, assets, positions, skills of whites in South Africa and Namibia. The
essence of entrenching White Economic Empowerment or WEE with due respect
was quite self evident and its importance of capital accumulation and creation of
necessary infrastructure in South Africa and Namibia cannot at all be viewed as
“throwing the baby away with bathwater”.

South Africa and Namibia are having the best infrastructure in Southern Africa
(roads, rail, ports, power, etc) and seemed to integrate with ease regionally and
globally upon the era of political transformation in 1990 and 1994 respectively.
One can even argue that the current maintenance culture of such infrastructure
can be termed an “apartheid dividend” in terms of capital accumulation. I just
wish that such an “apartheid dividend” could have been applicable in terms of
human resource accumulation across the Board of ensuring that more people
come onboard within the economy. This would have created a broader scope of
opening up doors for white and black empowerment processes that involves
“Human Economic Empowerment” or HEE. This could further had economic spinoffs
of job creation, rural development, urban renewal, poverty alleviation,
specific measures to empower both white and black, women and the disabled,
skills and management development, education, meaningful ownership, and
access to finance for households and for the purpose of conducting proper

But all is not in vain. A current reality show that is where we are moving albeit
pain stakingly. Whites and Blacks are realizing that together we aim to implement
BEE but divided we aim to fail BEE. This standing together is compromised
however by how we are implementing BEE. Whites on the one hand are accused
of “fronting” or “black renting” the BEE process whereas Blacks or the Black Elites
are accused of “quick bucks investment” syndrome or “fly by nite” companies. But
all of us seem to realize that BEE in its current form is unsustainable. Although the
championing process that I support seem to have its narrow based impact, all
Whites and Blacks are realizing that BEE in its current form should be a transitory
process and that in order for it to be credible and have a desired broader impact

in terms of economic development it needs to transform into a Broad Based Black
Economic Empowerment (BBBEE).

The question that is now on everybody's mindset is. Have we failed as economic
agents the concept of BEE? Does the latest development inform us that we are
not well equipped to get this vital process off the ground? Are we as two nations
now saying let’s give up on the idea and start to look at alternatives of
empowering our people?

The above leads me to enter a dangerous terrain that of “psycholising” BEE. We
all know that we still a need a process to empower people and I mean more
people. Hence the concept BEE is as highly relevant as it was 10 years ago. We
just need to realize that just like any economy goes into stages of development,
BEE has come to a point where its relevance has actually undergone
metamorphosis or transformation.

The transformation to the word “Black” is “Human”. BEE in its transformative
form is not it that it aims to separate Whites from Blacks but in my view it is been
used just to ensure identity of purpose, that is to empower those left out during
the apartheid and colonial times. It should not also be used to set-off blacks
against whites but for a common economic good for us all.

Madam Moderator

In my view economic empowerment is about developing mechanisms, pathways
and people so that access to the main stream of the economy is a real possibility.
It involves a win-win situation for both blacks and whites and should not be

treated as a traditional zero sum game. By that I meant that there should be
recognition of the dual need not only to encourage and nurture the participation
of black persons or the previously disadvantaged in the economy, but should also
be accommodative enough of allowing economic room for white or the originally
advantaged to together work under some economic code of conduct and social
contract to expand the economic cake of our economies. This can only be realized
if a synergy is created that will retain the experience, expertise and knowledge of
the white person but also to augment those traits in the black person.

These economic codes of conduct should be underpinned by economic structures
that should be created to ensure broad based economic empowerment. One
notable deal of BBBEE in Namibia was the Old Mutual group that has signed a BEE
deal worth N$308 million (R308 million) with a broad-based group on behalf of its
own operation, as well as Nedbank Namibia and Mutual & Federal Namibia. The
transaction includes employees, strategic business partners, distributors, trade
union members and their families, women's organisations and church groups.
Others in Mining and Telecoms Industries launched a BEE procurement policy.
This was done without any legislation backing it, but out of the need identified by
the company to drive empowerment within the country. The Tender Board Act is
recently reviewed to look into preferential treatment of locals and small business.
The Ministry of Trade and Industry is busy on a strategic approach to reserve
certain petty retailing and transport avenues for locals. There are other measures
which for brevity sake I won’t mentioned here but which points to the fact that
there is growing realisation of BEE inspired efforts to ensure local ownership and
involvement on part of government and private sector sectors alike.

Is BEE Still Relevant in Modern Times?

The implementation process of the Broad Based Black Economic Empowerment
(BBBEE) remains however not without its faults. There are proponents that argue
that the nature and the participation of those involved make it narrower in

BBEEE should never be seen as a short term gain but as a medium to long-term
process that will only work if sound corporate governance, business and
economic principles are followed. Artificial means on both White and Black to hi
jack the noble goal of broad empowerment can be beneficial for the parties
involved in terms of capital and human resource gain in the short term but I can
guarantee you that it would be detrimental in the medium to long term for any
economy that desperately needs higher levels of sustained local economic growth
and development. It is important to look for long lasting solutions on BBBEE
rather than ones of a quick fix nature.

The role of mentorship and skills transfer cannot be overemphasized in the path
to broad based empowerment. Many companies afford these tremendous
opportunities to young, newly qualified black managers. The value of experience,
coaching, mentoring and hands-on tactics should not be discounted. It is
noteworthy that certain international companies in South Africa and Namibia
have also engaged in models of in-house mentorship and incubation of fledgling
black entrepreneurs in their field. This model ensures long-term sustainability
through strong management and entrepreneurial spirit being built. Special
emphasis must also be placed on training, upgrading and real participation in

ownership to de-lock the mind on “easy gains” but to engage consistently in a
“Road Less Travelled”.

The source of broad based BEE for the majority of Namibians and South Africans
will not be found for the future in the formal private and public sectors. There
seem to be limits on their growth potential given the current regional and global
constraints. There is need to shift the mindset in Namibia and South Africa of
innovating and creating ideas within the Small and Medium Enterprises sector to
make it grow as it is the only sector that is responsive to advancing technologies
in the knowledge service orientation, corporate social investment oriented
avenues, renewable energy to tackle climate change and home grown or creation
of indigenous products such as arts, crafts, health products, agro processed

These alternative economic activities which are entrepreneurial such as the SME’s
must be fostered with finding an expansive domestic and export markets as it is
the only enterprise development in the SME sector which can have multiplier
effects and gauged by many to be the most significant future contributor to job
creation and economic growth in the country. SME’s role is still under emphasised
in Namibia and to a lesser extent in South Africa but it is the only sector in
Southern Africa which is cross cutting across sectors such as mining, tourism,
leisure, manufacturing, etc and can assist in absorbing a majority of the excluded
population into the economic sphere of Namibia

But for such a sector to take off, there is a need to develop better mechanisms of
ensured access to finance, entrepreneurial skills, values, talent and culture and

Government and Private Sector must put heads together and spark the liveliness
of this sector for it to take off properly.

To achieve a credible and effective BEE in Namibia and South Africa which is
broad based and does address the “real” empowerment of those to be
empowered, it is crucial to structure BEE in our economies. BEE needs to be
implemented within a framework where a consistency of approach, appropriate
flexibility to respond to different economic and enterprise conditions and the
ability to measure the progress on BEE implementation has to be fostered.

In terms of a consistency of approach, it is crucial that when ownership is
transferred to black ownership, that there needs to be innovative ways of
financing the empowerment deals that will support effective BEE transactions.
The companies that want to transact BEE with its empowered partner needs to
realize that they must first employ best practice finance models for BEE

BEE ownership transfer deals does not entail “one-size-fits-all” approach but
needs to be done taking a consistent approach in terms of best practice
implementation. The various types of finance mechanisms that are available to
successfully achieve sustainable empowerment shareholding which includes
Government funding, Share schemes, Grants and incentives; Debt finance, Project
finance, Joint ventures, and Venture capital need to consider on the nature and
type of a BEE deal taking into account what kind of players are involved as well.

Of all this type of finance mechanisms, South African experience and to a lesser
extent in Namibia the consideration of debt finance seem to be the most logical
and attractive options which is easily implemented in terms of BEE deals. It
involves a process whereby the empowerment partners because of their inability
to have ready capital available to transact the BEE, incurs a loan structured in
such a way to repay such a loan or debt from cash flows generated by the
company. Such an approach involves a process where massive wealth is
transferred to the empowerment partners leading to a possibility of black
fronting, and transfer of assets without real value addition.

When other broad BEE players are brought on board to make it look broad based
such as Women and Trade Unions and regional or provincial players, such
approach does not necessarily solve the problem of black fronting and seem to be
broad in disguise and does not really lead to real empowerment but again to
those who have the transaction right to the BEE deal. The debt financed BEE
transaction deals which are currently still been considered is not in my view a
sustainable empowerment mechanism as it invokes the moral hazard problem as
it sounds more like sharing in “money on a silver platter without any
contribution”. Further, the partners are trapped in deals that take up to 20 years
to realize dividends, if at all. The debt finance deals are also supplemented by sole
vendor financing (the white BEE partner) and issue of share options and grants to
its black empowerment partner. Through this approach, debt is then raised
against the shares the BEE partner possess in the company and hence the deal is
more structured at arm’s length basis whereby the BEE partner is passively
involved in the growth, value addition and profitability of the company.

Increasingly, experiences with BEE transactions are showing that empowerment
partners need to at least bring some capital to ensure BEE transactions to work
effectively. Hence, various new options are considered that BEE partners in
Namibia and South Africa can take advantage of. One attractive option is equity
financing where a BEE partner needs to find actively an investor as partner to
start its business, normally a SME. There are two main potential categories that
can make equity financing successful which also bring in an element of broad
based economic empowerment. These are (a) venture capitalist or risk-loving
equity funding companies, (b) or engaging employee, women and/or trade union
investors. The real value addition of these broad based options is to ensure that
these partners are entitled to contribute in some sort towards the empowerment
process. It does not always have to be money but can be also goodwill and
commitment. Women Associations for example can be made mandatory as a
empowerment partner to train a number of woman in finance skills per annum
whereas trade unions will be required to contribute to work ethic, efficiency and
productivity of a company through shared performance assessment and
performance policy towards increased profitability of all.

Another innovative option involves debt financing raised against its assets and not
shares as it is traditionally used to be. Given that BEE partners do not have
sufficient assets to transact BEE, white BEE partner can sell assets to its BEE black
partner which in turn borrows money from the bank against those assets to pay
for them. This model called also the leveraging model represents a robust
sustainable long term (usually 10 to 20 years) process where moral hazard
problems are avoided and where both the financier (bank), vendor (white BEE

partner) and empowerment partner share in the risk and the growth and
development of the company. This kind of models I am to learn are proven to be
more attractive in South Africa as success models among SME’s and where large
companies such as Anglo American and Ingwe, an empowerment partner has
financed it successfully.

With regard to appropriate flexibility to respond to different economic and
enterprise conditions, BEE companies need to realize that they are confronted by
changing domestic, regional and global economic, political and social factors that
can impinge on the success of their enterprise and hence be mindful of those
developments. BEE companies need to successfully build an affirmative
procurement policy to create a sustainable empowerment initiative in their
company. Concerns such as whether your company is BEE compliant, or sourcing
its goods and supplies from BEE suppliers adhering to proper ethical guidelines
are matters that requires immediate attention if the BEE partners wants to make
success of its business.

Madam Moderator

Another issue concerns whether the BEE Company applies effective employment
equity plan, policies and programmes that promotes efficient human resource
development and growth in their entity and is aligned to the affirmative action act
of the country? Here the success to Broad Base BEE is Skills, Skills and …more
Skills. BEE Companies need to be conscious of treating skills development as the
foundation of real broad base BEE. BEE companies need to continuously answer

questions such as is there an accelerated skills development and training
initiatives that further enhance the company of BEE goals. Has the BEE company
master the appropriate techniques to effectively build a social investment and
enterprise development policy for its stakeholders are also another matter that
BEE enterprises must take into account to respond adequately to any socially
developmental activity such as an HIV/Aids prevention and invest wisely for
health retention of its own staff for example.

In conclusion, experience so far on BEE Structuring shows that the current debt
financing of BEE transactions is not successful and BEE companies are under
renewed pressure to actively transact their BEE deals through private equity
capital. Such is the urgency of executing BEE transactions that the traditional
private equity industry has virtually been turned into a BEE financing industry in
South Africa for example and Namibia is actually following that example. This type
of financing represents a most noble approach towards structuring BEE in
Namibia and South Africa and needs to be encouraged especially as funding
mechanism for the emerging and fast growing SMEs.

To end on a positive note, Broad based BEE is a must taking into account similar
success in Malaysia to address this skewed perpetuating socio-economic situation
in the 1960’s. In Malaysia, a concerted policy called “Bumaputra Malays” to
address the indigenisation of Malays from the expatriate Chinese was also
implemented to ensure development of the economic infrastructure in which the
Malays find themselves in to ensure increased opportunities in terms of positions,
assets and income.