- The Washington Times - Wednesday, March 24, 2004

LONDON — When the African National Congress stormed to power in South Africa’s first free multiracial election in 1994, the poorest citizens of the country had high hopes that freedom would soon be followed by prosperity.

A decade later, that has proved to be a forlorn hope. Instead, many of the poor have become poorer while a super-rich elite of politically connected businessmen and women has accumulated vast wealth.

Many of the wealthiest of these new “black oligarchs” are former freedom fighters, communists and trade union leaders who have close links to the new political elite, having stood alongside them in the struggle against apartheid.

But as the government steps up its efforts to promote a policy known as Black Economic Empowerment, the black oligarchs look set to become even richer — often at the expense of British shareholders.

New legislation expected later this year will require all mining companies operating in South Africa to have 15 percent black ownership within five years and 26 percent inside 10 years.

London-listed mining companies that are long-term investors in South Africa have supported the legislation, but want the economic benefits spread as widely as possible.

Anglo American, the London-based mining giant, has so far undertaken at least $1.8 billion of “black economic empowerment transactions” in anticipation of the legislation.

Anglo has a further initiative — “Zimele,” the Zulu word for standing on one’s own feet — intended to encourage business creation in the black community. It provides loans, mentoring, legal and accounting support and takes a 20 percent stake in any new company created. After three years, the relevant stake is sold and the money reinvested. So far, Zimele has created 30 businesses supporting 2,000 jobs.

This desire to see wider ownership of businesses is shared by John Craven, the chairman of Lonmin, the London-listed platinum miner. But Mr. Craven also argues it is no surprise that a few very wealthy individuals have emerged.

“Because there is very little accumulated wealth in the black part of the community, it has been quite difficult to locate funds for transfers and there is no doubt that a small number of people who are well-placed to participate have been able to do a large number of deals,” he said.

Lonmin has set up a new company, called Incwala — which means the first fruits of the season — to hold an 18 percent stake in its platinum-mining operations.

The stake, valued at $820 million, is being marketed to historically disadvantaged South Africans — “HDSA” in the official jargon. Mr. Craven said he has had about 60 approaches. Incwala, which will be chaired by Brian Gilbertson, former chief executive of BHP Billiton, the mining group, is expected to acquire other mining assets and be sold on Johannesburg’s stock exchange this year.

“It will be a full-scale public offering of shares targeted at HDSA investors. It will be deliberately designed to widen share ownership,” Mr. Craven said.

It seems likely, though, that it will be members of South Africa’s new business elite who make the initial investment in Incwala.

The gulf between rich and poor blacks in South Africa has grown dramatically since apartheid ended. Research by the Economist magazine estimates that the richest 25 percent of black South Africans have seen their incomes rise by 30 percent since 1994. In contrast, the income of the bottom 45 percent of blacks has shrunk by 10 percent in the past decade. Unemployment among blacks shot up from 24 percent in 1970 to 40 percent in 1994 and now stands at more than 50 percent.

The CIA World Fact Book reports that 50 percent of the population lives below the poverty line. On the other hand, South Africa has a growing middle class and — compared with much of sub-Saharan Africa — it is an economic success story.

So who are the black oligarchs? Perhaps the best-known South African entrepreneur is Cyril Ramaphosa, the former mining union leader and ANC general secretary who helped negotiate South Africa’s first multiracial elections.

He quit politics in 1996 to join New African Investments Limited (NAIL), a holding company for investments in financial services and media companies. The business grew from nothing to hit a peak valuation of almost $1.8 billion.

Mr. Ramaphosa left NAIL after a boardroom bust-up. His latest company, MCI Resources, has rapidly acquired holdings in coal and gold mines. Late last year, it bought a 42 percent stake in Anglo American’s newsprint business in a deal that valued the company at $156 million. The transaction was done on typically friendly terms.

The black entrepreneurs who have made the biggest deals over the past year are Patrice Motsepe, chairman of African Rainbow Minerals, and Tokyo Sexwale, chairman of Mvelephanda Resources.

Mr. Motsepe became a rand billionaire overnight when he listed his gold assets, ARMgold, on Johannesburg’s stock exchange in May 2002.

Last May, African Rainbow Minerals pulled off a $695 million asset swap and share issue with Anglovaal Mining and Harmony Gold. The deal turned Harmony into the world’s fifth-largest gold producer and ARM into South Africa’s largest black-controlled diversified miner.

A month later, a company run by Mr. Sexwale paid $581 million to buy 15 percent of Gold Fields, one of the world’s largest gold producers.

Another well-heeled oligarch is Mzi Khumalo, who is said to have a personal fortune in the tens of millions of dollars and lives on a gated golf estate.

The chairman of one London mining company, speaking on the condition of anonymity, said: “I know Mzi well. He is quite a controversial figure, but he is an intelligent man. He was on Robben Island [prison] with Nelson Mandela, but while the rest of them were studying politics, he was reading up on business.”

His recent deals include taking a 17 percent stake in Cluff Mining, the London-listed group, as part of a deal that will see him jointly develop a platinum mine with Cluff at Sheba’s Ridge in South Africa.

Mr. Khumalo’s role in a black-empowerment company called Simane, which controlled 10.8 million shares in Harmony Gold, made the news. Mr. Khumalo was accused of using 6 million of the shares to raise money for another of his businesses in a purported breach of an agreement not to sell or transfer the shares.

Algy Cluff, the chairman of Cluff Mining, believes that Mr. Khumalo has been unfairly criticized. “Seemingly, because you are black, you are not allowed to enjoy the same benefits that white investors are,” he said.

“He made a great deal of money out of his shares in Harmony Gold … but you can’t have one rule for white investors and another for black. No case was proved against him.”

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