CHAIRMAN of the Sekunjalo Group Dr Iqbal Survé testifying at the PIC Commission of Inquiry yesterday.     Oupa Mokoena African News Agency (ANA)
CHAIRMAN of the Sekunjalo Group Dr Iqbal Survé testifying at the PIC Commission of Inquiry yesterday. Oupa Mokoena African News Agency (ANA)

#PICInquiry: Survé says BEE is a farce

By Ayanda Mdluli, Sizwe Dlamini and Piet Rampedi Time of article published Apr 3, 2019

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PRETORIA – The Public Investment Corporation’s investment strategy was racist and favoured white-owned and -controlled companies at the expense of firms started and managed by black entrepreneurs, the Mpati Commission heard yesterday.

According to businessman Dr Iqbal Survé, the state asset manager had spent a fraction of its R1.6 trillion investment in Johannesburg Stock Exchange-listed firms on black companies.

Survé, executive chairman of the Sekunjalo Group and a shareholder in companies including AYO Technology Solutions and Independent Media, was testifying in Pretoria before the Mpati Commission of Inquiry into allegations of impropriety at the PIC.

In a wide-ranging testimony, Survé also touched on the country’s black economic empowerment (BEE) model,  the PIC’s R4.3 billion investment in AYO, the scuppered listing of multi-sided platform company Sagarmatha, as well as the acquisition of Independent Media in 2013.  

By last year, he maintained, the market capitalisation of 200 companies on the JSE was R12 trillion, and the PIC’s investment was R1.6 trillion.

“I venture to suggest that companies started by black entrepreneurs that are black owned and black managed, with black beneficiaries, do not have more than a few hundred billion rand of the total market capitalisation of R12 trillion of the JSE,” said Survé. 

“Thus it is well recognised that, 25 years into democracy, the capital markets in South Africa have not transformed. Black ownership and control on the JSE remain negligible." 

Survé said “real economic wealth still rests in white-controlled and -dominated companies”, adding that the PIC’s strategy has had serious implications for transformation in the country.

“The result is that racial inequalities exhibited elsewhere in the South African economy, such as ownership and control of land, continue to be reproduced on the JSE,” he added.

He said that while the PIC’s investments in companies such as Naspers, BAT, AB InBev and BHP have been successful, the asset manager did suffer “enormous losses” in the region of billions of rand due to underperformance in other white-owned firms.

These included Steinhoff, MTN, Aspen, EOH, Tiso Blackstar and Group Five.

The Government Employees Pension Fund lost R24bn when the Steinhoff share price plummeted last year due to alleged corruption and fraud in its accounting systems.

Construction company Group Five was facing liquidation after its share price collapsed a few months ago.

“The PIC has recently lost its investment in Steinhoff to the tune of R24bn, and this stands out because Steinhoff was always regarded as a top-performing company – controlled by whites and, in the main, considered a leading South African brand.”

Survé also slammed South Africa’s BEE model as a farce, saying it was fundamentally flawed and needed to be reviewed urgently.

The model was designed not to bring about any meaningful economic transformation, he added, but merely as an “artificial” entry point into the capital markets.

Survé said he had watched over the past 22 years as well-known BEE companies established after the new dispensation, including Nail, REAL, Thebe Investments, NEC and Mvelaphanda, imploded after their share prices failed to perform.

“Upon reflection, I suggest that the model of black economic empowerment was not designed to bring about meaningful economic transformation but served as a mere entry point into the capital markets, albeit in an artificial way,” Survé said.

“Over the next decade I watched as prominent companies were destroyed as a result of the share prices failing to perform and the debt structures being unsustainable, to the point that today black participation in the economy remains negligible. 

"The model of economic participation was fundamentally flawed, and that led to introspection of our own model at Sekunjalo.”

He added that in its first decade, Sekunjalo shared the same negative experiences, including small economic interest, high debt structures, inability to scale, dependence on development finance institutions, dependence on government businesses or quotas, lack of owned equity and capital, and monopolistic market conditions.

“At one point the market capitalisations of companies such as Nail reached a high of almost R10bn, making it one of the successful black companies on the JSE.

"The truth, however, is that the effective black ownership and control of these entities was negligible. The tragic outcome is that today, Nail, REAL and Mvelaphanda do not exist and there has been a marked reduction in black companies on the JSE.”

Survé added that after watching some empowerment companies implode, Sekunjalo changed its strategy to focus on industries where it had a competitive edge and could push meaningful transformation rather than monopolistic ones.

The businessman defended his group of companies, saying they were victims of racist and politically motivated smear campaigns aimed at collapsing them.

Contrary to media reports, there was nothing wrong with AYO as it was profitable, its share price was performing and the PIC's investment had been used for its intended purpose.

“AYO was furnished with the transcript of certain meetings (by the commission), which were unlawfully recorded without consent having been obtained from the persons who are recorded. These recordings also speak to the manifestly unethical conduct of the individuals concerned,” he said.

Survé said the JSE listing in Sagarmatha was scuppered by various players acting in bad faith.

He told the commission he believed various entities, such as the Companies and Intellectual Property Commission, were responsible for the deal falling through, because they had acted in ways that he thought were deceitful and were in bad faith.  

“The CIPC raised obstacles to the listing. 

"This unseated foreign investors, and the listing on the JSE was not pursued. 

"Sagarmatha has applied to the SA Reserve Bank for authorisation for the listing to be done abroad,” Survé said.

Sagarmatha’s initial strategy was to raise between R3bn and R7.5bn through the JSE listing as a precursor to a much more substantial capital raise on a foreign exchange. The amount raised in South Africa would be one of many funding rounds required to execute Sagarmatha’s vision.

Survé said the R2bn purchase consideration of Independent News & Media SA was funded by a Chinese investor, investing R1bn; the PIC, investing R850m; and Sekunjalo Consortium investing R150m.

Late last year, however, Sekunjalo put in a firm offer to the PIC to take on the state asset manager’s exposure to the company over and above its current support of the operating cash flow needs of Independent Media.

“Despite the PIC having agreed, Sekunjalo has received no formal communication from the PIC since the offer, despite repeated requests to the PIC.

"This was the position until last week when it was verbally communicated to Sekunjalo that the PIC had rejected the offer.  

"This decision by the PIC is once more indicative of its investment decisions being driven by political motives, as opposed to the genuine interests of its investors.”

President Cyril Ramaphosa set up the commission in August last year and gave it six months to complete its work. 

However, he has granted the commission an extension of three months at its request.


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