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S. Africa's new goal: economic equality

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

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

Born in a black township during the most oppressive days of apartheid, hegrew up smuggling grenades, AK-47s and bombs for the struggle against whiterule before getting caught and banished to Robben Island prison, where hedreamt 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 beena very long dream," says Ngwenya, sitting in the boardroom of his company'sJohannesburg offices.

Ten years after the demise of apartheid, Ngwenya, 50, is at the forefrontof South Africa's next revolution, seeking to transfer control of an economystill dominated by the white minority into the hands of the underprivilegedblack majority.

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

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

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

More than 40 percent of the people are unemployed, the majority of themblacks 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, holdthe best jobs, live in the most expensive homes and control the bulk of thecountry's capital.

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

Merging South Africa's two economies into one is the goal of South Africa'sBlack Economic Empowerment program, which encourages South African companiesto hire more blacks, promote blacks to senior management and executivepositions, use black-owned subcontractors and suppliers and form jointventures with black investors.

In the past two years, the initiative has sparked dozens of partnershipsbetween 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 percentownership of the top-rated financial-services group Cadiz Holdings.

The deals are mutually beneficial, Ngwenya says. The black investors securea foothold in the economy, gain experience in the marketplace and accruecapital to invest in other industries. By proving that they are empoweringpreviously disadvantaged South Africans, the historically white-ownedcompanies are allowed to compete for lucrative government contracts.

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

At first, these empowerment proposals caused market jitters as businessleaders worried that there would be too much government interference in themarketplace. 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 tookplace 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 andtransportation logistics company that sold a $7.6 million share of its companylast month to Bowman Trading, a new, black-owned company.

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

Still, black-owned businesses have a long way to go before achieving paritywith their white counterparts. A new economic survey found that blacks control3 percent of the market capitalization on the Johannesburg SecuritiesExchange.

Ngwenya blames the lackluster performance of black businesses on the legacyof apartheid. Handed a second-rate education by the white government, manyblacks do not have the skills to fill key management positions or the capitalto invest in new enterprises.

"There's pressure for companies to do deals," Ngwenya says, "but there arefewer and fewer credible organizations that people can do deals with."

Some companies resort to "fronting," hiring a black manager as a salesmanfor the company while whites maintain control and continue to reap theprofits. The government is trying to stop that practice.

Afraid he would have little to offer other than a black face, RafiqueBagus, head of Bowman Trading, was reluctant to enter a partnership withCroock and BD Sarens. But after negotiations, Bagus and his business partnerwere named executive directors on BD Sarens' board, giving them direct controlof the company.

Critics say the empowerment program benefits only a handful of thepolitically connected elite. Last year, the majority of black investors wereformer anti-apartheid activists with strong connections to the ruling AfricanNational Congress.

"We are not creating entrepreneurs," says Moeletsi Mbeki, deputy chairmanof the South African Institute for International Affairs and brother ofPresident Mbeki, during a speech last year. "We are taking political leadersand politically connected people and giving them assets which, in the firstinstance, they don't know how to manage."

Ngwenya bristles with anger when he hears such charges.

"Are they saying it's OK for a white man to be wealthy and stinking rich,but it's not right for a black man because somehow others are not rich?" heasks. "How are we going to teach young black people that it is possible for ablack man to drive a beautiful car and not just drive that car because he is acriminal? How are we going to do that if I am to feel guilty?"

Given time, the positive economic impact of empowerment will reach thepoor, he promises.

It should come as no surprise, he says, that the successful black businessleaders of today were the anti-apartheid leaders of the past.

"They are the go-getters," he says. "We had a vision by saying thatapartheid was not going to last. The people we are seeing in the forefrontagain are the same people who took the risks."

Copyright © 2015, The Baltimore Sun
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