NEWS & MEDIA LETTERS FROM THE PRESIDENT

"Empowerment good for the economy and the nation"

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A few weeks ago, SASOL, one of our leading companies, applied for a secondary listing on the New York Stock Exchange (NYSE). To meet its obligations in this regard, which include the filing of a document numbered 20-F, it had to report the risks it faces as a corporate entity.

Accordingly, it reported that, among others, "there could be risks to shareholders that value may not be achieved in the case of black economic empowerment equity transactions". It also listed our mining legislation as yet another risk factor.

To substantiate its view, it said that it could not guarantee that black empowerment transactions would take place at fair market prices. In addition, it said that it could not promise that what it considered "forced participation" in black economic empowerment in our country, would not have a material effect on the company as a whole.

In brief, it presented black economic empowerment as a potential negative factor in terms of its performance as a publicly listed company. The obvious effect of this is that any potential investor through the NYSE would have to conclude that it may very well be unwise to buy SASOL shares, or otherwise invest in the South African economy, given the uncertainties that SASOL communicated in its submission to the NYSE.

Later, the chief economist of one of our principal companies, Barloworld, spoke out in support of SASOL. One of our national newspapers quoted him as saying "empowerment has a negative impact on productivity, on the cost of business and, therefore on the competitiveness and profitably of companies."

The message communicated by SASOL and the chief economist of Barloworld is simple and straightforward. It is that black economic empowerment is not good for business. Accordingly, the message these sought to communicate to all business people, both domestic and foreign, is that they should view our efforts to address the legacy of racism in our economy as something inimical to good business.

A good number of people spoke out against the positions taken by SASOL. One of these, Brian Molefe, Chief Executive of the Public Investment Commissioners, SASOL's largest minority shareholder, said: "We see empowerment as a strategy that will bring commercial benefits to South African companies, not something that will be a reason not to invest." The CEO of Barloworld, Tony Phillips, also distanced the company he heads from the views of its chief economist.

In response to the remarks made against its submission to the NYSE, SASOL said it embraces the challenge of transformation. It also said that the risks it listed "do not imply the company does not intend succeeding in addressing them".

As our readers are aware, the Liquid Fuels and Petroleum Industry Empowerment Summit was held on 2 November 2000, following an inclusive process of consultation, which started in 1999. Attended by all the major players in this sector of the economy, including SASOL and the Department of Minerals and Energy, the high point of the Summit was the signing by both the public and private sectors of 'The Charter for the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans (HDSAs) in the Petroleum and Liquid Fuels Industry'.

Whereas SASOL referred to "black economic empowerment equity transactions", the Liquid Fuels Charter gave a broader and more correct definition and scope of what our country means when it talks about black economic empowerment. That scope includes employment equity, skills and capacity building, ownership and equity participation, financing, procurement policies and the appropriate legislative and regulatory environment to facilitate the growth of the sector.

This broad scope, decided by all major players in the liquid fuels sector, served as a precursor to the more global and agreed national position on black economic empowerment as reflected in the broad-based black economic empowerment legislation that has now been approved by our parliament. However, seemingly, SASOL referred only to the equity ownership element of the black economic programme contained in this legislation and the Liquid Fuels Charter.

SASOL and other companies active in the liquid fuels sector belong to an organisation that represents their collective interests. This is SAPIA, the South African Petroleum Industry Association. Naturally, SAPIA was one of the central negotiators of the 2000 Liquid Fuels Charter, a task which the Association approached in a positive manner.

The SAPIA Chairperson's Report for 2001, presented by the then Chairperson, Almorie Maule, contains the following comments:

"Since our last annual report the liquid fuels industry has progressed through an exciting, challenging and eventful period. I believe that in the years ahead we will look back at the year 2000 as a watershed year. This is because it marks a time when we saw a major new public-private partnership forged; the first such significant partnership in democratic South Africa. The member companies of Sapia are pleased and privileged to be part of a new way of delivering transformation and growth in an industry which not only provides fundamental inputs into the South African economy, but also one which makes a major contribution to development, growth, value creation and employment.

"The members of Sapia would like to express their appreciation to the Minister of Minerals and Energy and her team for the constructive way in which the industry, individual member companies, and other stakeholders have been engaged. It has enabled progress to be made in areas of great complexity and sensitivity.The Charter was a demonstrable example of constructive consultation and cooperation between Government and the members of the industry."

The 2002 Sapia Annual Report contains the following comments by the Director of Sapia, Colin McClelland:

"Throughout the first eight years of its existence, Sapia has worked consistently with government and other stakeholders to find 'win-win' solutions to the many problems facing us all. The petroleum industry has been able to do this because of the willingness of the Government and other stakeholders to engage in debate and to work towards constructive solutions. Consequently, we believe that as an industry, collectively and as individual member companies, we have been able to pioneer paths of transformation within the private sector.

"We believe our preparedness to accommodate change and lead the search for novel solutions has already been demonstrated. One example is black empowerment. We were the first to sit down with government and seriously address this issue. Together with government and other stakeholders, we were able to produce the concept of an Empowerment Charter. It gives us a sense of achievement to see the concept now being adopted in other industries. We shall continue on this path in the belief that it is a fundamental goal, and that the more we toil at empowerment, the less the nation will bleed in turmoil."

The same 2002 Sapia Annual Report contains the following observations:

"Upliftment is a top priority, and is being tackled by all Sapia members on many fronts. One of the most significant efforts is Black Economic Empowerment (BEE) through black ownership and partnership in the oil industry. Progress in this field is spectacular and radical in terms of world commerce, but being carefully handled by the industry so that the value of assets being shared is not devalued. This effort in BEE is being achieved through a government-industry pact, the BEE Charter, which is embraced by all members of Sapia.

"Oil companies who are members of Sapia spend tens of millions of rands every year on nation building. One member alone budgeted in 2002 well over R100 million for social welfare, health, education and other projects which will improve the future of millions of people in southern Africa."

I have quoted somewhat extensively directly from statements made by mandated representatives of the liquid fuels industry to indicate what all of us knew to be the positions of the companies in this sector. As these have correctly indicated, this sector played a vanguard, pioneering role with regard to the challenge of black economic empowerment. We had understood that these companies did this as responsible and far-sighted corporate citizens who appreciated the reality that, as Colin McClelland put it, "the more we toil at empowerment, the less the nation will bleed in turmoil".

For more than a decade now, the majority of our people have toiled to ensure that our nation does not bleed in turmoil. We worked hard, even as thousands of our people continued to be murdered by those opposed to change, to arrive at a negotiated political settlement that would favour all our people, to end the bleeding. Necessarily, this would have to involve the political empowerment of those who had been dis-empowered politically, without dis-empowering those who belonged to the oppressor minority.

Even as we toiled after liberation to restructure the public finances, we sought to ensure that we create the conditions for economic growth and development that would benefit all our people, as well as improve the lives of especially the black poor who had been deliberately impoverished to guarantee the enrichment of the white minority.

Accordingly, even as we corrected the highly dangerous macro-economic imbalances we inherited from the apartheid years, we made certain that we did not reduce social spending. This was to ensure that the government had the possibility to direct public resources to the poor of our country, to alleviate their poverty. At the same time, the white section of our population knows very well that even as we toiled to improve the quality of life of the black majority, we made certain that, as a minority, it did not become impoverished.

We have also recognised the fact that the interventions we have made and will make to provide social grants to the black poor will not solve the problem of poverty and underdevelopment. Mere common sense says that fundamentally to address this challenge, we have to focus on a number of objectives.

We have to ensure that our economy grows at a higher sustained rate. We have to expand the domestic market by reducing the stark inequalities that limit the size of the domestic market. We have to reduce the numbers of those who are too poor to have an impact on both the supply and demand sides of our economy. We must radically increase the numbers of skilled people that are needed by our modern economy and society. We must ensure that our economy is able to compete successfully within the context of the global economy.

The Liquid Fuels Charter seeks to achieve these objectives within its sector. That is why it addresses such issues as capacity and skills development, employment equity, the use of procurement policies to create small and medium business, the provision of capital to help finance new entrepreneurs, equity participation to deracialise ownership of productive property, and the creation of a legislative and regulatory framework that would enable the liquid fuels sector to meet the agreed macro-economic and micro-economic goals.

It is difficult to understand why any thinking person would categorise the achievement of these goals as constituting a business risk. This is particularly so given the correct point made by Colin McClelland, that the process of advancing black equity participation would be handled, as agreed, in a manner that ensures that "the value of assets being shared is not devalued".

The Liquid Fuels Charter, the other Charters that have followed and the black empowerment legislation, pursue the objectives we have explained. These are also intended to help achieve the larger goal, which the majority of our people have pursued together for more than a decade - to create a new and non-racial South Africa.

In large measure, our future as a stable, democratic, peaceful and prosperous country, which includes a thriving private sector, depends on the successful implementation of these Charters and legislation. This is what Colin McClelland meant when he said, "the more we toil at empowerment, the less the nation will bleed in turmoil".

SASOL and others that think like this major corporate citizen, which our government has nevertheless not hesitated to support, will have to outgrow an outdated mindset that has become entrenched as their own particular and peculiar corporate culture. In the end, they will have to understand that black economic empowerment is in their interest, in like manner as the white population in our country, in general, is beginning to understand that democracy and non-racism guarantee them life, liberty and happiness.

SASOL would do well to take to heart the statement made by Colin McClelland, Director of its own industry Association, Sapia, that "it gives (the oil companies) a sense of achievement to see the concept (of Empowerment Charters they developed together with government and other stakeholders) now being adopted in other industries".

Surely, SASOL should also have known that to travel to New York to bad-mouth our national effort to build a non-racial society would not necessarily improve its image among the US corporate world, which has a much longer history of addressing the serious human challenge of building a non-racial society, that includes black economic empowerment. SASOL and all its kindred spirits must, at last, help to translate into reality the vision that our nation will never again bleed in turmoil, just because some could not free themselves from the chains of bigotry.