Old Mutual’s failed BEE deal . . . Black partners feel scammed

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Timo Shihepo and Tileni Mongudhi

South African financial giant, Old Mutual, finds itself at the centre of a controversial black economic empowerment deal in Namibia.

Old Mutual, also listed on the London Stock Exchange, is facing accusations that it cheated black Namibians in a supposed empowerment deal, which ended up only benefiting the firm while leaving its purported empowerment partners feeling disempowered.

It all started in 2006 when Old Mutual Namibia announced a ground-breaking broad-based black economic empowerment (BEE) deal worth R307 million, it was seen as a game changer in the Namibian economy for the previously disadvantaged people. 

But, 12 years later, the deal has failed to make a significant impact, while the supposed beneficiaries are complaining of being cheated or unfairly treated by their supposed business partner.

Despite insisting that there was nothing untoward with the deal, Old Mutual Namibia conceded that the deal presented a few ‘hiccups’ for the group.  

The deal was presented in a way that it would benefit 250,000 Namibians, with Old Mutual promising to transfer shares in its insurance and banking operations to employees, business consortia, women’s organisations and church groups.

 But the company opted to handpick its partners based on the perception of political influence rather than genuine empowerment. 

Prominent personalities in Namibia, like Hosea Angula (Namibia’s current Deputy Judge President), Dr Tjama Tjivikua (Namibia University of Science and Technology Vice Chancellor), Anne Gebhardt (businesswoman), Patrick Kauta (prominent lawyer), Linnea Shaetonhodi (businesswoman and former City of Windhoek Councillor), Nora Appolus, Ellen Musialela, Hilda Basson-Namundjebo, Sandra Tjitendero, Lucia Hamutenya, and Michaela Hubschle, are some of the people who were handpicked to benefit from the deal.

They were divided under business consortiums, namely the Northern Empowerment Investments, Ripanga Investment Holdings and Manmar Investments.

Other beneficiaries cited at the time are: Women’s Action for Development (WAD), the African Methodist Episcopalian Church (AME), Evangelical Lutheran Church in the Republic of Namibia (ELCRN), and the Evangelical Lutheran Church in Namibia (ELCIN).

At the time, it was announced that black equity ownership in Old Mutual Group of companies in Namibia would be increased by 12.64%. 

This included 13.31% of the value of the Old Mutual Namibia business (R220 million), 11.13% of the value of the Nedbank Namibia business (R67 million) and 11.42% of the value of the Mutual & Federal Namibia business (R19 million).

 

The scheme

The Namibian beneficiaries had to buy into the scheme in 2006 and were expected to bring business to the group for a period of 10 years before they could qualify to become shareholders. Targets were also set in terms of the value of business they brought to the table. The performance was measured on an obscure points system that did not match the actual value of  business brought to the table.

The deal matured in 2016 and the supposed beneficiaries awoke to the realisation that they got the short end of the stick and, in some cases, beneficiaries are yet to make a cent out of the deal 12 years on. 

The beneficiaries do not even have share certificates validating their ownership. Interestingly, despite being required to bring business to benefit the Namibian chapter of the Old Mutual Group, the shares allocated to the Namibian BEE partners originated from Old Mutual PLC, the London Stock Exchange-listed entity.

On top of what they already paid to be part of the deal, Old Mutual set a target of R37 million worth of business for one BEE consortium to qualify for their shareholding when the deal matured in 2016.

 The said consortium could not meet the target, the remainder of the allocation was sold to either other existing shareholders or on the stock markets. Because the value of business brought in was calculated on a points system, it was difficult for the consortiums to meet their targets.

In response, Old Mutual Namibia told The Southern Times that payments to beneficiaries were made based on performance agreements for each of the various strategic partners in the deal. 

The financial firm confirmed that points were earned and converted into monetary value. This, however, is in contrast to the aim of the BEE, which is to empower these beneficiaries and help them become players in the mainstream economy.

According to the Namibia Financial Sector Charter, each banking institution undertakes to apply at least 2% of its business loans towards broad-based black economic empowerment transaction financing by 2014, to be increased to at least 4% by 2019.

“BEE should not be about enhancing white businesses dominance. It’s about lifting black people from the sidelines of the mainstream economy and bring about economic transformation so that these people too can manage, control the economy, and bridge the inequality gap. 

This Old Mutual BEE deal failed to do that,” a source close to the deal said.

Old Mutual confirmed that the BEE deal opened doors for the company to do business in Namibia. However, it came at the expense of black-owned businesses, who have been exploited and continue to bring clients to companies under Old Mutual while they do not benefit. Nedbank has been cited as the most difficult to work with.

The Southern Times has learnt that a number of the beneficiaries were irked by the fact that the transaction, although not certain and complete, prohibited them from acquiring Bank Windhoek shares when the latter made a public offering of its shares in 2014. This was due to the fact that the Old Mutual deal also involved Nedbank. 

The partners also had to forgo fringe benefits and perks offered by other banks due to their affiliation to Nedbank, while the latter was not advancing its business partners’ the same benefits.

Sources, who are part of the BEE deal, said that they officially informed Old Mutual that they felt sidelined in the process because Old Mutual does not involve the members in the financial decisions.

Even those who praised the deal in 2006, now appear to have had a change of heart. Former Namibia Chamber of Commerce and Industry (NCCI) chief executive officer, Tarah Shaanika who at the time praised it, this week, told The Southern Times that the deal failed to create new manufacturers.

“I think this deal was useful when it created an education fund, where about 40-50 people from previously disadvantaged benefited by studying science courses. 

However, such deals are not really necessary if they are supporting only already established businesses. 

What we would like to see is for these kinds of deals to create genuine empowerment by helping create new industrialists. If this is not done then the deal will continue to look good at face value, while in actuality not helping people,” he said.

Old Mutual’s marketing, transformation and customer strategy executive, Ndangi Katoma said deals of this nature are highly complex and some hiccups may be experienced.

Concerning share certificates not being issued, Katoma said it should be clear that shares have always been held in the names of the respective BEE group’s legal entities, which are wholly owned by the members as shareholders.

Some of the consortiums have also accused Old Mutual of keeping the dividends in a South African controlled fund instead of ploughing back the dividends to acquire more shares for the BEE consortiums.

“Dividends have always been paid into the Namibian held accounts which are in the names of the respective entities at a local Namibian bank,” Katoma said.

Katoma also outlined how some of the funds have been disbursed to beneficiaries so far.

He said the beneficiaries include the staff of the companies in the Old Mutual stable. In the Education Trust - shares were donated to this Trust whose objectives were to award scholarships to members of trade unions and their dependents at recognized institutions of higher learning within the SADC region.

When the deal matured, R4.2 million was allocated for scholarships and benefited 90 students, according to Katoma.

“Shares worth R35 million were placed in a Distributors Trust to provide finance (loan) to establish black brokers and agents in business.”

 

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