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HomeBusinessBlack Economic Empowerment pioneer Ipeleng Mkhari on the art of the deal

Black Economic Empowerment pioneer Ipeleng Mkhari on the art of the deal

She is one of the richest women in South Africa and certainly one of the most influential. Mkhari has slogged her way up through the cut-and-thrust world of business and undergone the trials of South Africa’s byzantine black economic empowerment (BEE) policies. A large slice of her fortune came from shopping centres and sparkling new hotels – but she is now looking to remote dusty shopping centres and South Africa’s rundown and congested border posts for future investment prospects.

It is a quarter of a century since she gave birth to her massive diversified investment holding company Motseng Investment Holdings – twenty-five years of toil, tears and sleepless nights to garner nearly R20bn ($1bn) in managed assets.

“We have a strategy to grow and double that in the next five years,” she says. “I am absolutely proud of what we have achieved with every bit of pain and struggle we have gone through. I have no regrets: everything we have experienced had to be experienced as part of an entrepreneur’s journey… What I think about now is not only how we grow the business, but also succession plans. So, we still have sleepless nights!”

Right now many in business in South Africa are having sleepless nights. Power cuts are the order of the day and the water system is struggling with outdated and limited infrastructure.

“It’s tricky; businesses are seriously, seriously suffering. The challenges speak to an economy that is not growing; it speaks to very high unemployment rates, so just generally it is flat. Structurally we are not able to fix what’s needed to be fixed,” she says.

To muddy the waters for business even further, South Africa goes to the polls on 29 May, with the African National Congress (ANC) party likely to face a stern challenge on its infrastructure and power record. There is also growing anger over sky-high unemployment – many South Africans who graduated a decade ago struggle to find work.

It all means that the ANC could lose its majority and end up having to form a coalition with an opposition party. For businesses in South Africa this could mean uncertainty. Mkhari has factored in the risk.

“I think there are pros and cons to what is ahead of us. I have to say that we are a country that has not fared well in the coalition stakes; particularly at a provincial and municipal level. Having said that, I think we as private sector understand that we are going to have to go through change in South Africa. That change comes with instability and some sort of uncertainty at times,” she says.

“We have always known in South Africa that every five years you will see a preponderance of stuff and we can only hope that post the elections the state continues to operate and continues and commits to these projects. It is something we have raised as a risk, certainly.”

All of this makes one of Mkhari’s new ventures appear courageous as well as adventurous.

In 2020, she bought 30% of the African arm of Mott Macdonald – MPAMott. The British engineering company is involved in huge projects at home, including the building of the HS2 railway and upgrading the London Underground.

Mkhari believes the acquisition has helped open up new avenues for investment.

For long, the government has clung to the commanding heights of South Africa’s mixed economy, but it is now more open to public-private partnerships in which government uses the might of public coffers to de-risk private investment.

“The PPP market has really come up again in South Africa. There was a time when it was very quiet and very flat for about a decade. In the last 12 months, what we have seen is a number of large PPPs being issued by the National Treasury and the departments they are supporting. The Department of Home Affairs, the City of Cape Town, the municipalities of KZN [KwaZulu-Natal] and other parts of the country are issuing various PPPs,” says Mkhari.

“From a fiscal point of view, the South African Treasury is in need. South African business needs to come to the table to say this is where we bring our money. Government, you bring your requirement and we will match it.”

Opportunities at the border

In this vein, Mkhari is part of a consortium bidding to revamp South Africa’s six busiest border posts with Zimbabwe, Mozambique, Botswana, Lesotho and Eswatini. Fixing South Africa’s border posts could quite easily have been one of the 12 tasks of Hercules. They are rundown, congested, and grubby.

Trucks and commuters can wait days, even weeks, to move in or out of South Africa. That’s not good at a time when the African Continental Free Trade Area aims to open up borders.

The Department of Home Affairs wants new hi-tech borders with better security and infrastructure that will create 38,000 construction jobs in the rebuilding. Mkhari says her consortium is submitting its bid in June.

“Such projects are ground-breaking projects…Government has really come to a point where they acknowledge that it is time to issue large exciting projects that bring the best of breed, the best teams to the table,” she enthuses.

“The private sector has a lot of money; we have some fantastic lenders in this space who understand this and the opportunity. The most important part is that, as SA Inc., we need to go back to the basics and fix the things that need fixing. The same has to be said about other departments, whether you are talking about water, or waste water treatment.”

Rising through BEE

The smart money could be on Mkhari winning the border deal. She is a determined woman who always knew what she wanted.

Years ago, her grandmother, Dr Ellen Nnoseng Kuzwayo – a member of Parliament in Nelson Mandela’s government, an author and a political activist – asked her: “My girl, what do you want to do?”

Mkhari replied: “Granny, you gave us freedom; I want to get economic freedom.”

Change was afoot through South Africa’s new black economic empowerment policies (BEE), a form of affirmative action, but Mkhari was unsure how to access the opportunities.

“BEE was totally far away; I didn’t even know about it – until my first conversation with an old school friend of mine, Caroline Kula. I’ll never forget, she said to me, “Have you heard of BEE?” “What is that?” I asked. She said, “It’s this policy, it’s this thing where South African businesses – established businesses and family-owned businesses – are trying to find black partners.”

It was 1997. As white businesses in South Africa scrambled for black partners, Mkhari landed a directorship in a white-owned CCTV company in KwaZulu-Natal. She had never run a business, or done any more than hold a holiday job at Eskom.

“I was twenty-three, living with my dad, no husband, no kid, no cat, no dog. I could do that. I could dream. But it was crazy. Can you imagine?” she says.

Six months in, the company applied for a licence in a casino in Mpumalanga. The casino and the gambling board requested an interview with the company’s directors.

“I’d never asked, who are these directors? Show me their ideas. Can I meet them? Who are my co-directors? Where were my co-board members? I walked out of the interview and there was my co-director, and it was a housekeeper standing with a baby on her back. And it was a gardener coming in his uniform. That’s the day it hit me like a ton of bricks. That shock that you’ve been sitting here fronting, you didn’t even ask. It didn’t occur to me to ask.”

The scales fell from her eyes. She had been used as front by businesspeople attempting to profit from the empowerment legislation.

“I started writing my business plan that same day, and six months later, I resigned.”

Her resignation didn’t go down well with the company.

“The chairman said to me in front of my dad, ‘You’ll never make it.’ I said, ‘It’s okay, I’ll try’.”

Despite this experience, Mkhari had no doubt that black empowerment was the way. She set up an office in her father’s house in June 1998, and began a life of hustle. She chased government tenders, drove across the country to meetings, and cold-called anyone she thought would pick up the phone. She had no money for equipment and no credit.

One of her earliest deals was with the pioneers of black empowerment, the Kunene brothers, who were expanding. They awarded her a contract for R260,000, which gave her public relations opportunities as well as a welcome financial boost.

Phosa Iliso CCTV was founded in 1998 and became the first black-woman-owned and managed CCTV business in South Africa. It garnered a string of wealthy clients, from Airports Company South Africa and the South African Reserve Bank to Eskom, Transnet and Telkom. These early deals became the financial foundation of an acquisition spree that was to propel Mkhari into the big time.

“There was a lot of expectation, pressure, but also a lot of excitement in those early days around being young, being very bold, and a little bit green, very green, wet behind the ears.

“But you know, we went for transactions where we knew it was about our ability to operate and run things… One of our first transactions was the Enforce deal, which was a security business. We didn’t do deals that were misaligned from what we were offering, in terms of our own capabilities. And I think that was well received by some of the sponsors or entrepreneurs who were selling, which is what led us to the Marriott deal.

“The Enforce deal was a combination of ten or fifteen security owners, who came together themselves to form a fantastically strong, single business. You know, let’s stop having the 200 to 500 guards; let’s come and have them as 2,000-strong. And they were backed by a big investor and a local investor in Durban. And then the first thing the local investor said was, “Where is your BEE partner?” Well, okay, let’s go find one. And, interestingly, it was because of our relationships with the Enforce guys that we got to meet the team from Marriott.”

Property tycoon

In the early 2000s, Marriott was huge and hungry with ambition in Africa. By 2014, with the purchase of the Protea brand, the hotel group had 23,000 rooms in Africa. By August 2002, it needed a black empowerment partner for its property services business. It found one in Mkhari’s Motseng Investment Holdings. The 50/50 joint venture created Motseng Marriott Property Services.

The deal proved as strategic as it was lucrative for Mkhari. It secured her reputation as one of South Africa’s leading female entrepreneurs.

The joint venture became the largest black economic empowerment property group in the country. It launched with R1.8bn in assets under its administration, including a couple of national landmarks: the Pavilion Shopping Centre in KwaZulu-Natal and the massive Westgate Shopping Centre in Gauteng.

The acquisition gave Motseng Investment Holdings an annual turnover of R100m and the muscle to carry out more deals. Its income stream was so strong that in 2005 – at a time when the South African economy was thriving – Mkhari was flush enough with cash to buy the remaining 50% of the joint venture company. The deal, concluded on 31 October 2005, secured a powerful position in the lucrative South African property sector.

“Marriott became a very key transaction. We decided to continue on our own as Motseng Property Services… Over a decade, we moved from being operators and property managers to being landlords. We bought property slowly off our balance sheet,” she says. “The second decade was about really focusing on this acquisition strategy of properties. So, you’re a property manager-owner. It just seemed like a natural move for us; it also allowed us to build up our balance sheet a bit. And that has been quite fascinating. Because in that second decade, we listed a property fund on the Johannesburg Stock Exchange.”

Does BEE still work?

With a lifetime of money-making and hindsight, Mkhari is philosophical about BEE. Critics claim that it enriched a small black elite but has done little to help the majority of black South Africans who still deal with mass unemployment and grinding poverty. “A big part of the problem that we have to acknowledge is that, as a result of apartheid and the policies that were instrumental in excluding black people from the economy, we had to come up with a solution that included black people in the economy. And I don’t know globally how people have come up with these responses, but responses we had to come up with. And so, from that context, I give black economic empowerment a huge tick,” she says. “[There] was leadership in this country. That made it exciting to be young, that made it exciting to kill yourself to go and do things that were crazy. To believe, and to dream. That’s how I felt every day that I woke up; I knew the policy meant something. I knew if I met with someone, no one was trying to make a quick buck out of it. It was kind of like, what’s the long-term strategy? How do we do this?”

But Mkhari believes it was the banks who made the most from many of the first, highly-leveraged empowerment deals in the form of fees and interest repayments.

“I certainly think that a review is desperately needed,” she says. “I think that there’s no one policy that could ever survive without being reviewed and reassessed. I think that the intent around the review should be to improve, [not] to break up. I get very scared and very nervous in our country when I listen to political proponents talk about how this is something that should not exist at all…

“BEE has benefited banks, BEE has benefited legal firms, BEE has benefited many a sponsor who has wanted to sell to a partner, and [it] has benefited some black people, some instrumental individuals who were available, ready, waiting to act at the time. “And yes, it has not benefited the masses of black South Africans, who I think are asking themselves: “Okay, we still sit in the position that we’re in, mayb  `e actually we’re worse off.”’

This year, Mkhari will be starting a new project, far from the glamour of the big cities, with shopping centres deep in rural South Africa.

“We have three centres awarded to us in Limpopo, two in Mpumalanga. Those are very exciting because they are much smaller, not super regional centres.

“They need to be turned around and managed with our partners. That is quite exciting, this business has changed from managing sites to managing and co-developing,” she says.

“Our strategy is not merely to bring a place where people can consume and buy, but also place where people can learn. Young people can come in and be skilled by trainers.” Surely, the smart money is on her spinning yet another idea into gold.

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