The four waves of BEE began in 1993 and have been referenced by various industry bodies. The first of the four waves was identified by assessing the transactions between prominent black South Africans and large historically white owned companies where funds would come from the relevant seller.
In these cases, the seller enjoyed the improved performance of the company’s shares while BEE partners, for the most part, enjoyed voting rights around the boardroom table.
According to Group CEO of the LFP Group, Louis Pulzone, the first wave failed in approximately 1998 when BEE partners could no longer pay their debts and interest soared; this combination of events triggered a review of BEE regulations and best practice ushering in the B-BBEE Act of 2003.
“The B-BBEE Act of 2003 propelled the second wave where employee share ownership including blacks and whites were used as BEE vehicles” he explains.
Large transactions were limited to a few individuals’ ownership. During this wave it was a case of black buyers borrowing money in order to acquire stakes in South African companies using their dividends to pay off debts. Again, high interest rates and the decline in cash flow caused the failure of the second wave.
During this time, major changes took place in the BEE arena as the third wave looked vastly different to the first and second. The third wave was made up of black owned and founded businesses where growth and cashflow depended the development policies and on acquisition of large companies.
These entrepreneurs were seen as ‘hands on’, however, they largely depended on their businesses for personal economic survival – this leading to few businesses surviving this wave.
Louis elaborates on the fourth (new) wave of BEE, saying: “Inside of the fourth wave black entrepreneurs, it’s important to engage the state, corporates, and banks with the objective of creating successful enterprises that are truly empowered and are genuinely creating jobs for South Africans” says Louis.
Louis notes that this is bound to happen within an increasingly competitive economy, where new players in the field actually have a fighting chance. “The time has come for large scale companies to structure business deals that eliminate the mistakes of the past while concurrently restoring the bettered public image of BEE”.
Get on board. Ride the next BEE wave and improve your BEE score through education and other aligned BEE compliance initiatives.