5 Oct 2004

WHY is Cape empowerment so quiet with nary a new venture popping out of the woodwork – unlike the bristling activity seen within the ranks of Gauteng counterparts?

With empowerment charters being devised for South Africa’s business segment it seems barely a week flashes by without Tokyo Sexwale’s Mvelaphanda sneaking a deal or new boys Tiso wrapping up a valuable stake.

It seems – at least on the surface – that Cape empowerment has gone a tad quiet. Some are even arguing that Cape empowerment initiatives pale in comparison to what political influence can be offered by their Gauteng counterparts.

Cape Business News can only recall Stellenbosch-based Arch Equity – headed by the capable Desmond Lockey – that has come to the fore in recent deals with Channel Life and PSG. These were not massive deals - but one can only hope there are more new empowerment ventures are simmering below the media radar.

There have been some startling successes like Oasis Asset Management, which started seven years ago from scratch and has emerged as one of the most respected contenders in a competitive sector. KK Kombi’s MasterCurrency is another notable success. But essentially local empowerment has endured a run of unfortunate incidents, and these developments may have muted investor enthusiasm.

Sam Montsi’s Siphumelele (ironically Xhosa for “we succeeded”) dismantled about 18 months ago – dashing great expectations for a empowerment contender that owned useful stakes in cash producing investments like Spur and Fedics.

What the mecurial Montsi is up to now is not clear – but his absence from Cape empowerment endeavours is most disappointing.

Grand Parade initially made a hash in funding its investment in Grand West, and has consequently not ventured outside the (thankfully lucrative so far!) gaming field to make new investments. Whether the strong cash flow from Grand West will be sufficient to service Grand Parade’s debt and allow for new investments remains to be seen.

Cape Empowerment Trust (CET) looks stuck in a rut – although some of its investments have turned cash positive. Whether directors at CET can manage a re-capitalisation effort will be critical in determining whether this empowerment contender winds-up or winds down.

Promising Sekunjalo Investments was relegated to the survival league after taking a dual blow from collapsed investments in LeisureNet (formerly Health & Racquet Club) and Phillipi-based packaging group Prospur.

Fortunately Sekunjalo has secured full control of Premier Fishing, where – despite the stronger rand hampering exports – cash flows are reassuring.

The trick for Sekunjalo, though, is to re-establish deal flow after successfully concluding an R80m rights issue – a deal that saw influential empowerment investor FutureGrowth emerge as a strategic shareholder.

Possibly Sekunjalo should flex its health care arm with selective acquisitions, unbundle the new look entity and separately list it. Then Sekunjalo can concentrate its deal making efforts on building a strong industrial base.

While new empowerment endeavours are scarce, the one common denominator amongst Cape empowerment contenders has been the craving for cash generative industrial assets.

Brimstone – headed by the dynamic duo of Mustaq Brey and Fred Robertson – last year announced a series of deals that included stakes in packaging group Lenco, Sea Harvest and Afrox Health. Hoskens Consolidated Investments (HCI) – led by former trade unionists Marcel Golding and Johnny Copelyn – recently acquired Golden Arrow Bus Service. Brimstone and HCI have also shown a penchant for financial services, acquiring bigger stakes respectively in short term insurer Lion of Africa and structured finance experts Mettle.

Brimstone’s linking up with Mvelaphanda in the Afrox Health deal bodes well, suggesting the Cape company - with widespread grassroots support, is still in the mainstream.

Looking ahead it seems much of the Black Economic Empowerment (BEE) wheeling and dealing will be generated from existing contenders. But if Sekunjalo, Brimstone and HCI can build confidence with clever deal flows this momentum might inspire some new contenders in the Cape.