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South Africa’s Stellenbosch mafia
Under fire from the Economic Freedom Fighters and others, the Afrikaner stronghold's billionaire power brokers argue that they are committed to black economic empowerment. The new faces at the table may look the part, but are they being served the choicest slice of the pie?
[This article was published in the print edition of The Africa Report no.65, November 2014]
The city where all the country’s prime ministers between 1919 and 1978 went to school – including apartheid architect H.F. Verwoerd – and home to some of the country’s richest and most powerful businessmen, Stellenbosch has become a focal point for firebrand politician Julius Malema to attack the country’s lack of economic transformation.
His argument is easy to sell: white house-holds still earn on average six times more than black ones, while unemployment among blacks is nearly six times higher than among whites.
In Stellenbosch, home town of Johann Rupert, South Africa’s richest person, an estimated 28% of the population is food insecure.
Its university, under fire for a lack of transformation at student and staff level, still has buildings honouring Verwoerd.
Nestled between mountains and vineyards about 52km from Cape Town, Stellenbosch is the second-oldest town in the country.
A popular tourist destination thanks to its location and historic centre, the student town also hosts a number of big corporate offices.
Malema, leader of the Economic Freedom Fighters, says dismantling the “Stellenbosch mafia” and sharing the means of production is needed if South Africans ever want to obtain “economic freedom”.
This so-called mafia has top African National Congress (ANC) leaders in their pockets and controls everything from the judiciary to the banks, mines and stores, he told a rally in Khayelitsha, an impoverished township near Cape Town, in March.
While it is true that they control a substantial portion of the economy, it is unfair to say Stellenbosch’s power brokers have not been committed to black economic empowerment (BEE), says Ajay Lalu, managing director at consultancy firm Black Lite.
Stellenbosch is home to many wealthy business owners. Magnates linked to the city include Rupert (Remgro and Richemont), Jannie Mouton (PSG Group), Christo Wiese (ShopRite, Pepkor, Brait, Tradehold and Invicta Holdings), Koos Bekker (Naspers), G.T. Ferreira and Paul Harris (FirstRand and Rand Merchant Bank), Markus Jooste (Steinhoff ) and Michiel Le Roux (Capitec).
Critics of the ANC government say that BEE has only benefited those with political allies. Brait, a holding company with investments in food and retail businesses, had politically connected empowerment partners.
BEE firm Sitogo Holdings sold its share in Brait in 2010, netting around R70m ($6.3m) in profit to shareholders. Among these were people close to President Jacob Zuma, including Sandile Zungu and Vivian Reddy.
A closer look at board composition and shareholding reveals how interconnected Stellenbosch’s business elite is – though many of these relationships can be traced back to Johannesburg, where people like Mouton, Ferreira and Jooste spent most of their careers before moving to the winelands.
Jooste is the chief executive of furniture manufacturer Steinhoff. He sits on the board of PSG, a company founded by Mouton that is one of the country’s top four investment firms.
Steinhoff also acquired a 20% stake in PSG from Christo Wiese‘s investment group Titan in 2011. In addition, Jooste served on the board of Capitec, PSG’s biggest investment.
Wiese, who owns a small stake in Steinhoff, sat on the Steinhoff board along with Mouton and increased his stake in the company in September.
Rupert’s Remgro, a diversified conglomerate with interests in banking, retail, healthcare and insurance, is implementing an Africa-focused expansion.
“If you look at Remgro and their shareholding relationship with Kagiso Tiso Holdings, for example, it sends a very clear signal that they’re doing something from an empowerment perspective.
“The one criticism that I could lay at their door is that they have been quite selective in which assets they decide to empower. It is never at holding companylevel,” Lalu says.
This means empowerment shareholders have often been left out of the growth achieved outside South Africa and it shows a compliance mentality rather than a strategic approach to empowerment, he explains.
Retailers like Pepkor and ShopRite have been under less pressure to focus on empowerment due in part to their limited reliance on government business.
Nonetheless, Pepkor sold a 7.5% stake in 2004 to the equity fund of the J&J Group, the investment firm co-founded by former ANC stalwart Jay Naidoo, and Medu Capital, founded by chartered accountants Ernest January and Nhlanganiso Mkwanazi.
Both these empowerment funds have grown significantly over the past 10 years, with J&J now holding stakes in companies including Rand Merchant Bank, Areva, Macquarie and Bombardier.
Medu Capital, with more than R1.5bn under management, partners with established businesses that require equity risk capital or empowerment partners.
Other success stories include RMB’s Makalani Holdings, run by bankers Sydney Mhlarhi and Vusi Mahlangu.
Their investment firm Tamela was established to hold a minority stake in Makalani and has since grown to include stakes in companies like PPC, AON and Daimler Fleet Management.
And, increasingly, deals are done simply because it makes business sense, such as Remgro’s R500m investment in the Pembani Remgro Infrastucture Fund in partnership with MTN’s chairman and former CEO Phuthuma Nhleko, who is credited with building the tele- communications company into an emerging markets behemoth.
The combi effect
Transformation at board and management level remains problematic.
At Remgro, 18 of the 22 top and senior managers are white males. Shoprite has only two black board members – one female – out of 14. All eight executive directors are white males.
The retailer has also been under fire from trade unions for the low proportion of full-time employees and the low minimum wage of around $205 per month.
The partnership between PSG and businessman ‘KK’ Combi has changed the Stellenbosch crowd.
For PSG’s Mouton, ‘KK’ Combi’s integrity and business focus were the deciding factors when the company needed a new empowerment partner in 2005.
Combi, a successful black entrepreneur who shies away from the limelight, first established a relationship with PSG through Master Currency, the foreign-exchange trading business he founded.
Combi established Thembeka Capital in 2007 to partner with PSG, raised R36m by selling shares at R30 to around 500 investors and moved his office to Stellenbosch – “something I never thought in my life I would do,” Combi tells The Africa Report.
The result was arguably one of the most successful empowerment partnerships in the country, resulting in Thembeka doing a number of lucrative deals with PSG, including investing in Capitec Bank, Pioneer Foods and Curro Holdings.
Combi, with board seats on all four companies, is also much more than a minority shareholder with no say, which is so often the criticism levied against the beneficiaries of BEE deals.
He played a crucial role in negotiations with government and the competition authorities when Pioneer was facing a R4.5bn fine for its role in a bread cartel, which could have sunk the company.
It finally settled on a fine of R500m in 2010.
Big deals all done
Thembeka announced in September its structures will be unwound to unlock value for shareholders, with Thembeka shares to be swapped for more liquid PSG shares.
The transaction is valued at R165.85 per share, a 453% increase in seven years.
Some of the shares remain restricted and will be transferred to a trust to fund bursaries for black students to obtain a private high-school education.
Combi will remain on the PSG and other boards.
“The intention is for us to stay together and look for deals together. The BEE landscape has changed. All the lucrative big deals have been done,” he explains.
Combi admits that Stellenbosch is not for everyone.
“People from the north [Gauteng, the more conventional base for black investment firms] find it difficult to settle in the Cape for various reasons. Some say it is too slow, but I can tell you one thing: it has never been slow for me. Others say the political set-up in the Western Cape is different,” Combi says.
The Western Cape is the only province that is not governed by the ANC.
“Of course it is different. It depends on the person, if you can find it easy to criss-cross between racial lines. I find it very easy. I was born in the Western Cape, and I claim my right to be here.”
He laughs: “If you think, eight years ago nobody would ever have dreamt there could be a black member of the Stellenbosch mafia.”
- Christo Wiese – Billionaire Wiese, 73, is the mastermind behind ShopRite and Pepkor, two of the country’s most successful food and clothing retailers, respectively. Today, ShopRite is Africa’s largest food retailer, with stores in 17 African countries. In 2009, officials at London City Airport confiscated cash of more than £670,000 ($1.1m) when Wiese boarded a flight to Luxembourg. He won a court bid to have the money returned in 2012.
- Zitulele ‘KK’ Combi – His debating skills earned him the nickname KK, after Zambia’s former president Kenneth Kaunda. Combi, 62, started as an insurance salesman in Gugulethu, a township outside Cape Town. He saved enough money to establish a cafe and a petrol station. His major breakthrough came in 1995 when he started Master Currency, a business he sold to Bidvest in 1998.
- Jannie Mouton – In August 1995, Jannie Mouton, then 48, was fired from his job as managing director of SMK, a stockbroking firm he co-founded in 1982. This led to the establishment of PSG Group, which Mouton – also known as the Boer Warren Buffett – built into one of the most successful investment firms in South Africa. PSG holds stakes in Pioneer Foods, Distell, Capitec Bank and Curro Holdings.
- Jay Naidoo – A former general secretary of the Congress of South African Trade Unions and minister in Nelson Mandela’s first cabinet, he founded J&J Group with his friend Jayendra Naidoo in 2000. A well-known labour and anti-apartheid activist, Naidoo, 59, has returned to full-time voluntary work. He serves on the boards of the Global Alliance for Improved Nutrition and the Mo Ibrahim Foundation.