Murray & Roberts ranks a respectable 82nd in the 2004 Empowerdex Top Empowerment Companies in South Africa, making it the most empowered company in the construction sector. Even more satisfying, says Group CE Brian Bruce, is that the achievement has been accomplished in the Murray & Roberts style.

“That means we have achieved a low-key, sustainable process of empowerment in the spirit of the Broad-Based Black Economic Empowerment Act of 2004. Anything else is enrichment rather than empowerment.

“Black Economic Empowerment (BEE) is a journey and a philosophy,” says Brian. “It should neither be an obligation nor a purely commercial consideration.”

OPPORTUNITIES IN EMPOWERMENT
There have been many BEE deals in the last decade that can hardly be described as 'broad-based'. Instead, the gains have gone largely to an elite group of already wealthy individuals.

There is also a lot of misunderstanding. Many see black economic empowerment as tantamount to giving away a quarter or more of a business that took years to build, to people who have limited experience in the business but expect to be enriched by it.

But companies with a long-term strategy in place should fear nothing from the Broad-Based Black Economic Empowerment Act. In fact, many of them view empowerment as an opportunity, rather than a legal obligation.

“The broad-based empowerment legislation uses the carrot more effectively than the stick,” says Neil Kirby, a director at the law firm Werksmans.

The ideology of the Act is not politically-motivated but is in line with the opening of South Africa’s economic resources to previously disadvantaged people, be they African, Coloured or Indian.”

CONSTRUCTING CHARTERS
Empowerment deals have tended to follow the signing of industry transformation charters, as has happened in the mining, oil and financial services sectors.

A construction industry charter is due to be released within nine months. Brian believes that it will be challenging in a fragmented, highly competitive, low-margin environment such as construction, where there are relatively few major players to drive the process.

“In this environment,” he says, “tenders won on price alone by emerging contractors are often not sustainable because the margin is cut to the bone in order to win the contract, and the low margin does not encourage skills transfer. Once the contract is over, the emerging contractor is not much better off than before.”

Charters typically only succeed where there is a significant amount of public sector work on offer as an inducement. This is not the case for large construction firms in South Africa, many of which source a large amount of their order book beyond South Africa’s borders.

Colin Reddy, director of BEE at BusinessMap Foundation, says: “Procurement practices are fragmented between different authorities and different spheres of the public sector. Greater uniformity would promote an enabling environment for transformation.

The practice of awarding contracts on the principle of lowest price rather than best value impacts negatively on industry performance, resulting in poor quality as well as time and cost over-runs.

“It also affects the sustainability of enterprises and their ability to retain a skilled workforce and to actively promote safety, health and protection of the environment.

“Emphasis on lowest price encourages opportunistic tenders and directly affects the conditions of subcontractors and labour.”

"SWEAT EQUITY"
Murray & Roberts believes in developing long-term relationships with emerging partners and building capacity over time. The group works in partnership in most of the regions in which it operates.

"We have partners who bring sweat equity to the deal,” says Brian. “The rewards and benefits flow from who they are and what they put into the business.

"At a strategic level we have formed partnerships with BEE firms that are interested in construction and bring gravitas to the industry. They have the capacity to support the underlying operational partners with working capital and performance guarantees.”

This model of empowerment has been accepted by two of Murray & Roberts’ key strategic partners: the J&J Group and Reuel Khoza, each of whom bring the required weight to the industry and respectability to the group. “While BEE appears to have been driven by government, it is in reality being powered by business,” says Reg Rumney, MD of BusinessMap Foundation.

“The sector charters are voluntary in nature, and the purpose of legislation such as the Broad-Based Black Economic Empowerment Act is to change behaviour patterns rather than enforce quotas.

“The government does not want charity – it wants a fairer distribution of economic opportunity. That implies deals must hold a value proposition for shareholders.”

ARE LICENCES THE ANSWER?
Construction is a highly entrepreneurial business. One of the problems with the popular model of empowerment (equity deals at holding company level) is that it has failed to create sufficient entrepreneurs in South Africa. While the country has no shortage of entrepreneurs, empowerment has not channelled significant investment into new business.

One area where government’s BEE policy has succeeded in creating new business investment is where licences are used for empowerment purposes, such as in broadcasting (various radio stations and television channel eTV) and telecommunications (Cell C and the third network operator). Brian argues that licensing, rather than a transformation charter, is the correct route for empowerment in construction. “Companies undertaking a construction project require a building permit issued by the Government,” he says. “This permit typically lists a range of empowerment prerequisites – use of local labour, contractors and how procurement will take place. This is the catalyst for implementing BEE in construction. When a company wins a tender for a project, it will be forced to meet certain sub-contracting standards.”

CREATING ENTREPRENEURS
“I believe that legislation and the Construction Industry Development Board (CIDB) are driving this transformation in construction by promoting the BEE requirements for our industry,” says Brian. “There is a perception that the construction industry is a laggard in terms of empowerment. But I disagree. We have been implementing BEE initiatives at the contractor level for some time. We are implementing empowerment in a more sustainable manner than, I think, will be achieved by the Financial Services Charter, for instance.

“Whereas charters, which are a populist method, have often simply redistributed wealth, the construction industry aims at creating entrepreneurs who are able to increase investment in the economy and create new jobs.

“At Murray & Roberts we have been attracting more and more historically disadvantaged South African executives who see in our company a career rather than an opportunity. Our focus has been on developing our internal resources and, where necessary, bringing in people from the outside who would otherwise not have had the opportunity.”

Murray & Roberts is also doing all it can to procure from BEE suppliers, in an industry which has paper-thin margins.

DIFFERENCES ASIDE
“As South Africa increasingly competes in the global market, we are up against foreign players who do not have any of these internal dynamics to consider,” says Brian. “They can focus entirely on price. But the challenge of transformation can also be our strength internationally. South Africans operate in a far more complex and tough business and social environment than their counterparts in competing countries. Those South Africans who have decided to remain in this country have demonstrated that they can handle it.”

One of the barriers often quoted by historically disadvantaged South Africans entering previously white-only firms is that the corporate culture continues to disadvantage them. But, Brian argues, a global culture is evolving which leaves little room for indigenous cultures. “Business will be the vehicle by which that global culture evolves. When you are engaging with someone who, by his or her behaviour, asserts a particular nationality or gender, the ‘disconnect’ becomes so great that they cannot effectively participate in business.”

Japan suffered from this fate, and, though it exported its products around the globe, it could not do so with its companies or people. “If you want to participate in the global market, you have to shed more of your indigenous culture,” says Brian. “This in turn will penetrate the home environment in time and help to break down prejudice. But, where the reverse happens and people bring their differences into the workplace, it causes unbearable tension.”

KEEPING SCORE
How companies achieve black empowered status is nothing new. It calls for various socio-economic strategies that most forward-thinking South African organisations have been implementing for years. But the BEE scorecard now spells out targets. Direct empowerment in the form of ownership and control of the organisation represents a surprisingly modest 30% of the total score. Employment equity and human resource development, addressing succession planning and skills development, also represents 30%. Preferential procurement in the form of supplier diversification and investment in black-owned enterprises is another 30%. Black Economic Empowerment is an ideology that, when understood, should not present a threat to South African companies. -BY EAMONN RYAN

DRIVING BEE
The Construction Industry Development Board (CIDB):

• Promotes and implements policies, programmes and projects to achieve procurement reform
• Promotes and implements policies, programmes and projects aimed at standardising procurement documentation, practices and procedures
• Establishes and maintains a national register of contractors, as contemplated in Chapter 4 of the CIBD Act. This provides for categories of contractors in a manner that facilitates public sector procurement and integrates other statutory contractor registers
• Within the framework of government's procurement policy, promotes the standardisation of the procurement process with regard to the construction industry
• in relation to enterprise development, the CIDB Act also stipulates that the Board must promote and implement policies, programmes and projects aimed at supporting the emerging enterprises sector. A public sector register of contractors will enable effective access to work and development opportunities for the emerging sector.

EMPOWERMENT PARTNERS
Murray & Roberts is building valuable relationships with a number of BEE companies. Robust showcases some of the most enduring of these.

BLACKSTONE PROJECTS
The construction business of Murray & Roberts enters into joint venture partnerships with BEE contractors on a project-by-project basis in the different regions in which it operates.

In Gauteng, for example, Murray & Roberts has worked with Blackstone Projects on a number of building projects, including the Absa Parkade, Microsoft Offices, Tiger Brands Offices and One Central Place in Newtown.

Jerome Govender, a Murray & Roberts executive, comments: “Our approach is to work with BEE partners, even if there is no requirement to do so.

“We find that joint venture arrangements add the most value for both parties and we tend to work with partners who have knowledge and experience in specific geographic markets and project types.”

FIKILE PROJECTS
Fikile Projects, a leading empowerment building contractor, has worked with Murray & Roberts on two major public private partnerships in the construction phase of the Bloemfontein Maximum Security Prison, which was successfully completed in 2001. Fikile Projects is a shareholder in the N3 Toll Road Consortium – of which Murray & Roberts is a partner – and a member of the project’s construction joint venture. Established by sole owner Mandla Ndlovu in 1990, Fikile Projects has experience in a wide range of activities, including civil engineering, housing and building.

J & J
Murray & Roberts’ partnership with a consortium led by J & J Group sets an important standard for other empowerment initiatives – it is broad-based, both partners contribute substantially and it is creating new opportunities that may not have been available to either partner individually. The partnership involves the rolling stock activities of Union Carriage & Wagon Company and is expected to pave the way for new business opportunities in South Africa and in sub-Saharan Africa.

J & J Group is the diversified investment and management company of Jay Naidoo, former cabinet minister and trade union leader, and Jayendra Naidoo, a former leader of Nedlac.