The BEE Deal and Process

The BEE deal

As the building of a dam was essential to the partners’ plans they approached the Department of Water Affairs and Forestry for permission to build the dam. The Department gave the go-ahead to build the dam, on condition that 40% of the total development (i.e. value of land and dam) should be made available to black partners in terms of the National Water Act of 1998 which stipulates through the Water Allocation Reform Strategy that 70% of licensed water use should be allocated to black people by 2024, starting with 30% by 2014; 50% to women by 2024, starting with 30% by 2014.

“We started our search for a black partner and after a while we decided it made sense to rather empower our own farm workers. A group of workers from both our farms were identified and after the criteria was set (including length of time on the farm and level of responsibility), the selection was done,” says Lutz.

Whilst it was stipulated that 40% of the value of the project should be owned by previously disadvantaged individuals, the funding for this 40% was not part of the deal. Lutz says “it then became a major challenge to find funding for the 40% share of the farm, which was being given to the farm workers i.e. the Omaza Trust.” While this difficult and long winded process carried on, Lutz says “the entire construction cost of the dam had to be funded by us. Funds in lue of R2,7 million (i.e. the value of the 40% share that was owned by the workers trust) were only sourced when the dam was completed and commissioned, after the major project risks have been eliminated. “No-one was willing to take a risk on funding the workers trust until the dam was built as it is 1m above sea level or looked at in another way – 1m below the level of the dam was saline water.”

The Omaza Trust’s funding was eventually sourced and comprised a grant from the Department of Water Affairs and Forestry and a loan from the South African Wine Industry Trust (SAWIT) who also made funds available to the workers trust for training. SAWIT also paid the consultant/facilitator, Gus Pickard, to do the post-transfer support.

As an entity Lutow Estate Pty Ltd now consists of Omaza Trust (40% share), Le Monde Boerdery trust (a 50% share owned by the partners) and Olifants Beleggers (a 10% share invested by other private individuals) as illustrated in diagram 1.

Diagram 1: Share ownership of Lutouw Estate Pty Ltd

Getting to grips with BEE

Lutz says they have faced a number of challenges on the shareholder side. “This has included getting the project profitable fast enough to keep the worker-shareholders satisfied; getting workers trained as the education levels are generally very low; training shareholders as to how a business works and helping the shareholders to understand finances.” Furthermore, the partners says that it’s been tough keeping the worker-shareholders motivated for longer than five years and getting them to believe in the long-term plans of the project. “It is very difficult as they have many short term needs and they are not used to long-term planning,” says Lutz. He adds “on the financial side we’ve struggled to get the monies loaned from the bank paid back quickly enough and at times we’ve struggled to get the bank to believe in and whole heartedly support the project. None of the BEE shareholders yet have the confidence of managing a cost centre on their own.  They manage small projects on their own as a group, but not yet as individuals and we’d like to see that change.”

The directors decided that there was a need to empower individual workers within the bigger empowerment project. The rational behind this decision was that the project itself is a long-term one and it would therefore have taken long for people to see material profits. The project needed big tractors in the beginning to prepare the soil and to do the difficult work, such as, levelling the land for the vineyards. Three tractor drivers were given the opportunity to purchase these tractors (through a loan from Lutouw (Pty) Ltd) which they then rented back to the farm. After a few years the farm was developed to the stage where these tractors were no longer needed and were sold. Those involved took the profit and used it in their own way. One of the workers however, Neels Kammies, used part of his profit to buy a 50% share in a grape harvesting machine. This machine is still in operation on the farm and he gains extra income renting it out.

Truter Lutz says that the farm has spent the past 10 years growing steadily and is right at the beginning phase of making profits. “The black shareholders knew all along that it would take at least five years before they would receive any cash payout through the project. For many of them they are only going to start seeing the financial benefits now, in the next few years. However, one of the major benefits for the workers is the exposure that they’re getting to financial institutions and also in terms of their exposure to training and decision making.”

What the partners have learnt about BEE

Firstly, says Lutz, “we feel that any BEE project should have a commercial partner who’s willing and able to contribute financially when the project struggles financially. Secondly, transparency and the will to genuinely empower black people is an absolutely critical; and thirdly we believe that the involvement of someone (consultant/facilitator) to support and guide the worker component is crucial to build trust and assist with their understanding.” In a nutshell, he Lutz says that honesty and trust between all parties are the two major ingredients needed to make projects like these work. Lutz says that they “feel the need to emphasize the constant support that the workers require in this type of project and it is something that management should budget for upfront.”

Copyright 2009 - Lutouw Estate | Sitemap | Disclaimer | Contact us