Black economic empowerment funding efficiency : a South African perspective
Nhlapo, Thandi Susan
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The South African government, in an attempt to accelerate economic growth and development, promulgated Black Economic Empowerment legislation. Immediately thereafter, a number of BEE transactions were concluded. Yet the success reported on these transactions has not been as successful as anticipated in supporting the BEE objectives. Such failures were associated amongst others with the funding models used. The challenge has been to implement structures and funding models that will be able to fund black partners requiring 100% loans. Unfortunately, such funding is exposed to factors such as interest rates, cash flow and share price performance. One of the possible solutions to support the BEE funding models has been to reduce the cost of capital through low interest rates (using vendor finance) and reducing the price of the assets through discount offered on the shares. In order to identify possible solutions, different types of models were assessed, to determine the efficiency of these models, including vendor finance, derivatives, third party finance and performance based models. Secondly the sustainability of the BEE transactions was determined. The study attempts to look at better ways to fund the BEE transactions and ensure that funding models support the overall BEE objectives.