The parliamentary uproar over Minister Solly Malatsi’s proposed policy shift on B-BBEE in the ICT sector has exposed a painful truth: South Africa’s mobile industry equity deals have largely failed to achieve meaningful black economic empowerment.
While some politicians – acting along party lines – rail against potential changes to black economic empowerment equity requirements, evidence shows that existing deals have become little more than compliance exercises.
Khusela Diko, chair of Parliament’s communications and digital technology committee, is a senior member of the majority party in the Government of National Unity (GNU), the African National Congress, while Minister Malatsi belongs to the Democratic Alliance, the second-largest party in the governing coalition.
Only a small black elite of familiar faces and corporations have been enriched by the present empowerment deals, while supposed beneficiaries wallow in poverty.
Yet the debate appears to have been shaped along political divides, including in the GNU, rather than the reality of a desperate need for change.
The Broken Promise of B-BBEE Equity Deals
Some bigger heads in the GNU maintain that Broad-Based Black Economic Empowerment (B-BBEE) is not just moral redress but a pragmatic growth strategy to integrate the black majority into the economy.
As official policy states: “South Africa’s policy of black economic empowerment is not simply a moral initiative to redress the wrongs of the past.
“It is a pragmatic growth strategy that aims to realise the country’s full economic potential while helping to bring the black majority into the economic mainstream.”
Yet the reality of mobile industry empowerment equity deals tells a very different story – one of debt traps, diluted ownership and failed empowerment.
Tuesday’s spectacle in Parliament, where Minister Malatsi was lambasted for proposing policy changes to empowerment regulations that might benefit new entrants like Starlink, Amazon Kuiper, Lynk Global, AST Space Moblle, China SATNet, raises obvious questions.
Minister Malatsi seeks to clarify the recognition of equity equivalent investment programmes as mechanisms through which multinational corporations, who may be constrained in their ability to comply with equity ownership requirements, can participate in South Africa’s socio-economic development.
Are the Members of Parliament defending these failed empowerment equity models because they truly believe in them, or because the current system benefits certain political and business elites?
Vodacom’s YeboYethu: A Case Study in Failed Empowerment
Vodacom’s YeboYethu, launched in 2008 with great fanfare, was meant to empower 80 000 black shareholders.
Instead, it has become a financial black hole that perfectly illustrates why equity deals are failing.
These numbers tell a damning story:
- The scheme was recapitalised in 2018 to acquire a 5.51% stake in Vodacom Group at a massive debt value of R16.4 billion
- YeboYethu has no voting rights at Vodacom Group until the full debt is repaid.
- In 2023, the company incurred losses of R3.1 billion, followed by another R2.1 billion loss in 2024
- Finance costs are eroding its income, rising from R572 million in 2023 to R712 million in 2024
- The losses on debt remeasurement are staggering: R4.3 billion in 2023 and R2.6 billion in 2024
Meanwhile, Vodacom enjoys the benefits of a Level 1 BEE rating, enabling it to secure lucrative government contracts, spectrum licenses, and other business opportunities.
The company declared R14 billion in dividends in 2024, yet YeboYethu remains in deep financial distress with its debt due in October 2028 looking increasingly unpayable.
The share price of YeboYethu is trading far below its net asset value (NAV).
When YeboYethu entered a recapitalisation agreement with Vodacom Group in 2018, projections for Vodacom’s share price were R152.50. However, the actual share price has been consistently lower, making it increasingly clear that YeboYethu’s debt is unsustainable.
Another collapse, similar to the one in 2018, seems inevitable.
In my view, YeboYethu’s recapitalisation was not genuine empowerment, it was financial entrapment.
Vodacom gets its BEE credentials while ordinary black investors bear all the risk.
Cell C’s CellSaf: How 40% Became 1%
The story at Cell C is even more egregious.
When the mobile operator launched in 2001, its BEE partner CellSaf held a 40% stake that was explicitly described as “non-dilutable” under the company’s license.
However, by 2005, CellSaf’s stake had already been reduced to 25% to clear debt.
Then came Blue Label Telecoms’ intervention in 2015, which saw CellSaf’s shareholding diluted to just 7.5%.
Today, reports indicate CellSaf’s stake has dwindled to just 1% – a shocking erosion of what was supposed to be protected black ownership.
CellSaf representative Zwelakhe Mankazana’s words from 2015 still ring true today: “We will not let opportunistic, money-grubbing executives hijack the company or corporate pirates to capture it.
“We took out a loan, contributed R200 million to the bid and startup costs, and R1 billion of equity to the operation.”
Yet that’s exactly what happened.
Cell C’s BEE partners were systematically sidelined while the company maintained its BEE credentials.
This pattern of progressive dilution reveals how equity deals can be structured to appear compliant while actually minimising meaningful black participation over time.
MTN Zakhele Futhi: When Empowerment Schemes Need Life Support
MTN’s Zakhele Futhi scheme, meant to empower black investors, is now in such dire straits that the company is seeking a three-year extension to prevent total collapse.
The numbers paint a bleak picture:
- MTN’s share price has tumbled 23% since the scheme launched in 2016
- The scheme carries about R6.7 billion in debt
- Zakhele Futhi can only settle its full debt if MTN’s share price reaches R88 and stays there – currently it hovers around R90
- The scheme is entirely dependent on MTN dividends to service its debt
MTN CEO Ralph Mupita admitted the challenges, stating: “The devaluation of Nigeria’s naira had been a significant drag on earnings, which was also a consideration for the proposed extension of Zakhele Futhi for three years. The MTN board was ‘fully supportive of the extension.'”
But here’s the rub: Zakhele Futhi shareholders have no real choice but to accept the extension.
If they don’t, the scheme would be forced to have ended in November 2024 and immediately pay back the debt, likely wiping out any remaining value for shareholders.
Some analysts argue that hat extending the terms of the empowerment plan, which was set to expire on November 22, 2024, will provide better value to shareholders.
If approved this would give MTN Zakhele Futhi investors potential upside should the MTN group share price recover from the major foreign currency shocks seen so far and it stays above the R90 level until they unwind the transaction, contends analysts.
This is a far cry from MTN’s previous BEE scheme, Zakhele, which delivered returns for black investors.
That scheme saw shares bought at R20 in 2010 rise to R51.70 by 2016 – a compounded annual growth of about 20%.
Zakhele Futhi, by contrast, has been a disaster for participants.
Telkom’s Elephant Consortium
The Elephant Consortium – featuring politically connected figures like former communications department director-general Andile Ngcaba and former ANC Secretary General Smuts Ngonyama- stands as one of the most controversial deals.
I still remember Ngonyama’s famous quote when I was still at Business Report, when he told me: ‘I didn’t join the struggle to be poor.’
At the time, this sparked a huge debate, as the statement was viewed by the public as encapsulating the unethical and criminal self-enrichment of ANC cadres
Reports suggest the consortium raked in more than R3 billion from the sale of its shares in Telkom and Vodacom, plus at least R1.4 billion in dividends.
As one source close to Telkom told Techcentral: “Members of the Elephant Consortium have made a bloody fortune.”
The Public Investment Corporation, run then by Brian Molefe, funded the transaction and warehoused the shares.
But this deal was mired in controversy from the start, with critics questioning whether Ngcaba should have been allowed to buy the stake given his recent position as a telecom policymaker.
Today, Ngcaba is one of the biggest investors in local and Africa’s ICT industry.
Why Equity Deals Are Failing
The common threads in these failed empowerment schemes reveal fundamental flaws in the equity deal model:
- Debt-Funded Structures – Most schemes rely on unsustainable loan arrangements that leave black shareholders bearing all the risk while companies reap the benefits of BEE compliance.
- No Operational Control – Unlike the “container guys” who made millions from mobile payphones by being operationally involved in the industry, BEE shareholders in these schemes have no say in company operations.
- Progressive Dilution – Companies comply initially with significant BEE stakes, then structure subsequent deals to systematically reduce meaningful black ownership over time.
- Misaligned Incentives – The current system incentivises companies to create compliance structures rather than genuine empowerment partnerships.
A Better Way Forward
The failure of these empowerment equity deals doesn’t mean BEE itself is flawed – it means we need smarter models of empowerment that transfer wealth and opportunity.
As Parliament debates Minister Malatsi’s proposed changes, they should ask themselves: Are they defending empowerment, or just defending failed models that benefit entrenched interests?
The evidence suggests the latter.
The truth will set us free – but only if we stop ignoring it.
South Africa’s mobile equity deals designed along the forced 30% equity sale to empowerment partners have largely failed to produce any “trickle-down” effect.
Those at the bottom of the food chain have benefited zilch. It’s time to try something that works as intended.
