South Africa sees progress in black empowerment

The proportion of cosmetics and personal care product companies in South Africa under black South African management is gradually increasing, following the introduction of BEE [black economic empowerment] Codes of Good Practice in February 2007.

This well publicised government policy was designed to deepen black ownership within an economy which until the country’s first democratic election in 1994 was essentially white dominated. The codes aim to level the playing field for all firms doing business in the South African economy by providing clear and comprehensive criteria achieving black economic empowerment, which are theoretically mandatory; companies that fail could lose business licences or at the least face financial penalties. The targets set out in the codes cover seven areas – black ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. Under the codes, under which firms qualify under various levels of BEE compliance, government will be able to monitor the progress of change at the corporate level.

“The transformation responsibility now rests with individual companies to apply the codes in a manner which is appropriate for each organisation,” said Herman Mashaba, founder of the Black Like Me cosmetics chain who led negotiations between the cosmetics industry and government over the code. For the South African industry the BEE challenge is one that will have to be met to sustain a long-term commercial future in Africa’s biggest economy and the region as a whole.

“Our members are working independently and towards BEE compliance. They are well aware that working towards BEE compliance is imperative for their businesses and the country’s economic growth,” said Pam Dillon, executive director of the Cosmetic, Toiletry & Fragrance Association of South Africa, the country’s industry group.

“We encouraged the South African cosmetics industry to pledge its support to BEE transformation for the benefit of the country and economic growth. Our members agreed to follow the codes,” Dillon said.

The industry group has no statistics on how BEE has progressed within the country’s cosmetics sector, but South African analyst firm Empowerdex, which tracks the development of BEE at the corporate level, sees advances in the area across the South African economy. “With clarity on the Codes of Good Practice now being provided by the Department of Trade and Industry after the Codes were gazetted in February 2007, many companies have progressed their empowerment strategies further and have begun to implement broad-based BEE more readily,” said Empowerdex.

Anecdotally, looking at the evidence on the ground there has been progress in the cosmetics sector. Beige Holdings is a South Africa-based retail and wholesale company which manufactures and distributes cosmetics, soaps, laundry soaps and allied products for bath and body care for the South African and international markets.

Beige, a 28% black-controlled company, has become the most significant black-empowered contract manufacturing company in the personal care market. Its major black investor is Thebe Healthcare. Beige’s clients include Revlon, Yardley and Johnson & Johnson.

“We are the leading contract manufacturer of personal care products in the country,” said Beige Holding ceo Mark Di Nicola. “And what’s more, we’re well on our way to being a shining example of a fully empowered, truly South African outsource partner.”

Beige, with its main black partner Thebe Healthcare, took full management control of Unilever South Africa’s Quality Products in January 2006. “We have already started to see the benefits of this partnership with Thebe Healthcare coming through and we anticipate that it will make a major contribution to the group in the years to come,” said Di Nicola.

Retailer Foschini is the second biggest departmental retailer of cosmetics in South Africa, representing the major international brands such as Clinique, Revlon, Elizabeth Arden, Yardley and L’Oréal. The firm, which targets the 18-35 year old consumer age group, is moving to meet broad-based BEE requirements.

“The group fully supports the final broad-based BEE Codes of Good Practice and has adopted a strategy that is aligned to ensuring compliance with these codes. The transformation committee is tasked to formulate, monitor and review all aspects of the group’s broad-based BEE policies, as more specifically defined in the transformation committee charter,” said Foschini. The retailer has sub-committees for each of the seven elements of the BEE code meet quarterly and report directly to the transformation committee.

BEE change is also being seen in the corporate boardroom. Personal care retail group New Clicks appointed three black female directors earlier this year in a move to boost its board’s expertise in transformation management and employment equity.

“It is critical that our board becomes more reflective of our customer base and these appointments go some way to achieving this objective,” said New Clicks chairman David Nurek. “These appointments have increased black representation on the board to 40%, with female directors now comprising 30% of the board,” said Nurek.

New Click’s business includes The Body Shop and has a footprint of over 500 stores in southern Africa selling beauty products.

This progress aside, there could be a slowdown in company BEE programmes in the immediate future caused by the deteriorating economic outlook for South Africa. Retail sales fell year-on-year for the second consecutive month, recording a drop of 0.3% in April 2008 compared with April 2007, according to official data. Local interest rates have increased 11 times since June, 2006 and now stand at their highest in five years. Higher petrol and food prices and the introduction of a new National Credit Card in 2007 that makes loans more difficult are also weighing on the South African economy.

But the cosmetics industry remains relatively upbeat and is hopeful that spending will stay robust despite tougher times.

“Our clients are affected by higher interest rates, spiralling food inflation and high fuel prices, but to date we have not seen a major impact on sales figures coming from beauty outlets,” said Wessel de Wet, ceo of Placecol, the largest franchisor in the South African health and beauty industry.