Black Economic Empowerment in the South African wine industry.

476 Gavin WilliamsJournal of Agrarian Change, Vol. 4 No. 1 and 2, January and April 2004, pp. 00–00.Journal of Agrarian Change, Vol. 5 No. 4, October 2005, pp. 000–000.

© Blackwell Publishing Ltd, Henry Bernstein and Terence J. Byres 2005.

Black Economic Empowerment inthe South African Wine Industry

GAVIN WILLIAMS

KWV has been at the centre of the South African Wine Industry since 1918.In July 2004, KWV agreed that a broadly based Black Economic Empower-ment (BEE) consortium would acquire 25.1 per cent of the shares of the KWVGroup. The South African Wine Industry Trust, whose trustees are nominatedby the Minister of Agriculture and Land Affairs and by KWV, facilitatedthe deal. The agreement has features specific to the wine industry; it is alsoa milestone and a precedent for black economic empowerment in agriculture.This paper situates the politics of black economic empowerment in the contextof the legacies inherited by the wine industry. It examines the complex politicalprocesses by which the participants mobilized funds and negotiated decisionsto reconcile their objectives and realize their goals. By examining carefully thedetails of the sequences of events, the paper sheds light on the peculiar featuresof this case and raises questions about the nature, implications and significanceof black economic empowerment in South Africa.

Keywords: wine, South Africa, KWV, black economic empowerment

It [empowerment] deals mainly with people who do not have money,therefore it must make economic sense for participants but so too for thecompany that empowers. (Danie de Wet, Chairman of KWV, Die Burger23 August 2004, my translation)1

In 2003, South Africa was the world’s ninth largest producer of wine and the tenthlargest exporter. It produced 956 million litres (m l) of wine, of which 713 m lwere ‘drinkwine’ (table wine). Whereas annual production has been fairly stable atbetween about 800 and 1000 m l since 1980, exports have risen spectacularly from

Gavin Williams, St Peter’s College, Oxford OX1 2DL. e-mail: [email protected] for this paper was made possible by a W. J. Wilson Fellowship at Rhodes University

granted by the Ernest Oppenheimer Memorial Trust in 1997, a Leverhulme Trust Research Grant in2000, St Peter’s College, the Department of Politics and International Relations, and the Oppenheimerand Beit Funds of the University of Oxford, and the Department of Sociology, University ofStellenbosch. Among many people to whom I am indebted for advice, comments and encourage-ment are Jan-Georg Deutsch, Joachim Ewert, Michael Fridjhon, Ruth Hall, Johann Hamman, EricaPlatter, John Platter, Andries du Toit and Nick Vink.1 KWV originally stood for the Ko-operatieve Wijnbouwers Vereniging van Zuid Afrika Beperkt(Co-operative Wine Growers Association of South Africa Ltd). It changed its Dutch name to theAfrikaans: Koöperatiewe Wynbouersvereniging van Suid Afrika Beperk in September 1993 (van Zyl1993, 292).

Journal of Agrarian Change, Vol. 5 No. 4, October 2005, pp. 476– 504.

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a low point of 6 m l in 1989 to 45 m l in 1994 to 129 m l in 1999 to 240 m l in 2003.Over 90 per cent of South Africa’s wine grapes are grown in the Western Cape.2

The total turnover of the wine alcohol industry was calculated in 2003 to beR10.7 billion, of which R3.2 billion was exported. Of this R2.6 billion derivedfrom grape farming, R3.3 billion from manufacturing, R3.9 billion from tradeand transport and R0.9 billion from taxes. Direct employment was estimated at108,675 people. Earnings of R4.2 billion (R0.9 billion ‘foreign’) and 17,335 jobsfrom tourism might be added. It was reckoned to contribute directly and in-directly 1.5 per cent of gross domestic product and 8.2 per cent of the grossproduct of the Western Cape (Conningarth Economists 2004).

Production and marketing of grapes and wine is unequivocally capitalist.Most permanent farm worker families are Coloureds; the proportion of Africanmen and women among seasonal and casual workers is increasing. Africans aremore often employed in cellars than on farms. South Africa Wine Industry Statistics(1997–2004) reports 45,000 farm workers with 300,000 dependents (many ofwhom will be employed on farms) for each year from 1996 to 2003, and thefigure remains constant despite major changes in the pattern of farm employment.The figure for workers in wine cellars has risen from 3000 in 1996 to 3500 in2003, although the number of cellars had increased from 292 to 505.3 In 2003,wine grapes were produced on 4435 farms (4646 in 1996), nearly all of which areowned by white farmers and white-owned companies, which employed per-manent, seasonal and casual workers. The 505 wine cellars include manufacturing-wholesalers, estates, independent companies and co-operatives. They sell wine to67 wholesalers and 30 specialist exporters (40 and 10 in 1996) as well as directlyto retailers and customers (SAWIS 1997–2004).

The domestic markets for wine and spirits have always been highly concen-trated. Twenty years ago, the wine and spirits conglomerate Kaapwyn controlledover 80 per cent of the market for wines, local and imported spirits; its successor,Distell, still dominates the domestic markets but no longer to the same extent.Most of the vintage was then crushed by co-operative cellars, which sold mostof their wine in bulk to manufacturing-wholesalers. The co-operative cellarsnow also sell wine in bulk to exporters and private cellars, and in bottles towholesalers and retailers in South Africa and abroad and directly to the public.Since 1998, many of these cellars have merged and/or converted into companiesto be able to source grapes more flexibly and develop their own brands andmarketing strategies. At the same time, there has been an explosion in the numberof new cellars and wholesalers buying wine in bulk, including specialist exporters(SAWIS 1997–2004). Independent wine estates and cellars have been the mainsource of innovations, in styles and in quality of wines and in labour relationsand a small number of land reform initiatives. Independent estates and cellars,

2 SAWID (2004/5, 405); SAWIS (1997–2004); Anderson and Norman (2001).3 Conningarth Economists (2004, Table 4) gives precise figures, broken down for each district, of43,718 people employed in ‘primary agriculture’ and only 1838 in cellars; the provenance of thefigures is obscure.

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and specialist exporters have taken a large share of sales to the expanding over-seas markets, which are dominated by supermarkets, liquor chains and stateliquor monopolies.

KWV has been at the centre of the wine industry since it was formed as aproducers’ co-operative in 1917 with the aim of sustaining prices by buying upthe entire vintage from its farmer members. Between 1924 and 1997, the year inwhich it became a private company, it regulated the industry under statutes,which required it to set minimum prices and control production, and it acted asbuyer of last resort for distilling wine. It holds 30 per cent of Distell’s shares.Until the 1990s, it was responsible for nearly all of South Africa’s wine andbrandy exports but, with a few exceptions, it did not sell its products withinsouthern Africa until 2004. It provided an extensive range of services to theindustry. It consistently claimed to speak for all wine producers and kept closelinks to the major white political parties. Its presence has extended across theentire industry. It has also been the most prominent face of the wine industry, inSouth Africa and abroad. The transformation of KWV from a co-operative andthen a company owned by white farmers into a ‘black economically empoweredenterprise’, with a quarter of its shares in black hands, is thus of political import-ance for the wine industry, for South African agriculture and for the strategy of‘black economic empowerment’ more generally. To realize this, money had tobe found to enable the newly empowered shareholders to finance their stake inthe company.

TWO NATIONS

In 1994, the African National Congress (ANC) adopted as their election mani-festo the Reconstruction and Development Programme (RDP) (ANC 1994). In1994, the RDP became a term of policy discourse, a White Paper (RSA 1994) anda ministerial responsibility. Its declared intentions were redistributive. Its achieve-ments were sparse. In 1996, it was replaced by GEAR: Growth, Employmentand Redistribution (Department of Finance 1996). GEAR defined the govern-ment’s commitment to liberal trade and exchange rate policies and cautious fiscaland interest rate strategies. The Ministries of Finance and of Trade and Industryhave sustained its liberal macro-economic policies. Growth has been modest;changes in formal employment have been negative; many people have benefitedfrom government programmes to expand housing, electricity and water supplies.Redistribution to the poor was secondary to the government’s primary policyconcerns.

The new focus of strategies of transformation is the imperative of blackeconomic empowerment (BEE), laid out in the Broad-Based Black EconomicEmpowerment Act (Act 53 of 2003). The Act complements and goes beyond‘affirmative action’ to secure for black investors a significant share in theownership and management of industries. BEE is intended to transform SouthAfrica from ‘two nations’: ‘One of these nations is white, relatively prosperous. . . The second and larger nation of South Africa is black and poor, with the

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worst-affected being women in the rural areas, the black rural population ingeneral and the disabled’.4 BEE is in line with the African nationalist objectivesof the dominant party, the ANC, of transferring to Africans access to theresources and opportunities, political, bureaucratic, and commercial, from whichthey had been excluded by foreigners or, in this case, whites (Hodgkin 1956, 86).In Kwame Nkrumah’s words, ‘Seek ye first the political kingdom’ (Nkrumah1959, 135).

From the outset, the first ANC-led government carried through radical policiesof liberalizing external and internal agricultural markets (Williams et al. 1998).The largest co-operatives in the maize and dairy industries took advantage ofthe 1993 Co-operatives Amendment Act to convert themselves into privatecompanies, over which their farmer-shareholders soon lost control.5 The newgovernment reformed agricultural labour relations and initiated a programme ofland reforms. Black economic empowerment has now displaced land reforminitiatives from the centre of the agricultural policy agenda.

New laws and codes of conduct extended security of tenure and protectionfrom arbitrary dismissal to farm workers, and introduced minimum wages. Theseencourage farmers to move away from the historic exploitative paternalism ofwine farms to a model of progressive farming employing a limited core ofskilled workers and off-farm casual and seasonal labour for cash wages and toprovide housing for workers, if at all, beyond the farm boundaries.6

‘Land reform’ is particularly difficult to implement in wine production. Suitableagricultural land fetches high prices. Vineyards demand large investments, whichonly bear fruit after some years. Most wine farmers have inherited their land orinvested money acquired elsewhere into buying and developing wine estates.Income from wine farming is unlikely to cover interest payments on the cost ofbuying land and developing it. Making wine and selling it can yield higher returnsthan growing grapes.

Land reform projects in the wine industry were set up for a variety of reasonsand take different forms. In some cases, government land reform grants enabledlarge groups of farm workers or local residents to acquire large farms but couldnot provide working capital, not least for the replanting of vines; the new ownershad to rely on outsiders or on one of their own number to manage the farm.Grants have supplemented investments or donations of land by partners in jointventure and housing projects and state grants of water rights. Joint ventureprojects allow workers to use grants to acquire a share in farms or wineries inwhich partners or sponsors manage the farms and make and market the wine.Some projects enable workers to use their employer’s cellars and marketingnetworks for their own wine. Land reform projects have enabled owners to sell

4 President Mbeki (in Parliament) (29 May 1998, cited Nattrass and Seekings 2001). On blackeconomic empowerment more generally, see Southall (2004) and Nattrass and Seekings (2005).5 Amin and Bernstein (1996); Bernstein (1996); Landbouweekblad (30 June 1995; 9 September,1 November 1996); Die Burger (25 October 2002).6 du Toit (1993, 1998, 2002); Hamman (1996); de Kock (1998); Ewert and Hamman (1999); du Toitand Ewert (2002); du Toit and Ally (2003); Ewert and du Toit (2004).

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farms advantageously, acquire irrigated land and supplies of grapes, and makeprofits from the enterprise. If the terms are clear and equitable, it is to theadvantage of the new shareholders to have partners with a continuing interest,financial and reputational, in the success of their ventures.7

Most of those who acquired land or shares in the winelands have been workerson the farms and, in some cases, from local communities. The number of projectsin the wine industry and of their beneficiaries is small. Dividends will not bequickly realized. Current and future initiatives can draw on a range of experi-ences, both positive and negative, but these do not provide the basis for a modelproject or projects (Vinpro 2004). Empowering the poor is a slow and difficultbusiness; it is much easier to assist the rich selectively, or to help a small numberof people to become rich.

As Thoko Didiza, the Minister of Agriculture, explained, ‘Black EconomicEmpowerment is not about strengthening the weak whilst weakening the strong,but about creating a better life for ALL.’8 AgriBEE, published in July 2004,defines ‘Broad-based black economic empowerment’ inclusively as ‘economicempowerment of all people, including women, workers, youth, people withdisabilities, and people living in rural areas’. This will be done by increasing‘ownership and management of enterprises and productive assets’ by ‘Black people’and by ‘black communities, workers, cooperatives and collective enterprises’; by‘preferential procurement’ for and ‘investment in’ black owned and managedenterprises; by the development of skills of Black people and by their ‘equitablerepresentation’ in all professions and occupations. A ‘black enterprise’ is onewhich is ‘50.1 per cent owned by Black persons and where there is substantialmanagement control’; a ‘black economically empowered enterprise’ requires25.1 per cent black shareholding and substantial management control. A ‘com-munity or broad-based enterprise’ is less rigorously defined. It has to have‘an empowerment shareholder who represents a broad base of members such asa local community or where the benefits might support a target group, forexample black women, people living with disabilities, the youth and workers.Shares are held via direct equity, non-profit organizations and or trusts’ (Depart-ment of Agriculture 2004, 7–8).

The realization of the aims of BEE will be measured against a ‘Scorecard’. Ifan industry, and its firms, do not score high enough they may be excluded fromaccess to government contracts and public resources: in the case of the wineindustry, this could include withholding state funds for research and otherpurposes, statutory levies and wine certification, duty-free access to the Europeanexport market, land reform grants and Land Bank loans, and most vitally liquorlicences and irrigation water (WineLand Dec. 2004, 71–2). AgriBEE requires thatacross South African agriculture: 35 per cent of enterprises and 30 per cent of landare to be black owned by 2008 and 2014 respectively; farm workers are to havea 10 per cent share in farming by 2008; black enterprises will have 30 per cent of

7 Hamman and Ewert (1999); Vinpro (2004); WineLand ( July 2004, 54–5).8 Cited South Africa Wine Industry Trust (SAWIT) website 2005.

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export opportunities by 2007 and 70 per cent of industry procurement by 2014;substantial and specified proportions of black women will be represented at eachlevel of management by 2008; all agricultural workers will be educated to secondaryor tertiary level and illiteracy eliminated in all farming communities by 2010(Department of Agriculture 2004, 10–14). The accomplishment of these ambitiousgoals will radically transform the racial profile of agriculture in South Africa.

FROM THE OLD TO THE ‘NEW SOUTH AFRICANWINE INDUSTRY’

The wine industry is evidently in need of transformation. It founded itself on slavelabour.9 It reconstructed its labour relations in the aftermath of Emancipationinto a system marked by low wages and poor housing, the dependence of workersand their families on the farmers, their farms and the supply of alcohol to workers,the dopstelsel (tot system), which generated high incidences of foetal alcohol syn-drome and tuberculosis, and which long outlived its abolition in 1962. It wascomplemented by claims to the labour of prisoners and mediated through thesocial relations of rural paternalism.10 A few free blacks (vryzwarten) owned winefarms in the early eighteenth century, of whom Louis van Bengaal who ownedLanzerac is the best known but not the only example (Worden 1985, 145–6).KWV had ‘one or two’ black members in its early years; a ‘couple of applications’were turned away in the late 1960s ‘because of the practical problems it wouldbring in the light of apartheid legislation’.11 Economic and social exclusion, re-inforced by legislation, put paid to the emergence of a stratum either of Colouredor African wine farmers. Their task was to labour in their masters’ vineyards.12

The 1924 Wine and Spirits Control Act gave KWV the responsibility to regu-late the sale of wine for distilling, to set the prices paid to farmers and paid by‘the Trade’, i.e. the manufacturing-wholesalers, and to act as buyer of last resort.The difference between the two prices was set by KWV. Each year it declared ashare of the vintage to be ‘surplus’. The producer received the price paid by ‘theTrade’ less the percentage deemed to be ‘surplus’. The difference was paid toKWV; alternatively KWV took delivery of unsold wine at the producer priceand resold it to ‘the Trade’ or disposed of it in any other way it could come upwith. During the 1930s, manufacturers paid a higher price for distilling winethan for ‘good wine’, i.e. wine which was bought and sold on the market.Consequently, the 1924 Act was amended in 1940 to enable KWV to setminimum prices for ‘good wine’. The KWV finally introduced controls on newplanting in 1960.13

9 Blommaert (1938, 1); Worden (1985); Rayner (1986).10 Wilson (1971, 162); Ross (1986, 79–86); Worden (1989); Scully (1987, 1997); van den Bergh(1995, 74–113); van Ryneveld (1986); London et al. (1999); Goussard (1999).11 SAD (State Archives Deposit), RKV 3/19: KWV to RKV 16 May 1969.12 I take this comment from the title of van Arkel et al. (1983).13 On the history of KWV and the regulation of wine prices, production and markets, see van Zyl(1993); Vink et al. (2004, 228–39).

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The regulatory structure encouraged and expanded the production of high-yielding grapes, mainly white, on irrigated land for making wines of low quality.It protected farmers’ incomes but discouraged competition among buyers; whole-salers’ ties to retail outlets discouraged competition among sellers. This facilitatedthe process of concentration of control of markets for wines by StellenboschFarmers Winery (SFW), acquired by South African Breweries in 1960, and forspirits by Oude Meester-Distillers, owned by the Rembrandt Corporation. In 1979,Oude Meester-Distillers and SFW amalgamated to form Kaapwyn, in whichRembrandt, KWV and South African Breweries (SAB) each acquired 30 per centof the shares. They were jointly managed by a company, which combinedRembrandt and KWV’s shares, allowing SAB to protect its interests in the liquorindustry as a sleeping partner. In 1988, Kaapwyn separated into its originalcomponents, Distillers and SFW, but with no change in share ownership, andthey remerged in 2000 to form Distell.14

In 1972, new legislation specified rules for labelling wines according to theirdistricts of origin, as estate wines, and by cultivars. This opened space for estateproducers to adopt and to expand planting of premium cultivars to producequality wines under their own labels.15 Co-operative cellars began to sell morewines, mostly at cheap prices, directly to the market. These changes led to theend of production control in 1992 and of minimum prices in 1995. KWV’sstatutory activities were rapidly becoming redundant and it was nervous of thechanges that might follow in the wake of the election of an ANC-led government.

On 9 October 1996, Lourens Jonker, chairman of the KWV, announced thatit was applying to convert itself from a co-operative into a company. Conversioninto a company would make it easier for KWV to raise capital and allow itsmembers to unlock the value of KWV’s assets; it would also make it possiblefor KWV to create a development trust. ‘A’ shares would be allocated pro rata tothose who had delivered grapes to KWV in the previous fifteen years and tosenior managers through the KWV Shares Incentive Trust. Shares could only bebought and sold among producers, later extended to employees of KWV and inthe wine industry; nobody was to own more than 5 per cent of the ‘A’ shares.Wine farmers would retain control of KWV through their continued membershipof KWV Co-operative, whose ‘B’ shares in KWV Group did not get any dividendpayments but commanded 80 per cent of the votes. All the assets of the formerco-operative, including its brandy lake, were conferred on the new company.16

KWV’s plans opened the way for its critics to bring a range of issues to thefore: the provenance and allocation of its assets; labour relations in the industry;its monopolistic structure; and even a scam to export fake champagne in 1992.After bitter controversies, the Minister of Agriculture and Land Affairs agreedon 9 September 1997 to allow KWV to convert itself into a company. KWV

14 Deacon (1980); Competition Board (1982); Fridjhon and Murray (1985); van Zyl (1993, 227–45);Vink et al. (2004, 235–6).15 Interview, Danie de Wet (7 May 2004).16 For details, see Jonker (1996, 2002); Die Burger (10 October 1996; 16 May 1998).

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initially agreed to provide R477 million over ten years, subsequently modified toR369 million, to fund a South African Wine Industry Trust (SAWIT) and sur-rendered its remaining statutory responsibility, compulsory ‘surplus’ disposal. Theformation of a South Africa Wine and Brandy Corporation to oversee activitiespreviously falling to the Wine and Spirits Board and to KWV was suggested.17

SAWIT was eventually established in March 1999, under the chairmanshipof Michael Fridjhon with Marthinus Saunderson as director. KWV secured itsliability to SAWIT by pledging shares in Distell and Ceres Fruit Juices. SAWITwas divided into two non-profit (Section 21) companies: BUSCO (Wine IndustryBusiness Support Committee), to which 54.56 per cent of the Trust’s incomewas allocated and DEVCO (Wine Industry Development Company), whichreceived 45.44 per cent. SAWIT was to have thirteen trustees, and BUSCO andDEVCO were each allocated thirteen directors, seven nominated by the Ministerof Agriculture and Land Affairs and six by KWV. The trustees could, by a 75 percent majority, amend the trust deeds, including ‘the objects of Busco or Devco’and their articles of association, without references to the minister. A trusteemay make a contract with the trust, after notifying the other trustees and with-out voting on the decision.18

BUSCO ‘focuses on research, development and technology transfer in thewine industry as well as generic export marketing’; it was originally chargedwith ‘voluntary surplus removal’ (SAWIT 1998, 8.7.2; SAWID 2004/5, 59). Tothis end it: contributes to the costs of (1) Vinpro (SA), ‘which represents [wineproducers] on all relevant forums’ and provides consultation and informationservices; (2) of Wine Industry Information and System (SAWIS), which ‘collectsand disseminates information’ on and for the industry; (3) of Wines of SouthAfrica (WOSA), which promotes ‘the visibility of South African wines abroad’;and (4) of Wine Industry Network of Expertise and Technology (Winetech)which ‘coordinates research, training and technology transfer’. It also publishesWineLand/Wynland, formerly Wynboer, and the South African Wine IndustryDirectory (SAWID); collects levies for services from producers and administersthe ‘wine of origin’ systems; and finally was to ‘provide for a voluntary surplusremoval system’ which never came into being (SAWID 2004/5, 59, 61, 58, 65,67). In short, these several organizations have taken over from KWV its respons-ibilities to provide services to the industry.

DEVCO was required to divide its spending among its three aims:

1. the establishment of new farmers in the wine industry from previously dis-advantaged groups [to which 43 per cent of its income is committed];

2. the support and upliftment of farm workers in the wine industry and theircommunities [41 per cent];

17 Vink et al. (2004, 238–9). The story can be followed in Die Burger and Business Day (10 October1996 to 10 September 1997); Wynboer (October 1996, 6–10; December 1997, 3; February 1999, 5;July 1999, 23; May 2004, 48–50).18 SAWIT (1998); SAWID (2000, 37); KWV (2000–2004, 34/53).

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3. assistance with the marketing of wine products and access to extension servicesfor new wine grower entrants [16 per cent]. (SAWIT 1998, 8.7.1; SAWID2002, 2004/5, 64)

The Wine Education Fund, which is separately financed, promotes education forblack South Africans in viticulture and oenology.

SAWIT, BUSCO, DEVCO and the organizations they fund took over fromKWV its previous service and ‘development’ activities. KWV claimed credit forfunding DEVCO and SAWIT projects and focused ‘its empowerment projectssolely through its extensive funding of SAWIT’; it also contributes to the workof the Association for the Responsible Use of Alcohol (ARA).19 KWV’s ‘objectiveshave now changed to those of a purely commercial company, namely maximumreturn for its shareholders’ (SAWID 2004/5, 38). Nevertheless, SAWID still listsKWV, unlike other commercial companies, as a ‘Wine industry organization’.

The Liquor Bill, first proposed in 1997, required a separation of producers,wholesalers and retailers.20 This model appears to have been adopted without fullconsideration of its implications. As originally proposed, it would prevent wineproducers, whether private or co-operative, from selling their products fromtheir cellars. It would cut through the middle of the activities of Distell and otherfirms that combine manufacturing and wholesaling. Distell’s control of popularbrands would still allow them to dominate the market for spirits; at the sametime, it could create space for black firms to enter the wholesale sector. A com-promise solution allows manufacturers to sell directly to retailers, with ministerialpermission, if they meet requirements for black empowerment, the problemsof alcohol abuse and the (weakly enforced) Competition Act.21 This keeps theprinciple of the legislation in place and the manufacturing-wholesalers in businessby giving the Minister of Agriculture leverage over their activities.

In 2002, KWV and Distell were instrumental in setting up the South AfricanWine and Brandy Corporation (SAWB) to drive ‘the Vision2020 StrategicProgramme’ to create an ‘innovative and highly entrepreneurial industry’, whichis ‘market-’ rather than ‘production-driven’ (Winetech 2002). It will draw a lineunder the industry’s past of apartheid and statutory regulation, so that ‘the “NewSouth African Wine Industry” is as different from the old one as the “New SouthAfrica” is from the old one’ (SAWB 2002, 2). SAWB is ‘to represent the totalwine industry’. Its board was made up of representatives of four chambers, oneeach for processors, merchants, growers and labour, who were nominated byand mainly drawn from the interlinking institutions that shaped the industry inthe past from which it now wishes to escape (SAWB 2002, 19; 2003, 51–2).

The SAWB’s Strategic Plan for the South African Wine Industry (WIP),adopted in 2003, realigns Vision2020 with the government’s Agricultural Sector

19 WineLand (October 2002, 22), also KWV (2002a; 2004, 19).20 Business Day (14, 18 July 1997); Die Burger (30 August 1997; 17, 24 September 1998).21 Interviews, Michael Fridjhon (8 October 2002), and Riaan Kruger (16 October 2002); Wynboer(December 1997, 3); Die Burger (24 July 2003; 14 August 2004); KWV (2003, 15).

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Strategy Plan and its Black Economic Empowerment Strategy. The industry isto be ‘a global enterprise with strong South African cultural roots – reflecting goodcitizenship and social responsibility’. Its ‘MISSION’ is to ‘create a better lifefor all in the wine industry through collaboration and strategic leadership’. Its‘VISION’ balances the economic challenges of becoming ‘innovation-driven,market-directed, globally competitive, highly profitable and dominant in selectedglobal markets’ with the political imperatives of ‘leading socio-economic trans-formation and empowerment in South Africa through equitable access toresources, business opportunities, markets and decision making of historicallydisadvantaged and economically marginalized South Africans’. Its ‘CORE TASKS’are: ‘To establish strategic collaboration and leadership in the wine industry; Torepresent the wine industry; and To initiate, coordinate, drive and monitor theimplementation of the WIP.’ The SAWB will ‘have to ensure . . . that enterprisesmeet agreed-upon hard targets’ in accordance with ‘the Scorecard’. These taskswill be achieved by implementing six strategic plans: ‘Economic empowerment;Social upliftment; Technological innovation and transfer; Market developmentand promotion; Industry knowledge and intelligence; and Human ResourcesDevelopment’ (SAWB 2003, iii–vii, 18–40). Among these strategies, ‘empower-ment’, which is not mentioned in Vision2020, leapfrogged all the other objec-tives to take primacy.

OPENING THE DOORS TO TRANSFORMATION

Until the end of 2002, control of KWV Group rested formally with KWVCo-operative and its members, even though in practice it may have been theother way round: they shared the same chairman, Lourens Jonker, and all nineactive members of the Group’s board of eleven sat on the Co-operative’s fifteen-man board (SAWID 2002, 35; KWV 2002, 4). ‘A’ shares could only be tradedamong the farmers, thus dampening down their value and excluding outsidersfrom holding shares in KWV itself. When Lourens Jonker proposed that KWVGroup buy out the voting ‘B’ shares of KWV Co-operative, the immediatefinancial interests of holders of ‘A’ shares conflicted with those of the co-operativeand its members, most of whom themselves owned ‘A’ shares!

KWV’s most important assets were and are its interests in Distell and itsliterally liquid assets: stocks of brandy and wine. KWV’s net asset value of moreor less R2.50 per share was, as it still is, well in excess of its equity value, whichmade it an obvious candidate for asset-stripping once the rules were changedto allow shares to be traded freely: the sale of KWV’s shares in Distell alonecould realize most if not all of the market value of its shares. A group of fivebusinessmen-farmers, led by G. T. Ferreira, the non-executive chairman of RandMerchant Bank, began to buy up shares in 2001 and eventually acquired 50 mil-lion ‘A’ shares, 13 per cent of the total. In December 2001 and January 2002, fourdirectors of KWV acquired a far smaller number: 1,566,000 shares (0.4 per centof the total) between them. The price of shares rose from 42c in January 2002 to

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75c in April. The announcement in June 2002 of KWV’s plans to allow all itsshares to be freely bought and sold boosted the value of KWV shares to R1 at thebeginning of October 2002 and R1.50 by the end of the month.22

Lourens Jonker’s proposals to restructure KWV Group set off new arguments,accusations and two counter-proposals, one from the ‘Group of Five’ and theother from farmers from Montagu. The critical question was the price, in theform of additional income-earning shares, which KWV Co-operative would bepaid in exchange for losing its control of the Company. Its new assets andincome would be needed to pay for the various responsibilities that would betransferred to its successor, Wijngaard. The members of KWV Co-operative votedoverwhelmingly for the compromise proposal that the directors of KWV agreedwith the Group of Five. Wijngaard acquired a 9.9 per cent interest (43,388,800shares) in KWV Ltd through the issue of new shares, and KWV Ltd guaranteedto buy services to the value of R8 million per annum from Wijngaard for fiveyears. Wijngaard, which later reverted to the now familiar name, Vinpro (SA),took over from KWV responsibilities for representing wine producers throughthe SAWB, providing information and consulting services, publications and even,in a bow to the origins of KWV, ‘voluntary surplus removal’.23

KWV acquired a pre-emptive option to buy Wijngaard’s shares. For its part,Wijngaard/Vinpro (SA) would be able to exercise a provisional option to buyKWV’s liquid stocks at their tax valuation if any hostile take-over bid were madefor the company’s shares at a price less than 80 per cent of its net asset value, andwould have the right to sell them back to the company at replacement value; thiswould also require KWV to pay excise tax on the disposal of the stocks andincome tax on the difference between their market and tax values. It was indeeda ‘poison pill’. The mechanism would stay in place until the end of 2006 or could

22 WineLand (June 2002, 7; August 2002, 5); Die Burger (16 May 1998; 9, 19 October 2002).23 Die Burger (17 October, 10 October to 4 December 2002; 25 July 2003); Business Report (18, 19 June,23, 28, 31 October, 28 November 2002); Jonker (2002); WineLand (22–24 December 2002; 28–29January 2003; 28–29 August 2003).

Table 1. KWV shares traded: market prices, 1999–2004

Year 1999 2000 2001 2002 2003 2004 2005†

Mean price 70c 46c 43c 49c 105cLowest 40c 40c 39c 42c 70c 90c 120cHighest 140c 65c 53c 150c 150c 245c 145cClosing 45c 53c 40c 90c 92c 166c 130cDividend 3c 2c 0c 2c 5c 23c*+3.5c

* Special dividend, declared 15 June and paid 15 October 2004.† To 31 March 2005.Sources: KWV (2000/2001/2002, all 14; 2003, 24; 2004, 41; 2005 [ongoing]); KWVLimited (2005).

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end before that, under specific circumstances, notably if KWV Ltd were to liston a stock exchange (KWV 2004, 63). Links between the boards of KWV, electedby its shareholders, and Vinpro (SA), elected by its members, were loosened butcontinued: in March 2003, three directors sat on the boards of both KWV andVinpro (SA) and the chairmanships were separated – Danie de Wet moved fromthe chairmanship of Wijngaard/Vinpro (SA) to succeed Lourens Jonker at KWVLtd (WineLand March 2003, 6; KWV 2003, 10–12).

KWV Ltd was now a commercial company, with continuing but not indefinitecommitments to fund SAWIT and Vinpro (SA). The value of each KWV sharefell back to less than R1 in the first half of 2003. KWV could no longer rely onthe ‘surplus’ pool to provide it with distilling wine. It now had to focus itsexport strategies on table wines instead of the fortified wines and brandies onwhich it had originally built its exports, in competition with numerous otherexporters of South African wines, apart from the produce of other countries. Ittherefore had no option but to enter the local market, which it did in May 2004.This brings it into direct competition with Distell, whose shares are KWV’smost import source of net income.24 KWV had secured itself protection againsthostile takeovers and was open to an agreed restructuring of its share ownership.Politics dictated that this should allow KWV to incorporate a black empowermentconsortium into the ownership and direction of the company.

SAWIT, with six of its thirteen trustees representing KWV, found itself indispute over the tax status of KWV’s payments to the Trust. KWV stated in itsown accounts that they were ‘payments over a 10-year period’ to SAWIT ‘fortasks which the trust will perform and from which the company will benefit’(KWV 2000–2004, 52). The South African Revenue Service (SARS) accepted theimplications of this formulation, viz. that the payments were income earned bySAWIT, for which value added tax (VAT) payments are liable, rather than abusiness settlement and thus transfers of capital, which would not attract VAT.The cost of VAT payments would fall on SAWIT and thus be deductible byKWV. Michael Fridjhon pursued the issue legally and obtained a court-ordereddiscovery that the SARS legal counsel advised that the payments were a businesssettlement and thus exempt from VAT. After the end of his tenure as chairman,SAWIT’s trustees approved an ‘amicable agreement’ with SARS, under which ‘aportion of the input VAT is claimable and a portion of the payments are deduct-ible for income tax purpose’. This settlement increased KWV’s net profit byR58,678,000 (13c a share) and reduced the cost of its future liabilities to SAWITby a further R23,506,000.25 The agreement, which was approved by KWV’sdirectors and by KWV’s nominees to SAWIT’s trustees, smoothed the path forfurther collaboration between KWV and SAWIT.

BUSCO was quick off the mark to allocate its funds and consistently continuedto do so. The money could be and was directed to well-established institutions,

24 Business Day (25 March 2004); Die Burger (3 May, 20 September 2004); Business Report (4 Septem-ber 2004); WineLand (May 2004, 27).25 KWV (2000, 30; 2003, 48, 52); Interview, Michael Fridjhon (8 October 2002); G. Pieterse (citedWineLand November 2003, 33).

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notably Wines of South Africa, Vinpro (SA) and Winetech. DEVCO has to findnew ways of allocating its funds and identify appropriate beneficiaries. Its initialcommitments were to health, education and community projects. It lent R2million to a farm workers trust to acquire shares in Lutouw, an irrigation-drivenjoint venture project at Vredendal, supported by the Department of Water Affairs,and it contributed R20,000 to install irrigation on a small wine grape project atJacobsdal in the Free State.26 By February 2003, DEVCO had spent R7,867,433,only 21 per cent of its budget since its inception in 1999. The rest had to be trans-ferred to a reserve fund which, after provision for tax, accumulated R20 million,a potential ‘honey pot’ if it could be opened up (Business Day 1 March 2004).

In early 2002, Thoko Didiza, the Minister of Agriculture and Land Affairs,appointed six new trustees of SAWIT. Gavin Pieterse, chief executive officer ofAfrican Renaissance Holdings and former President of Black Management Forum,became chair in place of Michael Fridjhon. The other new trustees were JohnPlatter, the wine writer; Nomaindia Mfeketho, Mayor of Cape Town; Dr ThandiNdlovu; Mfundo Nkuhlu, from the office of the SARS commissioner; andHerman Hanekom, a viticulturalist, who later withdrew. Jabulani Ntshangasecontinued to be a Trustee. In July 2004, the Minister nominated Kader Asmal,the former Education Minister, as a trustee. KWV retained a closely-knit team:Willem Barnard, its managing director; Jannie le Roux, a director of KWV andof Vinpro (SA); Theo Pegel, the executive director of Vinpro (SA); JohannKrige, a director of Vinpro (SA); Jacobus Joubert, chair of KWK (now WynkeldersSA, formerly Koöperatiewe Wynkelders); Nico Kotze, then Finance Director atKWV, replaced Lourens Jonker; Willem de Klerk, Director of Trade Policy atKWV was subsequently included. Neither Kotze nor de Klerk was still a trusteeafter they had retired from KWV in May 2004. Gavin Pieterse brought to the jobnew priorities and a determination to see them through.27

SAWB approached SAWIT to fund the design of two new business units:Human Resources Development and Socio-economic Empowerment and ‘tocontribute to operational activities of these units, specifically related to socialcapital development, training and economic empowerment of farm workers andfarm worker communities to voice their concerns and participate in the leadershipfunctions of SAWB’ (WineLand May 2003, 28, 30).

If farm workers were to be empowered, they had to be represented. Theirrepresentatives emerged out of the heart of the wine industry in the form of theBlack Association for the Wine and Spirits Industry (BAWSI). Its President,Nosey Pieterse, is a ‘personnel specialist’, who had his office and his email addressat KWV. Vukile Mafilika, responsible for public relations, was director of com-munity affairs at Vinpro and a KWV nominee to the board of DEVCO. NoseyPieterse is a director and Mafilika the marketing director of Reinvest, a blackempowerment company, producing Lindiwe wine in partnership with KWV.

26 Wynboer ( July 1999, 5); WineLand (January 2001, 17–18; September 2002, 27); Vinpro (2004).27 WineLand (April 2002, 4); KWV (2002, 5); SAWID (2003, 53); Interview, Michael Fridjhon(8 October 2002), Gavin Pieterse (cited Die Burger 28 July 2004).

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Prominent among BAWSI’s affiliates is the Plaaswerkersvereniging, which claimssubstantial support among farm workers but does not sign up members: itsgeneral secretary, Ockie Bosman, had been managing director of the defunctRural Foundation. BAWSI opened new offices at KWV Cellars in Paarl on1 November 2004.28

The Preamble to the BAWSI Charter declared:

That the Wine and Spirit Industry is owned and managed by whites. Thatpeople of colour had been deliberately excluded from participation as cap-italists in the industry, but to participate as exploited workers. That formaland/or technical skills are primarily vested in whites and that the industry ismanaged by whites.

We believe that it is in the interests of the industry as well as the countrythat the Wine and Spirits Industry is fully representative of the South Africansociety at all levels, structures and institutions, privately as well as stateowned organizations.

BAWSI’s founding principles were ‘the social upliftment of people on farms’,‘the implementation of fair labour practices’ and ‘to play a meaningful role in theempowering of its members to enable them to become owners of the industry’.29

Nosey Pieterse made it clear at the outset that BAWSI was not a trade unionor a workers’ forum, even though it claimed and was granted the right to formthe Labour chamber on the board of SAWB, and was recognized publicly asrepresenting labour. BAWSI was

formed to draw together interested parties and individuals from the dis-advantaged groups in the following sectors: organised labour, business, NGOs(non-governmental organisations) and CBOs (community based organisa-tions) as well as individuals. (SAWID 2002, 61; WineLand October 2001, 40)

BAWSI claimed as its members ‘13 unions, 40 NGOs, 20 black businesses, 4emerging farmers, and numerous women’s, youth and disabled groups’ (SAWID2004/5, 35). The reported numbers of its affiliates and members are somewhatelastic (SAWID 2003, 29; Business Report 24 August 2004). They encompassRUDNET (Rural Development Network), a network of rural NGOs. BAWSI’sassumption appears to be that its affiliates all have the same fundamental interestsin common by virtue of racial disadvantage. It speaks in the name of a broader‘black’ constituency than ‘Labour’.

BAWSI regarded many of the land and housing reform projects as ‘pseudo-empowerment’: ‘The fundamental characteristic of any empowerment initiativeis independence, and we see many of the people currently involved in empower-ment projects still wholly dependent on a farmer or owners’ (Nosey Pieterse,

28 SAWID (2000, 37; 2002, 62; 2003, 30; 2004/5, 35); WineLand (October 2001, 40–1; November2003, 33; January 2005, 4); Business Day (28 August 2003); Die Burger (3 September 2003); Ewert anddu Toit (2004).29 SAWID (2004/5, 35); also WineLand (October 2001, 40), SAWID (2002, 61).

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cited WineLand October 2002, 24). In May 2003, BAWSI announced that it hadset up an industrial arm: BAWSI-I (Black Association of the Wine and SpiritsIndustry Investments (Pty) Ltd.) ‘Shares of the Company are held by BAWSI-NGO Trust (40%), BAWSI-I Management (20%), a [unspecified] Share Incen-tive Scheme (20%) and a [unnamed] Strategic Partner (20%).’ Its managingdirector, Garth Adams, explained that it had ‘political endorsements and verystrong empowerment credentials.’ It would ‘play an active role at board, executiveand operational level’ in the companies in which it invested and would bringthem a ‘competitive advantage over other businesses as BAWSI-I enjoys “firstmover” status in the wines and spirits industry’ – and was certainly bidding forthat position (Business Day 8 May 2003; WineLand June 2003, 28–29).

The quickest route to empowerment, and the one which is most immediatelyrewarding, is to transfer a share in the ownership of companies to a few membersof ‘historically disadvantaged communities’. They may carry in their wake abroader constituency of worker- and community-based organizations. If the wineindustry as a whole is to meet the targets set by government for black share-ownership, its largest institutions need to secure their empowerment strategies.By the middle of 2003, the institutional conditions were in place to move forwardtowards a major black economic empowerment deal.

SETTING THE AGENDA FOR EMPOWERMENT

SAWIT and SAWB set up the ‘SAWIT Black Economic Empowerment Confer-ence’, which brought some 300 people from across the wine industry together atthe Cape Town International Conference Centre on 31 October 2003. As GavinPieterse observed in announcing the conference, less than 1 per cent of thewine industry was in black hands. Hence the need for a manifesto for blackempowerment to change the face of the wine industry. SAWB’s primary con-cern was to secure ministerial approval of its Wine Industry Plan (WIP) (DieBurger 19 September, 22 October 2003; WineLand September 2003, 10). Confer-ence arrangements were (quite legally) entrusted to 3D Global Communications,whose directors include Ms Bev Basson, Gavin Pieterse’s wife.30 So everythingwas nicely in place for the meeting.

Thoko Didiza, the Minister, gave the keynote address, which focused on theforthcoming ‘AgriBEE’ strategy. She noted that:

While one of the important keys to empowerment is asset ownership,impoverished black South Africans often do not have the start-up capacityto accumulate conventional mainstream assets on their own and this putsto the test the ingenuity and resources of government and the financialcommunity serving agriculture. (Didiza 2003)

Johan van Rooyen, the managing director of SAWB, welcomed the ‘monu-mental’ approval of WIP by the Minister. She had been rather less fulsome:

30 Sunday Times (27 February 2004); G. Pieterse (cited Business Report 16 August 2004).

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the government supported the initiatives now that, through SAWIT, theyincorporated its own insertions. SAWB and SAWIT signed a memorandum ofco-operation and agreed to form a steering committee to produce a manifesto forBEE and a set of scorecards for monitoring it.31

The Minister took account of the workers who grew the grapes and bottledthe wine: ‘Farm workers, who in the past were merely workers, also need to betrained so they too can grow and become wine makers and enter higher skilledopportunities’ (Didiza 2003). She found no reason to mention trade unions and,if labour had been consulted, this was evidently news to Tony Ehrenreich, regionalsecretary of the Congress of South African Trade Unions (COSATU) for theWestern Cape. The voices of farm workers themselves were muted. Only whena trade unionist asked to speak in Afrikaans, the home language of nearly all farmworkers, did Johan van Rooyen explain WIP in Afrikaans.32

If SAWIT was to be able to release its funds to contribute to BEE, its trustdeeds and in particular DEVCO’s terms of reference would have to be changed.The Minister observed that government would look at ‘the Trust Deeds andBoard of Trustees’ of SAWIT to enable it to make ‘a meaningful contribution toBEE in the wine industry’; ‘SAWIT itself [should] contribute to empowermentand investigate a mechanism for financing empowerment transactions’ (Didiza2003). For KWV, Dr Willem Barnard agreed that the Trust’s structure had beentoo bureaucratic; it had not spent much money on black empowerment and a lotof accumulated funds were available (Die Burger 5 November 2003).

Gavin Pieterse found SAWIT’s compromise structure to be an anomaly; infuture he would chair a five-person executive committee and reduce the trusteesby two. He proposed that SAWIT should become a public body under theMinistry, which would relax KWV’s hold on the Trust. More of SAWIT’s funds

will have to go to DEVCO, towards critical equity and business entre-preneurial funding . . . we must move away from a practice of throwingmoney at deeper underlying problems, and focus on creating a healthybalance between social welfare challenges and meaningful economic activity.(WineLand November 2003, 33)

In November 2003, SAWIT ‘lost’ its managing director, Marthinus Saunderson(Gavin Pieterse, cited Business Report 16 August 2004). Saunderson was suspendedwhile SAWIT set in motion a ‘forensic audit’, which did not find evidence of anywrongdoing. In Saunderson’s absence, Gavin Pieterse took direct charge of theaffairs of the Trust, which agreed to pay him R20,000 a month to compensatefor the time he now had to devote to its activities. Charles Erasmus, fromRUDNET, was subsequently appointed to replace Saunderson as managingdirector of SAWIT in September 2004.33

31 WineLand (December 2003, 11); Die Burger (1 November 2003; 2 April 2004).32 Wynboer (1998, 18); e-mails: Andries du Toit, Joachim Ewert, Johann Hamman (November 2003).33 Sunday Times (27 February 2004); Die Burger (2 March, 28 July 2004).

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KWV also restructured its executive to meet the demands of changing times.Its new chairman, Danie De Wet was determined ‘to free it from politics’ and hechanged KWV’s management to focus on ‘the business’ (Danie de Wet, citedBusiness Report 16 July 2004). Three directors, Nico Kotze, Willem de Klerk andElsa Mouton retired in May 2004; Vernon Davis, the managing director ofKWV International, had already left to join Winecorps in 2003. This left onlyWillem Barnard and Willem Bestbier, Director of KWV (SA) at the reins of theentire group; in July 2004, Johan Bestbier, Willem’s brother, became director ofKWV International.34 In December 2003, KWV formed a KWV EmployeesEmpowerment Trust (KEET) to enable its workers to share in an empowermentdeal (Die Burger 14 July 2004). All was now ready to implement the KWV BEEproject.

FORMING AN ALLIANCE FOR EMPOWERMENT

KWV has always kept itself at the centre of the wine industry by keeping closerelations with the governments in power, whether of Smuts’ South AfricanParty, which passed the 1924 and 1940 Acts that conferred on KWV its statutorypowers and responsibilities, or of the National Party, which consolidated itspowers in the 1970 ‘KWV’ Act and which in 1979 and 1983 approved therestructuring of Distillers and Stellenbosch Farmers Winery into a single businesswhich included KWV. KWV now needed to incorporate a significant blackshareholding to build a bridge to the African National Congress governmentand committed itself to ‘pursue black economic empowerment as a strategy topromote ownership’ (KWV 2003, 19, also 15; de Wet 2004). Any settlement hadto be compatible with the provisions of the 2002 compromise, which allowedVinpro (SA) to block any hostile take-over bid. How was BEE to be achieved:who was going to sell shares, to whom, with whose money, by what mechanismsand how would the beneficiaries repay the funders?

The key drivers of KWV’s BEE process were Danie de Wet, its new chairman,and Gavin Pieterse, chairman of SAWIT. Nosey Pieterse of BAWSI was anessential ally. The Minister’s approval was required for any agreement to bereached (Business Report 2 March 2004). In April 2003, the KWV directors dis-cussed whom they should work with and ‘We decided to give it to Sawit’ (Daniede Wet, cited Business Report 4 July 2004). According to Gavin Pieterse, SAWITonly came into the picture in August 2003 at BAWSI’s instigation. BAWSI hadtaken out an option on the Group of Five’s shares in KWV but did not have themoney to buy them and approached SAWIT for financial assistance. If so, SAWITthen took the option over from them and were already identified as KWV’sprospective empowerment partner at the time of the BEE Conference.35

34 Business Day (7 May 2004); Die Burger (8 May 2004); Business Report (13, 19 May 2004); KWV(29 July 2004).35 Gavin Pieterse (cited Business Report 16 August 2004); Die Burger (30 October 2003; 2, 31 March2004).

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SAWIT brought together a consortium of individuals and organizations(including BAWSI), which agreed with KWV to acquire a 25.1 per cent share inthe company. SAWIT paid the fees for a merchant bank to prepare the proposaland was expected to contribute 40 per cent of the costs of funding the trans-action. The parastatal Industrial Development Corporation was expected to makeup the remaining 60 per cent.36

These proposals raised issues of conflicts of interests and practical imple-mentation, beyond the question of the price of shares. The process appeared tobe circular. KWV would be funding the acquisition of its own shares with themoney it had transferred to SAWIT, several of whose trustees had been appointedby the KWV itself. SAWIT appeared to have gone beyond DEVCO’s originalterms of reference. The trustees of SAWIT, who were now the directors ofDEVCO, could not take part in decisions concerning any transaction whichmight benefit them, but the decision to fund the acquisition of KWV shareswould inevitably have consequences for the value of shares in KWV, includingthose held individually by SAWIT trustees (SAWIT 16 December 1998).

Tony Ehrenreich raised these issues with Gavin Pieterse on behalf of COSATUin February 2004 and asked the Minister to conduct an enquiry into the actionsof SAWIT and DEVCO, a majority of whose trustees/directors she had herselfnominated.37 KWV and SAWIT had properly consulted their lawyers, whoconfirmed the legality of the proposed deal.38 The Minister’s concern was to seethe project through to completion.

BAWSI’s presence was essential to the claim that the deal would extend itsbenefits to a range of NGOs, community organizations and trade unions. Atthe end of 2003, BAWSI approved a three-year budget proposal by RUDNET,the Rural Development Network of NGOS and, politically, a key participantin BAWSI’s bid for a share in any empowerment deal. On 16 January 2004,RUDNET circulated a memo to its affiliates, urging them to express their interestin the bid for KWV (Sunday Times 27 February 2004). Most but not all ofthem signed up to the process. KWV consistently described BAWSI as the‘legitimate representative’ of farm workers, a label from which BAWSI did notdistance itself.39 This brought out the issue of which of BAWSI or COSATUand their respective affiliates could claim to represent the farm workers in theindustry, nearly all of whom did not belong to any trade union at all (du Toitand Ewert 2004).

SAWIT balked at the first hurdle in the process. The initial option to buy13 per cent of KWV’s shares from the Group of Five fell on 28 Februarywhen SAWIT failed to agree on a price with the sellers. For the sellers, AngloAfrican Trading asked for R1.85 per share, far above the current share price and

36 Business Report (11 February 2004); Die Burger (1 November 2003; 31 March 2004).37 Sunday Times (27 February 2004); Die Burger (2 March 2004).38 Interview, Willem Bestbier (5 May 2004).39 Die Burger (14 July 2004; also, among other examples, 31 March, 20 July 2004); Business Report(27 March, 4 September 2004); WineLand ( July 2004, 8).

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completely out of line with its dividend of 5c per share in 2003. SAWIT wouldnot go above R1.44. IDC, which was to provide a substantial part of the funds,would not go above R1.10 in the light of KWV’s earnings and dividends (DieBurger 2 March, 28 May, 20 September, 9 November 2004).

Conflicts arose and potential participants peeled away when the deal ran intodifficulties. In March 2004, members of a black consortium, headed by GarthAdams, acting now as managing director of Chuma Wine and Spirits Holdings,withdrew: ‘it was not a real empowerment deal but was orchestrated by the[KWV] for its own purposes’. Further, they complained, KWV had contractedits distribution of wine and spirits to the internal market to Smollens and TongaatFood Distribution, to the exclusion of any black empowerment company. Mem-bers of this black consortium included ‘the National African Farmers Union, theSA Disability Investment Company, Women in Wine, the SA Liquor TradersAssociation and the SA Liquor Stores Association’ (Business Report 1 April 2004).Some of these organizations evidently reserved their positions, perhaps to streng-then their bargaining power. Desmond Lockey, the black shareholder with thelargest investment in KWV, withdrew because of the ‘lack of democracy andtransparency in the manner in which Gavin Pieterse . . . was conducting matterson behalf of the Trust’. Pieterse retorted that Lockey was only ‘one of 16 indi-viduals who had been short-listed to take part in the final broad-based consortium’(Business Report 28 April 2004). SAWIT and KWV pursued the project undeterred;they were committed ‘to make the transaction affordable and to implement it’(Barnard, cited Die Burger 6 April 2004).

WHO EMPOWERS WHOM?

The negotiators still had to settle on a price at which finance would be availableto acquire over a quarter of KWV’s shares. Their plans were interrupted whenAnglo-African Trading (AAT) offered to pay R1.60 per share, about 25c abovetheir mean price over the previous three months, in order to acquire 11 per centof KWV shares. AAT would own about 15 per cent of KWV when the sharesheld by J. P. du Plessis, executive director of AAT, and by Rand Merchant Bankwere taken into account. The bid was clearly hostile and well below 80 per centof the net asset value set at R2.57 (R2.38 at the end of June 2004); it was sug-gested that it hid a sinister agenda to combine with others to acquire a dominantshare in the company and, possibly, to unlock its assets. KWV responded bypromising that a better offer was forthcoming; it was still unclear how thefinancing gap would be bridged. AAT was unable to acquire the number ofshares it planned; its intervention raised the market price and it was in a positionto profit from reselling its own shares at a still higher price.40

On 9 June 2004, KWV and members of Phetego, a Black Economic Empower-ment consortium, announced that, with ministerial approval, Phetego had agreed

40 Die Burger (22, 25, 28 May, 2, 10, 15 June, 5 July 2004); Business Day (24 May 2004); BusinessReport (26, 27 May, 2, 15 June 2004); KWV (2004, 16); KWV (21 May 2004).

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to acquire a 25.1 per cent share in KWV. It would offer to buy 25.1 per cent ofthe shares of each shareholder at R1.85 per share, the price that had been turneddown earlier in the year and 25c above AAT’s offer. On 25 June, KWV declareda special dividend of 23c per share to shareholders who would still be registeredon 15 October 2004, thus itself making up most of the increase in the cost priceof its shares.41

Christo Wiese, chairman of the retail group, Pepkor, and a hitherto inactivedirector of the KWV intervened to shore up the deal. Having failed to persuadeothers investors to join him, Wiese was initially reported to have combined withKEET, the trust set up by KWV for its employees six months earlier, three ofwhose six trustees are nominated by KWV, to form a consortium to makea ‘friendly’ offer to acquire 85 million shares (almost 20 per cent of the total)from AAT and other investors at R1.85 per share. Wiese was reported to haveacquired between 10 and 15 per cent of KWV’s shares himself. Whether KEETor anybody else ever came up with the remainder of his bid remained obscure.Wiese’s offer would see off the AAT group. It would give credibility to theselling price of KWV shares. KWV employees would thereby gain a further5 per cent of all KWV shares. It would also consolidate a block of shares andmake it easier to acquire shares for the consortium.42

At the core of the BEE consortium were fourteen individual investors, whowere originally scheduled to acquire 26 per cent of the consortium’s shares. Theyinclude Anzill Adams, former secretary of BAWSI, and several prominent blackbusinessmen and businesswomen. They spread the benefits of the deal far andwide. It brought together prominent individual investors and claimed to empowervery large numbers of beneficiaries through affiliated organizations. BAWSIwas to divide its share among numerous constituencies, including RUDNET’saffiliates. The shares of the ‘members of BAWSI’ are to be held in trust. KWVEmployees Empowerment Trust brought KWV’s workers into the deal. EPA

41 KWV (9 June 2004); Die Burger (2, 5, 10, 11, 14, 28 June, 4 July 2003); Business Day (10, 20 June);WineLand (August 2004, 5).42 KWV (2000–2002, 4; 2003, 26, 31); KWV (24 June 2004); Die Burger (25, 28 June, 8 July 2004);WineLand (August 2004, 5).

Table 2. Prices of KWV shares 2004

Date Share Seller and Buyer and For %price asking prices offer prices of shares

28 February R1.40 AAT R1.85 SAWIT R1.44 [IDC R1.10] 25.121 May R1.51 AAT R1.60 119 June R1.70 KWV R1.85 BEE Consortium R1.85 25.124 June R1.63 Wiese R1.85 up to 2024 August R2.00 Wiese, Vinpro R1.85 BEE Consortium R1.85 11

KWV estimated net asset value per share, 2004: R2.37–R2.57.

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Development Group (Pty Ltd) is a company. Liquor and Kumnandi LeisureInvestments has ‘17 leaders’, among them Khehla Mthembu, executive directorof Old Mutual Gauteng. Liquor and Kumnandi Leisure, the Western Cape branchof the National African Farmers Union, BAWSI and the South African LiquorTraders Association, all make claims to represent large numbers of ‘members’. Itwas not clear who would take control of the shares of each of these organizationsand how their members would benefit (Die Burger 14 July 2004; Business Report24, 27 August 2004). A notable absentee from the negotiations was FranklinSonn, a black public figure and businessman, who had been elected to the KWVBoard in 2002.

The deal was arranged in such a way that it met the Agri-BEE requirementsboth for a ‘black economic empowerment’ and for a ‘broad-based’ enterprise.The Minister, Thoko Didiza, gave her approval to the deal and to the composi-tion of the empowerment consortium (Die Burger 10, 21 July 2004). It ‘emergedthat SAWIT recently amended its trust deeds to stipulate that 80 per cent of itsfunding would be geared towards BEE transactions’ (Mail and Guardian 28 July2004). Less vaguely, it was reported that BUSCO’s share had been reduced to40 per cent and DEVCO’s increased to 60 per cent of SAWIT’s assets andincome, and their objectives had been revised (Die Burger 28 July 2004; BusinessDay 28 July 2004). Quite when SAWIT’s trust deeds were changed, in whatrespects and by what procedures was yet to be disclosed. The chairman andtrustees appear to have jumped the gun; SAWIT seems to have facilitated andcommitted itself to funding the acquisition of KWV shares prior to amendingthe trust deeds to accommodate its change of direction.

Despite the breadth of the consortium, COSATU and the Food and AlliedWorkers Union, which organizes workers at KWV itself, were not content withthe new arrangements; nor was the Women on Farms Project. Ehrenreich observedthat Wiese had ‘a history of asset-stripping’ (Die Burger 8 July 2004). The Foodand Allied Workers Union (FAWU), which represents workers at KWV’s cellars,argued that the deal was structured to confer most benefits on a small numberof businessmen and businesswomen and that new farmers, workers and the

Table 3. Composition of Phetego consortium (initial in parentheses)

Consortium % of 25.1% of Cost Rm @ R1.85 ‘Members’all KWV shares per share

‘Lucky 14’ (26) 19 (54) 40 14BAWSI 25 53 70,000KEET (20) 27 (42) 56 456EPA Dev Group (Ltd) 9 18 21Liquor & Kumnandi 9 18 1000+SALTA 5.5 11.5 200,000NAFU (Western Cape) 5.5 11.5 2000Total 100 208

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community would gain least. Willem Barnard assured COSATU that therehad been broad consultation, which included the Minister, to compose the con-sortium that would put ‘broad-based empowerment’ in place, and that ‘a goodagreement had been reached between the intended beneficiaries of SAWIT andthe consortium’ (Die Burger 14 June 2004); presumably BAWSI had signed up tothe deal on behalf of those whom SAWIT intended to benefit.

COSATU and FAWU saw the KWV BEE agreement as a test case to demanda greater share for workers in black empowerment deals. FAWU gave the NationalEconomic Development and Labour Council (Nedlac) ten days notice underArticle 44 of the Labour Relations Act of its intention to undertake industrialaction against the terms of the deal – the first time any BEE deal had beenchallenged in this way. They proposed to the KWV that Marcel Golding, a tradeunionist turned investor and business executive, and others of the ‘overempoweredblack elite’, should withdraw and that the workers should have an interest ofat least 50 per cent in the consortium. When KWV did not give way to theircomplaints about the division of shares in the empowerment consortium, FAWUapproached the Master of the Cape High Court to investigate three issues: whetherthe KWV trustees had abused their position on the Employees EmpowermentTrust; the agreement between Wiese, AAT and KEET which, they alleged, hadbeen approved without informing the trustees elected by the KWV workers; andwhether SAWIT’s trustees had been acting beyond their terms of reference.43

The threat of court action persuaded the protagonists to consult the Ministerand, with her help, to reach a settlement. The ‘Lucky 14’ agreed to reduce itsshare in the consortium by 7 per cent of shares to the advantage of KEET, whichwould now hold 27 per cent of the BEE consortium’s shares; KEET and BAWSItogether would hold a majority of them. FAWU had secured substantial addi-tional benefits for its members at KWV. The questions of propriety that hadbeen raised were set aside.

KWV had engineered an empowerment agreement, which was ‘mutually bene-ficial for both new and existing shareholder’, ‘commercially feasible’, offering ‘awin-win result for the company and its shareholders’, ‘broad-based’ and creatinga ‘long-term commitment’. They explained after the fact that ‘It is of key import-ance that KWV workers . . . be the largest individual group within the Phetegoconsortium’ (Willem Barnard in KWV 2004, 14/15). The settlement wasannounced at a media conference in the Directors’ Chamber at KWV, at whichTony Ehrenreich, Western Cape secretary of COSATU, Barry Stemmet, regionalsecretary of FAWU and Nosey Pieterse, President of BAWSI were all picturedtogether.44 Perhaps everyone can win prizes and go home happily when the partyis over.

But who was going to pay for the prizes? The consortium aimed to acquire112.4 million KWV shares in all at a total cost of R208 million. The purchase

43 Die Burger (14 June, 8, 13, 20 July 2004); Business Report (8, 19, 20 July); Mail and Guardian ( July20, 2004); WineLand (September 2004, 5).44 Die Burger (24 July 2004); Business Report (21, 23, 26 July, 27 August 2004).

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of KWV shares was to be funded from four sources: (1) SAWIT agreed to payR44 million up front. (2) KWV provided KEET with an interest-free loan ofR41.3 million, which would pay for its original 20 per cent share in the con-sortium. (3) The Industrial Development Corporation agreed to make loanstotalling R127 million for periods of five to ten years at variable rates of interest.(4) The ‘Lucky 14’ were apparently to make a contribution towards the cost oftheir R39.3 million stake. Die Burger confusingly described this as 2.5 per cent[i.e. about R1 million] and as R2.81 million or R200,000 each. The consortiumwill have to hold its shares for ten years.45 In the first two cases, of SAWIT andKEET, directors nominated by and from KWV approved the purchase of sharesin KWV with funds that had originally been provided by KWV.

Who would provide the prizes? KWV committed itself to issuing new sharesif the consortium failed to acquire the target of 25.1 per cent by 24 August 2004,the closing date for the offer. KWV’s shareholders agreed to extend the numberof directors from 15 to 18 to make place for representatives of the empowermentconsortium. They authorized their directors to proceed with the empowermentdeal by a near unanimous vote; but they offered only 72.6 million shares for saleamong them. Two saviours came to the rescue to save KWV from having towater its shares. The first was Christo Wiese, who made shares he had acquiredfrom AAT available for the consortium to buy, while he retained about 7.6 percent of KWV shares. The remaining shortfall of 9 million shares was made up byVinpro (SA), now formally independent of KWV, whose stake fell to 7.6 percent.46

SAWIT’s R44 million contribution is a substantial part of its current assetsand is sufficient to cover the remaining cost of acquiring the shares. SAWIT alsoagreed to contribute a further R76 million, making a total of R120 million. Thiscommitment was also described as 47.5 per cent of its income from KWV overthe remaining five years of KWV’s liability to SAWIT. R76 million is 47.5 percent of R160 m, which is close to KWV’s outstanding liability at the end of June2004 of R154 million discounted at 9.9 per cent per annum. KWV’s cash liabilityafter deducting its VAT refund was R189 million (KWV 2004, 52–3). The cashsum promised may therefore come to R90 million, with a discounted currentvalue of R76 million. DEVCO would retain 12.5 per cent of SAWIT’s futureincome from KWV to meet other claims on its resources. Gavin Pieterse will beable to recapitalize SAWIT over two years with the payment of a15 million (R114million) which the European Union is to grant to the wine industry as part of itstrade agreement with South Africa.47

Why should SAWIT make additional provisions, beyond the cost of acquiringthe shares, to finance the KWV BEE deal? It will enable members of the con-sortium to pay off their debts (Die Burger 28 July, 11 September 2004). Once the

45 Die Burger (28 July, 9 November 2004); Business Report (24, 27 August 2004); KWV (2005).46 Business Report (23, 24, 30 August, 15 September 2004); Die Burger (23, 27 August, 15 September2004); WineLand (October 2004, 9).47 Die Burger (28 July, 11 September 2004); WineLand (September 2004, 5).

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consortium has bought its shares and investors had received their special 23cdividend in October, the KWV share price could be expected to fall. KWVdeclared an ordinary dividend of only 3.5c per share for 2004. Until 15 October,shares traded between R1.85c and R2.00; the following week the price fell fromR1.90 back to R1.40 (KWV 2004a). The strengthening of the exchange value ofthe rand reduced KWV’s earnings. Even with the increase in Distell’s dividendpayments and new earnings from the domestic market, the consortium’s sharesin KWV are quite unlikely to yield anything like enough to redeem the highprice at which they were purchased.48 Hence the need for differential and sub-sidized interest payments to enable some or all of the new shareholders to pay fortheir shares. Over five years, R76 million will repay 7.2 per cent of the value ofthe entire transaction per annum, and 12 per cent of IDC’s investment. In effect,SAWIT is underwriting and will subsidize payment of the interest on the IDC’sloan from its future income from KWV, which is itself secured against KWVshares in Distell.

KWV set out to incorporate black shareholders and identified SAWIT as itspreferred partners. Only after the deal had been concluded did SAWIT change itsvision statement and put ‘Support BEE in the wine industry’ as DEVCO’s firstobjective.49 KWV gave up its right to nominate SAWIT trustees (Die Burger26 January 2005). SAWIT and BAWSI have consolidated their claims to givepolitical leadership to the ‘social transformation’50 of the industry. BAWSI andits affiliates dominate the representative steering committee set up by SAWBunder the chairmanship of Gavin Pieterse to write a BEE Charter for the wineindustry (WineLand December 2004, 73; March 2005, 7).

Since the conclusion of the deal, Barry Stemmet of FAWU has been electedVice-President of BAWSI and FAWU has insisted on a more explicit voice for‘labour’ and commitment to organizing on farms, where it has hitherto recruitedvery few members. BAWSI demands racial parity in SAWB, by adding

Table 4. Sources of funding for Phetego purchase of KWV shares*

Source of funds % of 25.1% of KWV shares Cost Rm

KWV 20 41IDC loan 61 127SAWIT immediate payment 21 44Total (immediate) (102) (212)SAWIT future payment 36 76Total provided 138 288

* All of SAWIT’s assets came from KWV.

48 Business Day (16 August 2004); Die Burger (16 August, 9 November 2004); Financial Mail(20 August 2004); KWV (2004, 15, 18).49 ‘Home page’. ‘About Devco’, SAWIT website: http://www.sawit.co.za50 ‘About Devco’ at http://www.sawit.co.za

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community and black business chambers to the labour chamber. This will enablethe trade unions to represent labour, RUDNET to speak for the ‘communities’and BAWSI to find spokespeople for black business. The unorganized majorityof farm workers will still have no effective voice. BAWSI has extended its remitby rebranding itself as Black Association for the Agricultural Sector (WineLandJanuary 2005, 4; March 2005, 3, 7; Paarl Post 31 March 2005). Co-operative cellarsare now devising ‘broad-based empowerment’ plans to enable farm and cellarworkers to acquire land and produce wine.51 They may find that the politicalimperatives of black economic empowerment are to open up space for blackbusiness interests to share in their profits.

WHAT GOES AROUND COMES AROUND

The KWV BEE deal is a remarkable achievement, whether we look at it fromthe short-, medium- or long-term. It closes a process of transformation thatbegan in 1996 but had its origins well before that and it sets an example forfuture changes in the wine industry and in agriculture more generally.

From 1914 to 1997, KWV succeeded in ensuring for its members a market fortheir wines and guaranteed and stable prices. In doing so, it put quantity ahead ofquality and constrained innovation. The system that it instituted depended onfavourable relations with successive governments and a relationship of hostilecollaboration with the manufacturing-wholesalers, formalized when KWV tookup 30 per cent of the shares in the dominant company. KWV provided a range ofservices to the industry and consistently claimed to speak for all producers.

In order to transform itself into a company after the end of apartheid, KWVhad to agree to commit itself to contribute R369 million over ten years to SAWIT,in which it had substantial but not majority representation. The net costs toKWV were limited by a favourable decision on its VAT liabilities, and SAWITfunding of several of KWV’s previous service commitments and of developmentactivities. KWV bought out its own associate, KWV Co-operative, whose sharesgave the members of the Co-operative formal control of KWV Ltd, in return fora 10 per cent equity shareholding in KWV and a five-year contribution by KWVto the costs of Vinpro (SA), which took over KWV Co-operative’s members, itsconsultation services and its claim to represent all producers. The substantialcosts incurred by KWV’s commitments to SAWIT and Vinpro are limited tofixed periods of time. KWV and individuals and institutions closely associatedwith it, including the President of BAWSI, secured substantial representation onthe board of SAWB, which speaks for the industry as a whole.

To re-establish its close relationships with government, KWV needed tocomply with the official criteria for black economic empowerment. It had toidentify partners and funders with the necessary political credentials and financialresources and to collaborate with them to reach a conclusion that would satisfy

51 SAWB (2005); Kassier et al. (2005); WineLand (February 2005, 24–5).

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all active ‘stakeholders’. Danie de Wet and Gavin Pieterse, the chairmen of KWVand SAWIT, negotiated their way through a series of rapids, alongside BAWSI,with the support of SAWB, and under the benevolent and active oversight ofThoko Didiza, the Minister of Agriculture and Land Affairs. The deal wasdesigned so that it enriched a small group of established black businessmen and alsoincluded in the settlement several institutions, which provide political supportand legitimacy for it. Most of these organizations have a few leaders or businessparticipants and claim to represent a much wider membership. Who thesethousands of members are and how they will be able to claim their own benefitsis not clear. KWV created KEET to include its own employees in the process.The deal was only concluded when KEET’s share was increased in responseto questions raised by COSATU and to insistent demands by FAWU, whichrepresents employees at KWV.

The relations between the net value of KWV’s assets, its share price and itsdividends made it vulnerable to asset stripping. Successful negotiations dependedon and brought about a substantial increase in the selling price of KWV shares.This posed serious problems: who was going to pay for the shares and with whatmoney, who would receive the shares and how would they pay for them?

The solution was ingenious. The money would be put up by the parastatalIDC and by SAWIT. KWV lent money on favourable terms to KEET, twoof whose four trustees are chosen by KWV, to pay for most of their shares.Commitment of SAWIT funds depended on stretching and then retrospectivelyamending its original terms of reference. The decisions to do so were made bytrustees of SAWIT, who included KWV nominees, among them executive andnon-executive directors of KWV. Past payments to SAWIT provide part of theinitial costs of acquiring shares for the beneficiaries. Future payments will sub-sidize and underwrite their interest payments to IDC. These funds have been andwill be provided by the KWV itself in accordance with the agreement made withDerek Hanekom, then Minister of Land Affairs and Agriculture in 1997 to set upSAWIT in the first place.

Money travelled round in a circle, from KWV to SAWIT and also to KEETand back again to KWV. When it came back to KWV, it did so in the hands ofnew black shareholders, to both their benefit and that of the established industryinterests that had thus ‘empowered’ them.

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ARCHIVES

SAD (State Archives Deposit) Pretoria, 16 Mei, 1969. RKV 3/19, vol. 7: S.L. Joubert,Assistant-hoofbestuurder, KWV to RKV (Registrateur van Ko-operatiewe Verenigings).

NEWSPAPERS AND PERIODICALS

Business Day, Johannesburg, 1996–2004.Business Report, Cape Town and Johannesburg, 1999–2004.Die Burger, Cape Town, 1996–2004.Financial Mail, Johannesburg, 20 August 2004.KWV [http://www.kwvlimited.co.za], Suider-Paarl, 2004.Landbouweekblad, Cape Town, 1995–1996.Mail and Guardian, Johannesburg, 2003–2004.Paarl Post, Paarl, 4 March 2005.SAWID (South African Wine Industry Directory) 2000, 2002, 2003, 2004/5. Wynberg/

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Wine Industry Information and Systems.Sunday Times, Johannesburg, 27 February 2004.WineLand, Suider-Paarl, 2000–2005.Wynboer, Suider-Paarl, 1996–1999.

INTERVIEWS

Bestbier, Willem, Director KWV (SA), 5 May 2004, Paarl.de Wet, Danie, Chairman KWV Group, 7 May 2004, Robertson.Fridjhon, Michael, wine writer, 8 October 2002, Johannesburg.Kruger, Riaan, Managing Director, Cape Wine and Spirits Institute, 16 October 2002,

Stellenbosch.

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