Sandile Zungu Zungu Investment Company ZICO

Early Days for Sandile Zungu

JOHANNESBURG—As a young engineer in South Africa's apartheid era, Sandile Zungu was once asked by a white subordinate to use a separate toilet. As a businessman in the post-apartheid era of black empowerment, company doors of all kinds have opened to him.

In little over a decade, the 44-year old has amassed a fortune by building a broad portfolio of business investments, from financial services to pest control. African art adorns his office walls in Johannesburg's swank Sandton business district, and he drives a black Mercedes sedan to meetings, even if it means traveling a dusty road to a gold mine.

But mounting criticism of the Broad-Based Black Economic Empowerment policy that has made that possible is pulling Mr. Zungu and other black moguls into a national debate over how to right history's wrongs without upending business in Africa's largest economy.

BEE, as the policy is widely known, reaches across industries, compelling domestic and multinational companies operating here to meet such benchmarks as black ownership, skills training and development in poor communities. Ford Motor Co. F +0.27% last month said it plans to build a center to support black-owned, automobile-parts suppliers.Microsoft Corp. MSFT +0.79% last year announced a $65 million program to cultivate young, black software developers. And Belgium's Rezidor Hotel Group REZT.SK +0.22%AB, which operates such brands as Radisson Blu Hotels and Resorts, expanded a partnership with black-owned South African enterprise Mvelaphanda Holdings (Pty) Ltd.

Critics, however, say BEE too often rewards people who are already successful. The Economic Development Ministry in November deemed BEE largely a failure, saying it focuses too much on deal making and not enough on supporting new entrepreneurs and creating jobs in a country where it estimates unemployment is 40% for people between 16 and 30 years old.

A recent audit of mining companies by the Department of Mineral Resources found that many black shareholders knew little about their businesses. "The BEE partners, in most cases, don't show up for site visits," Minister Susan Shabangu says. When they do show, they are "clueless about operations."

Despite BEE, blacks own only 18% of the available share capital in the top 100 listed companies in a country where whites make up less than 10% of the population, according to study last year commissioned by the Johannesburg Stock Exchange. Whites occupy nine of ten chief-executive positions, according to a survey by lobbying group Business Unity South Africa of the nearly 300 companies listed on the exchange.

Change is in the works. The Department of Trade and Industry last month wrapped up a three-week process of accepting bids from legal experts who wish to participate amending BEE legislation. A goal is to prevent companies from feigning black ownership through token shareholders and to deter BEE monitoring agencies from falsely certifying compliance, according to Nomonde Mesatywa, chief director of BEE for the department.

"We have had some issues of opportunistic misbehavior," she says. She plans to have a review group in place this month and hopes that by June to have proposals for improving the legislation. Any substantive changes would be subject to parliamentary approval, but amendments can be handled in phases to speed up the process.

The cloud over BEE is one of several concerns to investors, particularly in South Africa's mammoth mining industry. The government recently halted awards of some mineral rights. And the ruling African National Congress has said it will consider nationalizing mines, although officials and executives play down those prospects.

The result is that one of the world's richest countries in mineral and metal reserves has been struggling to attract investment. While a downturn in global commodities prices was partly to blame, foreign direct investment in other developing economies fared better, rising 9.7% on average, the U.N. said. South Africa's attractiveness among mining companies as an investment destination fell to 67 from 61, out of 79 locations, according to a recent survey by the Fraser Institute, a Canadian think tank.

Ms. Shabangu, the mines minister, is leading a delegation to Boston, New York and Toronto this month in an effort to drum up interest from investors.

Mr. Zungu has been at the center of the BEE debate, thanks to a deal he announced last August with a unit of Luxembourg-based mining giant Arcelor Mittal. MT -0.54% Under the agreement, valued at the time at about nine billion rand, or more than $1 billion, Arcelor's South African unit will lend Mr. Zungu and other BEE partners money to invest in a project with a guaranteed return over the course 14 years.

The project has been delayed by a challenge by a unit of multinational miner Anglo American AAL.LN +0.98% PLC over mining rights obtained by one of Arcelor's BEE partners. Arcelor says it will wait for the resolution of the rights dispute to determine if it will proceed with the arrangement.

The deal sparked wider controversy, though, because one of Mr. Zungu's partners is Duduzane Zuma, the son of South African President Jacob Zuma. After an outcry that the deal would benefit people who don't need assistance, the younger Mr. Zuma pledged to give the bulk of what he earns from the project to charity.

An affiliate of the Congress of South African Trade Unions, the country's largest labor federation, has registered its "total disgust" for the deal, saying it showed how BEE has been abused "to empower a tiny minority of people."

The Arcelor deal "is the ugliest face of [BEE], but not the only instance," says Trevor Manuel, the head of South Africa's National Planning Commission and a former finance minister.

Sakumzi Macozoma, a former political prisoner and one of the participants in early BEE efforts, though not in the Arcelor deal, says some resistance stems from those who don't want to see "free and enterprising black South Africans prosper."

But Mr. Macozoma, who remains active in empowerment deals, says BEE risks being "contaminated by the offensive odor" of those who exploit the policy to enrich themselves.

Mr. Zungu and other proponents of BEE say it has done more than any other policy to bring blacks into corporate boardrooms, nearly 17 years after Nelson Mandela became South Africa's first black president.

Mr. Zungu says critics are judging his deal before it is complete. Waving to a stack of papers in his office, he says he has been poring over applications from "historically disadvantaged" groups who would benefit from the Arcelor transaction."That's the type of deal that people like me, who have been in the trenches, can make happen," he says. "The bygone days of waiting for things to come to us are past. We might as well crystallize our value now."

—Jackie Bischof in Johannesburg contributed to this article.