Article by: Phakamisa Ndzamela
This article first appeared in Business Day and is sourced from the Rand Daily Mail.
It is common cause that black ownership in the financial services sector has regressed. Just look at the big four banks and see what is happening there. What that says to me is that the ownership targets that have been set are flawed because they can never be sustainable in a free market, or capitalist, world. In a capitalist world, ownership evolves and does not remain static.
At the same time, a number of black people are wealthier than before, thanks to deals that have matured. The only BEE shareholders that are squirming are those at African Bank Investments Limited.
However, it seems that BEE deals in the financial services sector are going to be hard to come by. Those that have been tempted to do transactions are being hamstrung by uncertainty around the “once empowered, always empowered” concept.
This issue will again test the leadership in the financial services sector. A failure to come up with solid and useful outcomes could put the entire industry at risk.
Brinkmanship is not going to assist anyone as it could toughen up attitudes. Kicking the can down the road is also not an option as it might deepen frustration in the future.
One of the underlying views of some leading figures in the sector is that any person who does a BEE deal in this uncertain environment would need to have their head examined.
Essentially, there are two schools of thought. There are those who are genuinely worried about the uncertainty about the “once empowered, always empowered” concept and want to do the deals. But they say their hands are tied.
And there are those who are insisting that doing another round of BEE deals would fundamentally amount to insanity. “We are in a very bad cycle because of this ‘once empowered, always empowered’ issue,” says one captain of industry.
“It makes it very difficult for corporate SA. The ‘once empowered, always empowered’ issue can be abused. But the reality then is that you must do deals with indefinite lock-in. But if you do indefinite lock-in, then it means the share has no value. The problem is there is no clarity and the companies don’t want to do deals,” the person said.
The “once empowered, always empowered” discussion is now at the level of the financial sector council. Serious discussions are being held on the alignment of the sector code to the Department of Trade and Industry’s codes of good practice. On that platform, one is told, there is also a discussion on how the financial sector is looking at the possibilities of setting aside some capital resources to fund the new black industrialist agenda driven by the government and the Black Business Council.
One of the issues relates to ownership. The ambition is for black ownership to sit at about 25%. Out of that 25%, it is said that direct black ownership should amount to 10%, while 15% should be indirect.
As things stand, there is no big-four bank in SA that is close to the target. The closest to the 10% direct control target is FirstRand, with about a 5% black holding through BEE trusts. Standard Bank’s direct black ownership is at about 2% and Nedbank’s is at about 1.4%. Barclays Africa Group has nothing — the consortium of black shareholders sold everything there.
So what is to be done?
My view is that those who simply hired key individuals with the intention of enriching a few must be asked nicely to now spread the wealth to the masses. The reason for this call is that enriching a few was selfish and was done in bad faith.
Those whose BEE structures were bona fide and went on to touch the ordinary masses in the most meaningful way must be given another empowerment task, and perhaps not at ownership level. By bona fide, I mean those who did not just hire politicians. They know who they are.
Call me a sellout, but the ownership thing of 25% is not practical because it can never be sustainable.
My view is that empowerment is a continuous process and bickering about ownership is not going to help. The debate should not be narrowed to ownership structures.
The discussion should be about other forms of empowerment. A new empowerment task must be found for the financial services sector and the ownership issue should be revisited.
This article first appeared in Business Day