A deal that empowers

The Public Investment Commissioners (PIC) — which has a 12,5% shareholding in Standard Bank — will “in principle” vote in support of the financial group’s plan to sell a 10% stake of its South African banking operations to an empowerment consortium.

“The principle looks fine. If they tie up all the detail properly and there are no surprises in the small print when we see the final deal, I don’t see why we should not support it,” says PIC’s CEO, Brian Molefe.

Standard Bank has announced it is selling an effective 10% of its South African banking operations to Safika Holdings, led by Saki Macozoma; and Millennium Consolidated Investments (MCI), led by Cyril Ramaphosa.

Other members of the Tutuwa Consortium — which is buying the empowerment stake in Standard Bank in a deal worth about R4,3-billion — are a managers’ trust, which represents about 2 500 current and future black managers of the Standard Bank Group; and a community trust made up of various regional business and community empowerment groups.

Molefe believes it is a good deal because the funding arrangements have been set out upfront — the bank will buy back some of its shares, and the consortium will pay for them from future dividends earned by the stake.

By involving black management and staff of the bank in the deal, there is empowerment at an ownership, executive and operational level. And by locking the consortium partners into the deal for the long-term, the partners have made sure “it is not just about making a quick buck”.

He is seemingly not overly concerned that the big empowerment deals always seem to involve the same big names. “There is always room to make empowerment more broad-based, but the important thing is that the principle has been accepted. Besides, there are a lot of empowerment deals — some good, some not so good — that are just not being reported in the press. Each deal needs to be looked at on a case-by-case basis,” he explains.

Molefe rejected recent calls by the Congress of South African Trade Unions (Cosatu) for the government to end its contributions to the PIC and the Government Employees’ Pension Fund (GEPF). Cosatu is in favour of a pay-as-you-go system where pensions are paid from the contributions made to retirement funds by those still working. Under the current system, the pension contributions from the government and its workers go to the GEPF and PIC, which manages and accumulates assets to generate income that it uses to pay its members’ pensions.

“It is surprising that Cosatu should adopt a position like that with the pension fund money of workers, because what it means is that we would spend all the money they have saved [to pay pensions] today, and then rely on future contributions to pay the pensions of workers [who next retire].

“Intergenerational transfer of funds will take place. And, what happens if the present generation of workers is not able to sustain paying pensions for the older generation?

“This is not far-fetched. If population growth becomes stagnant because of an epidemic, or people retire earlier and live longer, we will have more pensions to pay and less people in the system. We cannot just hope this will not happen — if people go on pension, the money must be there.”

Molefe does not agree with the argument that money the government may save on its contribution to the pension fund could be used to boost spending on social and economic development.

“The bulk of PIC investment is in government bonds [effectively loans to the government]. This means the bulk of workers’ pensions are available to the government for social spending, but we can identify how much the state owes and what is due to workers as debt. They want us to use a cock-eyed accounting system and pretend this debt does not exist.

“We also invest in equities, in South African companies that employ workers and use the funds to expand and create jobs. We use the funds to oil the machinery of the economy. People talk as if the PIC has a vault with R350-billion sitting in it.”

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