Finance charter: Work in progress

A year ago, possibly the most important of the black economic empowerment charters was signed.

The Financial Services Charter not only deals with empowerment in the sector but with access to banking and other services, the financing of black empowerment and infrastructure development.

Ferial Haffajee, editor of the Mail & Guardian, moderated a debate between the Association of Black Securities and Investment Professionals (Absip) president Kennedy Bungane and black economic empowerment analyst Duma Gqubule to assess progress one year later.

FH: The latest figure for the target mooted to fund both infrastructure development and black economic empowerment (BEE) is about R122,5-billion. Is it sufficient?

Kennedy Bungane: Last year it was hard to get to R75-billion, so the figure is significant because it is real growth of more than 60%. It is a minimum commitment by the financial sector. It is also a base from which to access other sources of funding, from other private sectors, the government et cetera. And it is mostly for development funding with a large component of the commitment going to low-income housing, transformational infrastructure, and black [small and medium enterprises]. We felt that the banks’ development agenda could be pushed.

But the biggest success of the charter is an intangible for me: it is about people making the change. Expensive resources and high-calibre people are being utilised to flesh out the implementation of these agreements, thus the speed at which we have been able to deliver products such as the Mzansi account, and proposals on instruments for funding. We feel encouraged by the work being put out by the sector and the government in this regard.

Duma Gqubule: Just because I’ve criticised the charter, doesn’t mean I don’t appreciate the work they are doing. To put things in perspective: the economy needs to increase investment by 10% of gross domestic product a year to 25%, which is equal to R120-billion. The government, I believe, adopted an ultra-cautious approach in the negotiation of the finance charter because of its experience with the mining charter. It decided not to participate, but to observe. If it had been more active, I believe we would have seen a lot more progress a lot sooner.

KB: Some of our negotiators shared your view, Duma, that a direct à la mining charter type of approach by the government would have helped us a great deal, but at the end of the day we are happy with the role of the government because it allowed for the practitioners in the sector to lead the process.

There were a number of times we had to take on the government because it did not agree with our views and targets — and I can understand that it wanted to play the regulator or the neutral party. For us, leading this process enabled us to win the hearts and minds of the people that would have to implement these agreements. Thus the speed at which we have been able to implement some of the key agreements — within only 12 months of the charter launch.

FH: A few months after the signing of the charter, there was an outcry from black business leaders who complained that BEE deal-funding was minute and therefore the charter was a damp squib. Do you agree?

DG: There is a funding shortfall. It’s been calculated that the total quantum needed to effectively fund BEE is between R250-billion and R400-billion, but the charter makes provision for only R50-billion, most of which will be used to finance transactions in the financial sector alone.

KB: We have an acute funding shortfall when it comes to big deals, but could the big names have done better? Definitely not — this process was not about the big names. It was about access to financial services, it was about infrastructure funding, the lack of which is choking the economy. Banks don’t easily understand the need for infrastructure funding, so we needed to focus on this.

We [black professionals and executives in the financial sector] are the ones putting together these BEE deals and, I can tell you, the corporate finance divisions of most banks have survived and thrived thanks to BEE over the past five years. I know it is easier to fund big BEE deals backed by large corporate companies balance sheets — most of our investment banks are geared to doing this business. This is not the case with funding low-income housing, black SMEs, development agriculture and transformational infrastructure, thus our higher targets to these areas (R72,5-billion).

That said, there is a funding shortfall because, to reach the 26% ownership target set in the charter, will require R400-billion. But the government and shareholders within industries have to come to the party. So, the R50-billion set aside is only a reference point … and I am convinced we can easily double it.

As to the criticism that there were no big names negotiating the charter, I don’t give that much credence. Those who believe banks were negotiating with their employees [in Absip], deliberately forget that we were properly mandated by organised black business formations at the Black Business Council, we are the people who know the sector well.

FH: A few weeks ago it was revealed that Minister of Finance Trevor Manuel had to step in to resolve an impasse on the constitution of the charter council. Was this a good way to get out of the starting blocks? And is it possible to guide an industry like financial services (which is quite conservative) in such a collectivist fashion? Is it not likely to push real negotiations back into the boardrooms?

KB: It is an indictment on all of us that the minister had to step in to resolve an issue that should have been implemented by June 30. Missing the deadline was not a good sign. While we are not excited about the result, we are convinced that we now have a workable outcome.

FH: But is it an optimum structure — I’m still not clear on whether it will be fast enough to meet rigorous deadlines?

KB: It is the guiding council, but in time we may have to think of ways to streamline it by perhaps introducing an executive director who, in effect, reports to the council, which will function like a board.

One problem we will have to face in future is that this is the only charter with a council like this one, so it will not interact with other sectoral charters. And, in time, it will need to fit into the presidential black economic empowerment council …

DG: There is no reason it can’t work. Politics will inevitably play a role, especially in a country like ours where we are trying to build a culture of consensual decision-making. We need to take a leaf out of the book of countries like Germany, where unions are part investment decisions. They sit on the boards of all companies, by law. In South Africa we still have to work in unison to get our economy rocking. But the bureaucratic procedures and red tape must be reduced.

FH: How will the first annual report of the charter look — what is your assessment of progress on the first anniversary?

KB: I was suprised after being so close to the process to find that ordinary people at various departments of many financial institutions were excited about making this work. These were people who were conservative by profession and legacy. This change of heart and mind will come through in the charter report. It will mark the end of the beginning of the process. I think most companies will score well under ownership and access to banking, but the emphasis will shift in 2005 to areas such as human resources, employment equity, procurements et cetera.

DG: I think any assessment of the first year of the charter will have to look at factors that could limit its success. According to a recent study, there were only 6 000 African and coloured higher grade maths students matriculating last year. How will the finance charter meet its targets if the system is not producing the right kind of people?

KB: The input factors are vital — we must have an increased target set for black skills. We need more professional training, but also a change of mind-set. Who says an economy must be managed by accountants? Some of the most successful venture capitalists are engineers and arts graduates, so there must be alternative ways into the industry.

FH: There is, however, one tangible that happened this week and that is the national Mzansi account, which is an attempt to provide a single, low-cost bank account to the previously un-banked. [There are about 13,5-million people without access to a banking account in South Africa] …

KB: I’m excited about Mzansi — it’s probably the only aspect of the charter that could touch the lives of 13-million people. And it is right for the times: there are growing complaints that BEE is not broad-based enough; Mzansi will extend the ambit and significance of BEE because it flows from the charter.

That said, I don’t think it’s the panacea for access to banks. The product features of Mzansi must be extended to include things like debit features and ease of usability for grant recipients. An independent study will be carried out to introduce some of these features and to put in place a generic set of access standards for the entire range of financial services by which we can measure the performance of Mzansi, insurance companies and others. It won’t work if nobody uses it because it’s unaffordable.

DG: I’m bullish about Mzansi as long as it won’t allow for price-fixing. Trevor Manuel is correct to say that it will become normal business if we invest and plan well.

This debate is an excerpt from Changing the Game: Absip Journal 2004 published by First Yudishu Company and available at selected Exclusive Books and CNA outlets nationwide from November 2

A year on …