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JSE black-owned chips under dispute

Black ownership accounts for 32% of South Africa’s available listed shares, the JSE announced this week. The findings instantaneously provoked a slew of criticism about the JSE’s research methodology and agenda.

The study focused on the top 100 companies and found black shareholding consists of 8% in direct investments. A further 9% of black ownership was discovered in mandated investments, which include pension and provident funds, unit trusts and life insurance policies.

After excluding investments that are not available to ordinary South Africans — such as cross holdings, state-held shares, foreign investment and retail ownership — the JSE found the pool available was 54%, which means black ownership in South Africa is calculated at 32%. Only 50% of the mandated investments have been analysed and the JSE expects further research will reveal a higher percentage of black ownership.

But critics have said it sounds too good to be true.

Sandile Zungu, spokesperson for the Black Business Council (BBC), said at face value the numbers didn’t sound credible. “While we welcome the JSE’s time and effort to enhance the debate on this area of the economy, we have an inkling that the figure is overstated.”

Zungu said the BBC would need to sit down with the researchers to understand the methodology and why they excluded foreign investment and government shares. Of particular interest, he said, was what was meant by mandated investments and who controlled them.

Duma Gqubule, co-founder of KIO advisory services, said the statistics were a minefield that the ordinary person could not understand. “It is designed to confuse the public and it achieves its objective.”

He said the methodology was questionable. The JSE and department of trade and industry methodology excluded foreign shareholding as it was not available to South Africans, but Gqubule disagreed and said there was no basis for this, as foreign shareholders participated in local deals. Only foreign operations could legitimately be removed from the equation.

He said that the JSE’s research deviated from the department’s because it looked at gross ownership, instead of net ownership as the law required. Gqubule’s own study of black ownership in the top 40 JSE companies found an ownership of 1.6% of the market capitalisation, which accounted for R78-billion. Verification agency Empowerdex also did such a study and found ownership to be below 2%. “They can’t run away from that,” Gqubule said.

Russell Loubser, JSE’s chief executive, admitted the research did not take into account indented investments. “We don’t know how much is owed and it is irrelevant — you do own it, even if you still owe money on it.”

Ajay Lalu, managing director of Black Lite Consulting, said the figures seemed fairly accurate but said it was a great indictment on the empowerment process, which had not created sufficient direct capital in black hands.

He said the numbers relating to pension and provident funds were positive, as they showed a growth in savings and capital by black investors. “A combination of strong direct black investment as well as mandated investment is needed.”

Gqubule believed the figures could be manipulated depending on the agenda. “They [JSE] have a sinister agenda — it’s meant to show we must stop empowerment.”

But Loubser said the information was there to inform policy debates. The lack of data had allowed others to exploit the situation. “The JSE has no agenda whatsoever except to get closer to the number.” He said the JSE expected the figures would be trashed, but claimed the research was sound. “Just about everyone has an opinion on the matter,” he said, “but they have not done the work. The dogs can bark but the caravan is moving on.”

This article was amended on October 10 2011. In the original article, Duma Gqubule’s name was spelt incorrectly.

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