/ 12 April 2013

Transformation debate morphs into development debate

Sim Tshabalala
Millions of Congolese have fled their homes and have either gone to camps for internally displaced people or crossed borders to other countries in the region. (John Wessels/AFP)

A standoff between the two meant that for four years the financial sector was not covered by a black empowerment charter.

This charter was born out of hard-fought battles in 2003, complete with a wide range of access to financial services provisions and targeted financing obligations. But it expired in 2008, neglected, while communist party and industry representatives clashed over amendments to it.

The charter is now reborn, but this time the fanfare has been remarkably subdued. In the two lives of the charter is a fascinating story about how the debate about transformation has evolved into one about development.

The council responsible for overseeing the charter had to align it with the Broad-Based Black Empowerment Act by the end of 2008. Finally, last year, after some dramatic posturing, careful politicking and a lot of talking, the charter found itself in the statute books. In the intervening period there was, technically, no charter in force.

Now banks, insurers, asset managers and other financial service companies are back to ensuring their businesses work towards undoing the legacy of apartheid.

The phoenix-like return of the charter has been rather quiet. In 2003, banks were facing up to dramatic new targets for extending financial services to those who had never had bank accounts, as well as financing "transformational infrastructure", small businesses and black empowerment.

The difference shows in dramatic fashion how far the country has come in the last 10 years.

"To give people access to banking at a cost that is acceptable and generates returns, is outright commercial," says Standard Bank co-chief executive Sim Tshabalala. "It's no longer a compliance game."

That is a marked change from 2003 and the birth of the Mzansi account, a costless bank account to be used to extend banking services beyond banks's traditional markets and sure to be provided at a loss.

Now banks such as Standard have developed low-cost, cellphone-based infrastructure that takes banking services far beyond what could have even been imagined in 2003. The Mzansi account is now a footnote in the annals of banking history.

The same applies in the more vaunted investment banking and asset management spheres of the industry — investing in black-owned businesses and infrastructure that affects black communities is so much easier because there is just so much more business going on.

The standoff in the charter council had been largely over ownership. Community representatives and labour were pitted against industry, led by the banks. Both the labour and community groups were dominated by representatives of the Financial Sector Campaign Coalition, a lobby group led by the South African Communist Party.

When the charter was first promulgated in 2003, the figure was a direct 10% with a further 15% indirectly held by pension funds and other institutional investors.

Community groups demanded that these proportions be reversed. They also wanted to drop the "once empowered, always empowered" rule (which means once the banks and insurers had crossed the 10% line, they were deemed to always be above it even if black shareholders sold).

Things became so heated that the industry threatened to pack up and walk out on negotiations. They were supported by the Association of Black Securities and Investment Professionals (Absip), which was the main representative of black business. Together they threatened to form a new charter council that would simply exclude the labour and community groups whom they accused of stymying the process.

Were it not for deft intervention from the political realm, that threat may well have become a reality. Cajoling from both the national treasury and the department of trade and industry got the process back into gear. Crucially, the sticking point over equity ownership was resolved in favour of the industry.

There can be no doubt that the financial services industry still has an essential role to play in undoing the damage of apartheid. The sector employs 1.8-million people and is tasked with mobilising the nation's savings and directing them to profitable investment.

The restructuring of the economy to address the apartheid legacy needs masses of private sector investment. The millions excluded from the formal economy under apartheid need to be included in it.

Now the debate is not over the principle, but about exactly how financial companies should dovetail with broader development strategy, guided by the national development plan and other policy initiatives.

The department of trade and industry is still working out the details of the targeted financing requirements that the financial sector is going to commit to, but the challenge is not "how much" but "where and when".

These details remain stubbornly delayed, so although the charter has passed the formal hurdle of promulgation in the government gazette, the institutions are still somewhat in the dark about the details of what work they will have to do. Most have continued on the assumption that the 2003 document has always governed; it is the rhetoric around the charter that has seen the greatest change.

The charter's two lives provide a yardstick on how the transformation debate has morphed into a development debate and, with it, the sophistication of how financial companies should be involved in the process.