Empowerment you can bank on
Banks are doing more for transformation than you may think, write Khulekani Mathe and Yacoob Abba Omar
Highly anticipated parliamentary hearings on transformation in the financial services sector took place on March 14 and 22. This heralded the return of economic transformation to the national agenda. This is to be applauded, given that it has been 13 years since the coming into law of the Black Economic Empowerment (BEE) Act of 2003. Taking stock of what we have achieved since putting in place the legislative framework to govern economic transformation will enable us as a nation to make informed decisions about what has worked and what needs to change.
The CEOs of all four major banks and leaders of the insurance industry were among the plethora of stakeholders who made oral representations. The evidence presented by banks demonstrated that, on the whole, banks performed well on the agreed transformation measures as set out in the Financial Sector Charter.
The presentations further paint a different picture to the generally held view about transformation in the banking industry. Standard Bank reported that it had invested R89 billion in empowerment financing and R23 billion in affordable home loans since 2010. Absa reported that it had provided funding to small and medium enterprises (SMEs) to the value of R71 billion and trained 10 521 school governing body members in 2 725 schools. First Rand told members of Parliament that its broad-based black economic empowerment (BBBEE) transaction had delivered R23.5 billion in value transferred to beneficiaries, provided R53 billion in transformational infrastructure and R36 billion in BBBEE financing. Nedbank reported that it paid out R26 billion in loans to SMEs and black business clients, R3.6 billion for affordable housing and unlocked R8.2 billion in value for more than 500 000 BBBEE shareholders.
Banks have invested billions in skills development, infrastructure, SME funding, housing, renewable energy, education and health programmes, among other things, and they make a significant contribution to GDP and taxes.
Details of the banking industry’s progress on transformation are contained in the Banking Association SA’s submission to Parliament. On each of the transformation pillars of the Financial Sector Charter, the banks have performed satisfactorily. The presentations by the financial sector leaders put paid to the accusation that the industry is resisting transformation. On the strength of the numbers presented, it would be possible to close the debate on whether or not the industry is transforming. However, doing so would amount to burying our heads in the sand like ostriches. The reality on the ground is that banks are seen as untransformed institutions judged by the race of those at the helm.
An area in which banks’ performance is less than satisfactory is employment equity, especially the management and control of banks as measured by black and women representation on boards and in top management positions. Although the majority of people employed in the industry are now black, white people continue to dominate executive positions.
The failure of the education system in the democratic era to equip our young people with skills required in industries such as banking is one of the major contributors to the employment equity challenges, not only in banking, but various sectors, as the 2013 Annual BEE Survey conducted by KPMG shows.
Targets for ownership of banks by black people were reached, although there has been a slight deterioration owing to the maturing of some BEE deals and investors selling off their stakes. The current target is 10% direct black ownership and 15% indirect ownership through group schemes and other vehicles. An important feature of the South African banking industry is that as much as 49% of South African banks are owned by foreigners, although with the Barclays plc divestment from Absa, the picture is likely to change in the near future. Foreign ownership on its own is not a bad thing. On the contrary, it is testament to the strength of our banking industry, which is ranked number two in the category of soundness of banks and meeting the needs of business, number 12 for ease of access to loans and number 27 for affordability, according to the World Economic Forum Global Sustainability Report. Black people are increasingly feeling that they have not managed to catch up with the standard of living of their white counterparts 23 years since the dawn of the democratic dispensation. The employment statistics, employment equity and poverty numbers all support the view that white people have benefited disproportionately more from the democratic dispensation. At the heart of the calls for radical economic transformation is a sense of frustration with the pace of transformation to date. Radical economic transformation dominated the state of the nation address (Sona) with the president listing a number of sectors that would be the first to have a dose of radical economic transformation administered to them. They include the property, information and communications technology, and mining sectors, while land reform and higher education funding will also receive urgent attention. Some of the levers to be used will include strengthening the arm of competition authorities to deal with concentration by amending the legislation. The financial sector was not specifically mentioned in the Sona, but in the president’s post-Sona breakfast briefing, it was singled-out as a sector that needed to be transformed. The calls from the general population for a faster pace of transformation deserve to be taken seriously. The role of leaders is to understand the cries of the people they lead and devise effective ways of addressing their concerns. In our case, the experience of the past 23 years should help us understand what has worked or not worked and why. A quick review of outcomes of some of our transformation initiatives is instructive. Many of the farms transferred to black beneficiaries have fallen into disuse, which means that merely transferring land to the people is not enough. A large percentage of the land restitution beneficiaries opted for monetary compensation rather than receiving land, which means that they made a rational choice about what they believe will improve their lives immediately. Many beneficiaries of RDP houses rent them out to others in order to earn rental income, which they can use to meet their daily expenses. Also, many beneficiaries of BBBEE deals opt to sell their shares as soon as the deals mature, and use the cash to meet their urgent needs as well as diversify their investment portfolios. With the exception of productive farms that have become unproductive after being given to black beneficiaries, all the other examples tell us that South Africans are more concerned about meeting their immediate needs. In pursuing economic transformation, in particular BBBEE, we should pay greater attention to inclusive economic growth and employment-enhancing policies. Without inclusive economic growth, even if black ownership targets were to be increased to 50% or more, it is unlikely that every poor black person would own a stake significant enough to enable them to live off dividends. The banking industry is committed to playing its part in creating an inclusive economy that works for all people of South Africa. Mathe is senior general manager for financial inclusion and Omar is senior general manager for strategy and communication at the Banking Association SA