New BEE targets for the industry
New codes for transformation in the financial sector
The Amended Financial Sector Code (FSC), gazetted in December 2017, sets out the targets as agreed on by all players in the financial sector and provides a clear roadmap on how to build on existing achievements in the areas of black economic empowerment (BEE). The financial sector will be expected to report on the progress it has made against these new targets in 2019.
As a result of extensive consultation, the amended FSC carries the endorsement of the labour and community constituencies of the National Economic Development & Labour Council (Nedlac), business as represented by its financial sector trade associations, government and the Association of Black Securities & Investment Professionals (Absip), says Isaac Ramputa, CEO of the Financial Sector Transformation Council.
All players in the sector agree that the financial sector has a crucial role to play in achieving a sustainable, inclusive and growing economy in SA.
However, says Ramputa, this can only be effectively achieved through the accelerated transformation of the sector.
“The council has therefore implemented a number of changes to enable it to provide greater strategic direction to the sector on transformation and development initiatives that support economic growth and job creation.”
One of these changes, he says, has been to reconstitute the coun- cil to ensure that transformation is driven with greater urgency by executive decision makers with each constituency.
The council has found that, with a few exceptions, many of the original empowerment deals no longer exist as black shareholders have sold their stakes, says Ramputa.
“There is no denying that huge value has been created as a result of these empowerment deals, but it must also be acknowledged that in many cases these deals have made rich people even richer.”
As a result, instead of pushing direct ownership transactions as the only way to score ownership points against the FSC scorecard, the council has agreed to include Black Business Growth Funding (BBGF) as an alternative in the amended code.
“This provides the financial sector with an attractive way to top up shortfalls in their ownership and empowerment financing scores,” says Ramputa.
The council has estimated that the financial sector has access to around R100bn that could be deployed to black entrepreneurs, industrialists, asset managers, financial brokers and other black individuals in the financial services as well as other key sectors of the economy.
Ramputa says real transformation of the financial sector requires these funds to be channelled from the financial sector into blackowned businesses ready for growth. However, as an additional requirement, the BBGF provisions require that capital is channelled through units established for this purpose within institutions or through black private equity funds.
The BBGF provisions have the added benefit of providing a solution for multinational companies that are not able to conclude direct ownership transactions with SA BEE partners. To benefit from the BBGF provisions, funding must be channelled to businesses that were created by black people and where black people are involved directly in the management and operation of the business; and are financially sustainable and able to preserve or create jobs.
According to Ramputa, different industries within the financial sector are responding to the BBGF opportunities with either private equity deals or empowerment financing options.
Not all players in the sector, however, believe enough is being done to fast-track transformation. Tshego Sefolo, the CEO of Agile Capital, a 100% black owned private equity fund, says little progress has been made to date.
“The asset management industry, for example, has been underwhelming in terms of transformation,” says Sefolo. “Of the almost R5-trillion asset base, just less than 10% is managed by black managers. And that 10% is largely concentrated among a handful.” This, he says, is a clear indication of a largely untransformed sector.
The Association for Savings & Investment SA (Asisa), the industry body representing, among others,
What it means: The financial sector has been given a year to comply with new codes and aid the country’s economic growth