Red her­rings and black share­hold­ings

Where did Mbeki dig up in­for­ma­tion about JSE own­er­ship pat­terns?

Finweek English Edition - - Openers - BY STEPHEN MUL­HOL­LAND stephenm@fin­

YOU WON­DER what the source was of Pres­i­dent Thabo Mbeki’s claim in his State of the Na­tion ad­dress that di­rect black own­er­ship of shares listed on the JSE amounts to 5% of to­tal mar­ket cap­i­tal­i­sa­tion.

This is what he said: “We have seen steady progress in the ad­vance­ment of black peo­ple in the econ­omy. From own­ing just over 3% of the mar­ket cap­i­tal­i­sa­tion of the JSE in 2004 this has in­creased to close on 5%; and the pro­por­tion of blacks in top man­age­ment has grown from 24% of the to­tal to 27%. Yet we must re­main con­cerned that th­ese fig­ures are still woe­fully low.”

Ac­cord­ing to the JSE it­self, no data is kept on racial pat­terns of own­er­ship. So it’s a mys­tery as to where the Pres­i­dent and his speech­writ­ers dug up the in­for­ma­tion about JSE own­er­ship pat­terns.

How­ever, Mbeki says that blacks own only 5% of the JSE and he is par­roted in that by the head of the Pub­lic In­vest­ment Cor­po­ra­tion, Brian Molefe, whose own or­gan­i­sa­tion – rep­re­sent­ing an over­whelm­ingly black pub­lic ser­vice pen­sion fund – it­self con­trol­ling R600bn, the bulk of it in the mar­ket, just doesn’t re­flect Mbeki’s per­cep­tion.

It might re­flect that per­cep­tion if the funds ad­min­is­tered by, for ex­am­ple, Old Mu­tual, San­lam, Lib­erty Life and other in­sti­tu­tions were, for all in­tents and pur­poses, 100% owned by whites. But that’s pa­tent non­sense. Th­ese in­sti­tu­tions ad­min­is­ter the re­tire­ment funds of mil­lions of black South Africans.

Now, as it’s not the in­sti­tu­tions that own the shares but the ben­e­fi­cia­ries upon whose be­half they act who own them, then the num­bers put forth by Mbeki and Molefe just don’t stand up to scru­tiny.

Fur­ther, there’s the mat­ter of for­eign own­er­ship of our listed shares. Again, there don’t ap­pear to be re­li­able cal­cu­la­tions. How­ever, a JSE source in­di­cates that to­tal for­eign own­er­ship is at least 30%.

The SA In­sti­tute of Race Re­la­tions re­ports that a well-known lo­cal in­vest­ment fig­ure, David Shapiro, told The Star news­pa­per in April 2005 that he es­ti­mated that 58% of the shares of the top 40 listed com­pa­nies were owned by for­eign­ers – “largely ow­ing to dual list­ings of stocks, such as BHP Bil­li­ton, An­glo Amer­i­can, SABMiller and Old Mu­tual”.

“Since there was more trade in the off­shore shares of those com­pa­nies than there was on the whole JSE, South African in­vestors were sim­ply price tak­ers and could not es­cape global sen­ti­ment,” said Shapiro.

One can safely as­sume that there’s at least 30% of the JSE owned off­shore – which makes an im­me­di­ate mock­ery of the num­bers put forth by Mbeki and Molefe con­cern­ing the pro­por­tion of black own­er­ship. To hold wa­ter, their cal­cu­la­tions must ob­vi­ously ex­clude that 30% or more.

Clearly, there’s very lit­tle any­one in SA can do about per­suad­ing or forc­ing those off­shore own­ers to en­ter into sweet­heart em­pow­er­ment deals in or­der to as­sist South African blacks to own more of the mar­ket.

Those off­shore in­vestors must an­swer to off­shore own­ers, who couldn’t care less about the per­ceived so­cioe­co­nomic needs of SA. They’re em­ployed to max­imise the re­turn on the as­sets un­der their con­trol, not to do good – re­flect­ing per­haps the wis­dom of Adam Smith, who in­formed us that he had “never known much good done by those who af­fected to trade for the pub­lic good”.

Thus we are left with, at most, 70% of the JSE with which to de­bate the level of black own­er­ship. Mbeki and Molefe put it at 5% of the 100% to­tal. Us­ing the 70% do­mes­tic por­tion alone we rise to 7,14%. How­ever, this doesn’t take into ac­count the in­sti­tu­tional hold­ings of en­ti­ties such as the Pub­lic In­vest­ment Cor­po­ra­tion and SA’s ma­jor fund man­agers, which all act for large num­bers of black ben­e­fi­cia­ries.

One re­li­able es­ti­mate is that, cur­rently, it’s likely that di­rect, per­sonal own­er­ship by in­di­vid­u­als on the JSE is in the lower range of a spread of 10% to 15% of the to­tal. Some con­fu­sion is in­tro­duced if you look at an SAIRR quote from the Jo­han­nes­burg Sun­day Times of 7 Novem­ber 2004, which re­ports that di­rect black own­er­ship of the JSE was 12,7% “of the re­quired level of 25%”.

You can only as­sume that this “di­rect black own­er­ship” in­cluded cor­po­rates born out of em­pow­er­ment deals. But does that re­quired level of 25% re­ferred to by the Sun­day Times en­com­pass the en­tire mar­ket, in­clud­ing the off­shore hold­ings? If so, then we’re look­ing at a tar­get not of 25% but of al­most 36%.

There can be no ob­jec­tion to blacks hold­ing any level what­ever of the JSE. Who cares, as long as the shares go up. How­ever, if in its frenzy to achieve its em­pow­er­ment ob­jec­tives, the State de­cides to ac­cept noth­ing less than 25% of the to­tal, just re­mem­ber that this is 36% of the shares held in SA.

As has been the case with Robert Mu­gabe and the Na­tional Party, the sub­lime be­lief that the State can or­der so­ci­ety as it sees fit and can act as an om­nipo­tent so­cial en­gi­neer is one that leads to ruin.

Mbeki says that blacks own only 5% of the JSE.

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