Red herrings and black shareholdings
Where did Mbeki dig up information about JSE ownership patterns?
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.