Are the right people leaving DBSA?
Development bank may now need to focus on lending, writes Carol Paton
The Development Bank of Southern Africa (DBSA) which, it is assumed, would provide one of the building blocks of a new Brics (Brazil, Russia, India, China and SA) bank, has over the past two years faced the prospect of going bust in the foreseeable future.
It is for this reason that early this year, the bank embarked on a restructuring programme which involved cutting staff numbers by almost half, securing a capital injection from the government and refocusing lending to try and win back clients — especially metropolitan cities — that commercial banks have taken away.
But the restructuring efforts have been controversial. Apart from the trade unions, which have made as much noise as they can about the government (the development bank’s sole shareholder is the Treasury) shedding jobs, there have also been questions whether the right people are leaving.
Will the bank still be able to play the role it has — as a development agent and specialist — if so many development professionals get the chop? The sceptics — among them people who have left the bank and some who have remained on a contractual basis — are doubtful.
The bank’s particular value offering, which was that it was able to provide broad conceptual and specific scoping and prefeasibility advice, has been decimated with the disassembling of the development planning section.
Last year, CEO Patrick Dlamini said that he planned to establish a more focused version which would provide project management capacity, but most people who filled these positions have already left the bank. In reply to questions last week, the bank said it planned “to enhance rather than deplete” the infrastructure skills set within the institution. It is not clear how though, since the retrenchment process is not yet complete.
The sceptics also argue that the reason why the bank got itself into a financial mess in the first place was bad investments from which it hoped to make some money. It still has not come clean about what the bad investments were. Questions to the bank over several months have not been answered.
One query was a stake it took in Sol Kerzner’s One & Only hotel, an investment which could not be further than imagined from a development mandate.
The believers say that these investments were just the tipping point, but that the bank has been expanding and taking on numerous unfunded responsibilities.
The view that it was overstaffed clearly holds some water. But the upshot is when it comes to project work, the bank will be in the same position as most state departments: it will need to put out to tender.
There is also another problem. The business model of the bank remains tenuous. The board has said it will no longer get involved in equity investments. It must make money out of lending money. But unlike commercial banks it does not take deposits and so does not have a source of cheap money, the capital injection provided for in this year’s budget being a rare event.
With commercial banks having honed in on performing loans — those with metropolitan councils — the bank has been left with thirdtier municipalities, typically the non-performers. The bank used to have complementary programmes to help these municipalities perform. But Siyenza Manje, which deployed skilled professionals to municipalities in distress, has been removed and the task is now carried out by the government itself.
At the start of President Jacob Zuma’s administration, it appears there was an unspoken commitment that the Development Bank of Southern Africa would start to play a much larger role.
It held roundtables and drew up road maps. That approach has now been dumped for a second unwritten and unspoken commitment that it will be pared down and focus on lending.
The bank’s response to questions around its business model is that “it will use its capital base to raise debt from capital markets to meet targeted asset growth”.
But in doing that it will have to compete with commercial banks, all of which are anxious to get their slice of the action when it comes to infrastructure financing.
The Treasury has said almost nothing about how it sees the future of the bank. Detailed questions to it last week went unanswered.