It’s high time state and wealth controllers talked
THE 53RD conference of the ANC in 2012 reaffirmed that the ANC’s economic vision rests on the Freedom Charter’s call that the people shall share in South Africa’s wealth. Despite so much progress in growing the economy during the post-apartheid era, it is, however, obvious that the economic emancipation that would satisfy the Freedom Charter will take many years to be realised in full.
There is tremendous progress in satisfying our people’s basic needs: the provision of housing, safe potable water, access to education, improvement in healthcare and a social safety net for impoverished communities. Yet the review of 20 years of democracy has identified the outstanding work that lies ahead.
The real challenge is that the redistribution of economic assets and the growth of job-creating industries have not met the expectations we had in 1994.
The ANC adopted the National Development Plan as the closest vehicle to move South Africa towards a national development society in which the vestiges of apartheid subjugation are no longer visible in quality of life and access to basic services.
This of necessity requires change whereby national forces of production are developed. It further requires de-racialisation of ownership and control of wealth, management and the professions. More equitable ownership and innovative investment in part can be ensured by investment and supporting the social economy, such as co-operatives and SMMEs. The challenge is to identify when these forms of ownership are appropriate while also growing the private sector.
Investments need to be massively increased. Growth must ensure job creation and wealth redistribution. And so, there is merit in focusing on the transformation of the financial sector, although this does not downplay other factors and foreign direct investment.
As at September last year, the finance, real estate and business services sector accounted for about 20.3 percent of gross domestic product, thus making it the largest sector of the economy, followed by the government at 17 percent. From an employment perspective, the only sector with higher employment numbers than finance is community services, which is predominantly the government, and so, within the private sector, the finance sector is actually the largest employer in South Africa.
It manages the savings of the nation, and, in this regard, the major decision makers are those who manage the banks, pension funds, provident funds, insurances and retirement annuities.
The total assets under management in the country are estimated to be above R6 trillion, with a few major fund managers dominating the scene: Old Mutual, Coronation, Allan Gray, Investec, Sanlam, Stanlib and Momentum.
There is an interesting quote by John Kenneth Galbraith which comes to mind when assessing the current challenges of our financial services industry: “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”
I believe a conversation between the state and the major players in the financial sector is needed, with the view not only to seek the highest returns for the shareholders but to support the National Development Plan. This means the debate on radical economic transformation needs to involve the managers of these institutions. Large savings that have not been invested by South African institutions, the so-called “investment boycott”, need to be confronted.
In turning the economy around, the local funds need to be directed to the massive infrastructure programme, industrial manufacturing, agri-processing, ICT, small business development, skills development and training of the youth.
Three entities control about 90 percent of our retirement industry assets. These are Alexander Forbes, Riscura and Towers Watson. Their influence is largely via the asset consulting function used by most South African pension funds. This dominance in market share renders the three entities the de facto kingmakers in the investment management space.
The asset management industry requires transformation. Despite the perception of empowerment, it is shocking that only 4.4 percent of assets under management are under black fund managers, totalling a mere R300bn of the R6 trillion.
By default, the economic transformation is dependent on those whose interests are threatened by it.
We shouldn’t wonder why inequality escalates. The instability in a democratic dispensation will not only be caused by the poverty of all, but by the injustice of escalating inequality. No wonder the World Economic Forum, the World Bank and increasing global voices are focusing on this issue.
As South Africa, we must also slaughter our own dragons. These are some of the difficult conversations we must face.