South Africa’s Transformation Drive Under Scrutiny

Despite over three decades of post-apartheid political and economic reform, South Africa’s efforts to transform its economic landscape are being called into question. Recent findings reveal that major financial institutions like Standard Bank and Nedbank have less than 1% black ownership, highlighting the slow pace of transformation in the country’s capital markets.

Key Findings from the Black Ownership on the JSE Research Report

Respected economist Duma Gqubule has released the latest Black Ownership on the JSE Research Report, in collaboration with the Black Management Forum and the Transformation Lens. This report, unveiled at the Johannesburg Stock Exchange (JSE) on Monday, scrutinizes black ownership trends on the JSE during the first three decades of South Africa’s democracy.

The research underscores significant shortcomings in the design of policies meant to promote black economic empowerment (BEE). According to Gqubule, these policy failures have contributed to a stark divide between actual ownership, as reported by companies in their annual disclosures, and the figures reflected on BEE certificates.

The Flaws in Policy Design

Gqubule’s findings indicate that the policy design failures and political compromises made during the drafting of the BEE Codes and sector charters have resulted in a system that allows for inflated compliance scores without substantive transformation. He argues that the recognition of indirect ownership has become a loophole, enabling companies to gain compliance points without making meaningful changes to their ownership structures.

• “A back-door route towards compliance rewards companies for doing nothing,” Gqubule asserts.
• “Allowing passive indirect ownership to count is a betrayal of the spirit of true empowerment.”

He emphasizes that for genuine empowerment to take root, companies need to engage in replacement BEE transactions after black shareholders exit, creating opportunities for new beneficiaries and liquidity in empowerment finance. Gqubule points out that, under the continuing consequences principle, companies can retain up to 40% of their compliance points even after black shareholders have left, which has further stalled progress.

Industry Examples and Challenges

In the mining sector, the ‘once-empowered, always-empowered’ principle has effectively closed the door on replacement transactions. However, companies like Exxaro, Impala Platinum, and Northam are cited as examples of organizations committed to BEE through meaningful transactions.

In the financial sector, some firms have made strides in addressing black ownership shortfalls by providing funding for black business growth. Companies such as Old Mutual and Absa have successfully engaged in replacement transactions, while firms like FirstRand, Sanlam, and Capitec have managed to maintain black ownership.

The Case of Standard Bank and Nedbank

In stark contrast, Standard Bank and Nedbank stand out with their less than 1% black ownership, having not concluded any BEE transactions in the last decade. Gqubule’s report raises critical questions about the dedication of these institutions to the principles of transformation.

“There are weak incentives for companies to engage in replacement BEE transactions,” he states, highlighting the need for a re-evaluation of the policies that currently govern black ownership in South Africa.

Conclusion: A Call for Genuine Transformation

As South Africa marks over 30 years of democracy, the findings of Gqubule’s report serve as a stark reminder of the work still needed to achieve true economic transformation. With the current landscape showing minimal progress in black ownership on the JSE, urgent action is required to ensure that empowerment initiatives lead to genuine change and participation for black South Africans in the economy.