Gavin Lewis
Mpahlwa
The drama surrounding the debate about the Financial Services Sector Charter (FSC) epitomises why the implementation of broad-based black economic empowerment (BBBEE), one year on, is caught in the brambles of principle.
Minister of Trade and Industry Mandisi Mpahlwa has accordingly extended the deadline for finalising the transition period for the implementation of the (to use the tongue-twisting acronym) BBBEE Codes from February to August 2008. Launched this time last year, the Codes were meant to be in place by now, under strong pressure from black business elites.
The whole rationale behind broad-based black economic empowerment was that the benefits of BEE should be spread more widely, following criticism that previous BEE had focused too much on ownership, benefiting only the ‘usual suspects’ amongst the politically connected black elites.
Hence, the ‘broad-based’ which now factors in not just ownership but other measures such as skills development and training, preferential procurement, enterprise development, employee share options, management control, and corporate social investment activities. National Treasury, it is said, was also concerned to give investors, domestic and foreign, a menu of options for accommodating BEE demands, rather than just a straight transfer of partial ownership to black people.
So it is ironic that the debate on the nature and shape of the FSC should have come down to this very issue of ownership. The South African Communist Party (SACP) and the Congress of South African Trade Unions (Cosatu), despite prior negotiations at the National Economic Development Labour Council (Nedlac), walked out of negotiations over the issue of percentage of black ownership set for this sector. Business offered 10% direct plus 15% indirect. The SACP and Cosatu demanded 25% direct – the level set in the BBBEE Code.
The point about having sector charters in addition to the national targets of the BBBEE Code was that each sector faces different challenges. A one-size-fits-all approach would not work. Thus the various sectors (property, construction, mining, petroleum and liquid fuels, ICT, tourism, agriculture etc.) have been drafting their own sector charters. The need for separate sector charters, in yet another irony, is nowhere better expressed than in the FSC.
Ownership percentages are particularly crucial in the financial sector because here one is dealing with financial institutions whose absolute stability is a fundamental requirement for a functioning economy. This ownership, whether it be black or white, carries responsibilities that go beyond selfish sector interests to the health of the economy as a whole.
Simply put, shareholders in financial institutions are expected to have access to extra finance to inject liquidity in the event of a Northern Rock-type run on the bank. Indeed, even 15% ownership in this sector must be approved by National Treasury. And no investor will invest in a country with a shaky financial system – or at least not without a hefty premium.
This is the dilemma. The sector charters have to be finalised and reconciled with the BBBEE Codes before the new system can be put into place. So the FSC impasse becomes a BBBEE impasse.
Interestingly, pragmatics in government circles are deeply aware of this equation between economic ‘justice’ and economic growth.
It goes to the heart of the debate within the ANC alliance, so vociferously expressed at Polokwane in December 2007, between those on the left (SACP and Cosatu, in a in a strange cross-class alliance with ethnic entrepreneurs) who argue that higher levels of economic growth must be spurred by inward investment behind protectionist barriers (to put the debate very crudely) and those ‘technocrats’ in government, such as Finance Minister Trevor Manuel and Public Enterprises Minister Alec Erwin, who favour export-led growth.
Interestingly enough, in President Mbeki’s State of the Nation Address in February 2008, among the 24 Apex priorities listed there was no reference at all to BEE.
This does not mean that BEE will go away. But it does show that there are different approaches to it. And until the FSC is resolved we are stuck – unless the ever-pragmatic and ultra cautious Minister Mphalwa overrules the SACP-Cosatu faction and simply gazettes the original version of the FSC. This, however, is in turn interlinked with current high-level political tensions and a presidency in its waning year of power.
There are other delays that affect BBBEE as well. Some are legislative – the procurement issue awaits the amendment of the Preferential Procurement Policy Framework Act. There is still no finality in the BEE verification regime, which is supposed to be overseen by the South African National Accreditation System, a member of the dti group of institutions, which has only this February completed its own restructuring. There are 30 sector charters to be gazetted. And in any event the wheels of bureaucracy may grind fine, but they grind exceedingly slow.
Black business is a vociferous, well-connected and high-profile lobbying group within the ANC. Their voices will not die down and rival claimants to the throne of leadership will have to listen to them.
While there is no resistance to the concept of BEE, there remain fundamental issues of principle at stake, and with general elections due in the first half of next year, BEE will remain a hotly contested terrain.
Dr Gavin Lewis is an independent consultant
