Transformation of the financial services sector: An objective necessity

7 September 2022

As the motive forces of the National Democratic Revolution (NDR) become increasingly impatient with the rate and pace of change in South African society, one of the main criticisms has been that the ANC-led government has lacked the boldness, decisiveness and political will to radically transform the economy towards greater inclusivity and more equitable outcomes, that favour the black majority in general and Africans in particular.

The ANC-led government is often criticised for not having been aggressive enough in using the levers of state power to ensure that there is a fundamental, systemic transformation of the South African economy so that it loses its apartheid era racial and gender composition of ownership, control, and management of our economy.

At the 1969 Morogoro Conference, oft quoted and referenced, the ANC affirmed in its strategy and tactics document that, “In our country it is inconceivable for liberation to have meaning without a return of the wealth of the land to the people as a whole. To allow the existing economic forces to retain their interests intact is to feed the root of racial supremacy and does not represent even the shadow of liberation. Our drive towards national emancipation is therefore in a very real way bound up with economic emancipation. Our people are deprived of their due in the country’s wealth; their skills have been suppressed and poverty and starvation have been their life experience. The correction of these centuries-old economic injustices lies at the very core of our national aspirations.”

Whilst admitting to the fact that much progress has been made in transforming the economy, one would not be completely out of touch with reality if one made the observation that within the current dispensation, there is a need for accelerated implementation of long-standing ANC policies in order to ensure that we bring about economic transformation, growing the economy in an inclusive, equitable, job creating manner so that the people do indeed share in the wealth of the country and achieve their desired aspirations of a better life.

We must ensure that we use state power in order to disrupt the status quo so as to materially better the lives of the people and deliver on their hopes and aspirations. We have to be more aggressive about ensuring that we are advancing in our quest for a more just and equitable society.

We have to be more bold, more decisive, and unapologetic about pursuing historical redress, the correction of past injustices and imbalances which still have a material effect on our people’s potential or on opportunities for social and economic advancement and about bringing about redistribution; income, wealth, and asset redistribution in order to reduce inequality.

In seeking to advance this more radical agenda, we must of course always be cognisant of the following critical facts, that also stem from the ANCs 1969 strategy and tactics document at Morogoro:

A revolutionary policy is one which holds out the quickest and most fundamental transformation of power from one class to another.

Such radical changes are not brought about by imaginery forces but by those whose outlook and readiness to act is influenced by historically determined factors.

The art of revolutionary leadership consists in providing leadership to the masses and not just its most advanced elements, it consists of setting a pace which accords with objective conditions and real possibilities at hand.

A revolutionary sounding phrase does not always reflect revolutionary policy and revolutionary policy is not always the springboard for revolutionary advance.

Often what appears to be militant, and revolutionary can turn out be counter-revolutionary

So, in looking to fast-track the transformation of our economy, we should shy away from populist rhetoric and cheap sloganeering which have no material impact on the lives of ordinary South Africans, but instead are informed by predatory instincts. We must however be bold, aggressive, and unapologetic about economic transformation, using the state as a primary driver of our progressive agenda. The time for equivocation and a softly, softly approach has long passed. This is fundamental to the achievement of our historical goals and objectives as a people’s movement.

We must be geared towards forming partnerships within society that will help advance our revolutionary objectives. In all that we do, we must ensure that our approach will have the following effect and impact: increase the black share of wealth and income, increase employment and investment within the economy, decrease inequality and bring inclusive growth, enable us to increase the skills base within society (e.g. provide access to education, skills development etc.) so that we can give better opportunities to the people. The broader agenda is that we must be able to transform our economy so that the masses of the people can achieve an improved quality of life.

Given the phenomenon of the increased financialisaton of the economy and economic activity, one of the strategic areas of focus in transforming the South African economy, is the financial services sector and one of the most crucial vehicles that we possess as a party that is in government, that we have not utilised optimally, is the Public Investment Corporation (PIC), which has roughly R3 trillion in assets under management on behalf of the working class, which must be used to advance working class interests in transforming the economy.

Less than 10% of the R9 trillion of assets within the financial services sector (roughly R3 trillion under the PIC) in South Africa, are deployed to black asset managers, so there is obviously a need for a more aggressive transformation drive within the sector, using the PIC as a primary driver to ensure that the children of the working class, who become the black asset managers and aspirant players within the financial services sector, become significant players when it comes to being on the table of asset allocation.

Our current legislation requires trustees to use asset consultants and so, we may be perpetuating the problem through our own laws. Trustees may want to deploy capital to black fund managers, but the law says they have to rely on asset consultants and asset consultants are mainly white, so this is an area that we need to zoom in on in pursuit of the transformation of the financial services sector.

The PIC must primarily use black asset consultants. The asset consultants are the gate keepers that determine where pension fund money goes. There is no reason why black asset managers, run by children of the working class, should not be entrusted with managing the funds of the working class. The black asset consultants should have a bias towards black asset managers, to the extent that black asset managers perform (and there is no evidence that indicates lack of capacity and underperformance of black asset managers at present).There must be a mandate from government, unapologetically so, to ensure that this becomes the case.

What is extremely important is that this is not only about black participation in capital allocation but investments in growing black owned asset classes in the broader economy. We do not want black asset managers to still be allocating liquidity ostensibly in portfolios where black ownership does not exist. The PICs mandate must come with conditionalities that enforce significant transformation and black ownership requirements, in the investment portfolios, whether listed or unlisted. This can be encouraged also through performance fees, factoring revenue expense ratios etc.

This is important so that we do not only transform the asset management industry and financial services sector, but also regulate the nature and texture of asset classes where liquidity is channelled by black or white asset managers, so as to reach and transform the broader economy.

There are three critical focus areas that can enable us to practically implement our transformation agenda within the financial services sector:

The PIC must drastically increase allocation mandates to black asset managers and sponsor further training for new entrants so that the pool keeps growing. The PIC must foster partnerships with established white asset managers to work with upcoming black firms.

We must regulate investment portfolios to reflect our broader strategic objectives to deracialise the economy.  Furthermore, we must streamline Financial Sector Conduct Authority (FSCA) regulatory and compliance to be consistent with these requirements.

Liquidity to be channelled to bolstering black ownership, transformation, and asset classes with strong ESG (environmental, social and governance) undertones.

Mugabe Ratshikuni works for the Gauteng provincial government; He is an activist with a passion for social justice and transformation. He is branch Treasurer of the ANC Ward 115, Florence Mophosho branch, Greater Johannesburg Region. He writes here in his personal capacity.