Black economic empowerment has been an important goal for South Africa since the end of apartheid in 1994. The aim has been to give the country’s disadvantaged majority a bigger stake in the economy. Yet despite the policy’s mixed record, people within the ruling African National Congress could be planning a radical departure.
A plan under consideration by the Public Investment Corporation (PIC), the state pension fund, would see the acquisition of a controlling stake in Absa, one of the country’s biggest banks, to create a majority black-owned institution backed by powerful investors.
Doing more to raise up the black population is a prerequisite for the country’s future stability, and the government is right to push for it. Despite all the promise of 1994, there has been no great entrepreneurial lift off. For the majority of the population, livelihoods have yet to improve to any meaningful extent.
But intervening to place Absa in the hands of a select group of individuals and institutions is not the best way of changing that. South Africa’s third-largest bank by market capitalisation, presently controlled by the UK’s Barclays, is scarcely a basket case requiring a new business model. The decision to sell it, along with the rest of the African assets in its portfolio, has more to do with Barclays’ balance sheet than Absa’s performance.
In theory, the “black bank” envisaged by PIC, with backing from the ANC, would help to remedy continuing social injustice by investing more proactively than other banks in small black-owned enterprises that have been starved to date of credit.
Such an ambition is understandable - certainly from a political perspective. Public frustration with the slow progress towards creating a more equal society has given rise to populists such as Julius Malema with radical agendas, including the expropriation of white-owned corporations. His ideas are steadily gaining ground.
There are, however, valid reasons to worry about a politically connected takeover of Absa, which is one of the most important suppliers of capital to the South African economy. There are questions about superimposing social objectives on to financial criteria when directing pensioners’ savings or the capital of depositors. The risk is even greater when it involves an economy as riddled with patronage as the country has become.
It may be that South African capitalists are simply too risk averse or myopic to invest in value adding projects put to them by smaller enterprises run by black entrepreneurs. But there are other mechanisms the government could use to remedy this situation. The state could, for instance, establish its own national investment bank with a mission to seek out and back such projects.
Assuming it invested wisely, this new financial institution would then earn superior returns, demonstrating to the private sector the value of what it was missing out on.
This is a delicate time for the country. Black economic empowerment is under fire for fostering cronyism and corruption by allowing a small politically-connected elite to prosper while bringing no appreciable benefit to the disadvantaged.
While PIC has a record as a responsible investor, it could emerge as the sleeping partner in any empowerment deal to acquire Barclays Africa. Fortunately, the regulators in South Africa, whose approval would be required, remain independent. They should bear in mind how much is at stake.
