The financial services sector is regressing on BEE targets‚ leading officials told Parliament on Wednesday.
Philisiwe Mthethwa‚ CEO of the National Empowerment Fund‚ said financial commitments contained in a draft code for black economic empowerment were far too low.
Zodwa Ntuli‚ head of the Broad Based Black Economic Empowerment Commission‚ agreed with Mthethwa. Ntuli pointed out deficiencies in the draft financial sector code‚ particularly with regard to ownership.
Mthethwa and Ntuli made presentations during public hearings held by Parliament’s finance and trade and industry committees on the transformation of the financial services sector.
Mthethwa pointed out that a fundamental deficiency of the draft financial services code was its lower 10% target for direct ownership‚ which compared unfavourably with the minimum 25% target in the generic black economic empowerment codes.
The draft financial sector code allowed companies to use indirect ownership to meet the minimum 25% ownership target.
"The R122bn target for empowerment financing is based on the 2002 baseline and has not been reviewed nor has it been adjusted for inflationary increases‚ population and economic growth. Furthermore the amount has not been adjusted to cater for the growth in assets held by the respective participants‚" Mthethwa said.
In terms of the draft code‚ banks and long-term insurers commit R48bn and R27bn respectively for targeted investments and R32bn and R15bn respectively for the black industrialist programme.
"These (commitments) are too low in a sector that had assets of R4.8 trillion in September 2016‚" Mthethwa said.
She estimated that the financial sector would have to spend an additional R245bn in empowerment finance to meet the 25% ownership target – R149bn for targeted investments and R95bn for black industrialists.
Mthethwa noted that the market capitalisation of the top 17 financial sector companies listed on the Johannesburg Securities Exchange was R1.6 trillion.
Black economic ownership achieved to date by these companies was R98bn (6%). This translated into a funding gap of R65bn to reach the 10% ownership target of the draft financial sector charter and a funding gap of R245bn to reach a 25% ownership target.
Mthethwa recommended that government’s preferential procurement be used to accelerate transformation and greater use be made of developmental finance institutions to fund black entrepreneurs who were regarded as "risky" by the formal financial services sector. She also proposed the creation of a black-owned bank.
Ntuli also criticised the draft code‚ saying it did not set timelines for the achievements of the targets which were "very low".
She argued that the draft financial sector code in its current form did not advance radical economic transformation. If these deficiencies were not addressed‚ the generic codes of good practice should apply.
Ntuli said that the pace of transformation in the financial services sector was too slow and had regressed in some instances. Development finance was not increasing in line with the need to grow the economy.
- TMG Digital/BDLive
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