Despite a post-apartheid political economy spanning more than three decades, South Africa is lagging behind in its transformation crusade, given that Standard Bank and Nedbank have less than 1% black ownership and neither have concluded black economic empowerment (BEE) transactions for a decade.
In significant findings laying bare the slow pace of transformation, respected economist Duma Gqubule has released the latest Black Ownership on the JSE Research Report, in partnership with the Black Management Forum and the Transformation Lens.
The research, examining black ownership on the JSE during the first three decades of democracy, has provided valuable insights into economic transformation, ownership trends and inclusive participation in South Africa’s capital markets.
Released on Monday at the JSE, the report has found that there were “significant policy design failures that have contributed to the wide gap between actual ownership — as reported by companies in their annual reports — and what is on the BEE certificates”.
That was because of policy design failures and political compromises, made during the drafting of the BEE Codes and sector charters.
“Recognition of indirect ownership means that companies get free points and full compliance in many cases, even if they do nothing to transform their ownership structures — a major contributor towards inflated scores of JSE-listed companies.
“A back-door route towards compliance rewards companies for doing nothing.
“Allowing passive indirect ownership to count is a betrayal of the spirit of true empowerment, which is to encourage direct ownership by active black shareholders who can influence company strategies.
“There are weak incentives for companies to get into replacement BEE transactions.”
Scathing in his findings, Gqubule has argued: “For the empowerment process to continue, companies should eventually conclude replacement BEE transactions after the exit of black shareholders.
“In this way, there can be liquidity in empowerment finance and new beneficiaries.
“According to the continuing consequences principle, companies can retain up to 40% of their points after the exit of black shareholders.
“But since many transactions have long funding periods, they can retain points for a decade.
“In mining, the ‘once-empowered, always-empowered principle’ has shut the door on replacement transactions.
“Some companies who are committed to BEE implemented transactions, including Exxaro, Impala Platinum and Northam.
“In finance, companies can provide black business growth funding to meet their ownership shortfalls.
“There were replacement transactions at Old Mutual and Absa, with FirstRand, Sanlam and Capitec retaining black ownership.
“But Standard Bank and Nedbank have less than 1% black ownership — not having concluded BEE transactions for a decade.
“There have been large replacement transactions in the telecommunications sector, where the law requires BEE.”
The report has found that ANC heavyweights like Cyril Ramaphosa and Tokyo Sexwale, who participated in earlier transactions, never accounted for most of the deal flow.
Black ownership accounted for R255 billion, equivalent to 6.7% of the top 60 total and 6.9% of South African assets.
Seventy-seven percent of black ownership was in mining and banks, which had 8.4% and 8% black ownership, respectively.
Gqubule said the Public Investment Corporation (PIC) and the Industrial Development Corporation (IDC) had provided limited funding for companies to purchase shares on the JSE.
“The PIC provided R32 billion, of which R16 billion went to one individual, Jayendra Naidoo, to buy shares in Steinhoff.
“The IDC has funded black participation in Exxaro and Capitec.
“The farce of this policy concession, which explains the bizarre ownership scores of JSE-listed companies, becomes evident when one looks at the PIC, asset manager of Government Employees Pension Fund and the Unemployment Insurance Fund.
“The PIC is the government’s means of financing its obligations to pay pensions and unemployment benefits — and the workers do not own the shares.
“The PIC owned shares worth R1.1 trillion with top 60 JSE companies at end-December 2024 — equivalent to 6.7%.
“If one excludes the value of non-South African assets — 78.5% of the top 60 market capitalisation — PIC shares were equivalent to 31% of the value of South African assets worth R3.7 trillion.
“The PIC owned shares worth R303 billion in 14 finance companies within the top 60, equivalent to 19.5% of the value of South African assets.
“If one adds the 31.2% PIC ownership to the 6.9% finding in this paper, the result is 38.1% for 2024 — almost the same as the BEE Commission finding of 39% in the 2022 report.”
Among its far-reaching recommendations, the report called for the redefinition of the BEE “for a new era within a new vision and plan to fix a broken economy that is heading for two decades of declining average living standards”.
It said there should be a new macroeconomic policy framework with targets for GDP growth and jobs.
Other recommendation included:
- A fusion of racial, gender and structural transformation;
- The SA Reserve Bank, PIC and IDC should start talks on a super fund to finance purchases of shares on JSE;
- Developmental targets for banks and non-bank-financial institutions;
- Comprehensive review of BEE legislative and policy framework, including ownership;
- Mining and finance charters must align with new BEE policy and law;
- Elimination of the gap between what companies report in their annual reports and what appears on their BEE certificates, with effective and actual ownership being measured;
- The review of the BEE Codes must abolish the modified flow-through principle, the exclusion of mandated investments and the back-door route to compliance through indirect ownership;
- Companies should get recognition for past transactions on a sliding scale that falls to zero after three years to create liquidity in empowerment finance; and
- The new scorecard should have separate sections that measure actual ownership and the continuing consequences of past transactions.
“Anglo’s exit has shown that we should not allow mining companies to play monopoly with our natural resources.
“We must bring back our minerals and have a target of 51% ownership by the state, communities, workers and BEE companies,” Gqubule said.
There were replacement transactions at Old Mutual and Absa, with FirstRand, Sanlam and Capitec retaining black ownership. But Standard Bank and Nedbank have less than 1% black ownership – not having concluded BEE transactions for a decade