South Africa’s financial services industry manages an estimated R1.23-trillion of the country’s wealth. According to Mail & Guardian the pace of change in the financial services sector has come into sharper focus as it continues to contribute significantly to the economic growth of the country.

Over the last five years, the financial sector, including banks, insurers, pension funds, brokers, private equity firms and investment scheme companies, invested approximately R122.5-billion (10% of the wealth managed by the sector) in funding black economic empowerment. Banks were committed to invest R80.5-billion in empowerment financing over five years, and long-term insurers R42-billion over the same period – making up the total amount of R122.5-billion.

The Financial Sector Charter

The Financial Sector Charter (FSC) applies to any natural or juristic person conducting a business, trade or profession in the South African financial sector, including, but not limited to, the following:

  • Banking
  • Long-term insurance
  • Short-term insurance
  • Re-insurance
  • The management of retirement, pension and collective investment scheme assets
  • Management of formal collective investment schemes
  • Financial Services Intermediation and Brokerage
  • Management of investments on behalf of the public, including, but not limited to, private equity, members of any exchange licensed to trade equities or financial instruments in South Africa and entities listed as part of the financial index of a licensed exchange
  • Underwriting management agents
  • The Charter, signed in 2003, deals with empowerment in the sector, focusing on providing black enterprises with access to banking and other services. This commitment to empowerment financing came as a result of negotiations by the National Economic Development and Labour Council (NEDLAC), held at the 2002 Financial Sector summit. Key industry players and partners of NEDLAC committed to help remove economic inequality in order to help establish a thriving and all-inclusive economy.

    In order to balance this inequality, it is crucial for the sector to invest in empowerment to ensure South Africa’s long-term socio-economic and commercial success. What is imperative for the successful implementation of B-BBEE is the sector’s capacity to facilitate commerce – both locally and internationally.

    Key aspects of the FSC

    The Financial Sector Charter Code is built on the following core pillars of empowerment:

  • Human Resources Development
  • Access to Financial Services
  • Empowerment Financing
  • Enterprise Development
  • Corporate Social Investment
  • Management Control
  • Because financial institutions hold a unique position in the country, two new key elements were included into the scorecard. According to the Department of Trade and Industry (dti), two new elements in particular – empowerment financing and access to financial services – will help the inclusion of previously disadvantaged groups into the mainstream economy.

    Empowerment financing
    In 2015 Economic Development Minister, Ebrahim Patel announced that the Industrial Development Corporation (IDC) was allocating R23-billion towards black industrialists. Supporting black economic empowerment has been central to the IDC, although over the past 21 years the focus has seen a seismic shift from supporting BEE ownership to the creation of black industrialists. To this end the funding will increase to R100-billion over the coming five years.

    Financial companies have been working with the government to provide the required resources for empowerment financing which is broken down into four targeted investment components:

  • Low-income housing
  • Black SMEs
  • Transformational infrastructure and agriculture
  • Appropriate risk mitigating measures and risk sharing arrangements
  • The FSC also aims to provide B-BBEE transactional financing for black entrepreneurs to acquire an existing or new company – in any sector of the economy. In addition to this, the FSC covers debt financing, credit extensions and equity investments into BEE companies.

    Access to Financial Services
    Access to first-order retail financial services is key to empowerment and the growth of the economy. This includes savings accounts, contractual savings products, collective investments and community-based savings schemes. Also included in this list is credit for low-income housing, agricultural development, financing black SMEs, establishing black SMEs and insurance products like life insurance, funeral cover, household insurance and health insurance.

    According to Minister Rob Davies, it’s imperative for the financial sector to provide investment capital and to support the productive sector, as well as small enterprises and micro small enterprises. He states that if the country aims to create 11 million jobs by 2030, the small business sector has to expand exponentially. The sector can assist Government achieve this by reducing the red tape for small businesses and easing access to finance.

    Allocation of investment

    The allocation of the different amounts into the various areas has had an overall impact on the economic growth of the country. However, black empowerment deals and investment into black businesses don’t necessarily guarantee job creation – it may only mean that shares shift from one elite to another. This in and of itself is an important consideration for long-term plans to change the equity ownership profiles of companies.

    A powerful catalyst to facilitate growth is the investment into infrastructure as this means ample employment opportunities, as well as the strengthening of basic service delivery.

    The top 4 banks and their empowerment strategies

    Nedbank
    According to Nedbank’s head of communications Esme Arendse, there is still a lot of work to be done with regard to transformation in the sector. She states that management control and employment remain a challenge – especially in relation to the representation of women and black people in senior management positions.

    The draft amended FSC puts great emphasis on the development of black employees within the sector in order to equip them with the necessary skills to apply for management positions, should these positions become available.

    Esme states that one of the challenges faced by the bank is indeed meeting these skills development targets. However, Nedbank is set on rectifying the inequality that still exists in the sector and will continue to work towards solutions. Nedbank was awarded the Oliver Top Empowered Company Award in 2015.

    Standard Bank
    Standard Bank has made big strides in transformation over the years. Dating back to April 2003, the bank in collaboration with Nduna Trust, Safika Holdings and Simeka Investment Holdings set up a black economic empowerment company called Andisa Capital.

    Standard Bank held a 49% stake in Andisa, and the black consortium acquired 51%. Following Standard Bank’s selling of their majority stake in Standard Risk & Treasury Management Services – an agency stockbroking and treasury management business – to Andisa, the company started operating independently.

    In 2015, the bank’s B-BBEE scheme Tutuwa created approximately R10.7-billion for its strategic partners and small businesses. The scheme was implemented in 2004 and in over 10 years, real assets were transferred to more than 6 500 people and enterprises.

    Absa
    Employment Equity is a continuous focus point for Absa: 68% of their employees are black – with an increase of 38% in black senior management positions, 54% in middle management and 74% in junior management.

    According to a spokesperson, “Absa aims to build a fully representative, fully diverse and inclusive organisation that is reflective of our broader society, and offer equal opportunities regardless of race, gender, sexual orientation or disability.”

    First Rand Bank
    Big brands like FNB, RMB and WesBank fall under the First Rand Bank group – a group that boasts a B-BBEE Level 2 status. According to Lulu Gwagwa, Chairperson of the First Rand transformation committee,
    “B-BBEE is a business imperative at First Rand. The Group has formal governance and management processes that aim to go beyond compliance through addressing the substantive issues impacting the effective implementation of its transformation strategy. B-BBEE performance is accordingly integrated into the company’s remuneration systems, risk and business performance management processes.”

    Going forward

    The theme was transformation at the annual summit held in August 2016 by the Association of Black Securities and Investment Professionals (ABSIP). Deputy President of the organisation, founder and Chief Investment Officer of Perpetua Investment Managers, Delphine Govender, emphasised the importance of creating an inclusive investment industry, which will deliver better outcomes for clients, noting that a level playing field results in job creation, business opportunities and growth in the economy.