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Umsebenzi Online

Volume 6, No. 21, 21 November 2007

In this Issue:


Red Alert

The revolution is on trial (6): Roll back the financial dominance of the white colonial bourgeoisie

The Financial Sector Charter is on the brink of collapse

Blade Nzimande, General Secretary

The SACP has consistently argued that whilst our national liberation movement has ascended to (state) power, the economy still remains firmly in the hands of the white, domestic and colonial type bourgeoisie. In other words the fundamental contradiction in contemporary South African society is that of a revolution with (some) political, but without economic, power.

The above reality continues to be reflected, and reproduced by, the continued monopolistic character of the South African economy. The recent scandal of fixing of the price of bread by the Tiger Brands company, the continued monopolistic hold of the four big banks over South Africa’s financial sector, and generally the overwhelming dominance of (white) monopoly capital over the whole of the South African economy, are all reflections of the retention, and continued reproduction of the colonial type economy in our country. This is indeed sharply reflected in the current impasse over the transformation of the financial sector in our country.

An alliance between big business and (government’s) National Treasury to prevent the Charter from aligning with the Broad-based Black Economic Empowerment (BBBEE) Act's Codes of Good Practice has left the country's flagship Charter unable to function.

The Charter Council's Community and Labour constituencies recently withdrew from negotiations on alignment of the Charter with the Codes when it became clear that existing capitalist financial institutions and National Treasury were negotiating in bad faith and had agreed to prevent alignment on black ownership.

This behind-the-scenes deal seeks to protect financial institutions from complying with the Codes' 25% black ownership target in favour of the 10% direct ownership as contained in the Financial Sector Charter. The Treasury-Business pact also ensures that existing BEE deals are untouchable and the massive instant wealth created for the usual BEE suspects remains intact.

The financial sector is using the Charter to protect itself from transformation, especially where it hurts - in increasing black ownership, especially broad based ownership. Financial institutions, led by the South African Banking Association, have dug their heels in and refused to align with the ownership provisions of the Codes. Although details of existing BEE deals in the sector are not a matter of public record, informed participants and observers say they would score lower if measured against the Codes. Some of the big four banks' deals would score significantly lower, in direct and flagrant violation of the BBBEE’s Code of Conduct.

Most existing BEE deals as concluded according to the Financial Sector Charter, including the big banks, are below 10% black ownership and below the Codes' measurements for diversity of ownership, including gender and broad-based criteria. Capital hurried to cut deals to meet the Charter's 10% target. These deals were with a handful of ambitious politicians turned businessmen, or bourgeois businesswomen and men who were prepared to become BEE shareholders without changing the way the institutions did business. In turn, the institutions did not object to BBBEE shareholding not being genuinely broad-based or to it being used to buy political favour and finance political parties. And that's just the way white capital, supported by international finance capital, would like it to stay. In other words, this is a co-optive strategy to bring in a few black faces into the upper echelons of the ownership in the financial sector, whilst the power of the white, colonial type bourgeoisie remains untouched.

In their corner in refusing to comply with the BEE Codes, banks and others have a powerful ally in the Ministry of Finance. The Ministry’s senior officials claim government has agreed that the financial sector can ignore its Codes, and that even if institutions want to comply, Treasury will "block" them. Government and big business apparently agree that our banks should be owned by foreigners but not by a broad section of black South Africans. 

Treasury's position is that the Codes are mere "guidelines" and do not have the legal status of regulations under the BBBEE Act. This position must be seen against the background of the bitter battle between the Treasury and DTI over BEE and the Codes. Treasury lost the battle and the Codes were approved by the cabinet and gazetted in February 2007.

Now National Treasury is lining up with big business against its government colleagues, as well as organised civil society and labour, to prevent meaningful financial sector transformation. Treasury reportedly believes the BBBEE Act Codes of Good Practice, the cornerstone of the government's much-vaunted BBBEE strategy, which have taken eight years to put in place, are of no force or effect and can be ignored by the powerful financial sector. We will not allow this attitude to prevail, and therefore the workers and the poor need to intensify their struggles for the accelerated transformation of the financial sector in our country.

So what are the banks and Treasury so scared of? The best the banks can come up with is if they are forced to transform to the same extent as the rest of the economy, disaster will result. Banks believe that foreigners, rating agencies, investors and others will interpret any alignment with the Codes as shifting the BEE goalposts; uncertainty will make them flee. Market meltdown similar to that which followed the leaking of the draft mining charter a few years ago will result, the cost of capital will rise, capital adequacy requirements will not be met…..the sky will surely fall on our heads!

Government political leaders and bureaucrats appear to fear the sky will fall if they dare to support economy-wide black ownership and transformation. They seem particularly anxious not to upset specific interest groups:

  1. foreign owners of South African financial institutions, including Absa, Old Mutual and now Standard Bank;
  2. South African financial institutions that own foreign assets, including Standard Bank and Old Mutual;
  3. BEE partners in the big deals, who would have to dilute and/or restructure their shareholdings.

This despite the rational argument that alignment cannot be seen - even by foreigners, markets and rating agencies - as shifting the goalposts. It has been clear that sectoral alignment with the Codes was planned from the start of the BEE policy process in 1999 and the BBBEE Act in 2003. That is why the Charter, launched in 2003, waited until finalisation of the Codes in 2007 before embarking on its own alignment and gazetting process. 

Both financial institutions and Treasury rejected a compromise, hybrid proposal by their allies in drafting the Charter, the Association of Black Securities and Investment Professionals (Absip), that existing BEE deals should be "grandfathered", but future deals should be aligned with the Codes.

In contrast, the Community and Labour position is that aligning with the Codes is exactly the opposite of shifting the goalposts or creating uncertainty. The constituencies accept that the Codes set the generic foundation for sector codes that provide for sector-specific transformation targets and measurements. We are not saying that the Codes are perfect - far from it. Our inputs in the public participation process calling for the Codes to ensure genuine broad-based economic empowerment were ignored.

We would have liked the Codes to do a much better job of promoting diversity in the financial sector and our national development goals of creating jobs and eradicating poverty; they are too concerned with narrow-based BEE and deracialising ownership by a tiny elite minority. Notwithstanding these reservations, when the Codes were gazetted, we accepted them as the current basis of economic transformation.

Banks and others wrongly assumed that lining up political heavyweights behind their position would bully other Charter participants into toeing the line and agreeing to lower black ownership targets. They assumed -again wrongly- that Labour and Community constituencies would be opportunistic in trading off the developmental elements of the Charter, including access to financial services, R73, 5 billion in credit for low-income housing, black SMEs and developmental agriculture, for soft-peddling on black ownership.

Jimmy Manyi, Employment Equity Commission chairperson and Black Management Forum president, was correct when he warned recently that financial institutions were hiding behind the Financial Sector Charter to shield themselves from transformation - not only in ownership but in employment equity, skills development and other areas. He called for the scrapping of sector charters in favour of the Codes. In response, Charter Principal Officer Enoch Godongwana countered Manyi's assertions, saying they were not wrong, just premature. The test would be the alignment process. If banks and others refused to align with the Codes, then Manyi's criticisms would be justified.

Labour and Community cannot support gazetting a Charter that allows the financial sector lower levels of transformation than other sectors. We will emphatically reject this; either there is full alignment with the BBBEE codes or there is no Financial Sector Charter at all! The constituencies will return to the Charter Council only if there are conditions for a thorough transformation of the financial sector, for the benefit of the workers and the poor of our country.  A necessary condition will be that constituencies negotiate alignment in good faith, without imposing decisions taken outside the Council. Our joint position on ownership alignment remains that the Charter must meet the Codes' minimum targets and that any additional empowerment deals must benefit the working class and genuine broad-based empowerment partners. If consensus cannot be reached, the constituencies will consider withdrawing permanently from the Financial Sector Charter Council. We will then use other forums and terrains of struggle to achieve genuine financial sector transformation.

The above might appear to be just skirmishes, but in essence they are a reflection of the dominant and suffocating power of the monopolistic white finance capital in the South African economy, and the extent to which our own government is unwilling to confront this power.

Indeed our revolution is on trial, and it therefore requires escalating working class mobilisation to confront and roll back the dominance of a white colonial bourgeoisie over our economy!