The 53rd conference of the ANC in 2012 reaffirmed that the ANC’s economic vision rests on the Freedom Charter’s call that the people shall share in South Africa’s wealth. Despite so much progress in growing the economy during the post-apartheid era, it is obvious that economic emancipation that would satisfy the call of the Freedom Charter will take many years to be realized in full.
Hence the conference resolved on embarking on radical economic transformation to build an equitable society in which there is decent work for all. There is tremendous progress in satisfying the basic needs of our people, ie. provision of housing, safe potable water, access to education, improvement in health and providing a social safety net for the impoverished communities. The review of the twenty years of democracy has identified clearly the outstanding work that lies ahead, despite the progress “including through the growth of the social wage and the provision of social infrastructure.”
The real challenge is that “the redistribution of economic assets, and the growth of job creating industries have not met the expectations we had in 1994.”
Conference called upon the ANC to “take decisive and resolute action to overcome the triple challenges of poverty, inequality and unemployment; which are at the heart of South Africa’s socio-economic challenges. We intend to transform the structure of the economy through industrialisation, broad-based black economic empowerment, addressing the basic needs of our people, including women and youth, strengthening and expanding the role of the state and the role of state owned enterprises.”
The ANC adopted the National Development Plan as the closest vehicle to move South Africa towards a National Development Society, in which the vestiges of apartheid subjugation are no longer visible in the quality of life people lead and the access to basic services that they will enjoy.
This means the reversal of trends where millions of young people who do not have the skills required by the economy aremarginalised, correction of the slow progress in gender representation in the private sector and reversal of serious manifestations of poverty and women abuse. All manifestations and consequences of patriarchy – from the feminisation of poverty, physical and psychological abuse, undermining of self-confidence, open and hidden forms of exclusion from position of authority and power – need to be eliminated. This means reversing the trends where millions of young people who do not have the skills required by the economy are marginalised and progress in gender representation is slow in the private sector; with serious manifestations of poverty and women abuse. All manifestations and consequences of patriarchy – from the feminisation of poverty, physical and psychological abuse, undermining of self-confidence, open and hidden forms of exclusion from positions of authority and power – need to be eliminated.
A national democratic society should be founded on a thriving economy, the structure of which should reflect the natural endowments of the country and the creativity that a skilled population can offer. It should be an economy in which cutting edge technology, labour-absorbing industrial development, a thriving small business and co-operative sector, utilisation of information and communication technologies and efficient forms of production and management all combine to ensure national prosperity. Thus the youth need to be provided with access to social and economic opportunities, activism around the issue of development must be engendered in our society and space must be created for youth creativity to flourish.
This of necessity requires that the structure of the South African economy be changed whereby national forces of production are developed to achieve an extensive manufacturing base, research and development, local economic development, job creation, skills development as well as national and continental economic integration. It further requires de-racialisation of ownership and control of wealth, management and the professions. More equitable ownership and innovative investment in part can be ensured by also supporting accountable public ownership and investment and supporting the social economy (i.e. co-operatives and SMMEs). The challenge is to identify when these forms of ownership are appropriate and how they can be supported more effectively while continuing to grow the private sector.
To tackle the challenges of unemployment, poverty and inequality, the economic growth needs to be accelerated and investment needs to be massively increased. It is also important that growth must ensure job creation and wealth redistribution. While there factors impacting on our economic growth are linked to the global economic downturn that has caused the crisis in Greece, reduced growth rates in Russia and Brazil, South Africa has its own peculiar issues to resolve.
I wish to argue that there is merit in focusing on the transformation of the financial sector in the country as this is where the major decisions about investments are made. This does not downplay the role of other factors and need for foreign direct investment.
As at September 2014, the Finance, Real Estate and Business Services sector accounted for about 20,3% of South Africa’s GDP thus making it the largest sector of the economy followed by Government at 17.0% (Source: Stats SA). From an employment perspective, the Finance sector is the second largest employer in the non-agricultural formal sector of the economy accounting for 21.9% of non-agricultural formal jobs. The only sector with higher employment numbers is Community Services which is predominantly government employees and so, within the private sector, the Finance Sector is actually the largest employer in South Africa.
The Financial Sector manages the savings of the nation and there are three main Savings Pools in South Africa: Households (Individuals), Corporates and Government. In this regard the major decision makers are those who manage the banks, pension funds, provident funds, insurances, retirement annuities, etc
The investment management industry typically has two different types of investors or asset owners: institutional and retail investors.
The total assets under management in the country are estimated to be above R 6 trillion. With a few major fund managers dominating the scene: Old Mutual, Coronation, Allan Gray, Investec, Sanlam, Stanlib and Momentum.
Through the intervention of regulation over the course of the last century, the financial services industry has emerged as an essential element in the development of economies worldwide. As an intermediary between asset owners and those with ventures to invest into, financial services have become a prominent and indispensable agent in the allocation of capital.
There is an interesting quote by John Kenneth Galbraith which comes to mind when one assesses the current challenges of the South African financial services industry:
“People of privilege will always risk their complete destruction rather than surrender any material part of their advantage”
I believe a conversation between the state and the major players in the financial sector is needed to focus on these assets being invested with the view not only to seek the highest returns for the shareholders but to support the National Development Plan.This means that the debate of radical economic transformation needs to involve the managers of these institutions as we seek to maximize investments by South African Funds. Large savings that have not been invested by South African institutions, the so-called “investment boycott” needs to be confronted. In turning around the economy, the local funds need to be directed to the massive infrastructure programme, industrial manufacturing involving value-addition to our mineral products, agri-processing, ICT including the opportunities brought about by the roll-out of broad band, Smalll business development, skills development and training of the youth, etc.
Three entities control the allocation of approximately 90% of the SA retirement industry assets. These are Alexander Forbes, Riscura and Towers Watson. Their influence is largely via the asset consulting function utilised by most SA pension funds. This dominance in market share renders the three entities the de facto kingmakers in the South African investment management space.
The asset management industry requires transformation. Despite the perception of empowerment, it is shocking to see that only 4.4% of assets under management are under Black Fund managers, totaling a mere R300 billion of the over R6 trillion.
The industry is heavily controlled by asset consultants who will have the last word on asset allocation irrespective of the country’s transformation trajectory. This is compounded by the relative degree of disempowerment that employee and employer representatives feel in the face of the asset consultants who” understand the market.”
By default the economic transformation is dependent on those whose interests are threatened by it. We should not wonder why inequality escalates. The instability in a democratic dispensation will not only be caused by poverty of all South Africans but by the injustice of escalating inequality. No wonder the World Economic Forum, the World Bank and increasing global voices are focusing on this issue.
As South Africa we must also slaughter our own dragons!
These are some of the difficult conversations South Africa must face.
Dr Zweli Mkhize is the Treasurer General of the ANC