The Labour and Community constituencies of NEDLAC, the National Economic Development and Labour Council, said that the economy had to be transformed including the financial sector. The South African Communist Party through the Red October campaign calling for ‘Make the banks serve the people’ initiated the process in 2000. A coalition of national federations comprising community, women, youth and trade union organisations led to the establishment of the Financial Sector Campaign Coalition. The body then met with NEDLAC where it was able to engage with Labour, Government, Business and the Association of Black Securities and Investment Professionals. The National Economic and Labour councilwith all the constituencies signed 13 agreements that covered four key issues, which were access to basic financial services, eradication of discrimination in the workplace, increase of investments in projects that strengthened infrastructure and the promotion of savings. However in 2003 Business drafted the Financial Sector Codes outside of the National Economic Development and Labour Council process without the involvement of Labour and Community. This was where the challenges started. The mandates of the Financial Sector Codes concentrated on narrow based Black Economic Empowerment ownership deals. The poor and vulnerable workers were not going to benefit directly. There were also disputes amongst the constituency members as to how the Financial Sector Charter Council should be constituted.
The view of Labour and Community was that the Codes of Good Practice in the Charter should be of a minimum universal standard for there to be sector transformation. The alignment of the afore-mentioned was slow and highly contested resulting in the process stalling altogether until the Ministers of Finance and Trade and Industry intervened. One of the consequences of the stalled alignment process was that the Draft Sector Codes in the Charter had not been published for public comment. The ownership issue was the one outstanding thing that had to be resolved. 25% black ownership of the financial sector could be achieved via 15% direct black ownership and 10% indirect black ownership. The statement ‘once empowered, always empowered’ meant that if a company concluded a Black Economic Empowerment deal and the partners decided to sell their stake, such a company should be considered as perpetually empowered. The trade associations were in disagreement with this view. Further challenges were the failure to finalise the standards for improving access to finance, including access to affordable low-income housing.
There were concerns from some Members about workers not being considered properly where indirect ownership was concerned. The accusation of Treasury officials siding with Business on issues that Government had already agreed upon was a stumbling block that was viewed in a serious light by the Committee. The plight of the poor and their not benefiting directly from Black Economic Empowerment was a grave concern. The notion of ‘once empowered, always empowered’ was viewed as not beneficial to ordinary poor workers. There was a question about indirect black ownership and who eventually paid for this. Some Committee Members suspected that those who paid for deals involving indirect black ownership were poor ordinary black workers and that this resulted in the enrichment of black individuals who were already rich.
Financial Sector Transformation
Ms Collette Caine, Board Member of the Community Constituency for the Financial Sector Charter Council (FSCC) said that three presenters would share the presentation as they had prepared one joint document. The transformation process began in 2000 with the South African Communist Party’s (SACP) Red October campaign calling for ‘Make the banks serve the people’. This campaign led to the establishment of the Financial Sector Campaign Coalition (FSCC). This Coalition brought together national federations comprising community, women, youth and trade union organisations amongst others. The Coalition also included the African National Congress (ANC), Congress of South African Trade Unions (COSATU) and the SACP. The Coalition held several marches demanding the transformation of the entire financial sector. The Coalition needed a forum to table its demands and it then met with Nedlac (National Economic Development and Labour Council) which had Government, Labour, Community and Business constituencies. Nedlac worked on the basis of consensus as opposed to voting. All members of Nedlac then attempted to reach consensus on how transformation would be achieved in the financial sector. The 2002 Financial Sector Summit (FSS) brought all the Nedlac partners together.
Mr Isaac Ramputa, Assistant General Secretary of COSATU, said that all the constituencies endorsed the Nedlac financial sector agreements at the summit. There were 13 agreements in total that covered four key issues. The issues were access to basic financial services, eradication of discrimination in the workplace, increase of investments in projects that strengthened infrastructure and the promotion of savings. In 2003 the Business constituency started to draft the Financial Sector Codes (FSC) in order to give effect to the FSS agreements. Business through its financial sector members negotiated a Charter with the Association of Black Securities and Investment Professionals (ABSIP) and black financial sector professionals even though they were not part of Nedlac. Community and Labour were not part of this process, which took place outside of the Nedlac process.
Mr Ramputa commented that this was where the challenges started. The mandates of the Charter were derived from the FSS agreements however it was concentrated on narrow based Black Economic Empowerment (BEE) ownership deals. The Coalition did not support this and preferred something broader. One of the limitations of the Charter was that financial institutions and ABSIP rather than the needs of the intended beneficiaries, which were workers and the poor, determined the provision of financial goods and services. In 2004 Labour and Community agreed to join the FSC on condition that the Charter would be aligned with the Codes of Good Practice. The constitution had to be re-drafted so that it would be inclusive of all the constituencies. The Charter had to be reviewed in terms of its standards, targets and performance measurements. Consumer education was also another outstanding issue. Business and ABSIP had proposed that participation in the FSCC should be: Community and Labour – 1 each; Government – 3; Business and ABSIP 7 members each. This was rejected by Community and Labour, which resulted in a stalemate. The Minister of Finance intervened and the FSCC was restructured to: Business – 6 members; ABSIP – 3 members; Labour and Community – 4 each; Government – 3 members. The government representation comprised the Department of Trade and Industry as the custodians of the codes, National Treasury and the Presidency.
Ms Caine dealt with the challenges of executing the mandates of each group. The view of Labour and Community was that the Codes of Practice were minimum universal standards for sector transformation. There was not much point in having a sector Charter unless it went beyond the minimum standards set in the codes. This process of alignment had been very slow and highly contested. Some trade associations were amenable to transformation and looked for solutions and how the alignment could be achieved. Other trade associations were quite resistant to reaching multilateral consensus. This was why in 2010 Community and Labour was reporting in Parliament on some areas of progress and others where there was none. The failure to align with the codes has meant that the Draft Sector Codes had not been published for public comment. There had not been finalisation of a binding code in terms of the mandate. In 2008 most of the members of the charter council agreed to align with the main elements of the code but until now some of them had favoured the retention of the Charter ownership provisions. This has lead to a deadlock for most of the two years. Community and Labour do not in any way regard ownership as more important than the other elements of the Charter where there has been consensus. The ownership issue was the one outstanding matters that had to be resolved soon through its alignment with the codes. Other sectors of the economy should not transform at a different rate than the financial sector. The 25% black ownership of the target of the codes should apply to the financial sector. It was therefore important that there should be access to financial services for the poor as well as the well-off.
The Ministers of Finance and the DTI intervened and the outcome was that all the Charter parties agreed that there should be more negotiations aimed at resolving the impasse of the alignment on black ownership and all other major outstanding issues. Consensus was reached on the alignment with the codes; there would be 15% direct black ownership and 10% indirect black ownership. The 15% direct black ownership target could be achieved via a full 15% transfer or a direct black ownership equity equivalent for the 5% difference between 10% and 15%. Consensus on alignment had not been reached on the Codes. There was one outstanding issue, which was ‘once empowered, always empowered’.
Mr Ramputa continued that the view of the trade associations was that ‘once empowered, always empowered’ should remain. This simply meant that if a company concluded a BEE deal and the BEE partners decided to sell their stake, such a company should be considered as perpetually empowered. For such a scenario the Code held that the company would remain empowered for three years. After three years, the company would not be considered as empowered. The trade associations were in disagreement with this. Community, Labour, Government and ABSIP agreed with the full alignment of the codes on this issue. Community and Labour did not want to see transformation as being the conclusion of BEE deals only. BBBEE should reflect the demographics of South Africa and reflect a transformed, vibrant and globally competitive financial sector. Other challenges were the failure to finalise the standards for improving access to finance, including access to affordable low-income housing. An example of this was the Mzansi account, which did not even have a credit facility. There was also failure by institutions to measure and monitor transformation by making evaluation difficult. There were also inflexible mandates and a tendency to declare disputes that took months or years to resolve, preventing the execution of mandates. An example of this was the Charter itself, which had been dormant for two years.
Ms Caine took over and said that at the moment the FSC process was at a negotiation stage. The FSC would be gazetted and published for public comment in terms of the BBBEE Act. At the moment the negotiations were at Phase 1, which would see a second gazetting for public comments. This would be in September this year. The gazetting of the final sector code would be in Phase3, which would be early 2011.
Mr Solly Mapaila, Principal of the Community Constituency for COSATU, concluded that the Community welcomed the offer of assistance from the Committee in the following areas: providing the opportunity to update the Committee on progress in achieving the gazetting milestones; assistance in ensuring constituency representatives provide the Committee with constituency opinions and not personal views. This was crucial. Government departments had to route financial sector transformation initiatives through the Council so that performance could be effectively measured by it. There were problems with this. For example, the Ministers of Human Settlements and Finance had availed R1 billion for housing but they did not incorporate this into the Charter, they went straight to the Banks. This type of move rendered the Council meaningless. There was a new process that dealt with the Transport industry and this was divided amongst black individuals as some benefited and others did not. Were there any mechanisms that could be employed to ensure that transformation cut across all races and classes?
Dr D George (DA) commented that there was definitely a need for transformation of the economy. The key question would be how this would be done. BBBEE was a significant intervention in the economy. Could there be clarity on who was the Community constituency? It was concerning that the workers and poor were not being considered properly where indirect ownership was concerned. If one followed though the transactions where pension funds were involved, it was the poor people who earned very low wages that were still waiting for transformation to benefit them. What happened was that the poor worker ended up paying for deals to make some people exceptionally rich and at the same time their share value became diluted through the ownership of pension funds. There was not enough creative thought on this issue. The issue of ‘once empowered, always empowered’ seemed to be fraught with problems. It could also be a useful scam where there would be “one partner after the other” withdrawing all the time. This entire process had taken so long because it was very complex.
Mr D Van Rooyen (ANC) asked if the process of gazetting the Sector Codes was on track. What were the checks and balances that ensured that Community was really representing people at grassroots level? Could there be more clarity on the issue of Treasury by-passing the Charter and actually protecting Business?
Ms P Adams (ANC) asked how often the Labour and Community constituencies got new members. How far had the Red October campaign progressed since it was launched 10 years ago?
Ms Caine replied that the point of the ordinary workers not benefiting was exactly the issue that Labour and Community had consistently raised. This issue fell under the Charter provisions of improving and extending access to financial services. Community and Labour were not part of the decision to have the target market of the Financial Sector Charter as Living Standards Measure (LSM) 1-5. Community and Labour did not agree with this as it was a marketing and advertising measure, it was not ideal for measuring the benefits that working class and poor people should have. There was still a problem with accessing services in a cost effective manner. Such issues had to be seriously addressed. The fact that the trade associations had declared several disputes with the Charter process was a big problem. Serious work had to be done in terms of the gazetting process that had been outlined. Labour and Community agreed that the great disparity between the benefits received by ordinary workers and top management was unacceptable. The process of gazetting as noted in the presentation was on track.
Mr Ramputa added that Labour and Community were cognisant of the fact that the financial sector was very complex. The intention behind the work done so far was to try and ensure that there were no unintended consequences. The BEE deals only resulted in those who had money benefiting more than the poor. The Small, Medium and Micro Enterprise (SMMEs) had to be uplifted and enjoy more benefits as they operated on the ground. The solution for ‘once empowered, always empowered’ was always being sought.
Mr Mapaila explained that the members of the Community constituency formed a broad section. The members were the youth sector, which the South African Youth Council (SAYC) represented; the Financial Sector Campaign Coalition, which was represented by over 32 organisations who were working for the transformation of the financial sector as well as the women and disabled people’s organisations. There were civil organisations as well as the South African Non-governmental Organisations Coalition (SANGOCO). Big business always said that the financial sector was “complex” in order to run away from the issue of transformation. This excuse was also used to further uphold the monopoly of the financial sector by private banks. In the long run this would be harmful to society. There had to be changes and this did not have to be made out to be “complex”. If the country could conclude a Constitution in less than ten years why could it not do the same for just one sector? Big business in the sector had become untouchable. The Nedlac process was by consensus only. Business was abusing this process and National Treasury in many instances would side with them.
The Chairperson reiterated Mr Van Rooyen’s question on how Treasury actually protected Business.
Mr Mapaila replied that the last meeting with the committee was a perfect example where Mr Ismail Momoniat, the representative of Government, which had already signed concrete agreements, sided with Business, which had refused to sign the agreements. Mr Momoniat was Deputy Director General: Intergovernmental Relations, at National Treasury. The process of consensus within Nedlac resulted in a slow process. One found that Business would refuse to sign agreements and then lobby the Government outside of the Nedlac process. Treasury always made it seem like Business was the only constituency.
Mr Van Rooyen said that the Committee was charged with the responsibility of ensuring that the government assisted in the realisation of the main objectives, one of these was the transformation of the economy. It was very disturbing to hear that National Treasury was now the stumbling block to economic transformation. The presentation should be properly recorded and Treasury should be afforded the opportunity to respond to this.
Dr George said that it was very pleasing to hear that National Treasury was engaged with Business on a constant basis. Treasury was probably cognisant of the fact that Business paid enormous amounts of tax into the economy. Who paid for the black indirect ownership, as there was nothing for free? Company deals were fraught with difficulties. If a company issued shares to fund a deal that diluted the value of its shares, if such a company had poor black workers who owned shares via a pension fund, they were actually paying for other certain rich black individuals to get even richer. This was fuelling the class divisions even more. What were Community and Labour doing about this?
Mr Ramputa replied that Community and Labour had no qualms about National Treasury and Business engaging in a dialogue. The problem was that whenever there was consensus of which Treasury was a part, an individual from Treasury would pronounce their own personal opinion, which was contradictory to the agreements that Government itself had endorsed. There were different levels of ownership and there were some levels where the poor workers could benefit. The issues raised by Community and Labour at this meeting covered some of these types of ownership. Labour and Community were looking towards investments that focused on infrastructural development hence creating jobs and assist in accommodating the basic needs of the workers.
The Chairperson concluded that the Committee was now in a better position to understand from where Labour and Community were coming. It was clear that Labour and Community wanted an all inclusive transformation package. The matter of economic transformation was one that would be grappled with for some time to come and this was partly due to the unintended consequences of government policies. There should come a time when black business was no longer viewed as BEE. There were black businesses that had not incorporated BEE deals and that should be looked at as normal black businesses instead of BEE businesses all the time.
The meeting adjourned.
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