Development Bank of Southern Africa Amendment Bill: Report back by National Treasury on public submissions

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Finance Standing Committee

19 August 2014
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee discussed the programme for the third quarter of 2014, heard the Department of Finance’s response to SALGA’s submission on the Development Bank of Southern Africa (DBSA) Amendment Bill [B2-2014], and informally went through the amendment bill.   The third quarter programme was amended to take into account hearings on the African Bank’s near collapse, as it was a cause for concern.

In its report back, National Treasury said that the SA Local Government Association (SALGA) had requested that the DBSA Act be amended to provide for at least one member from SALGA, who was a local government expert, to be on its board so that the board could make informed decisions affecting the majority its clients, and that funding and governance addressed the needs of municipalities.

Treasury’s response was that the bank was a development finance institution, whose primary purpose was to promote economic development and growth.  The DBSA Act called for a board of not fewer than ten, and not more than 15, members and that the Minister of Finance should appoint all directors on the grounds of their ability and experience in relation to socio-economic development, development finance, and banking and administration, so local government expertise was embedded in the requirements. The current board had two members with local government expertise.  Treasury believed that if representation was allowed for one interest group it would open up the possibility of others claiming the same consideration and therefore proposed that the Act not be amended.

It was felt that if the Committee decided that an amendment was desirable, this could be done through amendment of the regulations, or a proviso should be inserted in section 7 that when appointing directors, the interests of affected stakeholders had to be considered.   Members generally felt that an amendment for a particular interest group would set a precedent, but also called for the facilitation of a meeting between Treasury and SALGA to discuss the matter and maintain good relations. The Chairperson felt that Treasury’s proposals were very bland and should be dropped or changed substantially.

Treasury then went through the amendment bill. Section 1 dealt with definitions and alterations to existing definitions. Section 3 dealt with the countries of operation of the bank, which were currently South Africa and SADC countries, and proposed that this be expanded to other countries in Africa, subject to an annual plan submitted to the Minister.  Section 4 dealt with the share capital of the bank, and would be amended to increase the capital to R20 billion and R200 million.  Certificates would be issued.  In subsection 2a of the amendments, the Minister would be authorised to increase the authorised share capital of the bank and the number of ordinary shares.  In subsection 5(c), the callable share capital could only be issued subject to the approval of the shareholders.  Section 6 dealt with amendments to the regulations.  Regulation 17(h) was removed because the definition of region had changed, to be in the Act.  A new regulation was to allow the Minister to use the callable capital to calculate its leverage and an amendment to limit the power of the Minister.  Section 7 dealt with the application of the Companies Act and other legislation to the DBSA, but none of these legislations could contradict the DBSA Act.

Members asked if other institutions like the African Development Bank (ADB) were affected by the proposed amendment to the DBSA’s area of operations.  The Chairperson said that he would draft a paragraph for inclusion in the Committee’s report that while recognising the DBSA’s expanded role in Africa, consideration had to be given to managing any turf or other issues relating to the ADB that may arise.   Members questioned why figures were included in the legislation. The Chairperson said that perhaps the numbers should be kept in so that the executive could be held to account. 

Meeting report

The Chairperson discussed the third quarter programme of the Committee, among which was the proposed meeting with the South African Reserve Bank (SARB).

Dr D George (DA) said the programme did not include discussion on economic issues, especially that of the African Bank’s near collapse and contagion in the banking sector arising from it, and that engagement with the Treasury and the SARB was necessary as soon as possible.

Dr M Khoza (ANC) agreed, and said the SARB could give clarity on the bailout.

Ms P Kekana (ANC) wanted to know whether the “twin peaks” legislation fell under the SARB or the Treasury.

Mr D Ross (DA) supported the argument that the African Bank issue be discussed with the SARB. He wanted the SARB to clarify the role it was playing in the regulation of property syndication in regard to the Sharemax issue.

Adv Empie van Schoor, Chief Director of Legislation at the Treasury, said the twin peaks legislation was called the Financial Sector Regulation Bill, and had been developed by the Treasury in collaboration with the SARB and the Financial Services Board (FSB).

The Chairperson said the matter needed a proper briefing from Treasury before the Committee met with the SARB, as it was not the SARB’s responsibility.

Dr George said he wanted to know what the term ‘radical economic transformation’ meant, and details on the economics underpinning the terms ‘national democratic revolution’ and the ‘national development plan’.

The Chairperson said he had met with the chairpersons of the Finance and Appropriations Committees, as well as the Chairperson of the House, who had agreed to work closely together.

Treasury report back
The Chairperson said that the SA Local Government Association (SALGA) had requested that they have a representative on the Development Bank of SA (DBSA) board.

Adv Van Schoor said SALGA had requested that the DBSA Act be amended to provide for at least one member from SALGA who was a local government expert, to be on its board so that the board could make informed decisions affecting the majority its clients and that funding and governance addressed municipalities’ needs.

Treasury’s response had been that the Bank was a development finance institution, whose primary purpose was to promote economic development and growth.  The DBSA Act called for a board of not less than ten, and not more than 15, members and stipulated that the Minister of Finance appointed all directors on the grounds of their ability and experience in relation to socio-economic development, development finance, banking and administration, so local government expertise was embedded in the requirements. The current board had two members with local government expertise.

Treasury believed that if representation was allowed for one interest group it would open up the possibility of others claiming the same consideration, and therefore the Act should not be amended.  Should the Committee decide that an amendment was desirable, it could be done through amendment of the regulations, or a proviso should be inserted in section 7, that when appointing directors, the interests of affected stakeholders had to be considered?

Dr George agreed with Treasury and said it was not necessary to add a representative of SALGA to the DBSA board.
Dr Khoza said SALGA was a political body, with representation in the NCOP.
Ms T Tobias (ANC) said there was a fine line between what SALGA and the DBSA would regard as representing the interests of local government. She suggested that the matter be discussed between SALGA, Treasury and the Committee to reach a consensus.
Ms Kekana said the Treasury’s response had put her at ease, as she was mindful that an amendment for a particular interest group would set a precedent.
Ms S Nkomo (IFP) said that while all agreed that there should not be an amendment, as part of their oversight function the Committee should facilitate SALGA and Treasury discussing the matter in the interest of maintaining good relations.
The Chairperson said SALGA was not an interest group but a sphere of government, and the majority party must decide what it wanted.  He felt that relations between DBSA and SALGA were not what they should be.  The first proposal on the regulations was very bland -- it was a ministerial prerogative already -- and the second proposal was very weak, so the proposed amendments should be dropped or changed substantially.  However, he also agreed that consensus should be sought between the two parties.  He would respond to SALGA  to facilitate consensus through a meeting.
Dr Khoza  proposed that local governance be included as part of the critical skills required by the DBSA board.
Adv Van Schoor said that their interpretation of the criteria was that this was included in the socio economic development, but if it was felt that local government should be mentioned as part of the list, that could be done. 
The Chairperson suggested that 7.3 be amended and a draft be drawn up by Adv Frank Jenkins, Senior Parliamentary Legal Advisor, and Adv Van Schoor, and this could be presented at the meeting with SALGA.

Adv Van Schoor then went through the amendment bill.  Section 1 dealt with new definitions and amendments to existing definitions.  ‘Authorised share capital’ was the maximum amount the bank was authorised to raise.   ‘Callable capital’ being ‘authorised share capital’ minus ‘issued share capital’. The definition of the Companies Act referred to the new Companies Act of 2008. The definition of ‘region’ was amended because the DBSA would be operating in Africa outside of SADC.

Ms Tobias asked if other institutions like the African Development Bank (ADB) were affected by the proposed amendment to the DBSA’s area of operations.  She said she knew there were tensions between the two bodies in terms of territories.
Adv Van Schoor said she could not comment because it was not something regulated by SA law, while the ADB jurisdiction was the whole of Africa.
Ms Kekana said the same concerns had been raised when the DBSA was present at a previous meeting and the BRICS bank was mentioned, and questions were raised about what the relationships would be. It became clear that the backlog was such that everybody would have space in which to operate.
Dr Khoza said that it had been made clear by DBSA that it would be participating on a syndication basis, to lower the risk.
Adv Van Schoor said section 3 would clarify some of the current discussion.   DBSA was under obligation to cooperate with other financial institutions like the ADB.
The Chairperson said that he would draft a paragraph for inclusion in the Committee’s report, that while recognising the DBSA’s expanded role in Africa, consideration had to be given to managing any turf or other issues relating to the ADB that might arise.
Mr Ross said DBSA needed R15.2 billion (bn) and SA’s contribution to the BRICS bank was R10bn, while the African Bank bailout amounted to R17bn, so this needed to be taken into consideration.
Adv Van Schoor said the amendment of section 3 dealt with the countries of operation of the bank -- which was currently South Africa and SADC countries – and proposed that it be expanded to other countries in Africa, subject to an annual plan submitted to the Minister.

Section 13 of the Act dealt with the share capital of the bank, and would be amended to increase the capital to R20 billion and R200 million. Certificates would be issued. In subsection 2a of the amendments, the Minister would be authorised to increase the authorised share capital of the bank and the number of ordinary shares.

Ms Tobias said section 5a and 5b appeared contradictory, and asked why the figures were included in the legislation.

Adv Van Schoor said she concurred with this view and if the Committee was in agreement, then the Minister could be given the right to determine the authorised share capital.

The Chairperson said that perhaps the number should be kept in, so that the executive could be held to account.

Dr George said the regulations were too broad and should be narrowed down.

Mr Ross said the bank had reported a operational loss of R706m the previous year, and a loss the year before. He suggested that Mr Lefentse Radikeledi of National Treasury be called to give more clarity on the funding of the bank.

Ms S Nkomo (IFP) said the numbers should be in the regulations, and not the Act.

The Chairperson said that if Mr Radikele was brought in, he would give the reasons for having those figures in the legislation. The issue was a policy matter of whether to include figures in the legislation or not, and how it would affect oversight. Ministers in the past would use regulations when they were defeated in attempting to insert clauses in legislation.

Adv Van Schoor said in subsection 5(c), the callable share capital could only be issued subject to the approval of the shareholders.

Section 6 dealt with amendments to the regulations.  In some cases, the Minister had to make regulations while in other cases he had the discretion to make regulations.  Regulation 17(h) had been removed because the definition of region had changed to be in the Act.  A new regulation was to allow the Minister to use the callable capital to calculate its leverage, and an amendment to limit the power of the Minister.

Section 7 dealt with the application of the Companies Act and other legislation to the DBSA, but none of these legislations could contradict the DBSA Act.

The meeting was adjourned.
 

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