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The slow pace of transformation within JSE listed companies is a ticking time bomb for South Africa, according to Fatima Vawda. The founder and CEO of 274 investment managers says blacks own or have direct influence of 3% of the R12trn invested on the Stock Exchange. She says government must be more aggressive in driving the National Development Plan and that the country needs at least 5 % growth to reduce unemployment. – Tim Modise
Fatima, thank you very much for joining us on this Transformation section of BizNews. Welcome.
Thank you, Tim. Thank you for having me.
What state are we in, talking about the South African economy at this time? Looking at the overall unemployment numbers and the growth grate, etcetera; what shape would you say we are in?
I think we’re going through a very, very challenging period. We’re really struggling with economic growth. We’re struggling with unemployment. We’re struggling with our energy crisis, so given those three fundamental issues, I think we are really going through a very, tough period.
Are we responding accordingly to the challenges? Are we rising to the occasion, in that sense?
I think that we have issues within the private sector, as well as labour, as well as Government, and we need to, not hide issues under the carpet. We have to roll up our sleeves, get our hands dirty, and deal with the issues at leadership level.
What do you mean when you say we’re hiding things under the carpet?
I don’t believe the urgency and the seriousness of South Africa’s economic challenges is dealt with or we are not getting the impression that Government is taking our challenges as seriously as they are.
But I mean, specific things that you think are being hidden under the carpet. What would you say those are? It could be that Government has no idea or leaders have run out of ideas, you know.
Well, let’s take the National Development Plan. It’s a very, very good plan but we’re not seeing the execution of the plan. We want to see Government say, “Let’s execute the National Development Plan.” We refer to the creation of jobs. How are we going to create jobs when the economy is growing at just over one percent? We need 5% GDP growth per annum, to ensure that we create the number of jobs to generate economic activity.
Are we seeing Government do enough to create jobs? No, we’re not seeing enough being done. Are we seeing enough spend happening in the healthcare and education sector? Yes, we are seeing enough spend but we’re not getting a bang for our buck. Is our education spend achieving… are we putting out more educated people and not children leaving school halfway through, before even finishing matric? We are seeing more of that than getting sufficient, educated people coming out into the market.
But now the counter argument would be, it is not Government that can create jobs – it’s the private sector that should be creating jobs, and it’s not. The country is awash with money but that money is not invested in projects or industries that can help create employment. Why is that?
There has to be a joint trust and a positive working relationship between the private sector and Government, and labour, and given the challenges faced by the economy, my view is that the private sector is sidestepping a little bit, until they gain a lot more confidence from Government. Wanting to work together with the private sector, so for example, wage inflation – the private sector are not creating more jobs because they’re concerned about wage inflation.
You know, the argument I wanted to make with you is that the big companies that are here, listed on the Stock Exchange, right. They have got all this money invested in them but they only contribute about ten percent to employment creation, even though they are substantially valued more than the GDP itself.
Yes, let’s actually talk about that. An interesting topic is the JSE has got a market capitalisation of R12 trillion. It is the biggest Stock Market on the African Continent. Yet only three percent of the JSE is owned by black South Africans. Why is that? Why haven’t we achieved the level of economic transformation that we should see? So whilst we talk about mandated and non-mandated investments and maybe black South Africans are holding shares on the JSE, indirectly, through their Pension Funds. That staggeringly low number is indicative of the poor level of economic transformation that South Africa has achieved.
We talk about the mining sector but in a sector that I am very active in, which is the financial services industry, which is one of the big industries, banking, insurance, asset management – we’re seeing very little, if no transformation happening in this industry, and we’re talking about celebrating 21 years of democracy. Yet, the number of black entrepreneurs or intellectual capital, within this industry, is so poor, and this is one of the largest industries, generating large, economic profits and paying taxes. Yet we are not seeing it transform.
Well there are several points that arise out of what you’ve just said. R12trn invested in companies that are on the JSE and only three percent is owned by blacks. The argument again, and you highlighted it, is that the black community is invested in these companies via their Pension Funds anyway, so the three percent is a distorted number. That it could be substantially higher than the 3% that you mention.
It could be substantially higher and it is probably, if you take into consideration, mandated investments. You’re talking about a number that is probably in the range of around ten percent. The point is you don’t have voting rights, within the mandated investments, so if you only have direct ownership in a share – you can actually influence the way the company is being managed, so then you have direct voting rights.
So what you mean is that the black investments, if one can call them that have got only three percent influence on what happens in those companies?
Correct.
And, to a large extent, do you think it influences the way investments are made by the companies and the impact that they could have on the challenges facing the nation, including the high unemployment rate?
Absolutely, one of the areas that the private sector and Government needs to, urgently resolve is the transformation charters, including the codes. I mean the private sector finds these codes extremely complicated. Government’s intentions are correct, and I think descriptive means to achieve economic transformation is necessary, and I like the fact that there is more of an emphasis on procurement and the creation of black enterprises, but at the same time, there must be a joint collaborative effort to achieve those goals.
But you say, after 21 years of democracy in the country, blacks have only three percent influence on the Stock Exchange. What do you attribute this too? Why is this, the situation, given that we’ve had Black Economic Empowerment as a policy of Government? We’re talking about BBBEE we’ve got professionals, like yourself, in this sector. Why is there such a slow pace of change in the financial services sector?
Okay, so one of the biggest challenges is that the institutions and the vehicles to create strong financial services companies are too expensive to get, and the barriers to entry are too high for a black institution to get them. For example, if you wanted to be a black team of individuals or a successful black company that wanted to set up a large financial institution, like a life company, etcetera. You need enormous amounts of capital, so the barriers to entry to grow up, to compete with the historically white large organisation, are too high and we are asking for Government to provide a more enabling regulation – to change the vehicles that prohibit and inhibit black people from competing against the previously large white companies.
My question is, it’s the black market, as it were, black consumers who drive the revenues of so many of these companies that are listed on the Stock Exchange. Yet they have only 3% influence. How is that situation allowed to continue, even by those who run the companies?
You must have heard of this famous French economist, Thomas Piketty. He has written this book on ‘Capital in the 21st Century and the Gaps of Inequality’. The gap of inequality in South Africa is a ticking time bomb. If we don’t resolve the one percent, owning the 99 percent, we are sitting on a social and economic time bomb, where we are going to see the youth of South Africa burn this country down. We need to reduce that gap of unemployment. We need to focus on job creation and the consequences of not coming through with a positive resolution on closing this inequality gap, could be disastrous for our economy, and I think that is what we need to focus on, as the people of South Africa.
I want to talk about you, as an example. We’re talking about transformation, Government and having to make things happen here but you, on your own steam, decided that you should set up your own company, eight years ago. You started with what… only one person, or were you the only African lady at the time?
Yes, well Tim, I had worked in the industry for 12 years and I felt that there was a dire need to facilitate change, particularly in the financial services industry in South Africa. You know, the number of black people in South Africa, managing – if you add up the total investment size of the investment size of the South African industry – that means individual saving, whether it’s in unit trusts or to their pension investments. It is R6.5 trillion. Eight years ago, not a single black person was managing any portion of that R6.5 trillion, and it was really disturbing.
So I broke away and set up 274 Investment Managers. The name 274 comes from the 27th April 1994, and it is a representation of change and transformation, and wanting to do things differently. I’ve focused the last eight years of my life to improve the R6.5trn, zero percentage, management by black investment professionals, and I’m glad to say that we’ve come as far as five percent of that number is now managed by black investment professionals, through some of the efforts that my team have facilitated. We have got a long, long way to go to democratise the investment capital in South Africa and it is still a long road, and we remain committed to do that.
Now, you started eight years ago, with no employees, and how many people work for your company now?
Well, we’ve grown to just over 100 people and from a public school education, in a township in Lenasia, going through university – coming out from very humble beginnings, being brought up in a matchbox house in Lenasia. It is identifying with where we’ve come from and knowing where we need to get too, and hopefully the commitment of many South Africans is in the right place and we can achieve what we need to achieve.
Which leads me to another argument then, from the financial services sector in particular, the argument could be that we don’t have enough people with the appropriate skills to empower and give positions of responsibility in companies, in order for them to take over. They are very few and far between and that is why the pace of transformation is very slow. How do you respond to that?
Well, we’re challenging and I mean, part of the reason of the financial sector codes, is to say that a large portion of financial services companies must contribute towards a certain sub-minimum targets. You know, 40% when it comes to skills development – 40% when it comes to procurement. Forty percent when it comes to enterprise development, so I think the new financial services codes is going to, aggressively push to ensure that we achieve the numbers that we set out to achieve 20 years ago, and haven’t been able to achieve that now.
For now, we have focused on the racial makeup of investments on the Stock Exchange, what about the women representation, both as professionals, as well as investors?
Okay, women representation across the board remains extremely low and it’s not just a case for South Africa. Recently we saw India legislate the increase of women onto the boards of companies listed in India. We see it Dow Jones and S&P 500 companies, but South Africa – we are behind, when it comes to female participation. Particularly in areas like stock brokering, particularly in areas like asset management, so we see a lot of women coming through the companies but in the more softer areas, like HR and marketing, but we are not seeing women come through in the harder areas. Part of our effort is to ensure that we bring a sufficient number of black women through the ranks and women, as a whole, to be able to take up these positions in the future.
There’s the story – the school of thought that says that if you want to grow the economy, you must liberalise it and then allow new entrants to participate, right? Make it easier for entrepreneurs to start their own businesses. That’s where you’ll get growth. You’re not going to get growth by changing anything on the Stock Exchange. If you allow more, smaller businesses to operate freely, you will be able to grow the economy, create employment for people.
Absolutely, so SMME’s is a vital portion of uplifting developing economies. I mean we saw that in Latin America, where providing relaxation and removing barriers to entry to allow small businesses to exist. It’s a great means to grow and to improve job creation. We’ve seen the Department of Small Business now in a place for just over a year now. We are still waiting to see what the efforts are in contributing towards small business, but if Government can reduce the barriers to entry, so it would give some form of tax relief through and for small businesses. I think it would be beneficial towards job creation.
Now, we know what the problems are in South Africa. You’ve mentioned the National Development Plan and we’ve also spoken about the lack of transformation in publically listed companies, right, so where do you start within South Africa, and how much time do we have to change things, do you think?
I think, you know one of the positive things – I mean we see a lot of people being fairly negative, myself included at times, but what I’m excited about is, I’m excited about the born-free generation and the born-free generation for me, is our future. You see them without the baggage of apartheid and you see them thinking very differently, to a lot of us that come from the apartheid era, and I think as we begin to see more of the born-free generation enter the private sector. I think they will bring about a lot of change going into the next 20 years.
I think Government needs to inject a message of seriousness in their communication, so that the people of South Africa, the man on the street, the private sector, its own employees in the State, can recognise that Government is serious about resolving our economic challenges, and I think the message from the leadership must be – guys we are serious. We are wanting to resolve these problems because until we get that message from Government, nothing is going to happen.
Captains of industry – leaders in business – what are their responsibilities?
They have enormous amounts of responsibilities to ensure that the policies of the country is implemented and the growth of the economy, as a whole, is inclusive and that South Africa moves along. I think, from their perspective, they have enormous amounts of capital sitting on their balance sheets at the moment, and we know that for a fact, but they are not spending it. They are not spending it – instead they are pursuing opportunities in the rest of the African Continent and global opportunities, because of the weakness of the Rand, and because of the lack of confidence in the South African economy.
I think that the confidence is the stifling word at the moment. Until both the private sector and Government and we don’t have things like Marikana happening again. We don’t have the challenges that we are seeing now within labour and COSATU and wage inflation, and wage talks, so we need to get NEDLAC up and running. We need to walk away from the scandalous, corruption issues that are at NEDLAC, and that has painted a bad picture over NEDLAC recently. We need to get that moving again. We need to get those structures in action.
Thank you very much, Fatima, for talking to us.
Pleasure, thank you Tim.
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