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Transformation of the financial services sector: an objective necessity – OPINION















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OPINION

Transformation of the financial services sector: an objective necessity

Mugabe Ratshikuni |

September 07, 2022

Mugabe Ratshikuni says PIC must dramatically increase allocation mandates to black asset managers

Transformation of the financial services sector: an objective necessity

September 7, 2022

As the driving forces of the National Democratic Revolution (NDR) grow increasingly impatient with the pace and pace of change in South African society, one of the main criticisms has been that the ANC-led government lacked the boldness, determination and political will to radically transform the economy towards greater inclusion and fairer outcomes, which favor the black majority in general and Africans in particular.

The ANC-led government is often criticized for not being aggressive enough in using the levers of state power to ensure a fundamental and systemic transformation of the South African economy so that it loses its composition. race and gender of the apartheid era, the control and management of our economy.

At the oft-quoted and referenced Morogoro Conference of 1969, the ANC asserted in its strategy and tactics document that, “In our country, it is inconceivable that liberation would have any meaning without a return of the riches of the earth to the people as a whole. To allow existing economic forces to keep their interests intact is to nurture the root of racial supremacy and does not represent even the shadow of liberation. Our march towards national emancipation is therefore very concretely linked to economic emancipation. Our people are deprived of their due in the wealth of the country; their skills were suppressed and poverty and starvation were their life experience. Correcting these age-old economic injustices is at the very heart of our national aspirations.

While admitting that much progress has been made in transforming the economy, we would not be completely disconnected from reality if we noted that in the current context, it is necessary to accelerate the implementation long-standing policies of the ANC. to ensure that we bring about economic transformation, developing the economy in an inclusive, equitable and job-creating manner so that people effectively share in the country’s wealth and achieve their desired aspirations for a better life.

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We must ensure that we use the power of the state to disrupt the status quo to materially improve people’s lives and fulfill their hopes and aspirations. We need to be more aggressive to ensure that we make progress in our quest for a more just and equitable society.

We must be bolder, more decisive and unapologetic in the pursuit of historical redress, the correction of past injustices and imbalances that still have a material effect on the potential of our people or on the opportunities for social and economic progress and redistribution; the redistribution of income, wealth and assets in order to reduce inequalities.

In seeking to advance this more radical agenda, we must of course always be mindful of the following critical facts, which also derive from the 1969 ANC Strategy and Tactics Document at Morogoro:

A revolutionary politics is one that offers the fastest and most fundamental transformation of power from one class to another.

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Such radical changes are not brought about by imaginary forces but by those whose vision and will to act are influenced by historically determined factors.

The art of revolutionary leadership consists in leading the masses and not only its most advanced elements, it consists in giving a rhythm which accords with the objective conditions and the real possibilities at hand.

A revolutionary-sounding phrase does not always reflect revolutionary politics, and revolutionary politics is not always the springboard for revolutionary advance.

Often what appears to be militant and revolutionary can turn out to be counter-revolutionary

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So, in seeking to accelerate the transformation of our economy, we should avoid populist rhetoric and cheap slogans that have no material impact on the lives of ordinary South Africans, but are instead influenced by predatory instincts. We must, however, be bold, aggressive and unapologetic about economic transformation, using the state as the main driver of our progressive agenda. The time for dithering and a soft approach is long gone. This is fundamental to achieving our historic goals and objectives as a people’s movement.

We must be geared towards forming partnerships within society that will help advance our revolutionary goals. In everything we do, we must ensure that our approach will have the following effect and impact: increase the black share of wealth and income, increase employment and investment within the economy, reduce inequalities and bring about inclusive growth, enable us to increase the skills base within society (e.g. provide access to education, skills development, etc.) so that we can provide better opportunities for people. The broader agenda is that we must be able to transform our economy so that the popular masses can achieve a better quality of life.

Given the phenomenon of increased financialization of the economy and economic activity, one of the strategic areas in the transformation of the South African economy is the financial services sector and one of the most crucial vehicles that we have as a party in government. , which we have not used optimally, is the Public Investment Corporation (PIC), which has about R3 trillion in assets under management on behalf of the working class, which are to be used to advance the interests of the working class in the transformation of the economy.

Less than 10% of the R9 trillion in financial services sector assets (about R3 trillion under the PIC) in South Africa are deployed with black asset managers. use the PIC as a primary driver to ensure that working class children, who become the managers of black assets and aspiring players in the financial services industry, become significant players when it comes to being on the table asset allocation.

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Our current law requires trustees to use asset consultants and therefore we may be perpetuating the problem through our own laws. Trustees may want to deploy capital to black fund managers but the law says they must rely on asset consultants and asset consultants are predominantly white so that’s an area we need to be on focus in the pursuit of transformation of financial services sector.

The PIC must primarily use black asset consultants. Asset advisors are the gatekeepers who determine where the pension fund’s money goes. There is no reason why black asset managers, led by working class children, should not be in charge of managing working class funds. Black asset consultants should have a bias towards black asset managers, as long as black asset managers perform well (and there is no evidence indicating a lack of capacity and underperformance of black asset managers today). There must be a government mandate, shamelessly, to ensure that this becomes the case.

What is extremely important is that it is not only about black participation in the allocation of capital, but also investments in the growth of black-owned asset classes in the economy at wider. We don’t want black asset managers still ostensibly allocating cash into portfolios where black ownership doesn’t exist. The mandate of PICs must come with conditionalities that impose requirements for meaningful transformation and black ownership, in investment portfolios, whether listed or unlisted. It can also be incentivized through performance fees, consideration of income expense ratios, etc.

This is important for not only transforming the asset management industry and the financial services sector, but also regulating the nature and texture of the asset classes where liquidity is channeled through black or white asset managers. , in order to reach out and transform the wider economy.

There are three critical focus areas that can enable us to concretely implement our transformation agenda within the financial services industry:

The PIC must significantly increase allocation mandates to black asset managers and sponsor ongoing training for new entrants so that the pool continues to grow. The PIC should foster partnerships with established white asset managers to work with future black businesses.

We need to regulate investment portfolios to reflect our broader strategic goals of deracializing the economy. In addition, we need to streamline regulation and Financial Sector Conduct Authority (FSCA) compliance to be consistent with these requirements.

Liquidity to be channeled to strengthen ownership, transformation and black asset classes with strong ESG (environmental, social and governance) nuances.

Mugabe Ratshikuni works for the Gauteng Provincial Government; He is an activist passionate about social justice and transformation. He is Treasurer of ANC Branch Ward 115, Florence Mophosho Branch, Greater Johannesburg Area. He writes here in a personal capacity.




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