Since 1994, the ANC has not committed to as many transitions as it promised, one of them being black economic empowerment (BEE).

While the policies enforced have had varied results, some members of the ANC may be looking at new ways to empower black entrepreneurs, a practice that hasn’t been given enough focus.

Now, the Public Investment Corporation (PIC), the state pension fund, is looking to acquire a stake in Absa. Their aim is to create a black-owned institution backed by black investors, in order to give an entrepreneurial lift to those wanting to establish businesses of their own instead of slotting into others’.

Financial Times explains why it may not be such a good idea:

But intervening to place Absa in the hands of a select group of individuals and institutions is not the best way of changing that. South Africa’s third-largest bank by market capitalisation, presently controlled by the UK’s Barclays, is scarcely a basket case requiring a new business model. The decision to sell it, along with the rest of the African assets in its portfolio, has more to do with Barclays’ balance sheet than Absa’s performance.

In theory, the “black bank” envisaged by PIC, with backing from the ANC, would help to remedy continuing social injustice by investing more proactively than other banks in small black-owned enterprises that have been starved to date of credit.

You see, the ANC’s slow progression with regards anything life-changing in the country has caused minority parties like Malema’s EFF to rise up based on nationalist agendas.

There are, however, valid reasons to worry about a politically connected takeover of Absa, which is one of the most important suppliers of capital to the South African economy. There are questions about superimposing social objectives on to financial criteria when directing pensioners’ savings or the capital of depositors.

The risk is even greater when it involves an economy as riddled with patronage as the country has become.

It may be that South African capitalists are simply too risk averse or myopic to invest in value adding projects put to them by smaller enterprises run by black entrepreneurs. But there are other mechanisms the government could use to remedy this situation. The state could, for instance, establish its own national investment bank with a mission to seek out and back such projects.

Assuming it invested wisely, this new financial institution would then earn superior returns, demonstrating to the private sector the value of what it was missing out on.

And why would anyone look at national investment as a positive right now?

Black economic empowerment is under fire for fostering cronyism and corruption by allowing a small politically-connected elite to prosper while bringing no appreciable benefit to the disadvantaged. While PIC has a record as a responsible investor, it could emerge as the sleeping partner in any empowerment deal to acquire Barclays Africa.

Venezuela, anyone?

[source: ft]