I see there has been something of a brouhaha among #whitetwitter about Discovery Bank’s empowerment scheme that will sell 10% of the bank to black people. A thread…
First, Discovery Bank’s decision is in line with the financial sector transformation code. This provides that banks should sell 10% of their equity to black people. This is significantly less than other industries in which the general rule is 25%. But
banks have some unique features. Their systemic stability is connected to shareholder stability & the size of capital is a key growth determinant. So from a public policy point of view, the need for large institutional shareholders and economic growth has to be balanced...
That compromise was hard fought. In renegotiating the Code, there was very strong pressure to increase the 10% target. It is unusual that financial companies have this special status. #whitetwitter is, however, upset that it is even as much as 10%.
Banks make up the other 15% through various other initiatives including targeted financing of small black businesses and BEE deals. That was the outcome of the Financial Sector Code negotiations between the industry and various interest groups.
Discovery Bank, as a new bank, will comply with the Code. The other large banks have all already done empowerment deals which saw 10% of their equity move into the hands of black people. There is no sense complaining about Discovery merely complying with long-established policy.
Discovery’s deal is interesting in that it will give shares to black depositors. This is not unique – Standard Bank’s Tutuwa scheme, for instance, favoured black small business clients. It seems strategically sussed to drive black client recruitment in this way.
But #whitetwitter’s objection is not about Discovery’s strategy, but about the fact that white depositors will not also be given shares. This is a strange perspective
The Code, with which Discovery is complying, is a mechanism to drive transformation of the economy. The reason is that it is systemically distorted as a result of Apartheid. Apartheid actively ensured capital accumulated in white, not black, hands.
So at the end of Apartheid, the ownership of companies was systematically biased in favour of whites. BEE deals are designed to address that legacy. A legacy that was part of an internationally recognised crime against humanity.
South Africa, by a recent World Bank estimate, remains the most unequal country in the world (see npr.org/sections/goats…). That inequality is largely driven by Apartheid and has a clear racial dimension.
Either #whitetwitter denies that there is any such legacy (obviously false) or they deny that Discovery Bank’s deal will contribute to undoing that legacy. The latter point is also likely false.
The other banks’ empowerment deals have done a large amount to address this legacy. According to calculations by @intellidex, R57bn of net value was created for black beneficiaries by BEE deals done by Absa, Standard Bank, FirstRand, Nedbank, Capitec, RMH and Investec.
It didn’t always work. The collapse of African Bank hurt thousands of black shareholders, who lost the small equity contributions they had made. But on average, such BEE deals do generate value for black beneficiaries. That contributes to transforming the economy
From what has been said by Discovery Bank, the deal will involve no equity contribution by black shareholders. Therefore no risk of capital loss as in African Bank. The Discovery deal therefore is very likely to have a positive impact on black shareholders that participate.
#whitetwitter will not lose anything from the deal. Discovery Bank is a company funded by its shareholders. The cost of the deal is born by those shareholders, who have decided to comply with the Code. #whitetwitter are not parties to the deal.
But mostly, #whitetwitter could introspect about what it implies to try and obstruct an effort to address our Apartheid legacy. The scars are still with us. #whitetwitter has a moral responsibility to use their resources to support transformation, not obstruct it. Ends
