David Christianson
It cannot have escaped notice that the litany of corporate governance transgressions exposed in the recently released report of the Mpati Commission all concern investments made by the Public Investment Corporation’s (PIC's) Black Economic Empowerment support vehicle.
Established in 1999, the R123-billion Isibaye Fund’s mandate is ‘impact investment’, which the PIC interprets to mean ‘social returns’ such as ‘empowerment and transformation’. While the PIC insists that these investments must generate returns, this has clearly not been the case in many instances. Something upward of one third of the Isibaye Fund’s investments (R30-40-billion) was investigated by the Mpati Commission and, amidst the orgy of self-enrichment and fee-gouging revealed, all were found inadequate.
In practice, the 10 cases investigated boiled down to investing in the business proposals of politically prominent ‘insiders’, including the PIC’s own staff and board members. Favouring a connected elite it is entirely consistent with the way BEE is widely interpreted and practised throughout the South African economy. It surely does not require further demonstration to show that there is nothing ‘broad-based’ about the policy.
It needs to be further pointed out that little if any of this investment was into proposals which would boost domestic fixed investment. Jayendra Naidoo’s R9.4-billion loan was for nothing more than buying shares in Steinhoff, which is very nice for Naidoo but never likely to have any positive impact on either the PIC’s portfolio or the wider economy. Iqbal Surve’s AYO Techology Solutions was punted, by its owner, for its potential in the emerging knowledge economy. This is indeed a growing sector but the company was so absurdly overvalued (by over 4 000 percent), with the collaboration of PIC CEO Dr Dan Matjila, that the investment cannot possibly generate positive net returns for the PIC’s stakeholders.
With Steinhoff’s disgrace, the PIC investment is of course well under water, but Naidoo is not out of pocket. He walked away with fees and commissions of R136.8-million. He and others were paid handsomely to, at best, shuffle money around, not to innovate and contribute to genuine wealth creation. The most egregious cases of fee gouging occurred among the PIC’s own staff. One Wellington Masekeza, an assistant to CEO Dr Matjila demanded an ‘arranging fee’ of R95-million for SA Home Loans’ R9-billion loan application. The Mpati Commission’s opinion is that this boiled down to ‘soliciting a bribe’ for doing what was after all nothing more than Masekeza’s job.
Ever since the tenure of Brian Molefe as CEO of the PIC after the millennium, the pension fund manager has referred to itself as ‘an activist investor’. Its model was the California Public Employees Retirement System (CALPERS), the biggest pension fund in the USA (worth US$300-billion). But while CALPERS has indulged in social causes at the margin – withdrawing from Tobacco investments, agitating for cheaper AIDS drugs and acting as an early mover on green energy – the pension funds activism has mostly been conventional. In other words, it has focused on issues like underperforming investments, corporate disclosure and executive remuneration. It is also entirely transparent, reporting the performance of all investments in real time via its website. In openness alone, the contrast with the PIC’s Isibaye Fund is absolute.
While quoting the CALPERS example, the PIC has chosen to interpret activist investing through a racial lense. Its Isibaye Fund, in particular, has come to support only BEE and ‘transformation’. The PIC’s voice has been muted on all other shareholder activist issues and the Isibaye fund has been entirely silent. It would seem that the approach of the latter is that if some black person somewhere benefits from its investment, it has met its mandate.
The Mpati Commission report makes it clear that many among the PIC’s senior management and directors are up to their necks in fraud. There will be those who argue that this is a function of personality and circumstance and therefore not irrevocably linked to BEE policy. ‘A few bad men and women’, they will say.
But this is not the full picture. The report is a portrait of elite enrichment, insider dealing, fudged rules and investments delinked from returns. That is the essence of BEE as practised under the African National Congress government.
David Christianson was commissioned by the Institute of Race Relations to write this article
https://www.polity.org.za/article/pic-shenanigans-show-bees-fraudulent-centre-2020-03-31
