National Empowerment Fund
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NEWS BLOG
NEF welcomes JSE’s concurrence on 3% black ownership
6 February 2014 by NEF
The National Empowerment Fund (NEF) welcomes the acknowledgement by the Johannesburg Stock Exchange (JSE) that “insofar as the investment that black South Africans have directly in listed entities on the JSE, we concur that the holding is approximately 3%”, echoing a recent and identical assertion by President Jacob Zuma at Parliament. The JSE’s media statement was read out on CNBC Africa during a live television interview earlier in the week on Business Tonight with Nozipho Mbanjwa, where the NEF was invited to comment regarding its research findings on the ownership of black people in the economy. The NEF is reliant on research that is conducted by Who Owns Whom in measuring black ownership and control in the economy. The data shows that direct black equity control over the JSE’s average market capitalisation of R11.9 trillion as at 30 June 2014 (for Listed Companies), stands at 3% (R358 billion) for shares directly held by black South Africans. To reach 25% of black control it requires an additional 22% worth R2.6 trillion at current estimated market capitalisation of the JSE. This is a gap that still needs to be addressed and funded in order to achieve transformation of up to 25% of JSE market capitalisation. In order to assess the extent of direct black ownership and control in the South African economy, the NEF uses the market capitalization of the JSE as a proxy, given the availability of its information in the public domain. In accordance with legislation, unlisted share ownership is not publicly disclosed and therefore black control over private companies cannot be measured conclusively. In the view of the NEF the legitimate and effective method of measuring black ownership and control on the JSE is by assessing direct ownership and control, which is the equity that vests directly with black companies or individuals, broad-based groups or community trusts, as well as employee share ownership schemes. The principle of ownership and control means that the black shareholders have direct representation in the boards of the listed companies, as directors. The black directors are then able to drive and influence the strategic direction, policies and the cash flows of the company. This is the destination and the role which meaningful transformation aspires to achieve, says NEF Chief Executive, Ms Philisiwe Mthethwa. It is therefore misleading to use indirect shareholding, which incluces mandated investments such as institutional pension fund managers, private equity funds and savings funds, which amount to 23%, as a measure of black-owned equity on the JSE. The passive-shareholding methodology is therefore not a true indication of the level of transformation in the country. The NEF believes that there are adequate policy instruments in place for sustainable inclusive growth to progress to meaningful levels, and these include sector charters and the revised Broad-Based Black Economic Empowerment legislation. However, the private sector needs to demonstrate meaningful commitment to the spirit and letter of the transformation imperative. One of the key challenges that requires resolution is the current financing structures which make it near-impossible T 2 | Page for black investors to realise any value. This results in equity leakage caused by the need to service finance raised. It is also important for big business to root out anti-competitive practices such as transfer pricing, collusion, over-valuations of businesses and pyramid shareholding structures, as these impede the entry of black people into the economic mainstream, adds Ms Mthethwa. Established by the National Empowerment Fund Act No 105 of 1998, the NEF is mandated to promote and facilitate black economic participation through the provision of financial and nonfinancial support to black empowered businesses
NEF CEO earns in line with sector peers
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ABOUT US
Strategic Role and Positioning
The NEF’s role is to support Broad-Based Black Economic Empowerment (BB-BEE).
As the debate concerning what constitutes meaningful and sustainable BB-BEE evolves, the NEF anticipates future funding and investment requirements to help black individuals, communities and businesses achieve each element of the Codes of Good Practice. These include a focus on preferential procurement, broadening the reach of black equity ownership, transformation in management and staff and preventing the dilution of black shareholding.
The NEF differentiates itself not only with a focused mandate for BB-BEE, but by also assuming a predominantly equity-based risk to maximise the Empowerment Dividend. Reward should balance the risk with the application of sound commercial decisions to support national priorities and government policy such as the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) or targeted investments through the Department of Trade and Industry’s (the dti’s) Industrial Policy Framework (IPF).
The work of the NEF therefore straddles and complements other Development Finance Institutions (DFIs) by allowing the organisations to work in close collaboration in the promotion of BB-BEE. With them, the NEF can enhance other DFIs and their mandates by sharing its specialist sector expertise and knowledge of BB-BEE.
Legislative mandate
Established by the National Empowerment Fund Act No 105 of 1998 (NEF Act), the National Empowerment Fund (the NEF) is a driver and thought-leader in promoting and facilitating black economic participation by providing financial and non-financial support to black empowered businesses, and by promoting a culture of savings and investment among black people. The operations of the NEF are governed by the Public Finance Management Act No 1 of 1991 (PFMA), including the National Treasury Regulations, the King III Report on Governance for South Africa and the Protocol on Corporate Governance in the Public Sector, 2002.
Vision
The NEF’s Vision is to become the leading provider of innovative transformation solutions for an economically inclusive South Africa.
Values
SERVICES
The NEF implements its mandate in three ways:
Asset Management
By structuring accessible retail savings products for black people through its Asset Management Division, which is a custodian of certain equity allocations in State-Allocated Investments (SAIs), the NEF aims to foster a culture of savings and investment among its beneficiaries.
Fund Management
Fund Management, as a facilitator of the Codes of Good Practice of the Broad-Based Black Economic Empowerment Act (the Codes), supports the pillars of black enterprise by providing financial and non-financial solutions across a range of sectors to black empowered businesses, for start-up, expansion and equity transformation purposes.
Strategic Projects Fund
As a leader in venture capital finance which allows entrepreneurs to participate in projects that are at an early stage within sectors identified by the RSA government as key drivers to the economic growth of South Africa. The fund also provides project finance and private equity in these projects once they are regarded as bankable.
Funding Criteria
The NEF provides funds to black entrepreneurs and groups with the aim of facilitating access to finance in support of Broad-Based BEE in terms of government legislation. The investment activities of the NEF are guided by an investment policy that seeks to ensure that investments create real economic empowerment for black people without deviating from sound economic principles.
Each application for funding is assessed in terms of the following criteria:
- Commercial viability of the business case being presented
- The business must comply with all relevant laws and regulations
- There must be operational involvement at the managerial and board levels by black people
- Minimum percentage of black ownership or interest of 50.1% is a requirement
- The business must be able to repay NEF funding
- The business must create a reasonable number of jobs
- Geographic location of the business is also important with the focus on rural or economically depressed areas encouraged
- Meaningful black women participation is viewed more favourably
- Rural and Community Development Projects must have meaningful participation by communities
- Possibility of co-funding with private or public sector institutions is encouraged in larger projects.
Once your application has been received and found to meet the above conditions, it will then go through different stages for a detailed commercial assessment.
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