Paul Janisch

Measuring black ownership on the JSE - we just can't do it.

THERE has been much bluster recently about just how much of the JSE’s market capitalisation is owned by black people. The JSE put out some of its own numbers saying it is 23% of the top 100 companies. That number has been disputed, with some arguing it is less than 3%.

You may think such range of disagreement is surprising, but at the heart of the dispute is a profound philosophical problem. The fact is very little of the JSE is owned by people at all.

More than 90% is owned by institutions like pension funds and life insurance companies. The problem is that there are big differences between the characteristics of natural persons and legal persons. It is a lively area of philosophical debate, for instance, about what sort of legal rights and responsibilities one can demand of legal persons compared to natural persons.

via www.bdlive.co.za

At last an unemotional argument about JSE black ownership.  Contrast this with Duma Gqubule's article in  (or is it on?) BDLive last week. His article follows the now very boring pro-Zuma/ANC  propaganda line of  

(T)he statistics have become a political tool used by fringe groups on the right to support an antitransformation agenda

Duma's wrong here - well at least I believe he's wrong.  There are certain rules that have been established when measuring ownership.  They are the same rules that have been extended to the revised codes.  You can't then suddenly decide that you will use a different measurement system - as the government has on many occasions.  I think Duma's article is sensationalist and incorrect and it firmly nails his colours to the mast - one wonders whether he will ever be hired by the JSE to measure black ownership.  

Back to Theobald's analysis.  He concludes with this paragraph 

We need ways of measuring black economic empowerment. To my mind we should focus on natural persons and only two things matter: what is their income, and what is their wealth. There is only one institution that knows the answers (or at least tries to) and that is the South African Revenue Service. If we want a proper tracking of transformation, that is where we should go for answers.

The issue that neither Theobald nor Duma actually address is that of determining race.  SARS is not the answer, they know what my name is, how I am married, how much money I earn and where I live.  They can judge from my ID number that I am male and born in SA, but they have no idea that I am white (sometimes I can't be sure myself).  Until such a time that the ANC government comes up with  solution to determine race, something that the Nats never could get right, this question will never be answered.  If I asked you what race Mildred Oliphant was and you had never heard of her, how many say she is African, similarly with N Balfour - those of you who were well familiar with Robert Louis Stevenson's might suggest that he's Scottish and hence most likely white.  How about Marius Fransman?

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How do we identify black? Simple, the JSE has become the guardian of such things

A few years ago Levin Kester hosted a very entertaining course on that flawlessly authored document – the BEE verification manual. He went through the whole thing and unfortunately didn't show how much a verification would cost if you had to follow it to the letter. Anyway one of the things that he did touch on was that of an ID book. He showed us a copy of his ID book with a picture of him that only a mother could love. He then asked a very pertinent question – id est. "How do you know what race I am?" Many people volunteered an answer ranging from the last digit through to the whole number etc. The correct answer is of course – the picture. He told us that ID numbers stopped considering race in the late 80s. I did a little research on this and came across this website.

 

By the early 80s, through the creation of independent homelands (or Bantustans), Blacks were no longer considered 'true' citizens of the Republic. The remaining citizens of South Africa were classified according to eight categories: White, Cape Coloured, Malay, Griqua, Chinese, Indian, Other Asian, and Other Coloured. The South African Identity Number was 13 digits long. The first six digits gave the birth date of the holder (year, month, and date). The next four digits acted as a serial number to distinguish people born on the same day, and to differentiate between the sexes: digits 0000 to 4999 were for females, 5000 to 9999 for males. The eleventh digit indicated whether the holder was a SA citizen (0) or not (1) - the latter for foreigners who had rights of residency. The penultimate digit recorded race, according to the above list - from Whites (0) to Other Coloured (7). The final digit of the ID number was an arithmetical control (like the last digit on ISBN numbers).

But this all changed in 1987 with the Identification Act No 72 of 1986 (commenced 1 July) which repealed the Blacks (Abolition of Passes and Co-ordination of Documents) Act No 67 of 1952 and amended parts of the Population Registration Act No 30 of 1950 such that Identification Numbers no longer reflected a person's racial group.

Now we know. And the JSE? Well the JSE has set up a BEE segment on the main board, with SASOL being the first company to make use of this. It's also backed up by an amendment to the Securities Services Act. I can't pretend that the amendment makes for great bedside reading, but it does contain a variety of definitions that need to be looked at. I'm not going to bother with the definition of a black company but concentrate on the definitions of natural people. Here we go

"BEE compliant person" - (a) as regards a natural person, one who falls within the ambit of the definition of "black people" in the BEE Codes. For the new readers to this blog I'll use the definition contained in the codes

Black people' has the meaning defined in the Act qualified as including only natural persons who are citizens of the Republic of South Africa by birth or descent: or are citizens of the republic of South Africa by naturalisation:

(a) occurring before the commencement date of the constitution of the j Republic of South Africa Act of 1993; or

(a) (sic) occurring after the commencement date of the Constitution of the i Republic of South Africa Act of 1993. but who, without the Apartheid policy j would have qualified for naturalisation before then;

The only remaining question here is if we have no litmus test to determine blackness, whiteness, Indianness (you get the picture) then how is the JSE going to be in a position to bar people who choose to participate in this scheme? Are they now given the sole powers to look at an ID picture and say – OK you look black so you can play;  hey whitey! get the hell off this board!!

Are we inviting a little legal challenge at some stage?  Probably.

Bearing a grUdge

What’s with Ajay Lalu.  His responses are so incredibly predictable and jungle-approved.  Is he ever able to take a look at something and say, “well I’ll be, that really isn’t so bad after all”.  Once again his glass is half empty (in fact I suggest that it’s probably been stolen).  His response to the JSE black ownership exercise

it was "absolutely unacceptable" that in 2010 a mere 8 percent of the JSE was directly held in black hands.

And then

I believe that the majority of that 8 percent has not vested unencumbered (debt free) in the hands of the recipients.

And finally 

the methodology is fundamentally flawed since it assumes that all the black ownership is 100 percent black owned, which is not the case when you look at companies like Investec

On the first point

Tell me Udge – what does absolutely unacceptable mean?  And who is to blame for this? And once you’ve figured this out, who is going to correct it?  And why 8% - is your knowledge of code 100 so scant that you cannot accept the exclusions it permits? 

On the second point

This obsession you have with encumbrance is weighing you down.  Everything in life is encumbered. I am willing to bet that just like me your house is bonded and your car is financed.  Does this mean that you would rather these shares be handed out gratis?  How on earth (in my prior life I would have used a commonly mentioned expletive that would have been preceded by “the”) are we supposed to create wealth for the majority of the population if we just hand stuff out.  This is the biggest flaw in the BEE system – we have created a culture of connected entitlement.  Who needs to risk personal wealth when it will be handed over on a platter and when it isn’t we’ll just fleece the government.

Get off your encumbrance horse – it’s a reality of life in any country.  I have heard stories about people (both black and white) re-mortgaging their houses to buy Brainware shares 15 years ago (and you know what happened to them, they are probably still attempting to service this debt)

And the third point

Are you sure about this?  Did you read the press release that the JSE issued – if not I’ll include the paragraph that suggests you might not have read it properly

The percentages evidenced through the study include only persons who are, with current data, able to be established to be black and exclude black economic interests in mandated investments. It is therefore likely that further analysis will indicate more extensive black shareholding of companies listed on the JSE.

In fact that paragraph talks to your first point as well. They didn’t take into account a number of criteria like mandated investments (which excludes the millions of black beneficiaries who have their money managed by the PIC).  They also excluded retail shareholders.  The figure might be a whole lot higher.

Total market capitalisation of SA traded equity	100%
Less cross holdings & Treasury shares	11%
Actual capital	89%
Less Mandated investments (38% of 89%)	34%
Less State held shares	1%
Total Capital Measured	54%
Less Foreign operations % of total capital measured (19%)	11%
Denominator measured	44%
Total black 8%/ total remaining	18%

Table showing the calculations and exclusions (using code 100 because they understand it)

Enough with them negative waves man.