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Date : 01/04/2005
Source: The Presidency
Title: Mbeki: Launch of Public Investment Corporation


Address of the President of South Africa, Thabo Mbeki, at the launch of the Public Investment Corporation, Sandton, Johannesburg

Master of Ceremonies,
Minister of Finance, Trevor Manuel,
Deputy Minister of Finance, Jabu Moleketi,
CEO of PIC, Brian Molefe,
Distinguished Guests,
Ladies and Gentlemen:

Thank you very much for inviting me to this important launch of the Public Investment Corporation (PIC).

I have not been to the new offices of the PIC. But I am told by those who have been there that the name of the main boardroom at the PIC is Mapungubwe. I am also told that the names of the other boardrooms among others are Lusaka, Sharpeville, Umlazi, Maputo, Luanda, Dar es Salaam, Gugulethu, Mitchells Plein and Soweto.

It would appear that what inspired these names were scenes and location of the stage on which the drama of our struggle for freedom unfolded.

Perhaps the PIC wants to ensure that as we built a new South Africa, we do not forget our history, however harsh that history has been to the majority in this country. It is a history that is still experienced by many whose poor circumstances we must continue to help change for the better. That history is described by Njabulo Ndebele who wrote in the 1980’s that:

Our history shall be our joys,
our sorrows,
our anguish scrawled in dirty third class toilets
Our history will be the distorted figures and bitter slogans decorating our ghetto walls
where flowers found no peace enough to grow
(From http:/homepages.compuserve.de/PeterRHorn)

I trust that, whatever inspired these boardroom names, they reflect the mood, orientation and direction of the PIC with respect to the challenges facing South Africa and Africa today.

As we all know, the main challenge facing us in South Africa is the transformation of our society into a non-racial, non-sexist society. Central to this challenge is the transformation of the South African economy to include black people into its mainstream, among other things.

The business map foundation published a report on the 14th of February 2005 which provides a review of black controlled companies on the JSE. The report notes that Black companies now control about 4% of the JSE market capitalisation.

The report further states that MTN is the only BEE company significant enough to appear on the JSE’s top 40 companies.

If we agree that the transformation of the South African economy is critical for the long term sustainability of our democracy, then we should work together to ensure that we increase meaningful black participation in the economy including better presence in the JSE. This we should do so as to make the whole of South Africa a place where flowers will find peace enough to grow.

In this regard, it is encouraging to see that the process of sector charters has progressed very well. The next important step will obviously be the full implementation of these charters so that we address the economic inequity that continues to define our society. For us to move forward faster in this regard, it will be for the shareholders of these companies, the majority of whom are South Africans, to participate in this transformation process.

I think it would also be useful for our fund management industry as well as trustees of our pension funds to begin to take a more active role in discharging their responsibilities as shareholders on our behalf - in transforming these companies.

On the 12th of May 2004, Ann Crotty wrote a column in the Business Report in which she made observations regarding an Annual General Meeting of a listed company that had just taken place. In it she makes the observation that: “The eerie silence from the institutional shareholders at the previous week’s AGM should worry everyone of us who has savings or a pension or is part of a provident fund.”

She continued to point out that when a company’s market capitalisation is reduced, it is the ordinary people that have savings or a pension who suffer that loss. This, she says, makes it a little more difficult for ordinary people to keep up with the ever increasing cost of living.

One can infer from Ann Crotty’s comments that institutional investors are positioned better than anyone of us to protect the value of the JSE investments of ordinary people as well as to promote the corporate transformation that will allow for meaningful participation by black people in the South African economy.

Indeed, because of the insufficient participation by shareholders in shaping the direction of companies it means that the CEO’s play a central and critical role with regard to the pace of transformation, among other things. Many would argue that it is correct that this should be so since the CEOs are usually paid handsomely to deal daily with issues that will increase share-holder value.

Writing on the problems that led to the bankruptcy and corporate crises in such huge companies as Enron and WorldCom in America, Vivendi in France and others, the economist Joseph Stiglitz puts part of the blame on the fact that shareholders do not sufficiently participate in their companies. In his book, “The Roaring Nineties”, Stiglitz writes that:

“Over seventy years ago, Adolf A Berle and Gardiner C Means drew attention to the fact that in the corporations that were emerging, there was a separation of ownership and control. Shareholders nominally owned and controlled the firm, but in fact, they had limited information about what the managers were doing, and limited ability to do anything about it if they didn’t like what they saw. There were boards of directors, again nominally elected by the shareholders, whose job it was to provide oversight; but often, the board was hand-selected by the CEO, and only with a massive rebellion could shareholders do much to replace the board.”

He goes on to say that:

“Here again there was another conflict of interest. Boards are supposed to protect the interests of all shareholders. But some boards, whose members often receive large fees - $10, 000, $20,000, $40,000 - for membership and attendance, were frequently more concerned with pleasing the CEO than fulfilling their supposed fiduciary responsibilities. And while advocates of corporate governance emphasise the importance of outside directors, that is, directors who are not part of management, outside directors appointed by or suggested by the CEO become in effect insider directors as soon as they take their seat.”

I have quoted Stiglitz at length not because I have anything against CEOs. Indeed, I know many CEOs who continue to do very well, not only for their companies, but for the transformation of our country. I know many who carry the positive message of a transforming nation to their shareholders and peers locally and abroad.

I am quoting Stiglitz to emphasise the point that the transformation of our country is a collective effort. I am also saying that for our companies to remain strong and competitive, we have to learn from what is happening in the world, particularly with regard to the on-going changes around corporate governance.

With regard to the economic challenges facing us in this country, I believe that shareholders should be more engaged in all processes so that we move with the necessary speed towards a transformed South African economy.

As part of ensuring rapid transformation, perhaps what is required is some form of alliance of shareholders among institutional investors so that common standards and rules of engagement can be set.

In this regard, a corporation like the PIC could take the initiative to convene such a forum to work out mechanisms so that our companies can assist one another on important matters as good corporate governance, adherence to the charters and the general transformation challenges.

Chairperson;

A greater challenge that confronts all of us as Africans is to make sure that in this century, Africa defeats poverty and underdevelopment.

In this regard, among the many challenges facing us is that despite our poverty and economic underdevelopment, Africa is a net exporter of capital. This includes the huge amount of money that goes out of the continent in the form of debt repayments.

The UNIDO publication of 2004, entitled Sub-Saharan Africa: Diagnosis and Strategic Options, reports that it has been estimated that in 1999 Nigeria had $107 billion of its private wealth held abroad, which was a far larger amount than the value of private wealth invested in the country.

The report continues that:

“Indeed, about 70 percent of Nigeria’s wealth was held outside Nigeria. This is both a symptom that something was radically wrong, and a major opportunity. It is a symptom in that if Nigerians were placing their own wealth abroad, it was evident that foreign private investment was also unlikely to enter the country in large quantities other than for highly specialised opportunities such as oil extraction. Evidently, the investment climate was unsatisfactory, for whatever reason. It is an opportunity, because if Nigeria’s own wealth could be attracted back to the country there would be scope for massive increase in the private capital stock: it could roughly be tripled."

The publication then refers to a similar situation in Uganda and says:

“Uganda in 1990 had about the same proportion of its private wealth held abroad as did Nigeria in 1999. But over the 1990’s it managed to get a significant proportion of this flight capital shifted back into Uganda. In some years the capital repatriation flow was larger than export earnings.”

Clearly, as Africans, we have not looked closely into the resources and wealth owned by Africans, including those in the Diaspora, and harnessed these resources for our own development. We need to mobilise all these resources, which are on the continent as well as those outside so as to address the challenges that we face.

In this regard, it is interesting to check the portfolio of the civil service pension funds in Africa, its value and where it is being invested. For instance, a study of just nine civil service pension funds on the continent revealed that they have collectively in excess of US$120bn. If we were to agree among ourselves to set up an African infrastructure fund, a possibility exists for us to start taking our fate, as Africans, into our own hands. This would give us the possibility to use our own resources - perhaps with leverage from the African and international private sector - to deal at least in part - with our developmental challenges.

We have agreed that the Public Investment Corporation and the Government Employees Pension Fund should investigate this matter further so that it can be pursued at the level of NEPAD.

In the past ten years South Africans have been making history. This has been and continues to be a history that will ensure that our country and continent are a place where flowers can grow because we have attained freedom, democracy and peace. Through our collective efforts we should ensure that the flowers of prosperity grow in every part of our country and continent and benefit all our people wherever they may be.

To achieve this, an institution such as the PIC will have to redouble its efforts to empower our people, engage the private sector to increase the pace and scope of transformation, and join the process of African renewal through the AU programme, NEPAD.

With regard to all these, I would like to assure the Public Investment Corporation that it has our full support. I am privileged to wish the Corporation success, convinced that it will grow from strength to strength.

I thank you.

Issued by: The Presidency
1 April 2005

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