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Should SA banks play a more prominent role in job creation?

In his State-of-the-Nation address at the opening of Parliament in Cape Town on February 10, President Cyril Ramaphosa said it was businesses and not government that created jobs. File Image: IOL

In his State-of-the-Nation address at the opening of Parliament in Cape Town on February 10, President Cyril Ramaphosa said it was businesses and not government that created jobs. File Image: IOL

Published Apr 12, 2022

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By CORRIE KRUGER

In his State-of-the-Nation address at the opening of Parliament in Cape Town on February 10, President Cyril Ramaphosa said it was businesses and not government that created jobs.

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Backing up this statement, he said roughly 80 percent of those employed in South Africa worked in the private sector. “We all know that the government does not create jobs – business creates jobs.”

South Africa is a capitalist country. A capitalist country has an economic and political system in which trade and industry are controlled by private owners for profit, rather than by the state.

Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, voluntary exchange and wage labour.

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In a capitalist market economy, decision-making and investments are determined by owners of wealth, property, or those who have the ability to manoeuvre capital or production ability in capital and financial markets, whereas prices and the distribution of goods and services are determined by competition in goods and services markets.

In contrast, a mixed economic system offers protection against private property and economic freedom in the use of capital, although governments can and ought to interfere in economic activity to realise social objectives.

In South Africa's case, few would disagree that the government should interfere in how bank assets should be allocated to direct job creation.

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If they do not do that, they run the risk of there being no economy left – even for capitalists.

In a recent article published on IOL we referred to the size of bank assets, which has put them in a dominant position in our economy, overshadowing the country's gross domestic product by an astounding 133 percent.

This number is now stated as 129 percent in a recently published report, The Financial Sector Outlook, compiled by Genesis Analytics in partnership with the Financial Sector Conduct Authority (FSCA).

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The assets of banks match those of the insurance industry and pension funds, combined.

The FSCA states that it “conducts its supervisory and regulatory functions guided by the Financial Sector Regulation Act (FSR Act) and in alignment with the policy direction set by the National Treasury. This requires the FSCA to be pre-emptive and initiative-taking; to take a riskbased approach and to respond to risks appropriately and proportionally; to ensure that supervision and regulation is intensive and intrusive; to be transparent and open to consultation; to monitor the extent to which the financial system is delivering fair outcomes for financial customers; and to be comprehensive and consistent in promoting compliance with legislation”.

While this is a worthy statement, all would agree that the biggest risk to South Africa remains the unacceptably high unemployment rate. A fair outcome for financial customers can never be achieved by the status quo.

By taking pre-emptive and initiative-taking steps, the Financial Sector Conduct Authority can take a leaf from the draft Green Finance Taxonomy, which intends to help the financial sector with clarity and certainty in selecting green investments in line with international best practice and South Africa's national policies and priorities. (Taxonomy is “the branch of science concerned with classification”.)

One of the aims of the Green Finance Taxonomy is to unlock significant investment opportunities in the “green” space.

Just as there are initiatives and regulations regarding “saving the planet”, would it not be more appropriate to start at home and save the country from impoverishment first? Let's face it, poverty is a significant contributor to pollution and the state of the environment, which is what is prompting the save our planet conversation.

Banks ought to, therefore, work with the government to establish a framework that that will enhance job creation that will flow from the allocation of funds, thus a certain investment target should be allocated to job creation initiatives.

The fiscus could assist by creating incentive measures, and just as the green movement has become an acceptable and worthy cause, more so should the job creation targets for asset allocations.

The government agencies' finance taxonomy relating to job creation can:

  • Develop policy and delegated acts/regulations;
  • Measure and account for aligned financial flows at different economic levels and improve and align tracking systems;
  • Identify areas of underinvestment relative to objectives;
  • Facilitate aligned pipeline development; and
  • Align to or reference elements of the taxonomy, such as in the context of setting public measures and standards of labels for job creation or job bonds and in reporting on economic, nationally-determined contributions and sustainable development goal monitoring purposes.

The banks and other holders of financial assets can:

  • Compile disclosures against the taxonomy for job creation regarding capital expenditure, operational expenditure and turnover; and
  • Support investor and capital markets engagement, to attract financing for it to become taxonomically and thematically aligned to job creation as prescribed.
  • There are many priorities from which a country can choose that determines its destiny.
  • The wellbeing of our people is a precursor to saving the planet, and we can do something about it in the now.

Corrie Kruger is an independent analyst.

BUSINESS REPORT

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Cyril Ramaphosa

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