The 2005 annual review of transformation in the financial services sector offers a good look into the challenges that are likely to arise in implementing the codes of good practice on broad-based black economic empowerment (BEE).
Among the challenges highlighted by the review, published earlier this month by the financial sector charter council, is the risk that the development of black-controlled companies could be stunted by the way companies implement BEE clauses on procurement.
The review also warns of a possible shortage of skilled black people as the financial services industry adjusts its staff transformation targets upwards in line with those set in the BEE codes.
On procurement, the review says the way companies go about achieving the targets for buying goods and services from BEE firms has resulted in a disproportionate share of procurement expenditure going to companies where black people are minority shareholders.
The financial services industry reported that in 2005 it bought goods and services worth R16 billion, or 36.4 percent of its procurement spending, from BEE-accredited suppliers. This figure could not be verified, however, because institutions relied on suppliers to assess their own BEE status.
The other problem with BEE procurement as currently practised is that the financial services sector reached the 36.4 percent level last year by encouraging suppliers to sell portions of their businesses to black investors.
While this approach has helped the sector achieve a certain measure of transformation, the review warns that in the medium to long term the current approach may contribute to a situation that is the
reverse of the intended outcome of the financial sector charter and the more extensive Broad-based Black Economic Empowerment Act initiative.
The sale of portions of established companies could end up creating a large and stable pool of white-controlled suppliers in which black shareholders hold non-controlling, minority interests, which in turn may serve as an obstacle to the organic emergence of competitive, black-owned suppliers to meet demand.
On staff empowerment, the review says financial services providers spent less than the targeted 1.5 percent of basic payroll on developing black skills during 2005.
Without skills development initiatives to maintain and expand the black skills pool, the progress made in the sector in the employment of black managers and black women managers may experience a demand-supply crisis in the medium term, it warns.
The shortage of skilled black people is likely to be magnified by the alignment of the financial sector charter targets, which the charter admits are low, with those of the broadbased BEE codes.
With demand for skills outstripping supply in all sectors of the economy, existing black staff complements will be a key resource in meeting these targets.
The shortage of black managers and the financial sector's underperformance in investing in the development of skills is worrisome because it suggests that the banking industry, in particular, has failed to heed the warnings of its regulator.
The bank supervision department of the Reserve Bank, which regulates the banking industry, warned in its 2003 annual report of a potential skills crunch because of the low target levels of the financial sector charter.
It said the low levels of black participation in the financial sector would make it extremely challenging for banks to score points in the human resource development sections of the scorecard.
It also has to be borne in mind that the financial services sector is competing with every other sector of the economy for skilled black professionals at all levels.
In a statement that was, in retrospect, a warning to banks, the banking industry regulator said companies had, as of 2003, almost five years until the deadline for achieving the human resource development objectives of the charter.
It has to be noted, however, that it takes a minimum of four years to develop financial skills academically. Therefore, firms will have to focus proactively on this area, not only to attain the targets set in the time frames outlined, but also to meet the human resource skills needed in the medium and longer term.
While the financial services sector should take its fair share of the blame for not investing enough in the development of black managers, the government should also accept its fair share of responsibility for the skills crunch.
The government has yet to get a handle on how to fix public education, the only realistic hope for most black children.