FirstRand chair mystified by government

FirstRand chair Roger Jardine says “government’s apparent unwillingness to champion the private sector as a growth engine is mystifying”. Writing in the 2019 integrated report of the country’s largest banking group by market capitalisation, he insists that “there is no plausible plan for South Africa to prosper without the private sector playing a strong role in creating sustainable growth”.

Read: FirstRand keeps its head above water

It is “time for government to partner with the private sector to drive the developmental agenda”, he says.

“The private sector has the incentive, skills and resources to build businesses that employ people and build the wealth of the country. It cannot, however, do it on its own. It needs a government that creates policy certainty, is not distracted by trying to keep failing SOEs [state-owned enterprises] afloat and/or running sectors of the economy that can be done more efficiently by the private sector.”

Jardine is not one to mince his words.

FirstRand has always allowed its chairs to weigh in on matters of national interest, often with a blunt and honest assessment, in the annual report. Last year, then-new chair Jardine used his letter to comment on land reform, income inequality and “broken” SOEs. In 2017, former chair Laurie Dippenaar debunked the myths that local banks are ‘too big’ and anticompetitive, and that they ‘refuse’ to transform.

Jardine argues that South Africa’s skills and expertise are concentrated in the private sector: “It provides 79% of the country’s employment and contributes approximately 50% to the fiscal purse through corporate tax [around 19%] and personal income tax paid by its employees [some 31%].

“FirstRand Bank alone paid R8.5 billion in tax this year. Leveraging private sector balance sheets for infrastructure initiatives can work, as shown by the Renewable Energy Independent Power Producer Procurement programme, where R210 billion was mobilised from the private sector.”

He is however under no illusion that a partnership between government and the private sector on its own will be a panacea for growth.

He says a “deep reform in the public service must also be implemented”.

“The ability of any state to deliver on its agenda is directly determined by the strength of the public bureaucracy.”

The tendency of government to plan itself into paralysis is also criticised by the banking group’s chair.

“The list of reforms that are necessary has been debated for too long. It includes: policy certainty, increasing competition, reforming [SOEs], improving education, improving health care, stabilising the electricity supply, expanding road networks, allocating spectrum, developing the tourism industry, developing the agriculture sector, and the list goes on.

“We could also add incentives to lift exports and decrease imports, and provide title deeds to more South Africans. More than one plan to deliver on these reforms has been drawn up and debated, only to be replaced by yet another plan.”

He says the response to date “by government and policymakers is, to be frank, perplexing – particularly its current allocation of the country’s scarce resources”.

“Effective resource allocation matters profoundly to developing countries, especially when there is little to waste. It’s obvious that expenditure must be reined in, and each rand spent needs to generate either a social or an economic return (ideally both). Sadly, too much of government’s expenditure delivers neither and, if we continue on this road, it will bankrupt the country.”


Jardine cites the proposal for national health insurance (NHI) as just the latest evidence of government’s “desire for state-led solutions”.

He says he is “reasonably confident that it will be very hard to find a South African who does not agree on the desirability of universal access to health care”.

“It is, however, incomprehensible that government can propose new NHI legislation without a detailed grasp of its full financial impact on the country. This is particularly of great concern given the fragility of the country’s finances. Important elements of the new policy remain unknown and this creates risk to further investment in the sector.

“Moreover, the country’s public healthcare system is in disarray and the private healthcare industry can play a major role in achieving universal access. A meaningful dialogue between government and the private healthcare sector is required to agree on the mix of policy, regulation and incentives to provide all who live in South Africa access to necessary care without financial or other impediments.”

Prescribed assets

While the introduction of prescribed assets is “gaining increasing political currency”, Jardine makes a strong point about pension liabilities.

“We seldom talk about pension fund liabilities (particularly with the emergence of defined-contribution funds), but it’s the pension liabilities that are the real issue. The average net replacement ratio in SA pension funds stands at 17% – meaning a pensioner can expect to receive only 17% of their final monthly gross salary when they retire.

“On this basis alone it is reckless to contemplate prescribed assets (often with misaligned risk and return) when we are under-saved as a country.”

Read: Prescribed assets would upset the rationale for pension funds

Three ways to drive growth

Despite all these concerns, Jardine acknowledges President Cyril Ramaphosa’s “sustained public commitment to rooting out the corruption that has played its part in the country’s fiscal and economic decline”.

“However, an anti-corruption strategy is not a growth strategy. Notwithstanding the key interventions made to date, government needs to move swiftly with further and substantial reforms to accelerate growth.”

He offers three obvious examples that would yield meaningful results on the growth front:

  • “Implementing the Eskom restructure plan as proposed in the recent Economic Strategy Paper presented by National Treasury;
  • Increase competition in the telecommunication and transport sectors (including the ports) by breaking up public sector monopolies and allowing the private sector to provide services (also proposed in the National Treasury paper); and
  • Design and introduce policies that will incentivise a meaningful lift in domestic savings (so that we can fund infrastructure development).”

Read: Treasury has laid down the challenge

* Hilton Tarrant works at YFM. He can still be contacted at [email protected]