Economic transformation is more than just a buzzword in South Africa – it’s a critical step toward reshaping our economy and ensuring that everyone benefits from its growth. At its heart, economic transformation is about addressing the deep-rooted inequalities left by apartheid, creating opportunities for all South Africans to participate meaningfully in the economy. But beyond the politics and policies, what does economic transformation really look like in practice and what role do we need retirement funds to play in achieving this?
Take the case of Edcon, one of the country’s largest retail companies. In 2016, Edcon faced severe financial difficulties, putting over 40,000 jobs at risk. The Public Investment Corporation (PIC), together with the Government Employees Pension Fund (GEPF), made the strategic decision to invest R1.5 billion into Edcon.
On the surface, it seemed like a risky move, but it was driven by a larger vision – saving the company wasn’t just about rescuing a business; it was about protecting thousands of jobs, many of which were held by historically disadvantaged individuals. Additionally, Edcon’s extensive supply chain included several black-owned small and medium enterprises (SMEs) that would have been devastated by the company’s collapse.
This example perfectly illustrates how economic transformation can take many forms. It’s not just about changing ownership; it’s about making investments that have a real impact on people’s lives. When retirement funds, consultants, and asset managers align their strategies with economic transformation goals, they ensure that the benefits extend beyond shareholders to the broader South African population. By driving economic transformation, these stakeholders help create stability, protect jobs, and promote growth that benefits all South Africans, especially those who need it most.
The Edcon rescue highlights how powerful collaboration between public and private markets can be when it comes to promoting inclusive economic growth. This sets the stage for the rest of the article, where I’ll explore how the financial services sector – through retirement funds, asset managers, and consultants – can harness the potential of economic transformation to shape a brighter future for all South Africans.
The role of the financial services sector in economic transformation
In South Africa, the financial services sector is uniquely positioned to lead the charge in driving economic transformation. With its unique ability to channel capital into sectors that drive inclusive growth, this industry – through retirement funds, asset managers, consultants, and more – can reshape the economy and create lasting opportunities for all South Africans. By addressing economic transformation, we’re not only contributing to national development but also enhancing long-term financial returns for our clients – by supporting investment opportunities that foster job creation, support small and medium enterprises (SMEs), and promote inclusive participation in the economy. For instance, companies with diverse leadership teams, inclusive procurement policies, and impactful community engagement. Research shows that companies with strong transformation and diversity commitments tend to perform better financially. A McKinsey study found that companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their industry medians.
This demonstrates that by aligning investments with sustainability goals, you can achieve both social impact and stronger financial outcomes.
It’s not just about supporting the individual businesses we entrust to invest our assets; it’s about recognising the long-term benefits for a South African society as a whole. By funding projects that provide essential services such as electricity, water, healthcare, and infrastructure in underdeveloped areas, we contribute to both economic growth and upliftment. This, in turn, creates a more stable economic environment, which benefits the entire market and leads to better returns for members.
A transformative investment strategy is built on the belief that when the broader economy thrives, so will you! By integrating economic transformation into your investment policy or philosophy, you ensure that your investment strategy delivers sustainable financial returns while driving meaningful change across South Africa for the benefit of your members or investors.
The financial services sector plays a vital role in this journey. Whether through public or private market investments, consultants advising on transformative allocations, or retirement funds supporting large-scale projects, the collective impact of these efforts is far-reaching. By working together, we ensure that economic transformation leads to real, measurable progress that benefits all South Africans, while also improving long-term investment performance.
The benefits of economic transformation for all South Africans
In 2019, Transnet, South Africa’s state-owned rail, port, and pipeline company, teamed up with private investors to breathe new life into the country’s rail infrastructure. Through their Market Demand Strategy, Transnet partnered with companies like Bombardier Transportation and General Electric (GE) to modernise the locomotive fleet. But the impact went far beyond upgrading trains. This collaboration created thousands of jobs, developed local skills, and boosted industries like manufacturing and engineering. Even more, a significant portion of the work went to small black-owned businesses, helping them grow and thrive. This is a prime example of how economic transformation, supported by both public and private investment, can have a ripple effect, benefiting communities across South Africa.
1. Reducing inequality
One of the most significant benefits of economic transformation is its potential to reduce inequality. By implementing policies and creating opportunities that encourage widespread participation in the economy, economic transformation ensures that more individuals can share in the nation’s growth. Despite this potential, South Africa grapples with the highest level of income inequality in the world. According to Statistics South Africa, the country’s Gini coefficient – a key measure of income disparity – remains alarmingly high. However, through strategic investments that foster greater economic participation, the financial services sector can play a crucial role in bridging this gap. Economic transformation empowers more South Africans to engage in the economy, enabling them to contribute to and benefit from the country’s progress.
2. Job creation
Economic transformation is also a powerful engine for job creation. By directing investments into industries like manufacturing, construction, and agriculture, the economy can absorb more workers, particularly in areas with high unemployment.
The Transnet partnership, for instance, led to the creation of thousands of jobs in rail and locomotive production, with many of those jobs located in communities that needed them most. With youth unemployment sitting at over 60%, according to the South African Reserve Bank (SARB), investing in labour intensive sectors is critical. By channeling capital into job-creating enterprises, asset managers and retirement funds can help reduce unemployment while also stimulating economic activity where it’s needed most.
3. Supporting small businesses
Economic transformation also empowers small and medium-sized businesses (SMEs), which are the backbone of the economy. Asset managers can help these businesses grow by investing in companies that support diverse and inclusive supply chains. In the case of Transnet, a large portion of the contracts were awarded to black-owned businesses, giving them the opportunity to expand and create more jobs. Supporting SMEs leads to a stronger, more dynamic entrepreneurial ecosystem, where businesses of all sizes can thrive, driving economic upliftment in communities across the country.
4. Inclusive economic growth
At its core, economic transformation is about fostering inclusive growth – ensuring that the benefits of economic expansion reach all South Africans. When retirement funds and asset managers invest in projects like infrastructure, healthcare, and education, they help lift entire communities by improving living standards and creating lasting opportunities. Inclusive growth means that the wealth generated by the economy is more evenly distributed, leading to sustainable development that benefits everyone, not just a few.
Conclusion
Ultimately, economic transformation is about creating a future where every South African, no matter their background, can succeed. By making smart, socially conscious investments that promote job creation, support small businesses, and drive inclusive growth, the financial services sector (and retirement funds in particular) plays a vital role in building a more equitable and prosperous future for all, while delivering sustainably strong investment returns for members.
Economic transformation is so much more than just ticking boxes; it’s essential for creating a sustainable and inclusive economy in South Africa. However, the success of this important agenda relies on the collective commitment of everyone in the financial services industry. When we work together, we can drive meaningful change that uplifts communities and creates lasting progress.
