ActionAid South Africa Draft Discussion Paper – Financing for Development? The Development Bank of South Africa and its Footprint in Africa

DBSA – the early years

One of the institutions earmarked for restructuring and transformation was the Development Bank of Southern Africa (DBSA). Initiated in 1979 by then apartheid state Prime Minister PW Botha to promote private sector financing for development in the “Southern Africa region” and formally established in 1983, the DBSA comprised of South Africa on the one hand, and the leaders of the four nominally independent homelands, Transkei, Venda, Bophuthatswana and Ciskei (the so-called “TBVC states”) on the other.
Their grand plan was the creation of a “constellation of Southern African states” through the policy of “separate development” with SA as a white republic at the helm and black citizens assigned to a homeland according to their ethnic identity. A total of ten homelands were created to facilitate the implementation of forced removals to their respective homelands which then served as labour sending areas to South Africa and as reservoirs for the masses of unemployed people. .
According to former Chairman, Jay Naidoo, the DBSA “was set up as part of a political strategy aimed at strengthening the homelands, which the apartheid regime created under its separate development policies”. This, together with other initiatives, formed part of the apartheid state’s “securocrats’” determined to push for its programme of “winning hearts and minds” against the perceived danger of communism in South Africa whilst they pursued their military ventures in the frontline states.
According to the DBSA their primary role was then “to promote economic development in its broadest sense, increase productivity and thus raise the standard of living of the people in less developed areas of the Southern African economic region” of the Bank’s membership. Within the first three years the Bank was administering projects to the value of R1, 5 billion. (Note the exchange rate between the US dollar and the Rand at the time was USD 1 to R2.23. See www.businesstech.co.za).
Following the unbanning of the liberation movements in February 1990 and the release of Nelson Mandela, the big issue was whether the Bank created to support apartheid would survive and be relevant in a post-apartheid South Africa. The government had committed to providing funding of R2,5 billion over a five year period (note the average exchange rate in this period was USD 1 to R3, 55). The leadership of the Bank adopted a strategy called “DBSA 2000” aimed at escalating its anti-poverty programme.

4. The DBSA and the Transition

Between 1990 and 1994 during the negotiations towards the transition to democracy, the Bank began corporate governance restructuring and repositioning of the institution. Since 1994 the Bank has gone through a process of evolution. The demise of the apartheid homelands and their reincorporation into a unified South Africa rendered the 1993 DBSA founding agreement invalid and the role of the council of governors was transferred to the treasury with the Minister of Finance as the political head. In the words of Professor Wiseman Nkuhlu, the then Chairman and a development academic, the “DBSA has a crucial role to play in shaping the future development of the country”. By 1994 over a 10 year period the Bank’s assets had increased to R6 billion (USD 1 : R3,55).
However, after the democratic elections on 27 April 1994 with the installation of the new ANC-led government of national unity, there was uncertainty over the Bank’s future and status. Given the human and financial resources at its disposal the new government enlisted the Bank’s support in a range of new interventions in support of priorities under its RDP. One of the main over-arching principles of the RDP was a policy of growth through redistribution.

However, barely two years into its implementation, the government unilaterally adopted a new conservative macro-economic policy, the Growth, Employment and Redistribution (GEAR), as a sign of its commitment to high economic growth by reducing state spending and the budget deficit, lowering corporate taxes, relaxing foreign exchange controls, promoting privatisation and encouraging wage restraint. These neo-liberal economic policy prescripts were taken largely from the development models of the World Bank and the IMF and was designed to attract foreign investment. Under this policy, unlike the RDP, the state would play a facilitation role rather than an interventionist role.

Internally though the Bank was going through a tough period adapting to the prescripts of a united, non-racial, non-sexist democracy. Several senior managers deserted the Bank due to uncertainty. The discriminatory pay scale based on race and gender had to be eliminated and parity achieved. At the end of 1994 the Minister of Finance appointed a transformation team, headed by the Chairman of the Board, Prof Nkuhlu, to consult with stakeholders on a future role and governance of the Bank.
Whilst the DBSA was positioning itself for the new dispensation, the new government outlined a proposal to develop a family of five development finance institutions each focusing on specific areas. These were 1) Industrial Development Corporation (IDC), 2) Land Bank, 3) National Housing Finance Corporation, 4) Khula, which later became the Small Enterprise Finance Agency (SEFA) and 5) DBSA.
The main government strategy for the DFIs was that they:

1. 
   Must be independent and under the control of their boards which in turn are accountable to government;
   
2. 
   Should be capitalised but not sustained by the state;
   
3. 
   Should maximise the development impact of the government and at the same time not crowd out the private sector;
   
4. 
   Should be able to take risks that the private sector will not take.
   

The transformation task team had made proposals for the Bank’s internal restructuring, focusing on human resources and affirmative action in management positions and attempts to modernise and streamline operations. New units such as gender and affirmative action, risk management and operations evaluation were set up. Job evaluation and performance management systems were also set up.

By April 1997, through the passing of the DBSA Act (No.13 of 1997), the Bank was repositioned and declared a statutory body with a development mandate to fund public infrastructure. At this stage the Bank had an asset base of R12-billion. It had disbursed over R2-billion in project funding, more than double the previous year on projects at local government level and for policy development. It had streamlined its business units from 57 down to 24 and reduced the number of managers by a similar ratio.
By the time of its 20^th anniversary in 2003, and as South Africa approached its first “decade of freedom and democracy”, the Bank had grown from a staff compliment of 198 since its inception to 485 and defined its role as a financer, advisor and partner with a new vision, which was:
“To further the progressive realisation of an empowered and integrated region, free of poverty, inequality and dependency. To be a leading change agent for sustainable socio-economic development in the SADC region and a strategic partner in Africa south of the Sahara.”
In February 2007 the SA government undertook a comprehensive high-level presidential review of South Africa’s DFIs. The review, which ran for just over a year was headed by the national treasury and conducted in consultation with the national departments responsible for these institutions: the Departments of Trade and Industry, Public Works, Labour, Housing, and Agriculture and Land Affairs.

This review focused on 12 institutions, including the four major DFIs: the Development Bank of Southern Africa (DBSA), the Industrial Development Corporation (IDC), the Land and Agricultural Development Bank (Land Bank) and the National Housing Finance Corporation (NHFC). Other institutions included were the Khula Enterprise Finance, the National Empowerment Fund (NEF), the Independent Development Trust (IDT), the Umsobomvu Youth Fund (UYF), the National Urban Reconstruction and Housing Agency (NURCHA), the Rural Housing Loan Fund (RHLF), the Micro Agricultural Finance Institutions of South Africa (MAFISA) and the South African Micro Finance Apex Fund (SAMAF). Taken as a whole, the DFIs form South Africa’s development finance system (DFS).

As a developmental state, the DFIs exist as public institutions to promote social and economic development in line with the public policy objectives by providing finance that supports job creation, low-cost housing, agricultural development, micro, small, and medium business development, industrial development and infrastructure development. In doing so, the state attempts to intervene and direct the nature and from of development rather than leaving this to market forces.

The review reports that each of the twelve DFIs have different histories and were developed by the different departments. Together they have total assets of more than R120 billion whilst as the report notes that only half of this is dedicated to development. The report further notes the limited impact, issues of overlap and duplication of funding as a result of the lack of coordination and alignment with government policy.

A key recommendation that emerged from the review was the need by government through legislation to establish “as a matter of urgency” a Development Finance System Council (DFSC) to “monitor and make decisions concerning development finance institutions for the optimal functioning of the development finance system” to avoid overlap and duplication of funding. This council will operate under the leadership of the national minister of finance and comprises the executive authorities of each institution and those at a provincial level.
The report also proposes that the minister in consultation with the DFSC will appoint a panel of local and international experts to advise on lessons learnt and best practice in the field of development and development finance. However, to date there has been a lack of progress in establishing the DFSC.
Specifically the report recommends that the DBSA should remain a “high focused infrastructure development institution and its SADC mandate should concentrate on economic infrastructure”.
The report criticises the Bank for not keeping pace with best development practice. Whilst the Bank’s balanced scorecard emphasises the volume of inputs, that is the total number and value of projects funded, it does not evaluate its development impact. The report also notes that whilst the DBSA’s governance structure is based on the states’ requirements for state-owned enterprises and in line with good practice in the private sector, the conclusion is that these arrangements do not emphasise the institutions role and commitment to “development as its primary goal”.
The review therefore recommends the establishment of a board “development effectiveness committee” to provide leadership to meeting the Bank’s development objectives, to define its key development indicators and to use these in monitoring and evaluation. In the current DBSA governance structure there is no dedicated sub-committee established to date. This is an issue worth pursuing with the current leadership of the Bank.
There have been further developments at a government policy level that will shape the medium to long term strategy of the Bank. The adoption of the New Growth Path in 2011 (NGP) sets out an ambitious framework for job creation in priority sectors and emphasises infrastructure development as a key driver for creating new jobs and addressing rural development. It sets a target of 5 million new jobs by 2020.
At a continental level the policy states that support for regional growth “is both an act of solidarity and a way to enhance economic opportunities”. It proposes that SA be a driving force behind the development of energy, transport and ICT infrastructure and work with DFI’s to address backlogs. Key priorities include improvements in the road, rail and ports system serving central and southern Africa and strengthening the Southern African Power Pool.
A new bill, the Infrastructure Development Bill, will be tabled in parliament before the end of the year. The main purpose of this bill is to provide for the facilitation and co-ordination of public infrastructure development, to ensure that infrastructure development is given priority in planning, approval and implementation and to ensure that that the development goals of the State are promoted through infrastructure development.
In addition to the NGP, another important policy framework is the adoption in 2011 by the government of the National Development Plan 2030 – Our Future Make it Work, and which was subsequently adopted by the ANC at its national conference in 2012. Again the plan emphasises infrastructure development in South. Whilst the Plan is SA-centric , it also contains a chapter titled “Positioning South Africa in the World” and by linking domestic growth to regional growth, calls for SA to “play a more pivotal role in regional development” and encourages SA firms to participate in regional infrastructure projects and supply chains to promote industrialisation. The Trade Law Centre calls on SA to “show sensitivity to the plight of its neighbours” and calls for constructive and active engagement with countries in the region. Anything less will “again see accusations of South Africa being a bullying boy of regional integration arrangements”.
A further important policy framework currently under discussion is the restructuring of state owned enterprises (SOEs). The last review of SOEs was undertaken in 2000. A report released by the Presidential Review Committee in 2012 identifies the need for a framework to govern a new round of restructuring to address the needs of a development state and calls on government to “initiate a new and revised comprehensive policy that will guide and regulate restructuring of public enterprises”. It further recommends that an “appropriate consultation framework which genuinely considers the views and submissions of the public” must be developed. All options must be considered “on merit and there are no holy cows”.
The PRC outlines a framework timeline for this large-scale restructuring exercise. See diagram below:

5.