POSITIVE DEVELOPMENT OP-ED
Making hope possible — reflections of a former chairperson of an SOE board
In a country dragged down by failing SOEs, surely one success is worth celebrating? Surely TV and radio anchors should have moved beyond the cacophony of failures and asked more penetrating questions about the reasons for the DBSA’s success?
On the last working day of September, I chaired my last board meeting of the Development Bank of Southern Africa (DBSA). The purpose was to welcome new board members and say farewell to departing members. My time was up — I had served the maximum time allowed in terms of the relevant regulations, which is nine years (three terms of three years each).
The online Teams meeting ended in the usual way, but this time I waited for everyone to log off until I was staring only at myself. I clicked the red Leave button, and the screen shut down with the usual blip.
“So that is how great things end in the digital age,” I said to myself as I looked up from the screen and stared out at the Stellenbosch mountains. And with that, I got half my life back.
Undoubtedly, my nine years on the DBSA board have been one of the greatest experiences of my professional life. Although it’s a non-executive position, the board chair of the DBSA is a full-time job.
I recently led the DBSA delegation to the Finance in Common Summit (Fics) in Cartagena, Colombia. This is an annual summit of “public development banks” (PDBs) as they are internationally known, also referred to as development finance institutions (DFIs). There are now more than 500 PDBs spread out across the world, with a combined asset base of $23-trillion, making annual investments of $2.5-trillion, which is equal to 10% of total world investment. Since 2007, the total assets of PDBs have tripled.
Many at the Fics talked about a “movement of public development banks”. It is, indeed, a movement with huge potential to contribute meaningfully to the current calls for reform of the international financial system by the UN secretary-general, many Global South leaders and the South African President.
In a world facing polycrises that require long-term solutions while the private financial sector remains trapped by quarterly reporting into short-termism, PDBs are no longer the banks of last resort — they have, we have argued, become the banks of first resort. Together with sovereign wealth funds, they are best placed to be the lead arrangers of the innovations that will become the long-term solutions of tomorrow.
I spoke on a number of panels at the Fics, but one of them was a panel of mainly chairs or presidents of PDBs, reflecting on the role of PDBs in catalysing the energy transition.
Afterwards, the moderator came up to me somewhat puzzled and said, “I thought you were a non-executive chairman of the board.”
“I am,” I replied, but seeing his look of surprise I asked, “Why?”
He replied: “Well, unlike others in your position, you seem to know a lot about the detailed strategies and operations of your bank.”
I shrugged and responded: “Well, surely that is necessary if boards are going to exercise effective oversight? But I assure you, that does not mean I’m directly involved in the responsibilities of executive management.”
A fine, delicate line
And therein lies the rub: That incredibly fine, delicate line between the role of the board and the executive that has been breached too often in the post-1994 South African context, in both the private and public sectors. State Capture could have been avoided if boards had played their fiduciary roles as the watchdogs of South Africa’s public balance sheets.
And yet, there is hardly any public discussion about the boards of state-owned enterprises (SOEs). It comes up in the media when there is a scandal, and the Zondo Commission had a lot to say about what went wrong. But not even the Zondo Commission provided the basis for a reflective public discussion about SOE boards.
Maybe this is because of the widespread assumption across our media that SOE boards are merely crony political appointments comprised primarily of the unworthy and over-entitled. Beyond that, at dinner tables of mainly (but not exclusively) rich white people, the underlying racism is thinly veiled — “Why don’t they just appoint more experienced people?” This, of course, is code for equating black board members with inexperience, or worse, political opportunism.
But the debate must now be had. The President’s State-Owned Enterprises Council has made somewhat questionable proposals for an overarching public entity that will become the shareholder of all SOEs. The underlying assumption is that SOEs need to be fixed and that political interference is one of the key problems (echoing the Zondo Commission).
I have my doubts. In a book chapter co-authored with Nina Callaghan, we argued that the problem is the absence of a strategic mission for SOEs. Reviewing the history of SOEs since the start of the 20th century, we demonstrated how the white elite carefully crafted a strategic mission for SOEs in the building of racial capitalism.
A similar ambitious mobilising mission for SOEs has not been evident since 1994. Instead, we moved from “selling the family silver” (privatisation) during the Mbeki era, to “looting the coffers” during State Capture under Zuma, to the current moment which is all about a technocratic “just fix-it” approach (which, for some, means a return to privatisation).
But what is the strategic mission for SOEs today in a world crying out for long-term solutions? Surely the mission must be about how they actively create and expand public value?
Fit for purpose?
Excluding the Public Investment Corporation (PIC), South Africa’s SOEs have a combined balance sheet of more than R2-trillion. Of this, the three biggest contributors are Eskom (36%), Sanral (18%) and Transnet (17%). The PIC alone has a balance sheet of over R2-trillion! The public balance sheets matter. And ultimately it is the boards of these entities that society must hold accountable for how they are deployed for development. But are these boards fit for purpose? And what is the specific role of the chair of the board?
Every year the DBSA reports to a parliamentary standing committee. In my board chair role, I have led the DBSA delegation on three occasions to these meetings. And every time we get asked the same question: Why is the DBSA different? What does the DBSA get right that others don’t?
During my nine years on the board, I have had the pleasure of being part of a board and executive team that has made it possible to double the size of the DBSA. As of 31 March 2023, total assets stood at R109-billion, up from R100-billion the previous year and R50-billion a decade ago. We made a profit of R5.2-billion, the highest ever in DBSA’s 30-year history — up from R3.8-billion in the previous financial year.
In a country dragged down by failing SOEs, surely one success is worth celebrating? Surely TV and radio anchors should have moved beyond the cacophony of failures and asked more penetrating questions about the reasons for the DBSA’s success? Is the failure of Postbank more newsworthy than the success of the DBSA?
The DBSA had one CEO for an entire decade — one! Patrick Dlamini — the only SOE with rock-solid executive management for such a long period of time, largely due to his exceptional leadership abilities. Surely that must be seen as a key success factor? Compare that to Eskom, with 13 CEOs in as many years!
Effective transition management
When Dlamini’s term ended, we smoothly appointed the CFO, Boitumelo Mosako, in early 2023 to take over from him. Hardly anyone noticed. We advertised internally and externally — we chose the best, and the best was an internal candidate, and the first black woman to lead the DBSA. I won’t be surprised if she follows Dlamini by remaining in the job for a decade. She’s young, dynamic, passionate, mission-led, financially competent and well-respected internationally.
And now Mosako has an exceptionally capable board. The Nominations Committee advertised widely for new board members to supplement the existing members, assisted by a search agency. The chair (myself) and deputy chair (Gaby Magomola) were members of the Nominations Committee. We were overwhelmed with high-quality applicants.
All those we selected (against pre-determined criteria) and recommended to the shareholder (and that were approved by Cabinet) were recommended by ourselves. No political appointees were made over and above those we recommended. The board unanimously approved the new chair and deputy chair. This is what effective transition management looks like.
But it does not stop there. Success is more than just the expansion of the book and rising profit. A PDB like the DBSA is a highly complex institutional mix because success is about development, not just the bottom line. The slogan I used for my term as chair was “Let’s make the ‘d’ in DBSA a big ‘D’’’. My hope is that this will be my legacy — a commitment to deploying a public balance sheet (that gets no financial support from the government) for development purposes.
Starting under the leadership of previous board chair Jabu Moleketi, we crafted what is now the DBSA’s “Development Position” — an ambition to “bend the arc of history” by investing in sustainable development. This has been the guiding mission that has shifted the DBSA into a developmental role, including a higher risk appetite, more moderate returns on investment, leveraging of co-funding, grant funding of developmental hubs (our DLab programme), more support for black- and woman-owned businesses, and direct project management of grassroots implementation projects. Globally, the DBSA leads in many of these innovations.
The specific successes are worth noting.
The DBSA achieved 25 out of 28 of the agreed key performance targets set for FY2022/2023, and approved by the shareholder. This was against a difficult economic environment of significant volatility in global markets, credit and interest rate markets and surging inflation. Total disbursed funds for the year were R13.2-billion, with an 11.5% return on equity. This R13.2-billion was used to leverage an additional R14.2-billion in co-funding for infrastructure development.
Given that the government does not provide DBSA with funding, relatively high-cost debt is raised on the local and international capital markets and spent on development projects in South Africa and many African countries. R11-billion was raised in this way, and cash collections were high at R17-billion. All this was achieved while keeping the cost-to-income ratio at 23.5%, well below the limit of 35%, and maintaining the DBSA’s unbroken 30-year record of clean audits.
What most do not realise is that DBSA is not just a funder. Its Infrastructure Development Division (IDD) actually implements projects — not common for PDBs internationally. Hence, for the last financial year, 29,555 learners benefited from 117 schools that were refurbished, 2,208 learners benefited from two newly built schools, 68,687 learners benefited from the installation of ventilated pit latrines, 6,497 learners benefited from water, sanitation, fencing and modular structures at schools.
But what matters is not just what gets delivered, but how: 1,524 local SMMEs and subcontractors were appointed to construct these projects, R3.8-billion worth of infrastructure was delivered by black-owned entities, with R1.4-billion delivered by black women-owned entities, R785-million value accrued to local SMMEs and subcontractors employed in the construction of projects, and 10,362 temporary and permanent jobs were created. The IDD could well become a R10-billion infrastructure delivery business within five years.
To achieve this scale of project implementation, the DBSA via the IDD needs to obtain mandates from government departments (at national and provincial level) that are unable to procure these projects themselves. There are 36 such agreements in place, where the IDD effectively procures projects on behalf of these departments.
Project preparation role
Another key role the DBSA plays that is not well recognised outside the finance sector is its project preparation role. Large infrastructure projects can take up to two years to plan, assess and structure. Very high-level and expensive skills are needed to translate good ideas into bankable projects. Across Africa there is plenty of need and more than enough money, but not enough projects. Why? Answer: limited project preparation capacity.
The DBSA has one of the largest and most sophisticated project preparation units on the continent, which unlocked R25-billion in prepared projects during the last financial year, not only for the DBSA itself, but also the Infrastructure Fund and others.
Of course, not all infrastructure projects are bankable. Some must be funded directly by the fiscus, and others can be jointly funded by public and private funds — what is often referred to as “blended finance”. Blended finance solutions make sense when public funding helps to de-risk a project to leverage private sector funding that would otherwise go elsewhere.
In 2018, President Cyril Ramaphosa announced the establishment of the Infrastructure Fund (IF). In 2020, a tripartite agreement between the National Treasury, Department of Public Works and DBSA was finalised, leading to the establishment of the IF with an agreement that it would be housed in the DBSA but with a separate institutional and operational identity. This was different to the DBSA’s original vision, which was a separate independent special purpose vehicle that would ensure buy-in by the pension funds, in particular.
The deal was that the National Treasury would make available R100-billion to the IF to leverage R900-billion in private funding over 10 years. Implementation began in 2021. However, the IF must still become a special purpose vehicle if it is going to realise the original mission to mobilise R900-billion of co-funding. As long as it is housed within the DBSA, mobilisation of private capital on scale will be unlikely.
On the opposite end of the large-scale infrastructure projects to be implemented by the IF are the grassroots development projects that will get implemented by the DBSA’s DLabs (development laboratories) programme in South Africa’s poorest urban and rural areas. The DBSA makes available grant funds of R50-million per DLab to construct a well-managed physical and institutional platform for co-locating a wide variety of entrepreneurial, developmental, youth development, ICT, micro-finance, art, agricultural and skills development initiatives and organisations.
Co-locating these initiatives under one roof in the poorest areas not only ensures access to facilities to support development projects, but also catalyses synergies between initiatives which would otherwise not happen. After the investment of the initial R50-million, the DBSA is well positioned to continue to finance ongoing developmental and commercial activities that the DLabs enable. The DBSA disbursed to five DLabs in the last financial year in Gauteng, Western Cape, Mpumalanga and North West.
Support for Eskom and renewable energy
A recent initiative is the initiation of a programme aimed at supporting the minister of electricity and Eskom with the expansion of the grid transmission system. In his Budget Speech in February, the minister of finance opened the door to concessioning sections of the grid on a build-operate-transfer basis — very similar to toll roads, but for the grid.
To prevent this from becoming a privatisation model, the DBSA is ideally placed to become the lead arranger of a public-private consortium that could, for example, upgrade and extend the Northern Cape grid without increasing the debt burden on Eskom or the state.
Without this, the Northern Cape cannot continue to grow as South Africa’s new power supply centre. It already generates more renewable energy than the total amount of energy it consumes (making it SA’s first green province), but with more grid it could quadruple that output in a short space of time.
When I joined the board nearly a decade ago, the DBSA had minuscule investments in renewable energy. By 2023, renewables made up 20% of its book and growing fast. After all, the DBSA set up the IPP Office with an initial investment of R80-million, which has been recovered many times over. Interestingly, the DBSA tends to take a minority position in a large number of renewable energy projects, which is not just about risk dispersal, it is testimony to the DBSA’s role in leveraging private investments.
The board approved a Just Energy Transition Framework that guides the DBSA’s investment strategy. With the grid expansion, green hydrogen, battery and municipal wheeling solutions coming online, the DBSA is well-placed to become a major player in the energy transition in South Africa and across Africa.
Finally, it is worth noting the DBSA’s thought leadership role both locally and internationally. Just one example is the research partnership between the DBSA, National Planning Commission, Presidential Climate Commission and National Treasury to conduct two major strategic studies into the investment requirements for achieving two sets of National Development Plan (NDP) goals — energy security/net zero and water security.
These studies, sponsored as they are by four authoritative public institutions, are aimed at creating a framework for figuring out how the required massive infrastructure investments can be mobilised to achieve the infrastructure goals described in the NDP.
Instead of assuming that the fiscus is the only source of resources, it might be more worthwhile to think in terms of the strategic deployment and mobilisation of our interlocking public and private balance sheets. The problem is not the availability of the required funding; rather, it is the institutional mechanisms for making this kind of financial blending practically possible over the long term. The DBSA is a central player in forging these kinds of institutional mechanisms.
Why the DBSA gets it right
Now, to get back to the question always asked in Parliament. Why does the DBSA get it right? In my view there are five main reasons.
First, the DBSA is not dependent on funds from the National Treasury or any other state agency. This helps sustain a culture of long-term thinking and certainty. All senior staff know that if the DBSA makes a profit, it has a good chance of retaining those profits for reinvesting in institutional capacity the following year. This also creates an environment of certainty, which is vital if you want to retain highly skilled people who resent being seen as expendable.
Second, the DBSA has been able to attract highly competent people who get paid well (better than the public sector), but who could also earn a lot more in the private sector. That is the correct positioning for attracting skilled people who are not in it just for the money.
Third, over many years the DBSA has built up a raft of systems for looking after the institutional integrity and coherence of the bank. With many reporting to the Social and Ethics Committee of the board, these systems range from annual reviews of board and executive performance by independent consultants, all the way through to internal audits, balanced scorecards, whistle-blowing, ethical conduct monitoring, internal and external stakeholder management, and the annual strategic retreat for the executive (on their own) and board (including the execs). People are employed specifically to run these various back-office operations, thus avoiding them becoming “add-ons” to other jobs, as so often happens.
Fourth, over the past decade, and in particular since an organisational review that took place in 2012/3 which slashed staff numbers in response to poor performance, a performance culture has replaced a compliance culture. The leadership style of the former CEO, Patrick Dlamini, was the polar opposite of someone like Matshela Koko when he was CEO of Eskom: whereas the latter ruled through fear and threats, Dlamini saw himself as a mobiliser of creativity, space for debate, effective collaboration, a desire to get things done for the sake of the country and, of course, the bonus that comes with good performance.
Finally, there is the high quality of the DBSA’s board members, and more importantly, how the board is organised. My research on State Capture in 2017 forced me to look into the dynamics of SOE boards. What I found and reported on then was no different to the findings of the Zondo Commission. In summary, most board members assumed SOE boards were Cabinet “mini-me” structures, with each board member a “Cabinet minister mini-me” who assumed s/he had direct executive access to the management team.
The nature of the board and role of the chair
Most board members had never really reflected on the nature of a board, its true role and the role of the chair of the board. It was not uncommon to find non-executives, for example, who explicitly defined themselves as the superiors of the executives on the board. Once this kind of hierarchy of power infuses the way a board works, it becomes impossible to have robust, clear-eyed, honest strategic discussions about future directionality and current operational challenges within the four walls of the boardroom. Inevitably, factions tend to emerge in the corridors. And once that sets in, board governance is severely compromised.
I learnt a lot from Jabu Moleketi, the chair of the board when I joined. I built on his approach. Clearly, the board of an SOE is not a Cabinet equivalent. It is, in fact, a collective with no direct executive responsibility. The CEO should report to the collective directly and the chairperson of the board must ensure that this communication works effectively.
The chair is not the CEO’s boss — oh, how few South African chairs and CEOs understand this! The chair needs to learn to facilitate the CEO’s relationship with her/his collective boss, which is the board. The chair, in this sense, is a strategic interlocutor of an open-ended, two-way relationship between the CEO and the board members. Board committees are the most important spaces for ensuring this two-way relationship is nurtured and matured. In the end, it is all about trust-building.
Hierarchies and fear destroy trust and therefore this two-way flow, resulting in either dictatorial imposition by the board, or defensive action by the execs who choose to “manage the board” by minimising the flow of useful information to board members. The end result is low-intensity warfare between board and executive, with highly destructive institutional outcomes over the medium to long term. This, however, is not uncommon across South African institutions in the public and private sectors. Thankfully, during the tenure of three board chairs over the past nine years, this dynamic was avoided in the DBSA.
Insead’s Corporate Governance Centre launched a research project that included a survey of 200 board chairs from 31 countries, 80 interviews with chairs, and 60 interviews with board members, shareholders and CEOs. Most board chairs are either also the CEOs or were CEOs. This, the study found, is problematic. The board chair should not be the CEO, nor should s/he behave like one. Fortunately, for me, I had never been a CEO, nor did I even have board experience when I first joined the board.
I understood my role as chair as leading and representing the board, not the organisation. The role of the CEO is to lead the organisation and represent the organisation in the public space. I tried to chair in ways that created spaces for dialogue, collective problem-solving, and the evolution of consensus over time (even when it came to issues I felt strongly about, like renewables). But above all, it requires some impartiality without having to hide what you believe is right. Furthermore, it is not a team like the executive is. Building ways of relating in a “teamingful” kind of way depend on how meetings are chaired.
Long, opinionated speeches are not useful — they waste time and the energy in the room dissipates. I tried to keep the discussion focused on the decision that must be made, which at times meant being prepared to interrupt, while making sure everyone contributes. It meant taking board documents as read, keeping to the time allocated for the agenda point, making people feel their views are valued, and then summing up succinctly on the way forward (without trying to accommodate everyone’s views just for the sake of it).
Above all, the chair is not the manager of a queue of speakers at board meetings — my core responsibility was to make sure the discussion had direction and a goal. Nothing else mattered.
Finally, being the chair of a SOE board means being able to stare into the eye of the shareholder without blinking. Whether you have long-standing relationships with politicians (like I had) or not, politicians need to learn that they cannot be bullies. They may be the shareholders, but they are not the owner — the public is. SOEs, like all institutions, are fragile. They take years to build, but can be destroyed overnight. State Capture taught us that.
I understood my role as chair of the DBSA board as helping the board to protect the DBSA’s public balance sheet, to resist unnecessary political interference and to support the executive when they hit blockages at the political level.
If politicians think a chair is pliable, they will exert pressures that may well be contrary to the institutional interests of the organisation over the longer run. What may look like an innocuous infringement today, if at first tolerated can become the start of a succession of increasingly serious infringements that eventually culminate in the institutional hollowing-out of the organisation. This has happened repeatedly since 1994 — the Zondo Commission has left us with a clear record of how it works.
I will never forget what Moleketi said during his last speech at his farewell dinner. “The strength of the DBSA lies,” he said, “in the fact that the decisions made by the board were made in the boardroom.” This unwritten golden rule should be applicable to all SOE boards.
Over the decades, I have tried to live out in practice something that Raymond Williams once wrote: “To be truly radical is to make hope possible, rather than despair convincing.” The DBSA is what made me into a radical, because I learnt what making hope possible means at scale. Thank you Team DBSA for the last nine years! DM
Professor Mark Swilling is co-director of the Centre for Sustainability Transitions at Stellenbosch University.