Special Hearings — Business Hearings — 1997-11-13

DR GOLDIN: Do you want me to begin again?  Chairperson, Honourable Commissioners, ladies and gentlemen.  I'm the chief executive of the Development Bank of Southern Africa and have been mandated by the board and the management to present the institution today.
 The DBSA supports the TRC and its vision and welcomes this opportunity to present its submission.  The submission I will present to you has been put together through a consultative process, involving key stake holders.  Inside and outside the institution we have sought to interview those that are prepared to talk.
 The process is an ongoing one and the submission I've given to the Commission today is a slight revision from our previous versions.  
 As I joined the bank 18 months ago in April 1996, the board was appointed by the cabinet in July this year, it should be noted that the views I've put forward are not from first hand experience in most cases. 
 I will in the short time available touch in three subjects.  The context and establishment of the DBSA.  Secondly, the relationship between the DBSA and the Apartheid system.  Thirdly, the transformation of the DBSA.
 The political environment in which the DBSA was established, was that of total onslaught.  The manifest failure of the homelands to provide jobs and the mounting economic and politic failures had since at least 1972 prompted economists like Jan Lombaard and others to consider alternative mechanisms of supporting the structures.
 At the end of 1982 a new strategy for regional development was announced in which the Development of Bank of Southern Africa played a prominent role.  When the bank was established it was viewed and explained at the time largely as part of what was called "Die verligte" or reformed strategy.
 The idea was to promote an investment of public and private capital for development purposes.  To mobilise funds that had not previously been available to try and support the system which was rapidly collapsing.
 The fact that these participating governments were the homelands of Transkei, Boputhatswana, Venda and Ciskei, the so-called TBVC states, immediately of course framed the operations of the DBSA within an Apartheid political context.
 Although article 9.e of the terms of establishment of the DBSA said it should provide finance and I quote:
"With due attention to considerations of economy, efficiency and the stimulation of domestic production without regard to political or other non economic influences or considerations."
The board was constituted to reflect as a spread of private sector professional government interest.  It was clear from the very initial stages that this was part of the state's structure and would of course following political lines.
 The council of governors of the bank which met twice a year to provide overall strategic direction, was comprised solely of political appointees, nominated by the South African Government and the TBVC states.
 From 1983 to 1992, the chief executive and executive chairman of the bank was Dr Simon Brandt.  Dr Brandt was formerly the chairperson of P W Botha's economic advisory council.
 Given that the TBVC's homelands were regarded as independent countries by the Apartheid Governments, dealings were mainly through the Department of Foreign Affairs and the bank fell under the diplomatic immunities act.
 Because of its diplomatic status, it was not subject to the South African judicial system, was exempt from VAT and payroll taxes on its personal remuneration and normal taxes on profits.
 This payment exemption amounted to about 20 million rand annual savings.  The bank was also exempt from the banking act, the supervision of the Reserve Bank and did not come under the scope of the financial services board.
 The authorised capital of the bank was two billion of which the paid in amount was 200 million.  South Africa has 66 percent of the voting rights effectively controlling the institution.  By South Africa of course I mean what was then considered South Africa.  No longer what we would consider White South Africa.
 The founding agreement committed the South African Government to providing an annual transfer of funds to the DBSA.  These annual contributions were between 160 and 500 million rand per year and by the end of 1994 they had totalled 3,7 billion rand.
 The greatest proportion of this money was meant to be passed through to the homelands and from the late 1890's - the late 1980's excuse me, also to the Black local authorities what were called the Black local authorities outside the homelands.
 This meant that the DBSA could lend at highly subsidised rates.  By 1994 the average spread between the interest rate charts by the DBSA and the commercial rates for similar maturities was about 8 percent.  In other words the DBSA was lending at about half of the commercial rates.   It has been estimated that in the a (indistinct) - still in the early 1990's the DBSA subsidised the homeland economies to the tune of about 300 million rand a year through these pricing policies.
 It also provided a many - a wide range of other functions like technical assistance.  Perhaps amongst the most important other functions of the DBSA was the policy work that it was engaged in, because it was receiving such large transfers from Government, it could develop a very large policy function.
 This included interventions at the operational level where the bank through, if one believes the documents of the time, applied best practises to its operational appraisals.
  Of course, in practise essentials principles of appraisal such as community participation or economic viability were virtually meaningless or at least best highly distorted by the Apartheid policies.
 The bank, especially in the late 1980's and early 1990's also engaged an extensive policy formulation in the homelands.  In part this was to implement what at the time were effectively structural adjustment programmes in a vain attempt to place homeland finances on a sustainable footing.  
 With respect to the macro policy work, the DBSA fulfilled functions normally assigned to the Apartheid Government supportive think tanks in Government Departments.  Policy work of which a great deal was nationally focuses rather than of direct relevance to DBSA projects, constituted a significant cost to the bank.
 It was also, however, a significant contribution of the bank to Government and to the Apartheid system.  
 If I may turn to the DBSA and Apartheid in other areas.  By providing loans to homeland structures, as well as advise to homeland in South African Government officials in the formulation of policy, the bank was an integral part of the system.
 It legitimised it and supported it and was part and parcel of the Apartheid gross violation of human rights.  Although the bank's leadership in the documents of the time and some of them in interviews, claimed that the bank was modelled on international development institutions, the Apartheid reality meant that its operations and activities remained constrained by and supported the system.
 For example, the bank dealt with the TBVC states which were ethically defined in the homeland structures which were its main clients and their officials the main counterparts.
 Even in urban area the counterparts of the bank were the discredited urban administrators.  The choice of projects was determined by homeland officials or the administrators.  Not by the communities themselves.  There was no democratic accountability to the communities from the officials.
 As the homeland governments had to budget and in most cases guarantee repayments to the DBSA loans, the DBSA required official approval.  It did not for the most part operate outside the system.
 It was owned by Government.  It was staffed by enlarge by individuals who came from Government institutions, especially in the initial years.  It continued to warehouse, implement, monitor and evaluate projects which were transferred to it from the Government.  It's council, as I have indicated was also pointed by Government.
 Although the bank over the period from 1983 to 1994 of course did evolve, as late as 1994 with what was called the inside story which alleged a bank board member and certain staff members criticised the RDP initiative, it was clear that the institution had not totally broken from its Apartheid origins.
 In projects the majority of projects which were approved by the bank, applied the so-called development principles within the context of the highly distorted Apartheid economy and the absence of the democratic structures.
 The Apartheid framework informed all its projects.  At times which the leadership of the time indicate were the exception, not the rule, the DBSA implemented development projects and programmes for explicit political reasons which went beyond the (indistinct) support for the homelands.
 For example, there's evidence which suggests direct political and military influence in the DBSA's involvement in the Alexandra urban renewal programme, which was in the state of great unrest at the time.
 There are also examples, many of them, of projects financed by the DBSA which, if one may use the phrase, were white elephants, because they were either motivated by homeland policies or economically or technically not sustainable.
 Examples of these include of course the projects that were in areas like Jackson and Ndbaza industrial complexes.  These would not have been sustainable outside the homeland system.
 Despite many suggestive examples and allegations it has not been possible to ascertain the extent of direct political influence on the bank's daily day to day operational activities.  The management of the time argue that they were independent and that the DBSA supposedly had a regular system of project assessment involving skilled multi-disciplinary teams.
 However, the fact remains that the projects - many of the projects, if not all of them, would not have taken place outside the Apartheid system and clearly that the communities were not generally consulted.
 The development bank in the main operated in conformity and support of the political framework that violated human rights.  Regardless of those that its helped, it might have maintained reformists views.
 As the regional decentralisation programme was implemented, it became clear that the Government alone could not have the resources to finance the system.  With the support of the IDC, the SBDC and DBSA and others, industries were being established and people were being relocated to where they should never have been.
 This depended on continued Government subsidies and enforcement of pass laws and the many other legislative and other forms of control in the Apartheid system.  In addition unionisation of labour in these areas was actively repressed.
 Within the bank itself it is evident from the personnel records that the management and staffing for the most part reflected racially discriminatory employment practises, especially in initial years after the formation of the bank.
 Evidence of this is that Blacks and women were engaged in lower grades and portfolios than their White male counterparts.  Whites compromised the majority of staff, particular at middle and top management positions and as late as 1992 only seven percent of management positions were held by Black people or women.
 By early 1990's attempts were beginning to be made to address nominees and apply affirmative action policies, but the bank continued to have a very low use of Black consultants and as I've indicated, representation in management.
 If I may turn finally to the transformation of the bank.  The water shed event in the history of the DBSA was the announcement in December 1994 by the then deputy Minister of Finance, Alec Irwin, of the formation of a transformation team under the chairmanship of Prof Nkushlu.
 This had a mandate to advise the Minister on the process of transforming the DBSA into a new, more focused development finance institution, in line with the new South Africa.
 The report tabled in May 1995, identified critical areas which needed to be changed, including the mandate institutional restructuring, human resource management and restructuring of the loan book.
 The following, my appointment in April 1996, through a process which included 41 task teams and a highly participative process, the restructuring has occurred.
 The Development Bank of Southern Africa act in April 1997 put a legal stamp on the transformation.  It has confirmed the DBSA's role as a financier of infra-structure with a development purpose.
 This repositions the bank from its past role of funding a wide range of sectors.  The mission of the bank is to facilitate the provision of infra-structure or development finance in order to improve the quality of life of the people of South and Souther Africa.
 The new mandate is focused on infra-structure and particularly water and sanitation, energy, roads, transport and telecommunications.
 Where as the bank previously received annual subsidies from Government it has since 1995 become entirely self-sustaining financially.  It gets no money from Government what so ever.
 It is also committed to pay tax and to ensure sustainability has increased its interest rate and sharply increased its cost effectiveness.  Lowering overhead costs, increasing staff productivity and applying best international development business practises is a priority for the new management and board.
 Internally the bank has undergone a fundamental transformation to meet the strategic challenges more effectively.  The organisational systems and structures had been changed.  The management hierarchies have been reduced, the number of managers reduced from 65 to 24.  Business units have been created and closely aligned with the client's needs.
 Assertive steps have been put in place to empower staff and ensure fair and acquittal employment practises.  Gender and affirmative action issues are specifically emphasized and currently 75 percent of the management team are from previously excluded groups as compared, as I indicated, to 7 percent in 1992.
 The recently completed anomalies exercise sought in a joint management and staff initiative to identify the race and gender discrimination which had been suffered by staff and we allocated an amount this year of two million rands towards compensating staff for past discrimination. 
 We will also be as a carry through of this be allocating three point five million rand a year in future years to ensure that there's absolutely no race or gender discrimination in the bank in the future.
 A new board was appointed by the cabinet in July 1997 and includes private sector and community stake holders as well as three director generals to ensure the interest of key constituencies and stake holders are reflected.  The governor of the bank is the Minister of Finance.
 The bank has one of the riches multi-disciplinary development skill bases in the country.  Our challenge is to ensure it is effectively mobilised in the national interest.  The bank's internal transformation has facilitated a virtual doubling of our activities and productivity while at the same time we have re-aligned our human resource and business practises.
 The bank exists in order to contribute to a better life for all and especially previously disadvantaged groups in South Africa and the Sadec region.
 Since 1994 we have invested over four billion rand in RDP and economic infra-structure in South Africa.  In addition we have supported the transformation of South Africa in a wide variety of capacity building and other activities.  On behalf of Government we've implemented the NUF job creation programme, which created 18 000 jobs, sorry (indistinct) of jobs.  
 We are housing the spacial development initiatives (indistinct) of farmers and engage in a wide range of other activities which mobilise our skills both financial and human in support of Government and transformation. 
 The chore business of the bank however, is infra-structure development.  Given the needs which are estimated conservatively at over 175 billion rand, we are striving to achieve more and to be a catalyst in support of private and public sector interventions.
 We are engaged in partnerships with the national, provincial and local governments at all levels and other development finance institutions as well as the private sector to overcome the enormous back logs.
 This year we expect our board to approve over three billion rand of investments in infra-structure, compared to two billion rand last year and one billion rand in 1995.  This reflects and extremely rapid growth in our activities despite the fact that at the same time we are down sizing, reducing our costs and have become financially independent.
 Alongside our funding we are seeking also to mobilise at least an equal amount of co-funding from public and private sources.  Our aim is to do what we can within our mandate and while ensuring we are financially sustainable to contribute to the provision of basic RDP and economic infra-structure.
 In conclusion.  The bank was established in the dying decade of Apartheid as an outcome of the conjuncture of total onslaught - as what was called total onslaught, economic imperatives and the search for alternative Apartheid development strategies.
 It aimed to provide an economic (indistinct) to the homelands and to regional decentralisation.  A number of those interviewed claimed that they contributed to the reform of Apartheid.  However, whatever the views of individual managers or staff, it is clear that the bank supported the Apartheid system, especially the homeland structures.
 The bank contributed very significant amounts of money an policy guidance to Apartheid structures and undoubtedly was part of and contributed to the system and its gross violations of human rights.
 The present board and management of the bank cannot speak for those that led the bank in the Apartheid period.  However, we firmly believe that the Apartheid system was a gross violation of human rights and acknowledge that DBSA was an integral part of the Apartheid system in the period from 1983 to 1994.
 For this the current board and management unreservedly apologises.  The bank, since 1994, has undergone a fundamental transformation.  This has put it in a position to contribute to overcoming its own and the country's Apartheid legacy, both in South Africa and the Sadec region.   I thank you.