Maverick businessman Mark Barnes, who’s been at the forefront of institutions such as Standard Bank, Brait, Purple Capital and the South African Post Office gives his insights into the failed R200bn loan guarantee program. Although the loans are guaranteed by the government in the event of default, Mark argues that the scheme runs in contrary to the fundamentals of the credit system. He unpacks the dangers of reckless lending and the alternative methods available to government to ignite the economy, especially in the small-to-medium business space. – Justin Rowe-Roberts
Mark Barnes on the failed R200bn loan guarantee program:Â
The first problem is that we are living in an environment of such uncertainty that not everyone was keen to take on more loans to keep their businesses going. A lot of them were saying, let us rather tighten operations, let us rather get smaller and stay open and get more deeply into debt. So there was no demand. The second thing is that this kind of scheme runs completely contrary, in my view, to the DNA of credit. Credit is a system which relies on observed confidence intervals of how credit exposures are going to behave across the entire economy.
On what should have been done:
You have to find the right risk appetite and the right mixture of capital instruments that would go into including a loan which is guaranteed by national treasury, which would have the characteristic of lowering the return you might seek on such a loan and therefore lowering the overall cost of capital to the underlying company and allowing it to perhaps grow and create jobs and all those kinds of good things.
On the benefits of money finding its way from the capital markets to the real economy:
We are going to find the right capital construct, because if we don’t start funding SMMEs, if we don’t start funding the real economy, if we leave all the capital in the established markets, then I’m afraid the polarisation of our economy is going to continue and get to a point where actually we’re starting to have a fight. I think it’s going to find its way there. I don’t think it needs force. It needs appetite. It needs it needs for asset managers to say I can’t have 100 per cent of my investments in listed equities and bonds. I need to take five or 10 percent of my assets and invest them in the real economy in a combination of equity interest.Â
On the South African government’s finances:
Well, you know, the state has to get its money from somewhere. It hasn’t got any money. Now you look at them as a financier to pay back the money, it’s going to be difficult. Already, the sovereign state is not able to raise capital. It’s competitive if you think about it. So it’s essentially a series of being funded against national treasury guarantees by the banking system.
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