The Spread of People's Capitalism

The government moves to broaden shareholder base, but many black companies are too small.

THE arrival of South Africa's first black majority government a year ago has failed to make a significant impact on broadening the shareholding base to nonwhite small investors, financial analysts say.

Most shareholders on the Johannesburg Stock Exchange continue to be institutions, including mutual and pension funds. Relatively few private small investors invest directly or through mutual and pension funds. Enormous assets have been pinned up in the mutual-fund sector because of foreign-exchange controls.

Although the large white-run companies still dominate trading, JSE rules are moving toward encouraging black-share ownership. Several large black-dominated business groups have appeared on the scene.

The Johannesburg exchange is approving a drop at the entry level for the listing of small firms - from 5 million rand ($1.4 million) in capital to half-a-million rand ($143,000) - to encourage broader black-share ownership. But even this amount is too high for most new black-run firms.

Local institutions are still prohibited from investing outside South Africa so as not to affect foreign-exchange flows. But the story is different for foreign investors.

"With the political changes in South Africa, overseas investors have been very interested, particularly from London, as they are in the same [time] zone," says Adam Reeves of the stockbroker firm Investec. "But although there are more small [black] entrepreneur companies coming in, generally, new black companies still can't meet the capital requirements."

Until recently, firms have been tight-lipped about disclosing information, such as a director's salary or details about a transaction.

Disclosure is opening up with pressure from overseas competition. But it has far to go to meet the standards of major European and United States exchanges.

Automatic screen trading, which will be introduced next year, could facilitate price disclosure as well as discourage another problem - insider trading. Parliamentarians may alter legislation in another effort to fight insider trading.

The stock exchange is gearing up for its own "Big Bang" of deregulation in November. Banks will be allowed to deal and trade on the floor; companies have merged in anticipation of the change.

Declining output and labor strife have troubled the market in the last two quarters. But gold-mining companies have continued to attract interest in their stocks, especially from overseas.

Gold shares are speculative because of the commodity's price volatility.