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Can DBSA assist in SA’s infrastructure-led recovery?

Details of investments should be disclosed.
The DBSA stands apart from most other SOEs but is being pushed towards the precipice, says the author. Image: Waldo Swiegers, Bloomberg

The Development Bank of South Africa (DBSA) has published its annual report for the year ended March 31, 2020, and received a clean audit report from the Auditor-General (AG).

The DBSA was established in 1983 to perform an economic development function. The scope was widened in 1997 to “promote, facilitate and by funding to mobilise the socioeconomic development” in southern Africa. Unfortunately, through no fault of its own, funding given to certain state-owned entities (SOEs) has not achieved the intended objective, and billions have been wasted.

Moody’s credit opinion at April 2

Moody’s has downgraded DBSA to Ba1, with a negative outlook, on the assumption of a “high probability of support” from the government. Moody’s does however acknowledge the “weakening in the government’s capacity to extend support in the case of need”.

Factors that could lead to a downgrade include:

  • A weakening of the government’s credit profile, or willingness to support DBSA;
  • A weakening in DBSA’s baseline credit assessment; and
  • An increase in leverage through secured borrowings, which would reduce the recovery rate for senior unsecured debt classes.


The DBSA stands apart from most other SOEs:

  • Expenses totalling R47 million were classified as irregular, unauthorised, fruitless and wasteful expenditure; however, this expenditure was mainly due to contracts that continued post expiry date; and
  • There were no findings of unethical behaviour by any staff member during the year.

Auditor-General’s report

The AG issued a clean audit report.

Key audit issues:

  • Expected credit losses on the development loans: IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an expected credit loss (ECL) model, which requires a high degree of estimation and management judgement.
  • Valuation of complex financial instruments: Significant judgement is required in determining the appropriate valuation techniques to apply, as well as the assumptions. The AG found management’s valuation of complex financial instruments and assumptions to be reasonable and consistent with his expectations.
  • Valuation of equity investments held at fair value through profit or loss: The portfolio of equity investments held does not have an active market. This, in my view, indicates that there are no equity investments in listed companies. The AG found management’s valuation of equity investments and assumptions to be reasonable and consistent with his expectations.


Changes to the board

March 31, 2020 March 31, 2019
Enoch Godongwana (chair) Jabu Moleketi (chair) (1)
Prof M Swilling (deputy chair) Frans Baleni (deputy chair) (1)
Gugu Mtetwa (2)
1. Terms of office expired on December 31, 2018.

2. Resigned August 30, 2019


Key financial results

As at March 31 2020 2019
R billion R billion
Profit 0.504 3.10
Sustainable earnings -0.587 2.32
Net interest income 4.42 4.49
Operating income 5.52 5.64
Cash flow generated from operations 3.61 3.79
Cash flow generated from development activities -9.02 1.22
Net development loans at amortised cost (after ECL) 86.24 75.82
Equity investments + development bonds + development loans (after ECL) 93.52




ECL on financial assets at amortised cost for the year (AFS Note 34) 3.63 1.44
Total provision for ECL on development loans at the end of the year (AFS Note 14.9) 10.19 6.20
Debt funding (FVPL) (2) + debt funding (amortised cost) 60.55 50.98
Debt-to-equity ratio excluding callable capital (1) 165% 138%
1. Callable capital is authorised shares but not yet issued. One would think that the shares could only be issued to the government.

2. FVPL – fair value through profit or loss

* ECL – expected credit losses

Development loans – sectoral analysis

The entities that have received development loans are not disclosed. However, 80.6% of the development loans are invested in sectors that are fairly risky. The amount invested in Eskom, which has been severely impacted by state capture and corruption, is not disclosed.

Executive remuneration (R000)
2020 2019
CEO and CFO remuneration 17 330 16 535
Executive members’ remuneration 45 903 39 410
Total executive remuneration 63 233 55 945


Schedule of directors’ and prescribed officers’ emoluments (R000)

Fees Subsistence & travel Total 2020 Total 2019
8 882 61 8 943 9 753

With the mounting cost of Covid-19, the paralysis of the South African Revenue Service (Sars), rampant corruption, failing and flailing municipalities, South Africa’s soaring debt-to-GDP rate, cash-eating zombie SOEs, and the unknown quantity of government guarantees issued on an ad hoc basis to those entities, the DBSA in my view is being pushed towards the precipice.


Is DBSA in a position to assist in South Africa’s intended infrastructure-led recovery without taking on more debt?

Without the DBSA disclosing its investees, we will have to wait and see.

In this struggle to escape the tentacles of state capture and corruption, and the mounting government debt, are we, the citizens including taxpayers, not entitled to know where the DBSA has ‘invested’ its (our) money?

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So, basically, they just give money away to apparent good causes? Maybe they should close shop and rather take over the National Lottery, which can do with some clean management and more worthy investments? At least that way, they would have funds coming in so won’t go belly up investing in non return infrastructure developments.

Why build more infrastructure if the existing infrastructure cannot be properly cared for?

Preferably not, they are over stretched and maybe not so good.

Build infrastructure?
Maybe dams seeing that we are a dry country.
Why not build a water canal for the Johannesburg rain water to flow to the Vaal Dam and not to the Orange river which ends up in the Atlantic Ocean?

They are a shining beacon of light. And they will most definitely be able to manage our strong infrastructure drive. Prof M Swilling is also a strong appointment which shows this new management of government is keen to do things better. Economic growth will definitely follow!

The most exciting times in our history are ahead of us!

@ Dadape ,

Is your aim to become as famous as Comical Ali of Iraq ?

A definite candidate for Mastermind !!

With an undisclosed shareholder set, The DBSA could not be more invisible if it was a jellyfish hovering at 300 meters below sea level. This lack of transparency is better likened to a directionless space vacuum than a potentially venomous sea creature.

Very dangerous to profits- the sudden change in fortunes shown at this reporting period- 31 March 2020.

This is an auspicious point, prior to the damaging details of COVID 20 impacting their numbers. I would suspect that from here on out this entity is going to be reporting substantive losses into the infinite future.

Profitability declined by R2.6 billion, sustainable earnings less than sustainable and income from development activities a whopping minus 9 billion! Excuse me for the moisture squeezing out the sides of my eyelids.

Talk about the titanic- with the immense resources and surpluses at their disposal a decade ago, this white elephant does not seem likely to stay afloat amongst the minefields of challenges you outline, Barbara.

For such an “ethical” organisation the quality is simply not showing up in the numbers. Their proximity to several dodgy (err, I mean “commercial”) property developers such as Century Properties and FirstRand over the period also stands out to me. The “Riversands Industrial Park” project and others in which the DBSA maintains an interest. Could suggest candidates for their private shareholder roll call?

They have also collaborated in many instances with the IDC, controller of the state pension funds. This same organisation distinguished itself to me in the sale of the majority state interest in Palaborwa mining.

An SA family jewel, this was one of the largest public gold mines in the world. Sold when the gold price was depressed. And mining directly under one of SA’s most important ecological, environmental and tourism assets- the Kruger National Park. A song for a Chinese Communist Corporation, delisted and run from Beijing.

And everybody passed the ethics committee? Ooookkkay then… nothing to see here South African’ers!

End of comments.



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