Operation Phumelela is the JSE’s flagship initiative to restore South Africa’s position as a dynamic financial hub on the continent. It brings together financial sector leaders, regulators and policymakers, with a steering committee of Sandton and Stellenbosch grandees, to address market reform and deepen capital markets.
The groundwork appears to have been done, and the first lekgotla is to be convened on June 2 this year.
But to achieve anything meaningful, it must grapple with the reality that our public equity market is shrinking – and not, in my view, by accident.
South Africa is experiencing a slow-motion collapse of its public equity market. The number of listed companies has more than halved since the early 1990s, and primary capital raisings on the markets are now rare. While a healthy market should be a living organism – companies listing, growing, raising capital, delisting – ours has become a one-way street. Year after year, companies exit the JSE with very little reverse traffic.
This is no longer a cyclical phenomenon. It is a structural crisis. And its roots lie in the very industry that claims to be the responsible steward of our nation’s savings.
Over the past four decades, South Africa has transitioned from a market where individuals backed entrepreneurs and participated in new share issues to one where almost all investable capital is channelled through a handful of large institutions. Just 10 financial services groups manage more than 90% of all assets in South Africa. They dominate policy, regulation, and even the definition of what investing means. They have reshaped the market in their own image.
In this new world, size and liquidity are everything. Most institutional mandates implicitly exclude companies outside the top 80 to 120 by market cap. More than 80% of institutional capital is unavailable to companies beyond that narrow range. This is embedded in mandates, compliance rules and index-tracking incentives.
The result is clear: growing, and thus necessarily smaller, companies can’t access meaningful capital. The exchange is becoming a walled garden for those 80 to 120 large, often ageing, incumbents – banks, insurers, national retailers, dual-listed major miners, large real estate investment trusts – while the real economy is left behind.
Locked out of listings
Meanwhile, direct investors have been systematically excluded. The financial services industry, with EasyEquities the rare exception, has spent the past three decades diverting the nation’s retail savings into institutional products and away from direct share ownership.
It is no surprise that regulations and tax policy favour funds over individuals. Consider the 2001 capital gains tax (CGT) reforms: unit trusts don’t pay CGT on internal trade, but individuals do. Even tax-free savings accounts (TFSAs) force you into institutional products. Want to buy shares in your TFSA? You can’t – it’s expressly forbidden. Want to manage your own pension fund? It’s theoretically possible, but very hard to find.
As a result, fewer people invest directly. Stockbrokers become wealth managers. Capital flows into passive products. And the public is locked out of listings that could reanimate the market.
Take the Boxer listing – a nationally recognised business that should have attracted widespread public interest. Yet the deal was initially marketed quietly and exclusively to institutions. It took activism and media pressure to secure a meaningful allocation to direct investors. Only then did Sean Summers, CEO of Pick n Pay, which unbundled Boxer, admit that “we gave a far greater proportion of stock to normal retail shareholders than would normally be the case”. Suggesting that financial exclusion is “normally … the case” in the South African market.
This isn’t an accident. Former JSE CEO Nicky Newton-King once told Marc Ashton, then a financial journalist, that the JSE wasn’t really there to serve retail investors – especially those who were interested in small caps … That wasn’t a slip. It remains an industry consensus. There is very little public in our public markets, in practice.
And while inward dual listings now make up more than 60% of the JSE’s gross market cap, and more than 20% of all listed companies, let’s be honest: many are hollow technical listings. Some have no presence, staff, or operations in South Africa – they are electronic bridges to other countries’ financial ecosystems. They generate secondary trading income for the JSE but don’t deepen our economy. If the argument is that they provide diversification opportunities for local portfolio managers, then you would get a superior solution by simply increasing the regulation 28 foreign investment allocation.
If Operation Phumelela is serious, it must tackle this structural rot. A true financial centre has depth, diversity and dynamism. That requires tax neutrality between direct and institutional investing, mandate reform to support growing companies, and genuine public offers where financial exclusion is no longer accepted as the market norm. This must be backed by retail-friendly incentives and listing platforms. Above all, we need a policy and cultural shift – one where ordinary South Africans are encouraged, not deterred, from becoming direct shareholders in their own economy.
If we don’t fix the structure of the savings industry, no amount of rebranding or regulatory tinkering – however well intentioned – will address the deeper structural issues at the heart of our capital markets. Capital formation will continue to drift offshore or into private markets. And the JSE will become a sterile financial product warehouse: technically efficient, but otherwise irrelevant.
Operation Phumelela could reset the terms of debate. But only if we admit the truth: this collapse wasn’t inevitable. It was the outcome of decades of deliberate choices and a financial sector whose pursuit of self-interest corroded the very market infrastructure it depends on.
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