The head of economic transformation in South Africa’s ruling party proposed a range of measures to bolster the economy, ranging from encouraging the use of pension funds and the central bank to finance infrastructure spending to the creation of a state bank and pharmaceutical company.
Enoch Godongwana’s recommendations to the African National Congress come as the government tries to revive an economy devastated by the coronavirus pandemic.
“The Covid-19 shock is posing unprecedented challenges, the economic crisis entailed by the pandemic is unique,” Godongwana said in the May 22 document seen by Bloomberg. “Globally, central banks have reverted to their original role as bankers to their governments.”
While business and investors have been calling for strong government action to support Africa’s most-industrialised economy, the document may heighten concerns about state intervention and so-called prescribed investment — mandatory funding by private companies of certain sectors.
In the document, Godongwana proposed changing regulation 28 of the Pension Funds Act to boost the funding of infrastructure projects spearheaded by state development finance institutions using private capital. South Africa’s main state-owned development finance institutions (DFIs) are the Industrial Development Corp. and the Development Bank of Southern Africa, of which Godongwana is chairman.
He also suggested that the Reserve Bank help finance DFIs through the creation of a R500 billion ($29 billion) fund. Money should also come from the Public Investment Corp., a R2.13 trillion-fund manager that oversees civil servants’ pensions, Godongwana said.
“While it faces increasing continental competition, the South African financial-services sector can rightly be said to endow our emerging-market nation with ‘the financial plumbing of a rich place’ with deep, liquid markets,” he said.
While the document is a break with the thinking of some ANC leaders that the state should be responsible for much of the investment in the economy, it does advocate increased government “guidance.”
“A narrow and flawed understanding of what the developmental state is has led to the erroneous conclusion that it is only about public investments and public ownership, with a related over-emphasis on the limited funds of the state,” he said. “A developmental state does not necessarily mean higher levels of state ownership, but high levels of guidance.”
In an interview with Johannesburg’s Business Times, which reported on the document earlier, Godongwana said the proposals didn’t amount to advocating for prescribed assets. They merely meant that regulations should be changed so that pension funds can invest in DFI’s if they wish to.
Godongwana didn’t answer a call to his mobile phone. Neither did Pule Mabe, the spokesman for the ANC.
The document also proposed the formation of a state bank, a pet project of Finance Minister Tito Mboweni, and a national pharmaceuticals company.
It also advocated, in contrast to the drive of some government departments, a swift move away from coal-fired energy to renewable power. The state-owned Central Energy Fund should be used to partner private investors in new projects, Godongwana said.