The ANC’s head of Economic Transformation, Enoch Godongwana, says that the party is moving away from talk of ‘prescribed assets’ as economic policy, but still wants to find ways to ‘unlock’ South Africa’s pensions to assist with the country’s infrastructure goals.
Godongwana was speaking to Insurance company Alexander Forbes in an interview on a range of economic topics, including the party’s plan for pensions and prescribed assets in South Africa.
Buzz around prescribed assets came about following the ANC’s 2017 policy conference – and subsequently its election manifesto in 2019 – where the party listed the introduction of ‘prescribed assets for pension funds to mobilise funds from financial institutions for social infrastructure’.
The announcement incited concerns from investors and members of retirement funds because of the possible implications it could have on investment portfolios and investment outcomes in the country.
Godongwana explained that the policy of prescribed assets came as a result of the challenges in South Africa, which have resulted in sub-optimal economic growth.
“Unemployment and the country’s recent credit rating downgrade to junk status are just some of the issues that have created this economic environment,” he said. “We have learnt that there are two main problems that have led to this precarious economic and social environment that we find ourselves in.”
Godongwana said that there is a high level of underdevelopment and poverty in the country that needs attention, and this is where infrastructure plays a critical role.
The central point of contention is how this infrastructure will be funded – and if prescribed assets would be introduced to force the private sector into participating in capital provision.
The possibility of prescribed assets was referred to as something ‘to be investigated’ and it is not something that could be instated without substantial consultation and a robust review process by the government.
Prescribed assets for infrastructure?
A common discourse that has been used to justify prescribed assets is that investment capital is not being made available for infrastructure projects, and it seems that there is a possible ‘investment strike’, Alexander Forbes said.
Godongwana further shared the view that Regulation 28 of the Pensions Fund Act may be too restrictive to facilitate infrastructure investment.
The regulation currently limits the extent to which retirement funds can invest in particular assets or in particular asset classes. The main purpose is to protect the members’ retirement provision from the effects of poorly diversified investment portfolios.
Alexander Forbes said that if there is a conducive environment within the regulatory framework – such as Regulation 28 – institutions such as pension funds would invest on a voluntary basis, and prescribed assets would not be necessary to force investment in infrastructure.
However, it noted that deregulation could also assist in encouraging direct investments related to big infrastructure projects.
This is line with previous comments made by Godongwana. In a webinar on 17 August, he said that the party is moving away from the use of ‘prescribed assets’, and is instead focusing on changes to regulation 28 of the Pension Funds Act.
“We are moving to an environment where there is no enforced prescription, but you create an environment where trustees can invest in infrastructure profits as long as these projects are profitable,” Godongwana said on the party’s Progressive Business Forum.
“I want to dismiss and debunk the claim that we want to utilise the pension funds to bail out collapsing state-owned enterprises. The latest theory is that we want to (use the pensions) to fund the state bank.”
Godongwana said that these were ‘mischievous’ claims, made with the intention of discrediting the ANC’s argument. “That’s not where we are at the moment,” he said.
Alexander Forbes said that pension funds can substantially invest into infrastructure – listed and unlisted – across assets classes such as equity and property. However, the issue may not lie where officials think it is.
“The challenge is not the regulatory limitations in Regulation 28, but rather the nature of most retirement funds in South Africa that are defined contributions in nature, and therefore are restricted in terms of their profile from investing substantially into non-liquid assets,” it said.
The firm said that a lot of attention must be paid to creating liquid opportunities for pension funds to invest into infrastructure and the industry was encouraged to be creative in driving these initiatives as this would lessen any risk of prescription.