The ANC wants your pension
The African National Congress (ANC) remains committed to using South Africans’ pension funds to invest in government projects, particularly state-owned enterprises (SOEs).
This policy position, referred to as ‘prescribed assets’, was revived by the ANC in the buildup to the country’s national elections in May.
The policy was last implemented during Apartheid to force investment in government bonds but was eventually scrapped after a few decades.
In the mid-2000s, the government briefly discussed the policy before stiff private-sector opposition resulted in its reintroduction being scrapped.
The ANC appears to be committed to revisiting the policy of prescribed assets, with the party including the policy in its election manifesto.
Deputy Minister of Trade, Industry and Competition Zuko Godlimpi explained why the party wants to revive the policy at the 18th Annual Competition Law Economics & Policy Conference 2024.
The Competition Commission hosted the conference, which aims to analyse how competition policy can drive better economic outcomes in South Africa.
Godlimpi used it as an opportunity to repeat his calls for the reintroduction of the prescribed assets policy in South Africa.
“In terms of how the structure of the economy looks, our financial markets are extremely liquid, but capital allocation is where the problem comes in,” Godlimpi said.
“That is what merits the discussion about using the entire balance sheet of South Africa Inc. It includes essentially pension funds, and if we don’t do that, we’ll keep on believing that we are capital starved when we are not.”
“The point that we are making is that we need to protect the South African economy from capital flight, and the best way to do that is to maximize the use of local capital, most of which is concentrated in our pensions industry.”
Godlimpi explained that most pension funds’ assets are allocated towards what he termed unproductive industries and are concentrated within the top 100 companies on the JSE.
“If you look at the profile of most of them, they are not in productive industries in the economy. It’s MTN, it’s Telkom.”
“Look at the PIC. The PIC is the largest shareholder of almost any major company in South Africa. If you look at the shareholding of MTN, the PIC is at the top. You go to any other tech company, and the PIC is at the top.”
“But for the companies that require real capital for real production, it is nowhere to be seen.”
Godlimpi said this is because pension funds are viewed as private assets and not part of the discussion around national development.
He explained that, in his personal view, pension funds should be seen as national assets rather than private assets. Thus, the discussion around them must be a national development conversation rather than a personal investment discussion.
“It is unsustainable that South Africa has a high unemployment problem and high poverty, but we have a very liquid capital market.”
“We need to have this conversation about recalibrating their balance sheets as well by being allowed access to the pension industry.”
“If we don’t have that conversation and we’re all cowards, then we will end up being marched out of these comfortable seats by the people that are across the M1 in Alexandra,” Godlimpi said.
The ANC’s plan to revive the policy of prescribed assets has been criticised by the retirement fund industry, which fears its business may be threatened if it is forced to invest in government projects.
South Africa’s pension fund industry is already heavily regulated in terms of which asset classes it can invest in and how much it can allocate to investments outside of the country.
Furthermore, Regulation 28 already allows for investment in infrastructure projects, albeit a limited amount.
Old Mutual Wealth investment strategist Izak Odendaal said the imposition of prescribed assets misses the point.
The main problem is not the desire for asset managers to invest in government projects. The issue is that many of these projects are uninvestable.
Ideally, a portion of retirement savings would go specifically to infrastructure projects, and while some politicians like the idea of ‘prescribed assets’, Odendaal said this is neither necessary nor welcome.
“It is unwelcome because it can lead to inferior investment outcomes. It is unnecessary because Regulation 28 already provides ample room for retirement funds to invest in infrastructure,” he said.
“The biggest reason behind a lack of private investment in infrastructure to date has not been an unwillingness on the part of retirement funds but rather the lack of investable infrastructure projects.”
Encouragingly, this is starting to change at both an ideological and practical level.
Ideologically, the government has resisted the view that the state must control the country’s network industries and now welcomes private sector participation.
Practically speaking, much more attention is being paid to the regulatory impediments.
Odendaal noted that Deputy Finance Minister David Masondo made a similar argument recently.
Masondo said the government aims to “promote a policy environment that enhances pension portfolio returns, promotes market stability, and avoids compromising both the pre-and post-retirement lives of citizens”.
Reforming Regulation 28 to force pension funds to invest in government-prescribed projects is not a part of this aim.
The government, instead, should focus on ensuring that new infrastructure projects are investable and that private capital sitting on the sidelines will follow.
- By Shaun Jacobs.
- This article was originally published on Daily Investor. Read the original here.
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