Plans to grab retirement savings to fund government projects in South Africa

The ANC 2024 Elections Manifesto is once again pushing for prescribed assets in South Africa – revealing the party’s plans to introduce legislation to compel pension fund managers to invest in infrastructure development and the economy.

During the official launch of its 2024 general election manifesto on Saturday (24 February), the ANC noted it would “engage and direct financial institutions” through prescribed assets to invest their funds in public projects.

Despite the highest levels of budget deficit and state debt, it also aims to leverage a sovereign wealth fund, among other things.

Prescribed assets, a sovereign wealth fund, and state involvement in monetary policy have been written into several ANC manifestos but remain unimplemented.

The ANC last touched on the concept of prescribed assets in its 2019 election manifesto.

It contained references to the introduction of prescribed assets on financial institutions’ funds to “unlock resources for social and economic development investments” and to “mobilise funds within a regulatory framework for socially productive investments”.

Essentially, asset managers and retirement funds may be required to invest a portion of their funds in government-approved instruments under prescribed assets.

Old Mutual’s Andrew Davison highlighted that the 2019 mentions of prescribed assets indicated that the party was still considering its merits.

However, the ANC’s 2024 election manifesto states that the party would now engage and direct financial institutions to invest a portion of its funds in industrialisation, infrastructure development, and the economy through prescribed assets.

This means that although it is not government policy yet, the ANC has decided that prescribed assets will be implemented.

South African pension funds and asset managers do not favour prescribed assets.

“Prescription should not happen. We are dead against it and think it will not happen,” said Alexander Forbes CEO Dawie de Villiers.

According to de Villiers, the proper approach would be to make projects accessible for pension funds by ensuring appropriate governance and suitable risk-adjusted returns.

Sandy McGregor, a strategist at Allan Gray, previously cautioned that prescribing assets may lead to inefficient capital allocation.

Additionally, he stated that such a policy would drive away international investment, as investing in local assets could result in poor returns if the government was involved.

Sygnia’s CEO, Magda Wierzycka, criticised the ruling party’s plan to use retirement savings to finance government projects.

“First, they rob South Africans through taxes. Then, by mismanagement of the economy, the rand collapsed. Now it’s a raid on our retirement savings,” she said.

She added that most South African asset managers already hold over 20% of government bonds, raising the question of what percentage will be enough.

Previously, Wierzycka expressed concern that while it would help fund bankrupt SOEs, prescribed assets would divert investments away from funding corporations that create jobs and contribute to the economy.

“It will also affect the revenue derived from the taxation of such corporates, so what is taken to fill one bucket empties another,” said Wierzycka.

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