{"id":773778,"date":"2024-05-24T20:03:12","date_gmt":"2024-05-24T18:03:12","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=773778"},"modified":"2024-05-24T20:07:56","modified_gmt":"2024-05-24T18:07:56","slug":"anc-plan-to-use-pension-money-to-fund-eskom-and-transnet","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/773778\/anc-plan-to-use-pension-money-to-fund-eskom-and-transnet\/","title":{"rendered":"ANC plan to use pension money to fund Eskom and Transnet"},"content":{"rendered":"\n

The ANC\u2019s election manifesto wants to revive an apartheid-era policy compelling pension funds to invest in government-approved investments.<\/p>\n\n\n\n

It states it will \u201cengage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy through prescribed assets\u201d.<\/p>\n\n\n\n

Prescribed assets force retirement funds to allocate a percentage of their assets to certain government-approved instruments.<\/p>\n\n\n\n

It was first created in 1956 to force retirement funds to invest around half of their assets in South African government and parastatal bonds.<\/p>\n\n\n\n

The level of prescriptions rose for two decades and peaked in 1977. After that, it tapered off before being scrapped in 1989.<\/p>\n\n\n\n

The government faces severe financial problems with rising debt and increasing expenses. State-owned enterprises are in a particularly dismal financial position.<\/p>\n\n\n\n

The ruling party wants to revive prescribed assets to gain access to pension funds to resolve some of the government\u2019s funding challenges.<\/p>\n\n\n\n

Zuko Godlimpi, deputy chair of the ANC\u2019s economic transformation committee, said they would start investigating the possibility of reviving prescribed assets immediately after the election.<\/p>\n\n\n\n

However, the plan has been widely criticised, with many investment specialists warning it can harm returns.<\/p>\n\n\n\n

Mandated investments and limitations on investment choices typically result in suboptimal decisions and returns for pension funds.<\/p>\n\n\n\n

Old Mutual highlighted that the main objection to prescribed assets is that they usually apply to investments without sufficient demand or merit.<\/p>\n\n\n\n

\u201cIf the assets had sufficient investment merits, there would be no need to prescribe them,\u201d Old Mutual said.<\/p>\n\n\n\n

Nominating an instrument as a prescribed asset invariably creates artificial demand for it which would not have existed in an open market.<\/p>\n\n\n\n

If the instrument is narrowly defined and supply is limited or controlled, the price of the instrument is likely to rise.<\/p>\n\n\n\n

\u201cFrom an investment point of view, and all things being equal, a higher price implies lower expected future returns,\u201d Old Mutual said.<\/p>\n\n\n\n

At the same time, the prescribed asset will be assured of investment flows, which limits the incentive to deliver competitive returns to investors.<\/p>\n\n\n\n

\u201cIf it is an entity like a state-owned enterprise (SOE), the incentive to ensure that it is well-run and delivers a decent investment return will also be curtailed,\u201d it said.<\/p>\n\n\n\n

The Helen Suzman Foundation warned that prescribed assets could have a very real negative impact on financial institutions and the economy as a whole.<\/p>\n\n\n\n

\u201cImposing investment allocations and ignoring market signals that call for proper governance of SOEs will not help to incentivise public officials to improve their performance,\u201d it said.<\/p>\n\n\n\n

Instead of prescribed assets, experts advised the government to create a stable business environment to attract investment.<\/p>\n\n\n\n

No need to panic<\/strong><\/h2>\n\n\n\n
\"\"<\/a>
Old Mutual Wealth investment strategist Izak Odendaal<\/figcaption><\/figure>\n\n\n\n

Experts highlighted that the ANC\u2019s proposal does not yet reflect the government’s position and has not gone through the necessary legislative processes.<\/p>\n\n\n\n

That means prescribed assets are not on the table and must go through many legal processes and consultations before becoming law.<\/p>\n\n\n\n

Old Mutual Wealth investment strategist Izak Odendaal said this plan is unlikely to be implemented and will not achieve its ambitious targets.<\/p>\n\n\n\n

He said the ANC\u2019s prescribed assets proposal will take years to implement and will not help the government boost the economy.<\/p>\n\n\n\n

Odendaal added that the ANC worded the proposal vaguely, making it hard to know its exact intentions.<\/p>\n\n\n\n

Furthermore, it does not seem to be a priority. \u201cThere will be lengthy consultations with the asset management sector prior to implementation,\u201d he said<\/p>\n\n\n\n

This is not the first time the government has been down this road of investigating the use of prescriptions.<\/p>\n\n\n\n

Instead, South Africa ended up with changes to Regulation 28 that facilitated greater investment by pension funds into infrastructure.<\/p>\n\n\n\n

He said it might be changed from an allowance to a compulsory investment, but it seems unlikely.<\/p>\n\n\n\n

\u201cThe problem isn\u2019t that there isn\u2019t enough money to fund infrastructure. The problem is that there aren\u2019t enough bankable projects for the private sector to invest in,\u201d he said.<\/p>\n\n\n\n

\u201cEven if it becomes compulsory, it is likely to be small, perhaps 5% or so.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The ruling party\u2019s election manifesto wants to revive a plan to force pension funds to invest in government-approved projects, including struggling state-owned firms such as Eskom and Transnet.<\/p>\n","protected":false},"author":10,"featured_media":736525,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[1875,19941,14505,19942],"class_list":["post-773778","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government","tag-anc","tag-izak-odendaal","tag-old-mutual-wealth","tag-prescribed-assets"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/773778","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=773778"}],"version-history":[{"count":2,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/773778\/revisions"}],"predecessor-version":[{"id":773781,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/773778\/revisions\/773781"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/736525"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=773778"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=773778"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=773778"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}