In a country where the bulk of business habitually acquiesces in economically destructive policies, it is gratifying to see the forthright opposition to the ruling party’s plans to compel pension funds to invest some of their assets with the government.
Although the African National Congress (ANC) has so far stated only that it intends to “investigate the introduction of prescribed assets”, it has been toying with this idea since 2002, if not earlier. Compelling pension funds to hand over some of their assets to the state is an assault upon property rights which threatens substantial reductions in future payments from pension funds to their members (which is what happened when the National Party government did it). This is tantamount to the expropriation of part of future pensions without compensation.
Leon Campher, chief executive of the Association for Savings and Investment South Africa, is one of the most trenchant public critics of the idea that the state should be empowered to order financial institutions to invest more of their assets with the government than they would otherwise choose to do. Earlier this year he warned that any such imposition would trigger a massive flight of foreign portfolio investment, and that it would be as “devastating” now as when the NP government did the same thing. There was no way his association would back such a plan.
Andrew Canter, chief investment officer of Futuregrowth Asset Management, said “We’re very hostile to prescription; we think it is a terrible idea”. The Financial Sector Conduct Authority, a statutory body, says the “strong objections” to prescription are “sound and justified”.
In contrast to her predecessor, Bonang Mohale, who once said that business backed expropriation without compensation, the new CEO of Business Leadership South Africa, Busisiwe Mavuso, earlier this month denounced plans to take anyone’s pension money as neither right nor fair. “You can’t steal money” from the fiscus, she said, and then say that “to fix the mess I have created over the past ten years I am going to take your pension money” and pour it into struggling state-owned enterprises.
Last month, Adamus Stemmet, spokesman for the Association for Monitoring and Advocacy of Government Pensions, said any prescribed assets proposal should be fought tooth and nail. Compelling pension funds to lend money to bankrupt entities such as Eskom and then pretend that this was an investment was laughable. According to Chris Barron in the Sunday Times, Mr Stemmet cited a 1983 ANC document in which that organisation had said that the billions collected over the years by pension funds and insurance companies “will be at our disposal”.
Unfortunately, not all asset managers endorse the forthright views quoted above. Some have adopted a Ja/Nee attitude to prescription – indefensible equivocation given that the ANC’s proposals would involve legalised theft from pensioners and using the money to finance the profligate and often corrupt public sector.
The ANC claims that prescription is necessary to generate funds for infrastructural development. This is a fraudulent argument.
Mr Campher and others have repeatedly pointed out that vast sums are in fact available for investment in infrastructure. The problem is not the shortage of money. It is the absence of projects in which it can be profitably and responsibly invested. As Mr Campher put it in a statement widely publicised last week, “the savings industry would gladly invest in infrastructure for development projects provided they are properly done”.
In July, David Jones, an “infrastructure finance transactor at Rand Merchant Bank, said “there is an estimated $100 trillion of public and private money under management worldwide potentially looking for a home. If we get the right projects together at the right rates of return, with transparency and certainty of outcome, the money will flow.”
Earlier this month, Lin Songtian, Chinese ambassador in South Africa, wrote that his country’s investment in Africa had increased from less than $1 billion in 2000 to more than $110 billion in 2018. Not long before that, he had pointed out that while other African nations had seen a boom in infrastructure development, projects proposed by the South African authorities had lacked feasibility studies capable of reassuring the Chinese government and banks of their profitability and sustainability.
We therefore have our own asset management industry and the Chinese ambassador pointing to the same problem: absence of what the industry describes as “bankable” projects to attract risk capital. Further evidence of the scarcity of such projects is the plight of the South African construction industry, where major companies have had to seek opportunities outside South Africa and/or humiliate themselves into applying for business rescue.
South Africa has a pressing need for repairing and extending infrastructure. The money is available. But the ANC cannot put the two together. Like a child with a box of matches, it rather plays around with threats to property rights. Far better, as the Institute of Race Relations (IRR) argues in Reaching the Promised Land, published last week, to jettison threats to property rights and devise public-private partnerships to stimulate all the necessary additional infrastructure investment. That of course would automatically encourage all kinds of other investment.