The South African Communist Party (SACP), which has long used its dominance over the African National Congress (ANC) to set the policy agenda for the ruling party, reiterated last week that it wants to ‘mobilise’ the ‘ample resources’ in both ‘public and private financial institutions’ to finance ‘sustainable recovery and development’ by introducing ‘investment requirements’ or ‘prescribed assets’.

In similar vein, a leaked ANC discussion document proposes to ‘Amend Regulation 28 of the Pension Fund Act in order to increase the access of the savings of South Africans to fund long-term infrastructure and capital projects…at a reasonable rate of interest’.

As the Democratic Alliance (DA) puts, it, ‘this is ANC-speak’ for compelling pension funds to invest in government and state-owned enterprise (SOE) bonds, along with capital projects financed by the Land Bank (currently in default on its debt) and the country’s other development finance institutions.

The pensions pot is particularly attractive because its value stands at some R4 trillion. And Regulation 28 can easily be used to the state’s advantage because it already allows the government to set binding parameters for pension fund investments by limiting, for example, the extent of the equity or foreign exposure they may have. Those parameters can be changed by appropriate regulation and without having to push an amendment bill through Parliament.

The ANC/SACP alliance has thus been wanting for many years to compel pension funds to invest in the developmental projects of its choice. This is the first time, however, that specific wording for amending Regulation 28 has been put forward.

Some 11 million South Africans with pension savings now confront an increased threat that the monies they have accumulated over years of hard work and thrift will be siphoned off to help fund new state projects unlikely to be any less disastrous than previous ones have proved.

Plagued by design flaws

Take Eskom’s infrastructure programme, for example. Its two new power stations at Medupi (Limpopo) and Kusile (Mpumalanga) have been plagued by design flaws, lengthy delays, faulty construction, major cost overruns, flawed procurement, corruption amounting to at least R130bn (the sum currently under investigation by the Special Investigations Unit), and persistent breakdowns at units now supposed to be fully operative.

Construction costs – which were initially put at R69bn for Medupi and R81bn for Kusile – have already ballooned to more than R300bn. Yet the new units, according to energy expert Ted Blom, could well cost another R200bn to complete. Billions more will still be required thereafter to rectify their many defects. 

Relevant too is the Passenger Rail Agency of South Africa (Prasa), an SOE with a monopoly over the provision of commuter and inter-city rail services. Its recent capital expenditure on upgrading its locomotives and other equipment has likewise been plagued by irregular spending and pervasive corruption.

Prasa also seems to have specialised in buying equipment unfit for purpose: locomotives too tall to fit under railway electricity cables or align with existing platforms – and supposedly high-speed electronic passenger gates that in practice have to be operated manually.

‘Unlawful and irregular’

A similar story is evident at Transnet, an SOE with a monopoly over freight rail in the country. In March 2014 Transnet signed four contracts for the purchase of 1 064 locomotives with South China Rail and three other companies. But the contracts were ‘unlawful and irregular’ from the start, as subsequent investigation has shown. In addition, the R54.5bn price tag was a major escalation on the original estimated cost of R38.6bn – with the difference going mainly to benefit those linked to the notorious Gupta family. 

Performance at PetroSA is also worrying. In 2015 this SOE wasted R15bn on a failed gas exploration quest in an area off South Africa’s south coast where Total has since discovered a huge gas and oil reserve. The contrast in the success rates of the two entities, as former Financial Mail deputy editor Sikonathi Mantshantsha has pointed out, could not be more stark.

Inefficiency, wastage and poor performance are evident in the capital projects undertaken by the public service too. To name but some examples: 87% of RDP houses are badly built ‘high-risk’ structures; essential water and other infrastructure cannot be expanded because the state (in the words of former finance minister Trevor Manuel) lacks ‘the capacity to get projects off the ground’; and vital financial controls over these (and other) projects are persistently disregarded because ‘inadequately skilled people’ have been appointed to ‘crucial positions’.

The ANC/SACP alliance is now trying to pretend that compelling pension funds to invest in the state’s capital projects will give pension fund members rare opportunities to invest in ‘real assets’. Little could be further from the truth.

Capital projects managed by inefficient and often corrupt state entities are unlikely to generate adequate returns for those compelled to invest in them. The pensions grab also has far more grubby motives than the alliance is willing to acknowledge.

Needs of the revolution

Much of the underlying aim is ideological: to ‘mobilise…the immense resources…controlled by…private capital’ into serving the needs of the revolution, as the SACP states in The South African Road to Socialism.

Practical necessities weigh heavily in the balance too, as tax revenues and public borrowings can no longer meet the scale of need. As the International Monetary Fund has recently warned, the budget deficit will rise to 13% this year and public debt as a percentage of GDP to 86% in 2021. Ratings agency S&P estimates that the interest bill on government debt will consume 22% of government revenue by 2023, sharply up from 14% last year.

But the ruling party requires a constant flow of fresh funds to sustain its patronage machine. Nor is it willing to heed the truth of Margaret Thatcher’s pithy saying that ‘the problem with socialism is that eventually you run out of other people’s money’.

These are the real reasons why pension funds are now in the ANC’s crosshairs – and why the ruling party is indifferent to the increased economic suffering its rapaciousness is likely to cause to 11 million people and their families.

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16 COMMENTS

  1. Not to worry as I’m sure all the FINANCIAL PLANNERS out there advised their customers about this development years and years ago.
    No? I’m shocked I tell you, shocked to hear that Harry and Henrietta Hindsight financial advisor Guru’s were totally unable to see this economic lunacy waaaay before 1994.
    But you know what Harry and Henrietta always say don’t you?… “It’s time IN the market not timing the market”
    Have a nice future, pensioners.

  2. My Advice to all, is to cash out now. Take your pension and buy moveable assets or portable physical assets. This way, when the inevitable happens, and this country is a poster child for african socialism, you will still at least have something tangible to work with.

  3. “South Africans must speak out against this ANC scourge – as it pillages and rapes SA heartbeat to death.

    One day, Poor and Impoverished, we dare not say: We knew not…”

  4. For thousands of years smart people around the world have protected themselves against the follies of the State and their minions with physical gold and silver.

  5. People are going to sit with nothing at the end of a life’s work. The return on equities is higher than any infrastructure project.

  6. Is there no way one can stop this further stealing by the ANC, via international treatise the ANC has maybe signed? Something which maybe prohibits this stealing?

  7. I believe it is a LEGAL requirement for trustees of all pension funds to work towards retaining and increasing the members’ value in such funds. (Whether that applies to the GEPF I don’t know). Therefore any fund trustee deliberately investing in any loss-making ‘investment’ would be in breach of this law and subject to personal penalties. And since the ANC has proved that ALL State-Owned Enterprises make a loss, this current state of affairs should protect our pension funds (who knows about the Civil Serpents’?). So, the only way the greedy bunch could get at our funds legally would have to be to change the law! The advance notice of such a change of law would have to go through Parliament, so we should have sufficient notice!

    • The problem is that the “investment” may be made in a bond vehicle, which means that there will be a guaranteed return as long as the government is able to honour their debt repayment commitments, which they have so far been able to do (hence the continuing interest in high-yielding SA bonds). Some schemes may actually like to invest in some of these as they yield higher than cash. The other thing the ANC is “debating” is whether to actually prescribe a % of pensions, or whether to make it easier for pension schemes to invest into infrastructure development bonds. The latter is also being talked about to allay the fears of the financial industry and members – so there may initially not be a prescription.

      However, I am very skeptical about the whole thing, even dressed up nicely it can be a trojan horse, and like the apartheid government did, even a “compromise” agreement can be adjusted in future and the prescription can increase. The ANC likes these types of “boiled-frog” arrangements to turn the needle slightly every year – this is basically their whole transformation strategy. If the ANC listen to their advisors, they will hear that the damage this does to confidence and overall reinvestment into the economy may be more harmful than the benefits. Which is one of the reasons prescription was discontinues in the late 80’s. Unfortunately, there is an attitude of contempt to advice that doesn’t fit the ANC’s NDR ideology and a “we will make it work, we will do it differently” to all advice, even by advisors employed by the state, on issues such as asset prescriptions, EWC, SOE reform, etc. There is also now some interest in ANC circles for the nationalist-socialist policies that the NP used to create SOEs and employ poor whites, which some in the ANC want to emulate to use pensions and advance the standing of the state and black people. However, the lunacy of throwing more money to totally pathetic SOE’s without reform is staggering, and the ANC is basically not ever going to be able to reform itself and deal with corruption as it is now endemic to the entire organisation on every level, there aren’t enough “clean-hands” within the ANC to reform it.

      General advice is to increase offshore exposure and familiarise yourself with the options, work out a strategy, while maintaining a conservative contribution to local pensions for the income tax benefit for now and re-assess periodically. More radical advice is to make all contributions to offshore investments, and consider your options for your existing fund depending on your age. If you are 55+, take out a living annuity and cash out the allowed % and invest offshore for example. Offshore investments are a good rand-hedge and can yield highly when the rand depreciates, and also an “ANC-hedge” in any scenario, so the scales are tipped in their favour. In the past, some people did get their fingers burnt (2000-2001) by investing offshore, followed by a strengthening rand. However with the inflation differential the rand will weaken in the long term, even in a relatively good political environment. Financial advisors on both sides (offshore and local) have vested interests, so take advice but work out your own strategy if you can. It will always be a good idea to have offshore exposure in a developing economy.

  8. Do you think they will comply with the law when the time comes? And if they change the law, it might be so sudden that it may be too late to act proactively … (?)

  9. Anyone who thinks there is any semblance of a future under the treasonous ANC is utterly delusional. South Africa is well on its way to a spectacular implosion that will leave its people impoverished and destitute whilst the Zuma looters (et al) flee as the Guptas did.

    You can either be a part of the sinking ship or join the galloping support for cessation and an independent Cape. Google it and how our constitution provides for self-determination. Much work has already been done and a breakaway is inevitable, sooner than later.

  10. Thank you Dr Jeffery,
    You have hit the nail on its head. The only way that responsible South Africans can get rid of a delinquint Govt, would be to vote them out in 2024, in order to save a former leading African country from disappearing over the fiscal cliff for ever. A revolution and a Parliamentary system, are not compatible. The governing party is committing ECONOMIC SABOTAGE. If organisations or indviduals would be committing the wrongs currently being committed by the ANC, they could probably be charged on “High Treason”. How can the Governing party get away with such improprieties?

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