A recurring trope in horror movies is when the villain or antagonist returns from the dead. Our heroes will think they have dealt with the monster, vampire, demon, serial killer, or whatever type of evil they’re battling, but often their adversary will miraculously reappear before finally being dispatched, letting our heroes win the day.
Bad policies in South Africa are the same. Just when it seems that a bad policy has been defeated and the government has decided to permanently put it on the backburner it gets proposed again.
The issue of prescribed assets is one such example.
At the ANC’s recent manifesto launch, the party once again raised the possibility of implementing prescribed assets to bolster investment in South Africa and help boost government revenues.
It said it would ‘engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy through prescribed assets’.
Prescribed assets are a policy whereby the government mandates pension funds to invest a certain number of their assets in particular sectors, such as state-owned companies or government bonds. The apartheid government implemented this policy, too, partly to help stem the flow of capital out of South Africa at the time, but also to effectively force pension funds to help fund the government.
Prescribed assets can be implemented by simply changing a regulation in the Pensions Funds Act. This was recently amended, for example, to allow pension funds to invest more of their assets abroad, and it can also be done to force investments into prescribed assets.
Cash-strapped government
Given the state that South Africa’s finances are in, it’s perhaps not surprising that the government is turning its attention to the possibility of using prescribed assets. In addition, South Africa has a deep asset pool in terms of retirement funds, and it is unsurprising that an increasingly cash-strapped government is looking to this possibility to help fund itself.
However, using prescribed assets is not a new policy proposal for the ANC.
The party last proposed it in 2019, this – as Tim Cohen points out in the Daily Maverick – despite having rejected the possibility of using prescribed assets in the early 1990s. In addition, most countries in the world which have experimented with the idea of prescribed assets have turned away from the policy. Yet, as in so much of what it does, the ANC seems to be looking to another failed policy in once more seeking to implement prescribed assets.
The Institute of Race Relations (IRR) was at the forefront of pushing back against the possibility of using prescribed assets following the 2019 election. Magda Wierzycka, the well-known investor and businesswoman, complained that she was being ‘blackmailed’ because the IRR had asked her to make her position on the policy clear, as we had done with other major asset fund managers at the time.
But the IRR’s actions may have worked to help gird the loins of asset managers to take a stand against another attempted asset grab by the government. Wierzycka recently said on Twitter (formerly X) that using prescribed assets was a bad idea, pointing out that many pension funds already held South African government bonds as a significant proportion of their holdings.
Red herring
Following the release of the ANC’s manifesto, a number of other asset managers came out against the proposed policy. Business Day quoted Asief Mohamed of Aeon Investment Management as saying: ‘The proposed introduction of tougher prescribed assets is a red herring. Retirement savings are workers’ deferred wages. Again, the workers’ deferred wages are being used to prop up the deficiencies of government leadership.’
He was but one of a number of other asset managers also telling Business Day that they opposed the proposed reintroduction of prescribed assets.
Mohamed went on to say: ‘Asset owners might hesitate to invest in infrastructure projects due to concerns about the government’s ability to deliver viable returns on time and on budget.’
And herein lies the rub – prescribed assets would not be necessary in an environment where the economy was growing rapidly and there were large numbers of well-run infrastructure projects.
These kinds of projects are generally attractive to pension funds and investment firms which have long horizons, as they are long-term investments which often have guaranteed eventual returns.
Ditto government bonds, which also give set returns over a defined timeline, attractive for investors such as pension funds.
But in South Africa there are few infrastructure projects run by the central government into which pension funds would want to invest – as big government projects are often beset by huge cost overruns and long delays. These affect the return an investor is likely to get.
Government bonds are similar – these are generally good investments for pension funds as they provide guaranteed returns over a defined time horizon. However, in the case of South Africa there is now a not insignificant risk that the sovereign will be able to pay back its debts. A responsible pension fund would have to consider the pros and cons of further investment in South African government bonds very carefully.
Healthy return
And when we get down to it, a pension fund’s main objective should be to ensure a healthy return for its beneficiaries, not to help a government stay afloat or to help fulfil ideological objectives, such as ‘transformation’.
The government should do the hard work of reforming the economy so that it can grow sustainably. If it did that, there would be little need for policies such as prescribed assets. Investors would be champing at the bit to put money into South Africa if they knew they would get a good return and that their money and property would be safe. This is not currently the case.
Like the villain in a horror movie, the proposed policy of prescribed assets refuses to die. However, unlike the bad guy in movies, prescribed assets can actually harm you and your family, by making you and every other person saving for retirement in South Africa poorer.
The IRR will continue to stand against prescribed assets and other policies which will make South Africans poorer and reduce their chances of prosperity or financial security in future. And the fight against bad policy in this country is far from over.