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The ANC\u2019s plan to force pension funds to invest in certain government-approved investments will fail to benefit the local economy as the issue with state-owned enterprises (SOEs) is not their lack of funding.<\/p>\n
This is feedback from Old Mutual Wealth investment strategist Izak Odendaal, who urged investors not to make impulsive decisions based on the ANC\u2019s plan as it is far away from becoming law.<\/p>\n
In its manifesto last month, the ANC\u00a0pledged\u00a0to transform the financial sector to ensure it makes adequate funds available for the nation\u2019s industrialisation and economic development.<\/p>\n
It said 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
The rule was created in 1956 during White-minority rule to force investment in government bonds but was scrapped decades later.<\/p>\n
Plans to revive it have been criticised by the pension industry, which fears funds may be threatened if invested in under-performing state-owned enterprises.<\/p>\n
\u201cThis is a fairly vague statement. It does not say how big a \u2018portion\u2019 could be, while financial institutions, including retirement funds, clearly already invest in \u2018the economy\u2019,\u201d Odendaal said.<\/p>\n
The 2022 change to Regulation 28 of the Pension Funds Act means pension funds can already invest up to 45% of their assets in infrastructure. At the time, it was hoped that the change would put to bed the prescribed assets debate.<\/p>\n
There is a simple reason why the ANC\u2019s plan will not benefit the economy. \u201cLet\u2019s put it very simply: South Africa\u2019s economic woes do not stem from a lack of funding,\u201d Odendaal explained.<\/p>\n
\u201cWhen it comes to infrastructure, the issue is not the appetite of pension funds to invest but rather the lack of bankable projects.\u201d<\/p>\n
Internationally, infrastructure is a very attractive asset class for pension funds because it tends to deliver stable long-term returns.<\/p>\n
\u201cMany local pension funds would happily increase exposure. But the pipeline of projects remains thin.\u201d<\/p>\n
This is partly because of the complex nature of many of these projects, which require approvals at multiple government levels and across many agencies and departments.<\/p>\n
Moreover, until recently, the state monopolised many aspects of key infrastructure delivery, notably in electricity, rail and port.<\/p>\n
The Budget Speech also presented further proposed changes to public-private partnership regulations and new infrastructure funding mechanisms to crowd in private capital.<\/p>\n
It is also important to note that private infrastructure funding is only feasible where there is a profit to be made, Odendaal added.<\/p>\n
Pension funds, banks, and investors want the return of capital and return on capital. There is a long list of potential investments that meet these criteria, including rail, ports, electricity, pipelines, bulk water supply, toll roads, airports and so on.<\/p>\n
Many other forms of infrastructure do not have associated cash flows and are, therefore, not ripe for private investments.<\/p>\n
More specifically, the government\u2019s plan to use the prescribed assets to invest in SOEs is unlikely to improve their performance.<\/p>\n
The ANC said the range of prescribed assets would go beyond investing in government bonds to support struggling state-owned firms such as Eskom and Transnet, which are in desperate need of funding.<\/p>\n
However, it is unclear how more money will solve the current crises plaguing South Africa\u2019s SOEs after they have already received R331 billion in government bailouts.<\/p>\n
Eskom and Transnet, in particular, have become synonymous with corruption, mismanagement, and fruitless expenditure.<\/p>\n
Without fundamental operational changes at these companies, it is unlikely that more money \u2013 wherever it comes from \u2013 will improve their performance.<\/p>\n
The ANC said the financial sector would be consulted before its plan is implemented.<\/p>\n