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To get the economy moving, rely on retirement funds – not on government

Forget the concept of partnership with an incoherent administration.
As a potential investment partner, government collapses at first base so long as Ramaphosa refuses to eschew cadre deployment, says the author. Image: Shutterstock

Front and centre for retirement funds in their role to help tip back the Armageddon that engulfed SA in July, is infrastructure investment. Yet in the five years of dismal economic performance and listless job growth that preceded the Covid-19 smackdown, it has fallen far below the 30% of GDP target set by the National Development Plan. The worst laggard was the public sector, both quantitatively (overall spend) and qualitatively (value for money). That tells its own story.

In a pre-crisis era, less than two years ago, infrastructure investment was heralded by President Cyril Ramaphosa as the “flywheel” for stimulation of economic growth. Ambitious projects were drafted for public-private pension partnerships (PPPPs). No longer, even as an aspiration.

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Forget the concept of partnership with an incoherent government. The field is open for retirement funds to do better on their own. Recall that changes to Regulation 28 of the Pension Funds Act were welcomed to facilitate new projects. By cruel twists of fate, however, these days investors have more than sufficient in their sights to begin rebuilding the old.

Preconditions for progress

But will they? Only in the event of sweeping reforms, of which the ANC government is incapable, just as it has now proven to be incapable of consistently delivering even the most basic and essential public services. Hidebound by ideological fantasies and corrupt pursuits left unaddressed, its record defies investor confidence – never more so than during the July mayhem.

Exposed as useless at the protection of people and property, local communities then came into their own. Taking forward their collective mobilisation into a civil initiative are retirement funds. Their investments are integral to the process of rebuild. No matter their willingness to reconstruct shopping malls, as a basic practicality, they cannot offer tenants an assurance that burn-outs won’t happen again. Neither can Ramaphosa, irrespective of cabinet manoeuvres. By themselves, ministers cannot change a relaxed police service into a protective one or a lackadaisical military into a fighting force.

What matters less than the tip of the iceberg at cabinet level are the dangers that lurk beneath, in the state’s resource and competence levels – significantly responsible for deteriorations infrastructure maintenance.

Moreover, government’s policy positions tend to undermine the certainty of direction that investors crave.

Ramaphosa’s insipid promises, not to cause offence, have had their cover blown by the insurrection. Policy positions are confused, as in bits of privatisations on the one side and a ballooning public-sector wage bill on the other. His ‘long game’ is gone. The factionalism in his party, the frigid rollout of Covid vaccinations and the unabashed venality of a privileged elite were left to conflate.

For the ANC government in its present form, given its present structures, time has run out.

Severe time pressures

But not so for citizens and investors. For them, time is critical and the role of retirement funds is decisive. They’re on their own, to select just where they want to go and how to go about it, because government has relegated itself to irrelevance in the pursuit of jobs-orientated economic growth. Perhaps that’s a good thing.

The combination of lootings and lockdowns has swept from the radar any pretence to retain in place the bureaucratic interventions of ANC rule, notably the race-based and statist-orientated.

Pension funds, representative of more South Africans than the ANC’s policy-making bodies, can decide far better than they the terms on which they’ll activate the flywheel. It’s for them to spell out the terms, not for government to impose them, because their starting point is ESG (environmental, social and governance) criteria.

Source: National Treasury advisor Taka Sande

As a potential investment partner, government collapses at first base so long as Ramaphosa refuses to eschew cadre deployment. It’s at the core of institutional havoc. And this is only the first base.

There’s a contradiction in retirement funds’ insistence on investee companies’ ‘sustainability’, as the prerequisite for social impact and economic inclusivity, when the practice of government is squander.

In effect, then, there’s a huge responsibility on the managers of those funds to take stands appropriate to their members’ best interests. They need definition and they require an approach to political power radically different from the private sector’s traditionally obsequious posture; so much the better, for bottom-up participation, were managers to be clearly mandated by representatives of fund members.

If ‘stewardship’ means the slaughter of holy cows, beloved of politicians determined to present themselves as progressive, best that they be identified outside the narrative of political correctness. That’s inclusive of transformation programmes which should be called out for failure. In the pursuit of job-creating economic growth, under ESG principles, all else falls away.

Key features of an investment framework

Source: Sanlam Investments

It applies even to the huge Government Employees Pension Fund, otherwise its founding signature to the UN-backed Principles for Responsible Investment is tokenism.

Put differently, unless government complies with the requirements of retirement funds – not the other way around – they should remain independent to launch investment vehicles for strategies of their choice. Accountable to investors, it’s for them to explain and justify the projects targeted; hospitals and schools, renewable energy and affordable housing, for instance; perhaps also such essentials as collapsed municipal functions as well as interventions in electricity supply and water security.

Read:
North West residents appeal court decision handing service delivery back to municipality
The revolt of the ratepayers

Now for the new minister

Not under his watch, said then finance minister Tito Mboweni, would intrusions into SA’s fiscal sovereignty be tolerated; hence his inclination for spending constraint. But bereft of an ongoing commodities boom, successor Enoch Godongwana might be less fortunate were there to be a drainage of foreign exchange – at least on a scale similar to 1989 that forced the National Party government to abandon apartheid.

That’s not an imminent danger because SA offers bond yields higher than in developed markets. Additionally, in terms of tax revenues, the commodities supercycle has made the extension of social grants relatively easy. Once granted, however, they cannot be withdrawn.

The events of July have shown the destruction of which an outraged populace is capable.

Fortunately, a humanitarian crisis has been averted. But for the future, once commodity windfalls are exhausted? On the sheer numbers of unemployed and unemployable South Africans, what are the alternatives to widespread starvation? It’s too soon to say whether there’s sufficient time for SA, and indeed the region, to resurrect itself without some form of external assistance. It isn’t too soon to dismiss the IMF option, however distasteful to an ANC government out of wiggle room.

Not all is lost.

That the SA Constitution has held firm against the Zuma-related onslaughts is the surest bedrock from which domestic and foreign investment can launch. So too has been the range of alliances through civil society, against those who would do it harm, and the emergence of youthful leaders in community initiatives.

It is in such alternatives to the sterility and hubris of the ANC’s blue-light brigade that hope resides.

Allan Greenblo is editorial director of Today’s Trustee Publishing

This article was first published in Today’s Trustee here and republished with permission.

COMMENTS   22

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Don’t rely on retirement funds. I don’t want my retirement fund to invest in anything that is not going to give me the best possible growth. I do not care about anything else but good growth of my pension fund. ESG and sustainable development means nothing to me. Growth in my pension fund means everything to me.

Yes, “RoI” means everything to all of us.

And what they’re asking to to “share it again” with the rest (the word ‘again’, implying after we’ve paid life-long PAYE-tax contributions…Govt has the audacity to ask again to share).

One realises, the long-term (and unsustainable) cost of AA/BEE to society, has to come from somewhere.

What we need is a sane honest Government who’s for growth and prosperity

Having said that abolish:

BEE

Any thoughts of EWC

Nationalizing the Reserve Bank

Go slow on transformation ie: RET..Two GDP’s have already been looted, so we know who has the money

Cadre deployment

Uneducated Comrades

And start by

Subsidising farmers (Many have lost their farms recently.Farms went up in smoke

Look after SMME’s and Entrepreneurs

Invest in the country’s infrastructure

The list is endless..

Until then, the ANC is constantly changing the rules of the game to fill their pockets and I’m not for investing for obvious reasons!

This country is in a downward spiral with the ANC at the helm and the only thing that will stop this speeding train from derailing is a change of regime for the better

In fact, the train is already derailing with many passengers having left this country

Greenblo for President! Face realities? The “recycling/redistribution” program of the Gov is the biggest threat to pension funds, if not recognised for what it is? Think: maybe lending Gov is sovereign debt and possibly offer the highest return at present. What if the sovereign debt is not so sovereign anymore? Sorry!?!#@%. We are far down the road already? The bond rate is higher than the prime o/draft rate. Why it is that sovereign debt carries a higher price? Gov servicing debt is the second largest budget item? Good, if that money is used for “fixed investment” (broad term) in support of the economy! Last time I checked, the private sector gets involved in fixing potholes? In my view, SA offers a lot of potential. Electricity is one of the critical resources for development. The developing energy alternatives is much shorter to production than the long term Eskom solutions.

This is insane, what we actually need is a middle class and consumer that have money to spend. We have companies reporting nearly up to 50% in profits and still we retrenching workers like never before. If you can’t see why this is a problem then don’t worry about anything really

Collectivists think their job is their moral right, their property actually, an entrenched position that favours them at the expense of the employer, but especially at the expense of the unemployed masses and consumers in particular.

Workers can only have rights if those rights have been transferred from those who ultimately benefit from that job, namely consumers. In the free market, a job is a value-adding opportunity. It contributes to the consumer experience and creates value for consumers. When workers’ rights trump consumer rights it leads to economic decay and unemployment because, ultimately, all the money that enters the economy comes from consumers.

In a socialist economy, the worker is the king. In a market economy, the consumer is the king. Collectivists enslave consumers for the short term benefit of unsustainable jobs. Workers’ rights are a fallacy, a pipe dream, a socialist illusion that is paid for by plundering the consumers. A worker has a right to add value for consumers and for society as a whole. They do not have a right to extract personal benefits from society. This is why the Tripartite Alliance is a destructive socialist dictatorship that tramples upon the rights of a free society.

@Hitches. Not entirely correct.

Dawie Roodt quoted that SA’s problem is not of too few jobs, but we have too few super-wealthy entrepreneurs in SA (which will lead to all kinds of positive things). Without capital applied from the super-wealthy, the top class starts to shrink/disappear, and then the middle class (which you require) will also suffer and shrink, so that mostly the poor that’s left. SA in about 30 years’ time, more or less (maybe Malema can make us all poorer, faster..)

The poor is all we’ll see. As in Zimbabwe, Mozambique, Angola, Uganda, CAR, DRC, Rwanda, Malawi (despite mineral wealth)….I can create a song here.
The highest GDP Per Capita (amongst African countries) are the islands of Seychelles & Mauritius. There’s OFF the continent….as it they’re scared to be part of the continent. Or the further away from Africa, the better.

he he tongue in cheek about “super-wealthy entrepreneurs” makes me think of Wiese and Schwinehoff.

The needs and best interests of citizens are not aligned with those of the ruling elite. These concepts are on a diverging path and in conflict with each other, to the point of being mutually exclusive. We find this situation in a self-serving and extractive dictatorship, or when the ruling party enjoys too large a majority.

ANC supporters, being communalist, have this natural tendency to create a political-economic system that represents and mimics their mindset. The largely feudalist system they have created had to be tweaked to move closer to a fascists system because of an imploding economy and rising social unrest. Economic fascism is state control of the economy, or what we label as “public-private partnerships”. This implies that the political elite acting in their best interests, and not consumers acting in their best interests, determine which companies benefit and which go bankrupt. The South African economy is a centrally-planned economy for the benefit of the economically ignorant, but very material and pretentious, central planners.

The obese king is parading naked in front of the civilized world, but his ignorant followers only see him draped in non-existing robes in the ANC colors. They are blind to the shocking and shameful reality that they have been fooled and humiliated by their own creation.

The unemployment rate, the levels of corruption and crime, the imploding municipalities, the Debt/GDP ratio, and the levels of social unrest prove that the average voter is his own biggest enemy.

Rely on education to get the economy moving and not OPM.

It is a little more complex than that as shown by Zim whose people were, in the main, very well educated. Like their ZANU PF, our ANC is the problem as it is rotten through and through.

That’s the problem…”rely on retirement funds”.

Isn’t an economy supposed to grow when the correct stimulus, conditions & business environment is positive? (…and Govt is responsible in providing the said business environment, reduction of red tape, taxes, instill law & order…which are factors in creating positive investor sentiment?)

All that pension funds are going to do (in SA) is to CARRY the COSTS of Governments expenses! (….and one cannot arrive at a return on investment, by just paying costs).

Yes, any social/communist system would LOVE TO rely on retirement funds, but that’s not how economies progress.

Government and Treasury should look and revamp RSA Retail Bonds to be more flexable and compete with other Financial Institutions. I sent some suggestions years ago when Pravin was Minister of Finance to allow either adhoc or monthly savings as well as the term deposits.Reply was they were looking at it and still are.Those savings could help build infrastructure and create jobs. There is enough wealth in our country if used wisely. Why as a nation are we forever begging for International help. Yes we do need foreign investors but let us clean our own back yard first get things started.

WJS

@ Wally noted about treasury thinking about your suggestions, same old, same old.
Think like issuing bonds backed by precious metals for returns. Deriving the following benefits: hedge against weakened exchange rate, enhance the balance of payment, keep the mines producing and taxes, create and sustain work. The vacuum cleaning by foreigners, sucking interest, is not in SA interest. On record when I quote: “it is impractical” aparently because the liquidity benefits investors and/or is it speculators?

The country is crashing, our pension fund money will be as worthless as the Zim dollar when the country crashes. Much better to spend a portion of the pension funds ourselves, say 30% in total, 20% to be spent by the pension fund administrators as they see fit and 10% by the pension fund members themselves as they see fit, to try and get the economy moving.

30% is not too much to gamble with. Maybe the private investment from pension funds can make a difference, who knows. The 30% could even come from the new money deposited into the pension funds each month, leaving the older deposits untouched. Perhaps the decision should be left to the individual fund members as to whether 30% of their new pension fund deposits can be gambled with or not.

Cleary consuming too much Klippies !!!

The pension fund administrators always insist that us poor pension fund contributors must never remove any of our funds from their administration, else they would not be able to make a living. They make it appear as if we cannot manage our own pension funds, because only they are qualified to do that, meanwhile most of them couldn’t even pass matric on higher grade.

Given the policies which allow corruption and maladministration in South Africa, I don’t want my pension funds to be invested in SA.
The funds belong to the members not the ANC regime or investment managers and should be invested in their best interests – the ability to provide the legitimate pension benefits and not fix an ailing economy.
If any change should be implemented, it’s greater offshore investment.

This Humpty Dumpty will not be put together again. Certainly not by the thieving ANC or EFF apparatchiks. See if you can get your pension funds out of reach before Big Bro finds ways to steal that too.

Investment in what?

In the “pie in the sky” nonsense as mentioned in ESG and sustainable development here above? No way!

In bricks and mortar? Not going to work because the moment you want to plug into government-controlled services (electricity, water, sanitation and even roads), all falls flat.

The first thing to do is to fix the services. If that is not possible, you have to create a source of electricity, establish a water supply and provide sanitation. Unless these matters are addressed, do not waste your energy and funds.

And when invested in bricks and mortar, expect the ANC local municipalities to extort more and more taxes from you and then you also face the risk of EWC.

I have cashed in all my retirement assets and every cent is offshore

End of comments.

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