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.
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.
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
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.
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.