No more raiding the PIC ‘piggybank’

Recommendations in the commission’s report have left little room for political meddling.
Acquiescent … the R2trn asset manager faced a barrage of requests from those with influence. Image: Moneyweb

There will be little room for political influence at the Public Investment Corporation (PIC) as the government adopts the recommendations of the Mpati Commission of Inquiry.

The PIC is the biggest fund manager in South Africa with R2 trillion in assets under management mainly belonging to its biggest client, the Government Employees Pension Fund (GEPF). 

Over the past year, the institution whose internal affairs have enjoyed a level of obscurity from the public, came under sharp scrutiny before the judicial commission of inquiry established by President Ramaphosa to probe allegations of impropriety at the institution. 

The commission found that at the heart of the transaction scandals and operational issues at the PIC is poor governance, mainly attributed to senior managers’ disregard for due process and the board’s inability to exercise its oversight ability while being unusually involved in the investment decisions. 

This was exacerbated by the revolving door of finance ministers at National Treasury between 2014 and 2018, which in turn affected the position of the deputy minister who traditionally served as the chair of the PIC board. 

This tradition was only disrupted in 2019 when the interim board of directors, whose term ends in July 2020, was given room to vote for the chair, leading to the appointment of Dr Reuel Khoza, former chair of Eskom and Nedbank.

Make this standard

In its long-awaited report that was released on Thursday, the PIC commission chaired by Justice Lex Mpati, who was assisted by former Reserve Bank Governor Gill Marcus and investment expert Emmanuel Lediga, stated categorically “the Deputy Minister of Finance should not be the PIC chairperson”.

The commission found that the frequent changes “created instability and a vacuum of leadership at the helm of the PIC”.  

Of concern is that the deputy ministers’ “appointment to such positions in the PIC was by virtue of the office they held, whether or not they had the appropriate skills, experience or expertise with regard to chairing and appreciating the functioning and business of such a critical organisation”. 

This is not in line with the PIC Amendment Bill that was passed by the national assembly but has not been signed into law. The amendment bill codifies the tradition of appointing the deputy minister as the chair, only offering the alternative of a minister in the economic cluster. 

Similarly, the process of appointing the board of directors is led by Treasury, which identifies potential directors through its Asset and Liability Management division in; these are then approved by the minister and sent to cabinet for consideration. 

The commission recommended that the process to source and select board members should rather reside with the PIC and then be approved by the minister. 

“The appointment of ‘political appointees’ should be avoided as this might cause political interference at the PIC,” said the commission,

The board should also appoint its own chair, and the selection of the chief executive should remain the choice of the board. 

“If the minister rejects the board’s selection, the minister should show good cause for that rejection,” it states, although the board still gets the final say.

Ramaphosa said the changes to the laws governing the PIC, the memorandum of incorporation and the amendment bill will be implemented by Treasury and the board.

Governance eroded by government instability

In his testimony, former PIC CEO Dan Matjila told the commission that he constantly faced pressure from various influential individuals, including politicians who approached him with investment proposals, likening the experience to a “tightrope” he had to manage. 

He went further, saying that in his assessment whenever there were changes in the ruling party, the African National Congress (ANC), there was “equal pressure and turmoil within the ANC”.

On the frequent changes, Matjila said believed they were driven by a motive to get control of the “piggybank” that is the PIC. 

He criticised the current process of appointing the board of directors and chair as a weakness in the PIC, saying the “political appointees” served the minister who appointed them and not the best interest of the PIC. 

One such director accused of political interference, the late deputy chair Xolani Mkhwanazi, allegedly tried to pressurise Matjila into approving funding for the National Empowerment Fund (NEF) in 2017. This happened in the presence of former deputy minister of finance Sfiso Buthelezi, who is the brother of the CEO of the NEF.

Mkhwanazi did not respond to the allegations, and passed away on January 4 after a short illness. The commission has nonetheless called for an investigation to bring “finality” to the issue.

Despite his criticism, Matjila has shown that he was malleable to political influence, the commission noted. Matjila is the same man who went when called to a meeting at an airport lounge by former state security minister David Mahlobo. It was at this meeting that Mahlobo asked Matjila to assist a woman named Pretty Louw in paying off her personal debt.

Matjila admitted to forwarding this request to businessman Lawrence Mulaudzi, who was part of a BEE consortium that had received funding from the PIC. 

Similarly, when former ANC treasurer Zweli Mkhize reached out to Matjila looking for funding for the party’s annual celebrations, Matjila forwarded this request to another recipient of PIC funding, Sipho Mseleku of the Sakhumnotho Group.

Mulaudzi and Mseleku parted with R300 000 and R1 million respectively. 

Scratch my back …

Matjila defended himself, saying he was just passing on the information to people who would be able to help, but the commission was not convinced. 

“A reasonable person would not give any credence to the assertion that the CEO of the PIC, who enables funding and fee payments in the ordinary course of running a +R2 trillion asset manager, is merely sharing the information,” it states. 

“The ‘quid pro quo’ inaction shows that the implicit message was both clear and understood.”

The board will now have full responsibility for appointing the CEO so that it never feels “indebted to the government of the day or the minster”.

Further, the commission has called for a review on the policies of the PIC, including those dealing with politically exposed persons.

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