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PIC pressured by Cosatu to rescue Edcon

Email to then-PIC chairman warned of conflict between Cosatu, the PIC and the ANC and thousands of job cuts if the deal didn’t take place.

South Africa’s biggest labour union federation signalled a “massive fight” with the ruling party if the state-owned fund manager failed to rescue the country’s second-largest clothing retailer, Edcon. 

A week after a senior labour union official sent an email on February 22 to the country’s then-deputy finance minister, the Public Investment Corp., which manages more than R2 trillion ($141 billion) of mainly government worker pensions, led a R2.7 billion investment in Edcon, two people with direct knowledge of the situation said. The decision ran counter to the recommendations of PIC’s investment professionals, the people said.

The previously unreported incident highlights concern that some investment decisions at the fund manager are driven by political considerations. South African President Cyril Ramaphosa has made curbing corruption a key part of his drive to resuscitate the economy. The PIC is being scrutinised by a judicial commission following allegations of interference in investments ranging from newspapers to coal mines. The Pretoria-based company, Africa’s biggest fund manager, is responsible for pensions of more than 1 million state employees.

“If they don’t have an investment case there is a problem,” said Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management. “I am concerned that investments are not made on a risk-and-return basis.”

Furious members

The email was written by Matthew Parks, parliamentary co-ordinator for the Congress of South African Trade Unions, or Cosatu, to Mondli Gungubele, who in addition to being deputy finance minister was chairman of the PIC at the time. Parks complained the fund was “dragging its feet” with regard to a bailout of Edcon.

In the email, seen by Bloomberg, Parks warned of conflict between Cosatu, the PIC and the ruling African National Congress and thousands of job cuts if the deal didn’t take place. Parks, in a telephone interview on Thursday, confirmed sending the email and said it was one of many he sent on the issue to Gungubele.

Gungubele didn’t answer a call made to his mobile phone or respond to a text message.

“Our members are furious at how long this is taking to be concluded,” Parks said in the Feb. 22 email. “We are pleading with you, comrade deputy minister, to intervene to ensure the PIC Investment Committee does meet, quorate and the PIC signs the final lock-up agreement.”

Edcon announced on March 1 that it secured the money from lenders, landlords and the PIC — which used money it manages on behalf of the Unemployment Insurance Fund — in exchange for equity in the company. That allowed the retailer to stay in business and protect jobs.

Read: Edcon gets lifeline from the public, landlords and lenders

“We have already placed on record that we appreciated the support of the unions acting in their members interests in looking for a solution to prevent Edcon being in a position where” jobs would be lost, Edcon Chief Executive Officer Grant Pattison said in an interview by telephone on Thursday. The unemployment fund had to independently approve the investment and change its mandate with the PIC in order for the investment to be made, he said.

Saving jobs

Representatives of the PIC and Treasury didn’t immediately respond to emailed requests for comment and didn’t answer calls made to their mobile phones. The UIF said Edcon met criteria for its high social impact investment category because of the number of jobs at risk.

Read: PIC inquiry: Corruption or sheer incompetence?

“If employees are retrenched, the UIF doesn’t only have to pay their unemployment benefit claim, but will also suffer a loss of contribution income from those employees,” UIF spokesman Makhosonke Buthelezi said by email.

In his email, Parks said that if the investment wasn’t made, 40 000 jobs would be lost at Edcon, which runs the Edgars chain of clothing stores, and another 100 000 at factories and related services companies. A mass layoff on that scale could hurt the ANC’s prospects in elections to be held in May, he said. The ruling party went on to win 57.5% of votes cast.

“It will be impossible to convince any worker and their family to vote in the elections after their government did not act decisively to save their jobs,” Parks said. “It will have long-term repercussions for the alliance,” he said in a reference to the political partnership between the ANC, Cosatu and the South African Communist Party.

Parks copied the email to Bheki Ntshalintshali, Cosatu’s general secretary. Ntshalintshali didn’t answer a call to his mobile phone and didn’t respond to a text message.

“We’ve done it before, and we will do it again,” Parks said in an interview, adding that it is his organization’s mandate to protect jobs. Gungubele “was very helpful” in compelling the PIC’s investment committee to meet and make the decision, he said, adding that the then deputy minister wouldn’t have been the only one to decide on the investment.

Parks said that while no investment is guaranteed to succeed, the fact that banks also supported the rescue showed that it was a sound decision.

© 2019 Bloomberg L.P.

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If the PIC is not used for looting it’s used for welfare. I think it is even doubtful if they understand what their function should be.

TG it does not affect me.

Well Mmmmmmmm you will have to be well out of SA for that. I read that the pensions are guaranteed benefit so no money in the PIC means the taxpayer must cough up. Reality I suspect is massive inflation.

Where are all the articles now about praising Grant Pattersin for his stellar job of “saving” edcon. LOL, just a bunch of looting loser South Africans the whole lot of you. Worthless business people. Get your money and yourself out of the PIC and out of country.

To be fair he did get a bit of a hospital pass. Real blame lies with Bain that took Edcon – then a blue as they come blue chip – private geared the living daylights out of it, cut costs to the bone, invested nothing in the brand and the stores and in the process destroyed a good business. Bain is an American firm by the way and it is Pattison not Pattersin.

@Officejonny Sometimes it pays to do your homework and understand the true context of an issue before just shooting from the hip. Being able to spell also helps…

The irony is that Cosatu forces workers to become members and pay fees. It then forces members to use their pension funds (in the PIC) to fund business rescue for businesses that everyone knows will fail.

All this so that the heads of Cosatu can continue getting their monthly milkings and live it up for now.

Isn’t that just the epitomy of South African short-sightedness?

It’s already been calculated that if everything in our economy is working perfectly, we can only grow by 2%. At the moment we are nowhere near 1% even.

Our population is growing faster than the growth of our economy and the education system is nowhere near supporting it.

Bottom line is that these are the dying days of South Africa. Is it imposssible for us to get out of this slump with our currency government.

Absolutely.
Impossible.

if EDCON failed, someone else would’ve filled that space. Nett jobs wouldn’t have been lost.

Why stop at Edcon, lets just nationalize and socialize every business.

Put all employed and unemployed on the government payroll with guaranteed salaries regardless. Taxpayers will pay for all. Imagine the productivity gains when people know they get paid guaranteed salary.

Then when the money runs out, we can print some more. We erase all debt via quantity easing. It will be one grand socialist utopia enshrined in the ANC and EFF mandates.

What could go wrong?

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