Investors warn SA: Don’t force us to invest in state projects – prescribed assets furore

Protest has erupted around an ANC proposal to tap into retirement funds to prop up state entities. The plan, which would make it compulsory for investment funds to allocate money to government-chosen projects, falls under the umbrella of “prescribed assets” – a term developed in the apartheid era by the National Party government which did something similar. Many investors fear that their money will go to waste, and find it impossible to fathom how throwing good money after bad into troubled entities like power utility Eskom will make good investment sense. Stepping into the heated debate is the organisation that represents companies involved in managing savings and investments on our behalf. The Association for Savings and Investments warns that huge outflows of funds can be expected if the ANC sticks to its plan. Investment companies aren’t opposed to investing funds in government projects; however, the general principle is that these choices should be on the basis of analysis of risks and returns and where the investor is likely to get the best opportunity. – Jackie Cameron

Investors urge South Africa to leave their $163bn savings

By Roxanne Henderson

(Bloomberg) – South Africa’s R2.4trn ($163 billion) savings industry has a request for the ruling party: stop with threats of dictating where funds must invest and get going on projects that pensions can help finance.

“You can prescribe, but nothing will happen unless you have proper projects,” Leon Campher, the chief executive officer of the Association for Savings and Investment South Africa, an industry body of fund managers and insurers, said in an interview in Johannesburg. “The savings industry would gladly invest in infrastructure or developmental projects provided they are properly done.”

President Cyril Ramaphosa last month echoed the election manifesto of the African National Congress saying a discussion was required to investigate the use of prescribed assets as a tool for fostering economic growth. A lack of detail on how retirement funds could be forced into investing in state-owned companies or government projects has stoked concerns it could leave pensioners poorer if these don’t make inflation-beating returns.

Read also: Warning: ANC prescribed assets plan will damage your retirement – Dawn Ridler

There has been very little visible progress since Ramaphosa last year announced that the government would create a multi-billion rand infrastructure fund. Banks and even Ramaphosa’s envoys appointed to lure investment into the country have complained over a dearth of projects that has led to the near demise of South Africa’s construction industry.

“If it’s funding for developmental projects South Africa is after, government would be better off ensuring that the infrastructure initiative proposed by the president in his fiscal stimulus plan a year ago gets going,” Campher said.

Joint effort

The association and banking industry are working with the Development Bank of Southern Africa to flesh out details of an infrastructure initiative, Campher said, adding that DBSA has indicated it could be up and running by the end of this year. The lender didn’t immediately respond to requests for comment.

“The concept is that you have the government pot, the DBSA pot and you have got the savings pot so you can create what is called a blended-finance model,” he said. “Recruiting retired and semi-retired technical experts, people with the appropriate skills, to prepare projects will be important for attracting funding.”

The government could base the model for its infrastructure fund on its highly successful Independent Power Producers renewable-energy program, Campher said, adding it could be expanded beyond energy to form a “project office on steroids.”

Big-ticket items for funding could also include initiatives in the areas of water and sanitation, broadband and student accommodation, Campher said.

If prescription is introduced, there is a good chance that R2.5trn in foreign capital invested in South African equities could flow out of the country, he said.