If the government wants pension fund money it must produce bankable projects rather than regulatory amendments, says Fatima Vawda, founder and CEO of investment firm 27four and a director of the Association for Savings & Investment South Africa (Asisa).
“The problem we have is that government has not brought any bankable projects to the market. So rather than worrying about legislative changes it should create an environment that attracts both local and foreign direct investment. Pension funds will follow.”
This is her answer to new department of trade, industry & competition (DTIC) minister Parks Tau, who has tabled a proposal to amend regulation 28 of the Pension Funds Act so he can use more of the country's R4-trillion retirement savings to finance government industrialisation and infrastructure initiatives.
She said the industry would resist any attempts at making prescribed assets mandatory, as it already invests heavily in government and SOE bonds.
The local pensions industry wants to support government initiatives but will only do so when we have confidence in its ability to deliver bankable projects with proper governance in place
“The bottom line is that we will not accept any form of prescription. There will be a massive revolt if it's their intention to make it mandatory.
“We already invest aggressively in infrastructure through listed bonds. Where do they think the money comes from? We hold Transnet bonds, Eskom bonds, Rand Water bonds. All of that money is funding government projects.”
Their statements show a lack of understanding about how capital markets work, and a “deficient understanding” of capital markets' financing mechanisms.
“Nobody should put pension funds under pressure as to where and how members' assets are invested. The local pensions industry wants to support government initiatives but will only do so when we have confidence in its ability to deliver bankable projects with proper governance in place.
“Government needs to come to the party with the highest levels of governance. We need the assurance that there is good management and that there is not going to be corruption of any kind creeping into the implementation of the projects the minister wants us to support.”
The government needs to understand that the only way out of the mess the country is in is through public-private partnerships, Vawda says.
“That is the only way we're going to move forward with regards to infrastructure investment and industrialisation. Not through prescribed assets in any shape or form.”
Although the ANC included this in their 2024 election manifesto, she doesn't see them going down this road, “certainly not in the current GNU environment. They're a 40% party now and they'll need the buy-in of everyone.”
The legislation minister Tau seems to want already exists, she says. The government changed regulation 28 in January 2023 to accommodate increased investment in infrastructure by the pensions industry, which responded very positively.
“But government never came to the party with bankable projects. They never came to the party with creating an environment giving us the confidence to put poor peoples' money into these projects and feel comfortable that they're going to be implemented and deliver the type of return that we need in our retirement funds.”
The government must remember that they need to compete with other asset classes in the retirement fund's portfolio. From a trustee's perspective, if there's a better asset class that's delivering a better return at a better level of risk then that's where they're going to invest.
“So government needs to demonstrate that what they're bringing to the party is going to be competitive with what already exists globally in terms of an investment opportunity. That's how they're going to attract not only private sector capital but foreign direct investment.”
If Tau's intention is to force the hand of the pension fund industry, “they're never going to be able to do it. Not in our current political environment.
“What they can do is work better to build trust and confidence so that we can engage in public-private partnerships successfully. They don’t need to use a forceful hand; there’s a willingness to do that if they just do the right thing.”
Recent remarks by Tau's deputy DTIC minister Zuko Godlimpi suggest they haven't got the message yet, when he says government needs to start thinking of financing industrialisation from the national savings portfolio.
There's no indication here of an understanding that for this to happen they first need to create a conducive environment, she says.
“Perhaps it's just political rhetoric, but if so it takes no account of our current political environment. They're in no position to force us to do anything. It will naturally happen if the environment is conducive.
“Rather than making or contemplating or proposing prescriptive regulatory changes, government should focus on developing projects that are bankable and that have a favourable risk profile.”
The priority should be creating an environment that encourages the development of these opportunities, which will automatically attract local and foreign investment.
The government has not been able to develop bankable projects because of inefficiencies in the system, she says.
“I don't think the parties that were put together to do all this, the Development Bank of Southern Africa, National Treasury, the department of public works & infrastructure, have been on the same page. They have not been talking to each other.”
Professionalise the civil service, capacitate local government and SOEs, drop the trust deficit the public sector has with the private sector and the investment Tau talks about will come, she says.
It won't come by amending regulation 28, a proposal that shows once again how out of sync different government departments are with each other.
“The noises Tau is making are not in alignment with the National Treasury, because ultimately the National Treasury and minister of finance is the custodian of regulation 28, not the DTIC.
“He's out of his lane. He's making those comments about amending regulation 28 in his capacity as an ANC member, not as a minister. What the National Treasury is saying about this is in total contrast to what the DTIC is saying.
“Treasury director-general Duncan Pieterse has consistently emphasised that they believe the policies currently in place are entirely adequate to attract investment. Now Tau is saying something completely different.”
Former DTIC minister Ebrahim Patel was “anti private sector and anti private investment, and under his leadership we saw a lot of investment turn away because he made it incredibly difficult to attract FDI [foreign direct investment] or any kind of local private sector investment because of all kinds of regulatory nonsense”.
“So we're excited about Tau; we hope he's going to change the culture of DTIC and create the right environment. But not like this.”
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