A possible implementation by President Cyril Ramaphosa of prescribed assets would put the ANC on par with a policy implemented by the cash-strapped National Party-led government in the 1970s and ’80s, when it introduced a similar intervention to fund state-owned enterprises, political and economic analyst Daniel Silke cautioned yesterday.
This is something which would not be attractive to potential investors and pension holders, he warned.
Silke’s warning followed a speech this week in the National Assembly in which Ramaphosa said the ANC-led government would pursue policies “that will advance the interest of our people and that of pension fund holders”.
Faced with international sanctions, the National Party (NP) resorted to the prescribed asset policy to fund state-owned enterprises (SOEs) like railways, harbours and the SA Airways (SAA).
Although Ramaphosa – in an answer to Democratic Alliance (DA) leader Mmusi Maimane – could not say outright whether he supported prescribed assets, Silke said it was important for the government to reassure investors and South Africans that their pensions would not lose hard-earned money – now worth R11 billion.
According to Silke, prescribed assets refer to pension or retirement funds held by the state or private entities like banks.
He explained: “Should prescribed assets be legislated into law, it means that a certain portion of these funds will go towards funding the ailing and mismanaged SOEs like Eskom, SAA and Transnet, in a compulsory fashion through government bonds.
“When the NP government channelled this money from pension funds, there were outflows out of equity funds into government bonds.
“The problem with this approach is that it affects the equity markets by reducing the value of equities.
“The equity component of the funds lost value, because reinvestment with government bonds did not provide effective returns. State-owned bonds underperformed,” Silke said.
Given poor efficiencies, mismanagement and the financial state of the country’s SOEs, Silke said the ANC risked being likened to the NP.
He said: “This will also be a risk to economic stability and may affect individual pension monies.
“The problem investors have is the poor track record of SOEs, which has been dismal. Because of historical mismanagement, our SOEs do not offer investors a compelling reason to invest in them.”
He said it was comforting that there was no consensus on the matter in the ANC.
“Both the ANC and the NP regard the state as the key driver of the economy,” Silke warned.
Introducing prescribed assets was “a last-ditch effort by the government to find a domestic mechanism to fund SOEs, to avoid going externally to such bodies as the International Monetary Fund”.
Added Silke: “What would [be] best would be for the government to restructure SOEs and bring public-private partnerships – a dramatic policy shift for the ANC.”
Maimane slammed the ANC proposal as “reckless”.
Assets ‘are government priority’
While South Africa is awaiting certainty on whether President Cyril Ramaphosa intends coming up with a legislation to introduce prescribed assets, the Institute of Race Relations (IRR) yesterday said Ramaphosa’s parliamentary speech indicated that this was already government policy.
IRR head of campaigns Marius Roodt said prescribed assets remained government priority.
The organisation said Ramaphosa’s assertion that the matter “needed to be discussed and that various state resources needed to be utilised to generate growth” exposed his leanings.
Said Roodt: “The resources extracted through prescribed assets in South Africa today are unlikely to be used for infrastructure development, which will see a return for investors.
“It is far more likely that such income will be used to prop up failing state-owned enterprises such as Eskom, or to plug government funding gaps – at a time when government spending is unsustainable.
“Any policy of prescribed assets is likely to leave South African pension fund holders poorer,” he said.
The IRR, said Roodt, would “continue to put pressure on pension fund managers to detail what they will be doing to protect the property of their clients”.
– email@example.com, additional reporting by Amanda Watson