Ebrahim Patel’s prescribed assets proposal a walk down the failed National Party route
Working people and up to 13-million pensioners will lose out if the new trade & industry minister’s plans of treating failed SOEs as investable entities come to fruition
Trade & industry minister Ebrahim Patel made headlines shortly after his appointment by focusing attention on the ANC’s call for “prescribed assets”. Patel said pension funds “have a role to play in the development of SA through investment in real assets” such as Eskom, SAA and the SABC.
Investments in SA’s state-owned enterprises (SOEs) are high-risk bets; actually extremely high-risk. Yet still, the ANC wants the nation to bet its retirement on the belief that the SOEs are not imploding but are in fact sound “real assets”.
Public broadcaster the SABC has warned that a communication blackout is “imminent”, it is unable to pay its municipal bills, and board chair Bongumusa Makhathini has said he is “not sure how we’re going to pay for salaries come end of June”. There is talk of a R3.2bn bailout to keep the SABC afloat.
SAA recently appealed for a R4bn bailout on top of the R39.3bn in bailouts it has received since 1999. Eskom carries the largest debt burden at around R500bn. It is at least 33% overstaffed and unable to operate its flagship power stations. Load-shedding is set to return for spring.
So why should anyone invest in these “real assets”? Two categories of investors would be interested. Those with a massive risk appetite — think bitcoin traders, unicorn chasers and fire sale connoisseurs — seek opportunity inside the smog of catastrophe. On the other hand, institutions with the capacity to turn monumentally mismanaged projects around by using the conditions of investment to take over management — think the IMF and China — might consider our SOEs to be typical big-time fix-em-uppers. Pension funds are in neither position.
As long as public enterprises minister Pravin Gordhan insists on pay raises for redundant employees and obstructs retrenchments at SOEs, no pension fund manager will be able to use its stake to clean up Eskom and company. Also, pension fund managers have a fiduciary obligation to stay out of the casino and play it safe. While high-stakes gamblers have the advantage of time to pick themselves up after a flop, pensioners do not.
It is precisely because of responsibilities to their investors that the only way to compel fiduciaries to make massive investments in these SOEs is by force. In effect, Patel and the ANC propose putting a gun to the fund managers’ heads before saying, “give us your money or else face asset seizures and fines or go to jail.” With SA’s record high pension pot of about R4-trillion, this is surely the most audacious ransom demand in Africa’s history.
There are 11-million to 13-million pensioners, so let it be clear that in a generic sense we are all in this together. But what about those who have no pension fund investments? What about the freelancers and no-pension employees of small businesses? Are they at least safe from the great pension fund hostage situation?
No, the state has its eye on their shiny coins too. At least since 2007 the department of social development, under then minister Zola Skweyiya, has entertained proposals to make a contribution of 15% of income “mandatory” for all those who earn more than R12,000 a month. This has been reiterated in subsequent Treasury proposals, a green paper, departmental strategy plans, and Treasury and state discussion documents.
Christoff Potgieter, a financial planner at Brenthurst Wealth Management, says since official campaigning kicked off for the 2019 election, “radio silence” fell over the proposal to compel all earners to contribute either to private funds or to the Government Employees Pension Fund (GEPF). (Much like the ANC’s proposal to expropriate fixed assets without compensation, someone in the campaign office obviously knows what voters would rather forget when the time comes to tick next to the formerly trusted green, black and gold box.) Renewed attempts to hold existing private funds at ransom, especially under minister Patel, change the equation once more.
On eNCA Newsnight recently the incisive Faith Mangope interviewed me about the pension fund ransom and asked a lucid question. Won’t the attempt to plunder the existing pension fund pot incentivise companies to place their employees on “some kind of freelance contract”, stripping benefits and instead paying a “lump sum” for employees to invest themselves? That way companies and employees could dodge the risk of losing their hard-earned rewards to SOEs after all.
The answer I should have given is that the state has thought of that already and plans to force anyone who attempts this route to join the GEPF. Potgieter estimates on a middling scenario that almost half the value of these seized savings would go to “risk fees and expenses” before even taking into account “additional fees that the [state] pension fund administrator and fund managers make”.
To make matters worse, an ANC proposed alternative would be for the state to compel all earners to contribute to a national social security fund, with the option to invest for retirement privately if they can afford that after the 15% deduction. Again it’s the kind of deal you would only accept if the state put a gun to your head.
And it amounts to this: to flee from existing pension funds under a prescribed asset regime to private savings management would be like jumping from a pot that is slowly boiling frogs into a pan that is frying them. This prospect is on the horizon. Some call it a new dawn.
Others notice that this is exactly what happened as apartheid started to bury itself. In the 1980s, the state tried to sell the last gullible parrots in its corner of the press the line that SA’s problem (it was then facing economic shrinkage almost as bad as we’ve had in the last decade to date) was not enough confidence. To close the investor confidence deficit the (white) Nationalist Party (NP) government raided pension funds through the mechanism of prescribed assets.
Of course, the real problem was not a deficiency in confidence in government, but government itself, which was morally and economically corrupt in the extreme. Things only started to really turn around when the NP leadership attended to the root cause rather than the symptoms of its repugnant corruption, namely apartheid ideology. When it did that it put country ahead of party by accepting the preconditions for a transition of power. A decade later, GDP growth was back up to 5% and unemployment was shrinking. But the NP had clung to power so long, so viciously and so stupidly that it never stood a chance to play the role of a useful long-term opposition party. Still less did it stand a chance of returning to power democratically.
While it remains in charge, the ANC must recognise that only one in every four adult citizens voted for it, even fewer among the youth. It must resist the urge to cling to everything within its grasp, including the savings that people depend upon to live out their days and die in dignity.
It must stop digging the hole deeper using us as the shovel. Starting with SAA (because it is the most brazenly gratuitous of them all), the ANC must learn to let live and let go if it is to have any chance of losing power temporarily in the next decade rather than being voted out totally and forever, just like its white nationalist predecessor.
Crouse is the George FD Palmer Financial Journalist Trust fellow at the Institute of Race Relations.