The next big thing
Gauteng's huge future cities
Investment in infrastructure is ideal for pension funds. Over the next 15 years, Gauteng alone is looking for R1.8 trillion. It would have to be found in partnerships with the private sector. Good governance and accountability are prerequisites.
The province’s whole tone sets it apart as it forges ahead with its own initiatives and plans
Amid the gloom over the governing party, there’s a shaft of light from ANC Gauteng. It remains potently within the national body but is increasingly distinguished from subservience to the dismal leadership. Economically and politically, the provincial organisation forges ahead with initiatives and ideals of its own.
Economically, it stands out for the courting of institutional investors to participate in the ambitious plan for “mega human settlements”. The plan itself is breathtaking in transformative potential. With its huge funding requirements, institutional participation is essential.
The province, which relies on an allocation from national treasury for over 90% of its budget revenue, simply cannot go it alone. Neither can it entertain partnerships unless it demonstrably practises the governance standards that are at the heart of institutional requirements. Financial institutions have a primary duty to the millions of ordinary South Africans who entrust savings to them.
Politically, under chairmanship of Paul Mashatile, ANC Gauteng stuck its head above the parapet in opposing the re-election of Jacob Zuma to the presidency at the party’s national conference in 2014. For his pains, Mashatile (a former Gauteng premier) was booted from Zuma’s cabinet. With hindsight, it looks as if this can only stimulate the claim of Mashatile for a top six position in a post-Zuma regime, thus to strengthen the influence of ANC Gauteng.
The run-up to the party’s national elective conference in December is in full swing. Of all the provincial groupings, ANC Gauteng is the most representative of urban black supporters and thus is best able to articulate their aspirations. The more it can distance itself from the Zuma albatross, and the more it is seen to promote “inclusive” economic growth assertively — as through the project for large human settlements — the better its chances to retain control of Gauteng in the 2019 national elections.
The better, too, for it to offer leadership in the formulation of government policy. An independence of mind was aptly displayed in its outspokenness against e-tolls.
More recently, the provincial party distanced itself from the “white monopoly capital” noise of its parent. It is consistent with its recognition of pension funds as awakening stakeholder activists. This was urged by Mashatile and supported by then deputy finance minister Mcebisi Jonas at a JSE symposium two years ago.
It’s since become part of ANC Gauteng policy. It ties perfectly with the role foreseen by financial institutions.
Mashatile, who uses every opportunity to engage with pension funds, drove home the rationale when he opened this year’s winter conference of the Council of Retirement Funds for SA: “We need to create a conducive environment that would allow institutional investors such as pension funds to invest directly in economic and social infrastructure. In essence, our view is that institutional investors can play a critical role in the advancement of meaningful transformation of the SA economy.”
A “conducive environment” means nothing if not an environment in which good governance, accountability and transparency are ground rules. It also means market-competitive returns relative to expected risk outside the asset classes conventionally favoured.
The commitment is underlined by two appointments.
One is former deputy finance minister Jabu Moleketi, chairman of Vodacom and the Development Bank of Southern Africa, to chair the 14-member economic advisory panel set up by Gauteng premier David Makhura. The panel has been created to ensure that all economic and infrastructure plans are implemented with “rigour and the required discipline,” Makhura explains.
The other appointment is John Oliphant, who now runs the emerging Third Way multidisciplinary investment company, as a consultant on the mooted infrastructure projects. As erstwhile principal executive officer of the Government Employees Pension Fund, Oliphant knows a thing or two about drawing institutional investment.
“We need a pipeline of bankable projects,” he insists. “The challenges are how to de-risk the value chain, provide evidence of prioritisation and apply co-ordination. We must identify the right projects and find the right partners at the right times. We must not have long and complex procedures.”
The whole tone of Gauteng sets it apart from the state-owned enterprises that are blighted by incompetent boards that defy institutional requirements. At the Gauteng infrastructure investment conference in July, for instance, Makhura emphasised to over a thousand enthusiasts the imperative for “investor-friendly ecosystems” guided by leadership that is “ethical, visionary and decisive”.
This is what Gauteng has in mind for optimal impact:
• Human settlements, vast in scale, each with 10,000 to 30,000 housing units at varying levels of density;
• Integrated land-use patterns for residential, commercial and industrial purposes;
• Different categories of housing stock for the giveaway, gap and open markets;
• A range of rental and freehold tenure options;
• Design features for poorer residents to feel comfortable alongside the wealthier;
• Inclusion of health-care, education and recreation facilities;
• Wi-fi Internet connections;
• Alternative power generation, waste and water treatment; and
• Improved systems of public transport.
What is foreseen are beneficial consequences: a boost to businesses, especially smaller ones that service residents and those related to construction; living spaces with modern amenities, enabling the convenience typical of suburban activity; and bringing work closer to homes, mitigating the time and cost of travel. It should also reduce land pressures in existing urban areas.
In all, these new post-apartheid cities promise to reshape Gauteng. The proviso is that, in financing them, the private sector comes to the party significantly through pension funds. Opportunities will necessarily be evaluated project by project.
There’s no need for the introduction of prescribed assets, points out Adre Smit of the Association for Savings and Investment SA: “Let’s have the projects. Our investment and savings institutions are willing and able partners.”
Sure thing. Returns will need to be attractive, and can be. Doug Thomson of Old Mutual Alternative Investments notes that the fund’s R53bn under management seeks to generate returns equating to the consumer price index plus 7% over rolling three-year periods (and presumably does so). This is from investments and developments it actively manages in SA and SADC countries across economic, social and power infrastructure.
Regulation 28 of the Pension Funds Act allows for 15% of a retirement fund’s assets to be invested in alternatives such as private equity. Yet, believes Sanlam Investments chief executive Azola Zuma, most retirement funds are not even at 5%.
Because the assets of retirement funds alone (exclusive of savings in assurance policies) approximate R4,5trillion, Zuma calculates that up to R675bn (as Regulation 28 now stands) can be invested in unlisted companies falling within the range of smaller to medium-sized enterprises and into economic infrastructure.
She urges that the sources of long-term domestic capital be leveraged: “Around the world we operate in a low-return environment, so the bulk of assets that continue to be invested in traditional asset classes scramble to deliver good returns. Institutional investors such as retirement funds ought to be deploying their patient capital into alternatives. Not only does this diversify the opportunity set for the funds, but it helps to propel the SA economy into a healthy mode that creates employment and drives demand.”
Enough then of bemoaning and awaiting the Zuma government. There’s an abundance of opportunity, most prominently in Gauteng, to carry on regardless. With early involvements from the PIC, Futuregrowth and the French Development Agency already in place, there are green shoots of confidence too.
• This article, by Today’s Trustee editorial director Allan Greenblo, is the cover story in the latest edition of the magazine, mainly for principal officers and trustees of retirement funds.