Fund manager balks at ANC plan to force bonds purchase

Amounts to the government overstepping its mandate

The ANC's suggestion that savings and pension funds should be channelled towards government spending through the mandatory purchase of bonds has received the thumbs-down from one of South Africa's largest retirement fund management companies.

"The problem is that government cannot force this on managers of retirement funds. As managers and custodians of the savings of employees we're not happy with the principle. You can't force investments into prescribed assets as the losers will be retirees," said the manager, who did not want to be named.

The government would be overstepping its mandate as this move towards prescribed assets would be a form of the government allocating capital, he said.

"We're already doing a lot ... investing in SOE [state-owned enterprise] bonds; I'm at a loss why they would want to make this mandatory. We support the principle of channeling savings towards infrastructure projects - however, it has to be done on a commercial basis with an appropriate risk-return profile," he said.

Public Investment Corporation (PIC) head Elias Masilela said South Africa's single largest investor would continue to invest in developmental projects - and his fund did not need the government's instruction to do so.

"The PIC has invested in excess of 30% of total assets under management in bonds [and] official-sector bonds account for a sizeable portion of this exposure. All the investments that we make, whether the purchase of bonds or through our equity participation, both listed and unlisted, will be driven by a deep desire to contribute to the country's economic growth and development - in a sustainable manner.

"We can show empirically that this has been realised and will continue to be so. Investing in infrastructure is a key aspect of South Africa's developmental programme, job creation and poverty reduction. This cannot be overemphasised."

The ANC document, "Economic Transformation", sets out the proposed policy as follows: " There exists a definite need to amplify the role of development finance institutions and SOEs as instruments for significantly advancing the levels of economic transformation within South Africa.

" The policy perspective must assess and interrogate the link between country savings levels and the funding of development. Emphasis will need to be placed on mobilising national savings [such as pension funds] in order to support the strategic and long-term investment programmes.

"The development link between the quantity that a country saves and the manner in which it invests these savings is a critical success factor across all developmental states, as is evidenced by the East Asian experience."

South Africa has an infrastructure backlog which will require a much higher level of investment - more than the amount the state can borrow comfortably.

According to the ANC, tackling the backlog would involve doubling the capacity to generate electricity by 2028, as well as repairing and improving the 58% of roads that are gravel, and 70% of all other roads.

The ANC goes on to say: "Improved road infrastructure is important to lower the costs of living and production in rural areas, [and] improve access to basic services, especially public transport."

Other investments the government plans over the medium term include spending R19.5-billion a year for the next four years to upgrade the rail network and ports.

"Water infrastructure also needs urgent attention, especially the renewal of canals and tunnels, which are important for the irrigation system.

"Over the next 30 years, R4-billion per annum will be required to address these backlogs, and R6- billion will be required to maintain existing functioning infrastructure," according to the ANC report.

The scale of this infrastructure investment over the coming decade dwarfs anything seen in the post-apartheid period. Coupled with a generally low and decreasing level of savings, this means that an increasing amount of South Africa's savings will be required for this level of investment.