Treasury eyes public pensions to feed carnivorous entities
• SAA and Eskom have an insatiable appetite for cash and Gigaba is willing to satisfy its hunger
If rumour is to be believed, Public Investment Corporation (PIC) CEO Dan Matjila will be relieved of his position at a special meeting of the board on Friday. Much like former finance minister Pravin Gordhan, Dr Dan’s insistence on adhering to sound investment principles and standing up to looters has made him unpopular with the powers that be and he has been earmarked to go.
It is no secret that the Treasury has had an eye on the PIC as a solution to its financial problems for some time. Just two weeks ago, Finance Minister Malusi Gigaba told Cosatu’s central executive committee meeting that he could not guarantee the government would not try to make use of PIC funds to recapitalise state-owned entities (SOEs) and other projects.
In something reminiscent of Little Shop of Horrors, stateowned entities such as Eskom and South African Airways (SAA) are the proverbial plant that keeps crying: “Feed me, Seymour!” to an increasingly weaker and politically compromised Treasury. At some point it will need another sacrifice; and that sacrifice will be the PIC.
Just yesterday, it was announced that the Treasury had drafted a special appropriation bill to “recapitalise” SAA with a R10bn bail-out, but there are serious questions whether Treasury can afford it. It has been forced to go this route because SAA was turned down earlier this year by the PIC when it was approached for a loan on the basis of wanting to “diversify their debt portfolio”. It became clear after several of SAA’s debts lapsed shortly after, that they just needed the money.
SAA has also approached the Government Employees Pension Fund (GEPF) — which is administered by the PIC — before for a loan, but was apparently also turned down. Under normal circumstances, these would have been the right decisions — both financially and politically — but because of SAA’s insatiable appetite for cash, the decision incurred the ire of those at the Treasury who have a political imperative to keep the cash flowing.
Let’s not forget that the GEPF, and by extension the PIC, is already heavily invested in another shining example of state-owned incompetence, Eskom. According to the most recent figures, the GEPF holds almost R74bn in Eskom bonds and bills, making it the largest single owner of Eskom debt. Eskom is arguably a better investment than SAA, but you also don’t need to be an asset manager to see that the PIC probably has enough exposure to utility-scale risk.
With the PIC unwilling to step in and finding it difficult to raise capital in the market, it was the National Revenue Fund that came to SAA’s rescue with a R2.3bn bail-out. This was great for SAA, but the trouble is that this and other sources of cash are either running dry or are increasingly difficult to access.
Despite how it seems, SA has pretty good checks and balances in place when it comes to public finances. SAA’s last bail-out was done in terms of section 16 of the Public Finance Management Act on the basis that if it didn’t avoid a default on its loans, it would have triggered a call on the guarantee, and this would have spooked investors even more than the bail-out.
Despite the utilitarian pragmatism of the decision, it was still a last resort, which is why the Treasury has had to go another route with the special appropriation bill.
Even if there was a valid reason for sinking more state funds into ailing SOEs, there simply isn’t the money to do it.
It emerged this week that the South African Revenue Service is facing a revenue shortfall of R50bn and the economy is growing far too slowly for any meaningful improvement to the fiscus in the next two to three years. Under these conditions, it is hard to imagine where the Treasury will find a spare R10bn for SAA, let alone the rumoured R3bn that the National Empowerment Fund is asking for.
Given that an expected local currency downgrade will make it even more expensive for the Treasury to borrow, it makes sense to try to gain access to the vast coffers of the PIC. After all, borrowing from the PIC is a bit like borrowing from your parents; when times are tough and you can’t make your repayments, they’ll be more willing to refinance your debt than a nasty banking institution.
So, where does this leave us? The main reason I wrote this column was because it needs to be placed on record that there are rumours that Matjila, and the integrity he represents, are at risk. The PIC is the last bastion against the wholesale raiding of state funds, and it cannot fall. The looting has to stop. Financial institutions have a role to play here in the same way that they did in thwarting the Guptas by closing their bank accounts.
There is ample evidence that pilfering state pensions to keep the state afloat is a recipe for disaster. We mustn’t forget that what started the Greek bank run in 2015 was the government’s inability to pay pensions to more than 2-million Greek citizens after the government defaulted on a loan repayment with the International Monetary Fund. Where did the pension money go? Into the pockets of wellconnected Greek citizens and government officials.
In Argentina, the story isn’t much different – as the state started to run out of money in 2008, private pensions were nationalised and state funds were “officially” misappropriated. A decade later, the Argentinian government announced further cuts to pensions and support for the disabled.
The trouble is that if those who can don’t act now, by the time the nurses, teachers, and traffic cops realise what has happened, it will be too late. Those who have plundered the state coffers will be comfortably ensconced in gilded mansions across our borders.
What worries me most is that Gigaba doesn’t seem the least bit concerned about shifting state money around to fill gaps caused by gross negligence, fiduciary incompetence and bald-faced corruption.
Like Seymour in Little Shop of Horrors, he knows that he needs to keep feeding the monster at whatever cost, or risk being eaten himself.
THE PIC IS THE LAST BASTION AGAINST THE WHOLESALE RAIDING OF STATE FUNDS AND IT CANNOT FALL