Time for public servants to stand up against looters
Reports that the Treasury is eyeing the Government Employees Pension Fund (GEPF) as an easy source of funding for bankrupt state-owned enterprises (SOEs) such as South African Airways, Denel, PetroSA and Eskom seem to have come as a surprise to many.
The GEPF is the largest pension fund in SA, providing pensions to most state employees. With 1.2-million contributing members and 400,000 pensioners and beneficiaries, it has R1.6-trillion in assets. That money is there to provide pensions to a lot of people for many years to come.
Unlike our SOEs, it is fully funded, which means the fund owns enough assets of sufficient value to meet its future liabilities — paying the pensions of its members. Although the GEPF is supervised by a board of trustees, the management of its assets is outsourced to the state’s asset manager, the Public Investment Corporation (PIC). Apart from the GEPF, the PIC manages assets for some other government-affiliated funds. It has its own board of directors, a CEO and an investment team. The board of directors is appointed by the finance minister.
The PIC invests in equities, bonds, property and unlisted assets, both in SA and offshore, much like any other asset manager. Unsurprisingly, given its size and cozy relationship with the state, it is the asset pool most easily accessible when the government and SOEs need to borrow money, particularly now that neither can easily borrow money from global investors after the recent credit rating downgrades.
Consequently, the PIC owns a substantial amount of both government and SOE bonds. The latest salvo was more blatant. The finance minister tried to sell the government’s entire stake in Telkom, valued at about R13bn, to the PIC. This is neither here nor there. At least the PIC would own a hard asset in the form of Telkom shares, which it could then sell. But R13bn is far less than what the state needs to return the SOEs to financial soundness.
Furthermore, just last week, President Jacob Zuma committed SA to a further R75bn in expenditure through three agreements with China and Russia. A week later, Finance Minister Malusi Gigaba started talking about the “R100bn from the PIC” that is needed. Hence it is likely that, irrespective of public outrage, the SOEs will continue to issue more “bonds” to the PIC, as they have done for years.
For the noninvestment minded, bonds are merely loan agreements that oblige the borrower to pay interest on the loan on a regular basis and repay the capital at some future date. However, if the borrower is not financially sound, there is a high risk of default. And that is where we find ourselves with all the SOEs — financially unsound.
Consequently, the concept of using government employees’ retirement savings to prop up firms riddled with corruption, mismanagement, weak governance and outright looting should be abhorrent to South Africans. If the SOEs default on repaying these loans, the PIC will lose money. If the GEPF is not fully funded, it will have to turn to the government to replenish its coffers so that it can continue paying its members’ pensions. When it does, everyone’s taxes will go up, including those of all pensioners, not just GEPF members.
There is a certain irony to the circularity of this flow of money. And hence, more than ever, this is the time for everyone, from civil society, trade unions and, most importantly, GEPF members and pensioners, to step up and say enough is enough. The message to the Treasury should be clear — sort out the SOEs first, appoint strong boards and management, root out inefficiencies and corruption. Then ask investors for money. Otherwise, we would just be throwing good money after bad.