esperate times require desperate measures, says Sanlam Investments chief executive Johan van der Merwe, when asked how South Africa will find a way out of its stagnant economy.
Van der Merwe, who commands a business with R700 billion in assets under management, 10% of the country’s R7 trillion pool of pension savings and insurance investments, says he would consider accepting a regime of prescribed assets if it could be shown it would make a difference.
In a concession generally regarded as a heresy in the investment world – where the pursuit of maximum returns for investors is legislated as paramount – Van der Merwe says earmarking between 2% and 5% (R140 billion and R350 billion) of the country’s savings to get otherwise unaffordable national infrastructure projects up and running may work.
Forcing pension funds to invest in state projects is nothing new in South Africa. The apartheid government wrote laws to compel pension funds to invest up to 50% of their assets in government bonds and other prescribed stock such as Iscor, Sasol and homeland development corporations. Low returns from these investments left some state pension funds, notably Transnet, underfunded and, in recent years, those pensioners have experienced great hardship.
Economic Development Minister Ebrahim Patel has said a form of prescribed investments could provide development capital. But Treasury said it would not support that being imposed on the pension industry.
Van der Merwe says he is not offering free money to government at the expense of Sanlam’s investors. He is indicating an openness to find ways of breaking up what has become an investment logjam.
“There has to be a way of getting big business and government working together,” he says. “There are talent and skills in the business sector that can help government find a way through the mess we are in.”
Van der Merwe talks from a position of strength. Sanlam Investments claims 20% compound growth annually for the past 10 years.
Last year Van der Merwe was rewarded with pay of R62.4 million, largely made up of long-term incentive payments and outperformance bonuses, on top of his basic salary of R4.3 million.
He deflects questions about his remuneration package by saying that 41% of it goes back to the taxman: “All I ask is that it is used for the benefit of the country and is not wasted on corruption.”
And that gets him back to solving the problems of an economy that has hit the buffers and is failing the impoverished majority of its citizens.
“Education across the board is the long-term answer. We are not going to go anywhere without a dramatic improvement in the quality of education,” he says.
“But first we must end corruption, which is becoming endemic. And we need leaders with strategic direction.”
Van der Merwe says the investment sector has a good understanding of the risks the country faces if confidence is not restored. “There is little prospect of growth to attract investors. The Eskom problem is a massive constraint, the political leadership shows no sign of finding a better way and we are faced with a wealth gap that is unsustainable,” he says.
Van der Merwe says he fears that without creative intervention to halt the slide downwards into stagnation and indebtedness “we are getting to a tipping point”.
Johan van der Merwe