Kick­ing and scream­ing

In­dus­try op­poses in­vest­ments that Pres­i­dent wants

Finweek English Edition - - Economic trends & analysis - GRETA STEYN gre­tas@fin­

PRES­I­DENT Thabo Mbeki’s State of the Na­tion ad­dress hap­pens on 9 Fe­bru­ary. He will, as usual, sketch his vi­sion for the SA econ­omy. But the Pres­i­dent’s wishes don’t al­ways come true. Some of the grand plans for the SA econ­omy aren’t get­ting off the ground.

Mbeki has re­peat­edly ex­pressed the wish that in­sti­tu­tional in­vestors in­vest 5% of their funds in so­cially de­sir­able in­vest­ments. But only part of this vi­sion is ma­te­ri­al­is­ing, as re­tire­ment funds are re­fus­ing to come to the party.

In his State of the Na­tion ad­dress af­ter the 2004 elec­tion, Mbeki said: “We will work to raise the rate of in­vest­ment in the first econ­omy. To this end, we will en­gage with our so­cial part­ners to im­ple­ment the de­ci­sion taken at the GDS (Growth and De­vel­op­ment Sum­mit in 2003) that 5% of the funds held by the in­sti­tu­tional in­vestors will be in­vested in the real econ­omy. This dis­cus­sion should be com­pleted be­fore the end of the cur­rent cal­en­dar year.”

It’s al­most three years later, and the dis­cus­sions are still con­tin­u­ing. Den­nis Dykes, Ned­bank’s chief econ­o­mist who led the busi­ness sec­tor’s po­si­tion in the Na­tional Eco­nomic De­vel­op­ment and Labour Coun­cil (Ned­lac), says things have been “messy”.

“At first there were mis­con­cep­tions about what the orig­i­nal GDS agree­ment meant. Labour felt that all sec­tors of the econ­omy – and not just the fi­nan­cial sec­tor – had to be in­cluded in the 5% rule. Then it was de­cided that the onus must be on the fi­nan­cial ser­vices sec­tor and that ne­go­ti­a­tions should take place un­der the aus­pices of the Fi­nan­cial Ser­vices Char­ter (FSC).”

Ac­cord­ing to the char­ter, life of­fices, re­tire­ment funds and banks have agreed to al­lo­cate R122bn to so­cially de­sir­able in­vest­ments. The char­ter breaks th­ese in­vest­ments down into two com­po­nents – black eco­nomic em­pow­er­ment fi­nanc­ing and tar­geted in­vest­ments. The lat­ter con­sists of trans­for­ma­tional in­fra­struc­ture, low-in­come hous­ing, black small busi­ness fi­nanc­ing and black agri­cul­tural fi­nanc­ing. How­ever, the GDS agree­ment en­vis­aged the ad­di­tion of job-cre­at­ing in­vest­ment in labour-in­ten­sive sec­tors.

The In­sti­tute for Re­tire­ment Funds (IRF) signed the char­ter on be­half of re­tire­ment funds. But, in 2005, the pen­sions in­dus­try pulled out of the char­ter, say­ing the IRF had no man­date to act on its be­half.

Leon Cam­pher, ex­ec­u­tive di­rec­tor of the In­vest­ment Man­agers’ As­so­ci­a­tion of SA (Imasa) – which rep­re­sents the big fund man­agers – says Imasa’s view is that one can’t ex­pect pen­sion funds to make avail­able the fi­nance en­vis­aged in the char­ter. He says each fund is dif­fer­ent with a dif­fer­ent board of trustees and a dif­fer­ent man­date and it’s up to each in­di­vid­ual fund to de­cide what to do or not to do.

“It’s dif­fi­cult for the re­tire­ment in­dus­try to speak with one voice. We have tried dis­cus­sions with re­tire­ment funds and their con­sul­tants on what so­cially re­spon­si­ble in­vest­ments (SRI) might be ac­cept­able, but so far we have not come up with a uni­ver­sally ac­cepted po­si­tion,” Cam­pher says.

Some pen­sion funds have in­di­cated that the only cir­cum­stances un­der which they will chan­nel funds to so­cially de­sir­able in­vest­ments would be if pre­scribed as­sets were in­tro­duced and if they were com­pelled by law. Cam­pher says Imasa is op­posed to such a move.

Magda Wier­cy­cka, CE of Syg­nia As­set Man­age­ment, says pen­sion funds’ in­vest­ment in so­cially de­sir­able in­vest­ments is neg­li­gi­ble. She es­ti­mates about 0,01% of as­sets of R1 tril­lion (in­clud­ing the Pub­lic In­vest­ment Cor­po­ra­tion) is in­vested in so­cially de­sir­able in­vest­ments. This means there would have to be a huge swing if 5% – R50bn – is to be in­vested.

It’s clear that pen­sion funds are only go­ing to come to the party kick­ing and scream­ing. The key is­sue is that they won’t want to in­vest funds in ar­eas they be­lieve won’t pro­vide a good re­turn for their mem­bers. It’s cru­cial that gov­ern­ment works with the fund man­agers at demon­strat­ing that so­cially de­sir­able in­vest­ments can also of­fer good re­turns.

But, good re­turns won’t al­ways be on of­fer. One ex­am­ple that comes to mind is fi­nanc­ing so­cial in­fra­struc­ture in bank­rupt mu­nic­i­pal­i­ties, where com­mu­ni­ties’ abil­ity to pay for ser­vices is lim­ited. On pa­per, re­turns might look good, but in re­al­ity the fi­nancier might face de­faults on pay­ments.

No uni­ver­sally ac­cepted po­si­tion. Leon Cam­pher

In­vest­ments are neg­li­gi­ble. Magda Wierzy­cka

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