ANC’s apartheid tool

ALTERNATIVES: PARTY WANTS ASSET MANAGERS TO LEND STATE MONEY ‘Prescribed assets’ was used when SA lacked access to global financial markets.

The ANC wants to use an apartheid tool, prescribed assets, for investment, a measure it once promised to implement but failed. It is simply dusting off a previous proposed economic policy used at its manifesto launch.

Will this time be any different? Prescribed assets were introduced during apartheid when SA lacked access to global financial markets and had to search internally for the funding it needed.

Prescribed assets are a policy of compelling pension funds to invest a prescribed portion of their assets under management in certain classes of assets, most probably government bonds, says Jee-A van der Linde, senior economist at Oxford Economics Africa.

But implementing asset prescription in the current mood would threaten to diminish the amount of capital available for lending to government, as well as the assets under management by pension funds, he warns.

“Rather than reintroduce prescriptions on asset classes, a much cheaper option is for government to aggressively start opening up the economy to the private sector. The resulting economic growth would boost government revenue, create more employment opportunities and improve confidence levels among businesses and households.”

Since 1994, SA has integrated into the global economy, with foreign investors becoming increasingly important players in the investment sphere. A serious problem with the proposed plan to force asset managers to lend the state the money is that the government’s credibility is shot.

Van der Linde says the intended policy comes at a time when there is a notable trust deficit in SA, fuelled by years where corruption flourished and the state was unable to implement effective policies. “The return of ‘prescribed assets’ would hit equity prices, depress returns on fixed income, diminish South Africa’s appeal as an investment destination and subvert the asset management industry,” Van der Linde warns.

“Conversely, evidence of pro-business reform and increased private sector involvement will easily grease the wheels of growth and help attract new investment.”

Low levels of private sector confidence, state capture and ineffective policies are among the key reasons for the decline, Van der Linde says. “State-owned entities [SOEs], with Eskom and Transnet the largest and most important, have become hugely inefficient over the past 15 years, severely curtailing commercial prospects of business across the economy.”

According to National Treasury, over a third of the decline in SA’s economic growth after 2010 can be explained by the direct effects of reduced productivity from SOEs. Van der Linde says this means SA gave up R2 trillion in economic activity between 2011 and 2019 due to underperforming SOEs, a figure that has since increased substantially.

The market value of SA’s total assets of non-bank financial intermediaries stands at roughly R15.1 trillion. These mainly consist of unit trusts (R3.9 trillion), insurance companies (R4.5 trillion), the Public Investment Corporation (R2.6 trillion), and public and private retirement funds and assets of other financial intermediaries.

–

Cheaper option is to open up economy to private sector