Inquiry outcome needs to push PIC in right direction to benefit economy

Findings of commission should bolster role of Public Investment Corporation as developmental investor

In the next few days or weeks, President Cyril Ramaphosa will announce the findings and recommendations of the commission of inquiry into the Public Investment Corporation (PIC) after 12 months of public hearings and submissions by various interested and affected parties. When Ramaphosa announced this commission, I wrote in Business Day that the “arduous task facing retired judge Lex Mpati and his co-chair, Gill Marcus ... as they preside over the commission of inquiry into the PIC is safeguarding the role of the PIC as a developmental investor while strengthening its governance structures and ethics protocols to avert lapses that may result in wrongdoing” (“PIC unfairly criticised for its role in BEE”, February 27 2019).

I trust that learned judge Mpati, former SA Reserve Bank governor Marcus and investment industry veteran Emmanuel Lediga have analysed the evidence presented by the affected parties carefully, separated the wheat from the chaff and fact from fiction, and made solid recommendations to the president that will be implemented swiftly to correct any wrongdoing and, most importantly, clearly define the role of the PIC as a long-term developmental investor in the interest of its depositors.

Former Government Employees Pension Fund (GEPF) principal executive officer, now entrepreneur and executive chair of Third Way Investment Partners John Oliphant, used to argue that it was not in the best interests of GEPF members and pensioners if the economy underperformed. Therefore, pension funds, as part of their diversification and long-term strategies, should invest in assets that produce commercial and developmental outcomes for society. This includes investing in the construction of roads, dams, bridges and renewable energy, taking bets on start-up businesses and making social investments in areas that were previously neglected, such as townships and rural villages.

A case in point is the Eskom energy crisis. Efficient Group economist Francois Stofberg has published data outlining the effect of loadshedding on SA’s economy in 2019. He found that the cost of load-shedding reduced GDP growth by about 0.3 of a percentage point in 2019. This translates to R8.5bn in real, inflation-adjusted money. This is against the backdrop of an economy that is estimated by the IMF to have grown a paltry 0.7% in 2019. In its 2020 Outlook Report, the IMF has revised the 2019 growth number to 0.4% and 2020’s to 0.8%.

These dismal economic numbers have had a knock-on effect on the GEPF investment portfolio, which according to the fund’s annual report for the year ending March 2019 had 94% exposure to the economy and grew by only 0.88% to R1.818trillion from R1.802-trillion in 2018, due mainly to poor returns from the JSE. At an asset return level, the GEPF delivered an annual gross return of 4% in 2019, down from 9.4% in 2018.

POLICY ENVIRONMENT

While it is true that conditions for investing in the SA economy are not favourable, pension fund trustees, with the PIC and GEPF taking the lead, should engage policymakers at Luthuli House and their fellow travellers at Cosatu House to fundamentally change the policy environment to make it more favourable for investments and job creation. The PIC, on behalf of the GEPF, must take the lead in investing in assets that will have longterm developmental effects for society. For example, the PIC was one of the seed funders of MTN when it was founded in 1994. Today, MTN’s healthy investment returns have contributed handsomely to ensuring the GEPF pays aboveinflation increases to its 400,000 pensioners.

The announcement by mineral resources & energy minister Gwede Mantashe at the recent Mining Indaba that mining companies will be allowed to generate electricity for self-consumption is a step in the right direction to alleviate energy supply constraints in the mining industry. But more work still needs to be done.

The addition of labour representatives to the PIC board, aimed at strengthening governance, will also go a long way towards bringing labour to the coalface of investment decision-making that affects their retirement savings. Most importantly, labour will have a more acute understanding of the macro and micro economic factors driving workers’ investment portfolios.

Positive steps have already been taken in the right direction. The appointment of Reuel Khoza as chair of the PIC board in June 2019 was applauded by the industry. This replaced the tradition of the deputy finance minister automatically becoming chair of the board and may finally shield the PIC from the political machinations that have found their way into the investment decision-making process. But this is not enough.

In addition, the PIC must be partially privatised to allow for multistakeholder participation in its ownership, alongside the state. The labour movement — the real owners of the assets the PIC is managing — should be aggressively pursuing this option instead of rubber-stamping every noise that comes from whatever faction is on top at Luthuli House.

At the heart of discussions by investment industry players is what a future PIC should look like. The Association of Black Securities and Investment Professionals attempted to answer this question in its submission to the commission. “Given that the minister (and the cabinet) and the National Assembly are constituted on the basis of explicit political appointment and that unions are not completely insulated from political activity, it would be practically impossible to remove the PIC from political oversight.

“However, a clear distinction should be drawn between political oversight accountability and participation in strategy (which go to the heart of an efficient and effective SOE that is able to fulfil its mandate) and political control and interference (whereby the aims, processes and outcomes embedded in the mandate of the SOE are subverted to narrow politically driven agendas). The former is a natural outgrowth of the role of an SOE while the latter is a pernicious subversion thereof.”

There is also a view that the PIC should be split into three parts — real estate, private equity and listed equity — with separate boards, to drive efficiencies and improve oversight.

Whatever the future PIC looks like, at its heart strategy and outlook must be a developmental investment agenda to deliver healthy commercial and development returns in the long term for its members and broader society. This can be done voluntarily, without the prescribed asset approach the governing party is ostensibly suggesting.