WEWORK INVESTORS SHOWING CAUTION
towards spending that stimulates economic growth… particularly towards capital expenditure”, as the wording goes in the Technical Guidelines.
That would be reasonable during fiscal expansion, like implementing a massive public works programme to get rid of 4 000 dangerous pit toilets in the schools, employing people as they are instead of wining about “skills shortages”. According to Equal Education and Section 27, Limpopo will start such a programme in 2026.
But a cut in spending that hits “public consumption” harder – like public health and education services – will make the Treasury’s recessional push even stronger. The vast majority public sector workers spend all their wages each month.
In contrast, the provinces and local governments every year return hundreds of millions of unspent infra structure money to the Treasury. To this fact can be added normal time lags, but also the need to curb corruption in infra-structure projects. For the looting of public resources to stop, there is frankly speaking more, and not less, “red tape” and controls needed: to impose rules and legislation that are already there.
The opening bid before the Mid-Term Budget makes it clear that Eskom’s debt crisis mustn’t be addressed by more budget allocations. Bluntly put, the R59bn Special Appropriation Bill is appropriating its funds from public services. The Treasury now plans to repeat this again.
Available state funds should instead be used. One fund is the Unemployment Insurance Fund (UIF) that has accumulated an investment portfolio of R154bn (March 2018). Official unemployment stands at 29 percent and the UIF makes an annual surplus of R8bn after paying benefits. There are 37 000 real vacancies in public health alone, according to the Presidential Health Summit in October last year. R8bn would finance these vacancies at an average annual labour cost of R216 000.
The other fund is the Government Employee Pension Fund (GEPF) that has accumulated R1.8 trillion of assets manhandled by the Public Investment Corporation.
As for the social use of GEPF there are many options.
Let us for argument’s sake do the opposite to the 10 percent public sector wage cut that the Treasury’s Director General Dondo Mogajane suggested a month ago.
A one-year payment holiday from the 7.5 percent employee contribution to the GEPF would put some R28bn in the pockets of the government employees and stimulate economic demand in the local economy. It would repair some of the R22bn damage done by the VAT increase.
A simultaneous one-year government contribution holiday would let R52bn remain in the national budget. It would start to break the spiral of debt service, more budget austerity and still more debt service.
The GEPF is currently paying an estimated R100bn in pensions and benefits over a year and receives an estimated R75bn in cash income from dividends and interest payments. Some 45 percent of these cash incomes come from other parts of government! GEPF is a main creditor of both the government and Eskom. With a contribution holiday, the R1.8trln in the GEPF’s fund would decrease by R25bn, other things being equal.
The contribution holiday would pose no threat to the guaranteed pension and benefit payments to state employees and their spouses. The surplus after paying all pensions and benefits amounted to R47.5bn in 2018.
Another obvious option is to change the investment policy of the GEPF. The policy is in breach of prudency standards.
The 2018 audit showed that the GEPF’s solvency fund should have R402bn as protection against a financial crash. The requirement is only covered to a third. This alone is a compelling reason for shifting a lot of the GEPF’s more than R1trln investment in shares to government bonds, selling them at regulated interest rates to handle the debt crisis at Eskom.
GEPF’s ability to pay benefits currently would in fact improve, even when interest rates on loans between state organs are rebated.
GEPF’s cash dividend returns from its shareholdings are historically more than 3 percentage points lower than interest incomes from GEPF’s bond possessions.
As for the Treasury’s discussion document, the National Health Insurance isn’t mentioned.
On the face of it, the state is depicted as a procurement provider. The planned shock-therapy reflects a strategic quest for a smaller public service sector as a share of the economy.
Dick Forslund is senior economist at Alternative Information and Development Centre. EXECUTIVES of WeWork and its largest investor, SoftBank, are discussing whether to shelve plans for an initial public offering of the money-losing co-working company, said people with knowledge of the talks. SoftBank is pressing WeWork to postpone the stock offering after investors expressed serious concerns about the business and its corporate governance, said the people, who asked not to be identified because the discussions are private. WeWork, which owns or leases office space and then rents it to companies typically needing short-term space, had planned to hold a roadshow to promote the offering as soon as this week, an executive told analysts last week. Representatives for SoftBank and We, the parent of WeWork, declined to comment. In the span of a few months, WeWork has gone from one of America’s most valuable unicorn startups to a punchline in investment circles. Early this year, Goldman Sachs Group pitched WeWork as a $65 billion (R959bn) business. But when the company filed a preliminary prospectus last month it revealed the company had racked up billions in losses, was burning cash and had an arcane corporate structure riddled with potential conflicts. In just the first six months of 2019, WeWork lost $690 million, bringing its total losses to almost $3bn in the past three years, the filing showed. Now WeWork advisers are estimating the company is worth less than a third of Goldman’s figure. SoftBank Group and its affiliates hold about 29 percent of WeWork stock, it was reported last week. That’s even more than co-founder and chief executive Adam Neumann holds, though he maintains effective voting control through a three-class share structure. SoftBank has invested a total of about $10.65bn in the New York-based company, but that has been at a range of valuations. SoftBank’s Vision Fund invested just once at about a $20bn valuation in early 2017, while SoftBank Group kept pouring money into WeWork, most recently in January at a $47bn valuation. I Bloomberg