Alarm over PIC Bill pressure
Trade unions fear a late bid to stall the legislation but key aspects have come up at the Mpati commission
While the Mpati commission continues to deal with claims of Public Investment Corporation (PIC) abuses, a Bill aimed at curbing them is allegedly being met with political pushback.
The PIC Amendment Bill, proposed by the National Assembly’s standing committee on finance, was mooted in 2017 when allegations of political interference at the stateowned asset manager began to dominate headlines.
The Bill, which was passed by the Assembly last month, is now before the National Council of Province’s select committee on finance and must be finalised before Parliament rises at the end of this month. A new Parliament will take the reins after the elections on May 8.
The minister of finance, Tito Mboweni, wrote to the chairperson of the select committee, Charel de Beer, on Monday this week to raise concerns about two aspects of the Bill. These were outlined by the treasury’s chief director for financial markets and stability, Roy Havemann, at public hearings this week, recorded by the Parliamentary Monitoring Group.
The first relates to governance questions, Havemann told MPS, notably whether a political office bearer, namely the deputy minister of finance or a deputy minister from the economics cluster, should be appointed as the chairperson of the PIC.
The second issue Mboweni raised is that the commission of inquiry into the PIC, headed by retired Judge Lex Mpati, is currently considering the governance structures of the PIC and will be making recommendations on them when it finishes its work. The commission began its work in January, after the committee had begun drafting the Bill.
But trade union representatives have become increasingly worried about what they see as “covert” efforts to collapse the Bill and prevent it from being adopted before Parliament’s term ends.
The PIC manages more than R2-trillion in assets for state pension and social welfare funds, including the Government Employees’ Pension Fund (GEPF) and the Unemployment Insurance Fund.
Addressing the hearings this week, trade union federation Cosatu’s parliamentary co-ordinator, Matthew Parks, said he had never seen this kind of resistance to a Bill. There were clearly efforts by “those who have looted at the PIC and want to continue looting” and who “benefit from the governance chaos at the PIC” to halt the Bill, he said.
The Bill proposes a number of changes to the PIC Act. They include the recommendation that the deputy minister of finance or, in consultation with the Cabinet, another deputy minister from the economics cluster, be appointed the chairperson of the board.
Parks asked why the appointment of the chairperson, supported by the ANC, was now being flagged as a concern. The Bill proposes the appointment of three union representatives to the board and requires that the PIC must declare its listed and unlisted assets to Parliament, and that all regulations and ministerial directives to the PIC board be tabled in Parliament.
The Bill also provides investment guidelines to the PIC for making investments decisions, which should, “as far as possible”, consider investments that, among other things, create and protect jobs, promote sustainable development and “industrialise the economy”.
The treasury did not respond to a request for comment but the question of whether the PIC’S chair should be a political appointment has been flagged as a major governance risk during the hearings at the Mpati commision. In testimony a PIC former independent non-executive director Vuyo Jack said that a politically appointed chair at the PIC “exacerbates” the governance risks confronting the organisation.
“Having an independent person to safeguard those investments with a mandate that is not clouded by any political moves will ensure that you’re actually enabled to safeguard the risk that Government is facing,” Jack told the Commission.
“There’s no legal prinicple, no economic principle that supports that the deputy finance minister should share the PIC,” Jack said.
De Beer said, despite the letter from the minister, the committee planned to go ahead with processing the Bill as planned.
He referred questions about the minister’s issues with the Bill to the treasury and denied that he had personally experienced any adverse pressure to see the Bill collapsed or stalled.
The Democratic Alliance’s Alf Lees has criticised the ANC in parliament for not fully ventilating Mboweni’s views on the Bill by making the letter public. The DA supports some elements of the Bill, but is opposed to a political appointment to the role of chairperson. It also views the investment guidelines as a “trojan horse” to introduce the controversial question of “prescribed assets” into law, which could see pension funds used to bailout parastatals such as SAA and Eskom.
Before the Bill was passed by the Assembly, it was suggested that it be postponed to allow the Mpati commission to complete its work. But the standing committee on finance, headed by Yunus Carrim, opted to proceed with it. The committee said in a report to the assembly that a second review of the PIC legislation could take place under the next Parliament, depending on the recommendations of the commission.
Ramifications
The PIC’S problems could have profound implications for the GEPF and the fiscus.
The GEPF is a defined benefit fund, which means, if the fund cannot meet its liabilities — essentially the payouts it owes state pensioners — the government must make up the shortfall.
A recent actuarial assessment of the GEPF’S funding levels, by Alexander Forbes, revealed that, although its minimum funding level is at 108% and exceeds its target of 100%, the level has been steadily declining in recent years, including having fallen from 115.8% in 2016 to its current level. Meanwhile, the GEPF’S long-term funding level is at 75.5%, with a target of 100%. This is also down from 2016, when it was slightly more than 79%.
The GEPF determines its minimum funding level by excluding any contingency reserves, and its longterm funding level makes provision for solvency reserves and other contingency reserves, which would, for instance, protect the fund against adverse investment performance, according to the report.
“Whilst the funding level is currently above the minimum funding level, the fund is currently not able to set aside the full recommended solvency reserve and contingency reserves to protect the fund in the case of adverse investment performance, improvements in pensioner mortality and other contingencies,” the report said.
The Association for Monitoring and Advocacy of Government Pensions, a group of pensioners, has become increasingly concerned about the GEPF’S performance. Christo van Dyk, a retired state auditor, highlighted in a review of the report, that worse-than-expected investment returns remained “the single biggest factor that causes strain on the fund”.
In examining the GEPF’S change in financial position from the previous actuarial valuation carried out in 2016, the report noted that it was assumed that the assets of the fund would earn 12.5% a year. Instead, it earned about half that — 6.49% a year. This resulted “in a substantial strain” of more than R225-billion for the fund.
The GEPF revealed in its annual report last year that it had to write down more than R7-billion in several investments, a number of which are being scrutinised by the Mpati commission. They included those in the Independent Media group and in the defunct VBS Mutual Bank, and the empowerment deal done with retailer Steinhoff and its partner the Lancaster group.
Building bust
In less than 12 months, Group Five became the fifth construction company to file for business rescue. Its JSE listing was also suspended after it filed for bankruptcy protection.
Its collapse is another reminder of the difficulties facing the construction sector, including stagnant economic growth, policy uncertainty and the significant reduction in infrastructure spending.
“The South African construction industry has been in trouble for some time now. In September 2017, confidence in the industry was at its lowest level since the third quarter in 2000,” Serfaas Badenhorst, Momentum Securities’ portfolio manager, said.
President Cyril Ramaphosa has pledged to spend R100-billion on infrastructure over the next decade but this may not be enough to lift the industry.
Sinking feeling
Business confidence in South Africa has plunged to levels reached during the 2009 global recession amid weak demand in the economy.
A report on Wednesday by the Rand Merchant Bank and Stellenbosch University’s Bureau for Economic Research showed the business index fell to 28 in quarter one of 2019 from 31 in quarter four of 2018.
A score of below 50 shows confidence levels are in negative territory.
The report, the research for which was conducted between February 13 and March 4, was “doubtless and heavily influenced by the marked load shedding that occurred in that period”, said Investec’s Annabel Bishop in a note.
The results could have been worse if it was not for new vehicles sales. “Vehicle sales to date this year continue to contract year on year, but at a slower pace,” she said.
Slowing demand in the local economy and poorer global economic growth also weighed negatively on business confidence.
Rooibos tea ceremony
Much-loved local brew rooibos is making big inroads in tea-drinking Japan, the South African Rooibos Council said this week. Last year, shipments to Japan, which consumes 26 varieties of tea, reached more than 2 000 tonnes, the largest since rooibos was introduced to the country in the 1980s.
Exports to Japan have more than tripled in the past five years, and several Japanese supermarkets have launched their own private label products, according to the council.
Unlike many South Africans who enjoy their rooibos with milk and sugar, the Japanese prefer it as an unflavoured infusion and drink it hot or cold.
Crash clues
The United State’s federal aviation agency did an about-turn on Wednesday and grounded Boeing’s 737 Max aircraft following the Ethiopian Airlines crash on Sunday that killed all the passengers on board. This prompted Boeing to ground all 737 Max models globally.
Many other countries and airlines internationally, including
South Africa’s Comair, had already grounded the aircraft.
The agency said in a statement that evidence collected at the crash site and analysed on Wednesday was behind its decision to ground the plane. There were similarities between the Ethiopian Airlines crash and another crash involving the aircraft model on Indonesia’s Lion Air in October last year. All 189 people on board died.