South Africa’s biggest labour union federation Cosatu signaled a "massive fight" with the ANC if state-owned fund manager the Public Investment Corporation failed to rescue the country’s second-largest clothing retailer, Edcon Holdings.
A week after a senior labour union official sent an email on February 22 to the country’s then deputy finance minister, the PIC, which manages more than R2trn of mainly government worker pensions, led a R2.7bn investment in Edcon, two people with direct knowledge of the situation said. The decision ran counter to the recommendations of PIC’s investment professionals, the people said.
The previously unreported incident highlights concern that some investment decisions at the fund manager are driven by political considerations.
President Cyril Ramaphosa has made curbing corruption a key part of his drive to resuscitate the economy. The PIC is being scrutinised by a judicial commission following allegations of interference in investments ranging from newspapers to coal mines. The Pretoria-based company, Africa’s biggest fund manager, is responsible for pensions of more than 1 million state employees.
“If they don’t have an investment case there is a problem,” said Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management. “I am concerned that investments are not made on a risk and return basis.”
The email came from Matthew Parks, parliamentary co-ordinator for the Congress of South African Trade Unions, to Mondli Gungubele, who in addition to being deputy finance minister was chairman of the PIC at the time. Parks complained the fund was “dragging its feet” with regard to a bailout of Edcon.
In the email, seen by Bloomberg, Parks warned of conflict between Cosatu, the PIC and the ANC and thousands of job cuts if the deal didn’t take place. Parks, in a telephone interview on Thursday, confirmed sending the email and said it was one of many he sent on the issue to Gungubele.
Gungubele didn’t answer a call made to his mobile phone or respond to a text message.
“Our members are furious at how long this is taking to be concluded,” Parks said in the February 22 email. “We are pleading with you, comrade deputy minister, to intervene to ensure the PIC Investment Committee does meet, quorate and the PIC signs the final lock-up agreement.”
Edcon announced on March 1 that it secured the money from lenders, landlords and the PIC - which used money it manages on behalf of the Unemployment Insurance Fund - in exchange for equity in the company. That allowed the retailer to stay in business and protect jobs.
“We have already placed on record that we appreciated the support of the unions acting in their members interests in looking for a solution to prevent Edcon being in a position where” jobs would be lost, Edcon Chief Executive Officer Grant Pattison said in an interview by telephone on Thursday. The unemployment fund had to independently approve the investment and change its mandate with the PIC in order for the investment to be made, he said.
Representatives of the PIC and Treasury didn’t immediately respond to emailed requests for comment and didn’t answer calls made to their mobile phones. The UIF said it may respond later.
140 000 Jobs
In his email, Parks said that if the investment wasn’t made, 40 000 jobs would be lost at Edcon, which runs the Edgars chain of clothing stores, and another 100 000 at factories and related services companies. A mass layoff on that scale could hurt the ANC’s prospects in elections to be held in May, he said. The ruling party went on to win 57.5% of votes cast.
"It will be impossible to convince any worker and their family to vote in the elections after their government did not act decisively to save their jobs," Parks said. "It will have long term repercussions for the alliance,” he said in a reference to the political partnership between the ANC, Cosatu and the South African Communist Party.
Parks copied the email to Bheki Ntshalintshali, the general secretary of South Africa’s largest labour union federation. Ntshalintshali didn’t answer a call made to his mobile phone and didn’t respond to a text message.
“We’ve done it before, and we will do it again,” Parks said in an interview, adding that it is his organisation’s mandate to protect jobs. Gungubele “was very helpful” in compelling the PIC’s investment committee to meet and make the decision, he said, adding that the then deputy minister wouldn’t have been the only one to decide on the investment.
Parks said that while no investment is guaranteed to succeed, the fact that banks also supported the rescue showed that it was a sound decision.