While both public and private funds should be required for investment in government bonds for the development of the state, there should be conditions attached to the investments to prevent looting and ensure depositors are protected, according to ANC alliance partner the Congress of South African Trade Unions.
This followed remarks by President Cyril Ramaphosa on prescribed assets during a question and answer session in the National Assembly on Thursday. The president said that labour, particularly Cosatu, is supportive of the idea of using their assets or pensions to generate investment.
The term 'prescribed assets' refers to a policy where the state obliges institutions such as pension funds and insurance companies to invest a part of their funds in state institutions or bonds.
"Cosatu in principle supports investments being required to invest a certain portion of their funds in government bonds that can then be utilised to support the funding of certain public goods, for example infrastructure, tertiary education, health, among others," the trade union federation's parliamentary coordinator Matthew Parks told Fin24 on Friday morning. However, he added, there must be a "healthy, above inflation return" on investments to protect the depositors.
"It (the investment) cannot be used to subsidise or bail out corruption and mismanagement," he said.
On Thursday Ramaphosa, in response to a question by DA leader Mmusi Maimane, said the issue of prescribed assets had been "discussed over and over again".
"In the end we will pursue policies that advance the interest of our people here in South Africa and also advance the interest of pension fund holders," he said.
The ANC resolved at its 2017 54th National Conference, which elected Ramaphosa as party president, to investigate a "new prescribed asset requirement" that would ensure that a "portion of all financial institutions funds be invested in public infrastructure, skills development and job-creation". This call was renewed in the party's 2019 election manifesto.
Government employees and the PIC
Parks said on Friday that Cosatu had supported the investments of the Government Employees Pension Fund - the state's largest pension fund - by state asset manager the Public Investment Corporation. However, there has always been a caveat that the investments of the depositors should be protected.
The PIC manages about R2.2trn in investments on behalf of public servants. It came under scrutiny in a recently-closed commission of inquiry chaired by retired judge Lex Mpati, which kicked off in October 2018 and examined multiple allegations of wrongdoing at the state-run asset manager.
"We have had lots of fighting with government of how investments were used for looting purposes," Parks said.
Even though there is space to fund development of the state with pension funds, ultimately the burden of failed investments will fall on the fiscus, he said. Members of the GEPF have defined benefits, which means that government will have to make up any shortfalls from investments that go awry.
"If there is mismanagement, the government will have to come to the party to make provision for the defined benefits."
Parks said the bailing out state-owned enterprises must be considered on case-by-case basis.
According to Parks, the country's economy can do without some SOEs, for example South African Airways, as there are existing competitors in the market. However, he argued, the economy can't do without cash-strapped state-owned power utility Eskom, as there is no alternative.
Defined plan to fix Eskom
Before more money can be allocated to Eskom, there should be a defined plan to fix it, Parks said.
"We need the looting to stop but we also can't afford for Eskom to collapse. The PIC will lose the R90bn invested and workers at Eskom will lose jobs," he argued. "There needs to be a sustainable plan to ensure the bleeding stops."
The alternative route for Eskom would be for SA to approach the International Monetary Fund for a loan, but this will not be ideal because the institution might prescribe conditions which would put the country into a "deep recession", Parks opined.
Opposition party the Democratic Alliance, meanwhile, has written to the major trade unions requesting a meeting to discuss jointly working to oppose the policy of prescribed assets, member of Parliament Geordin Hill-Lewis said in a statement issued on Thursday.
"Unions have a responsibility to care for the best interests of their members," Hill-Lewis said. The policy of prescribing assets would be harmful to the interests of South Africans, he added. "They (Cosatu) should be unequivocally opposed to asset prescription because it will harm the long-term financial security of their members."