Prescribed assets, where the government forces retirement funds to fund specific projects or companies, appear to be off
the table after the private sector and the government thrashed out a plan to finance President Cyril Ramaphosa’s proposed
R1-trillion infrastructure drive.
Leon Campher, CEO of the Association for Savings and Investment SA (Asisa), said months of meetings between the investment industry, the government and labour unions could see the investment plan being funded through a variety of financial structures that could include listed project bonds. It was also decided that an entity called Infrastructure SA will be established as a single portal to co-ordinate state projects.
"Everyone agreed that in the context of SA our need to attract foreign capital, our need to de-stress the state’s balance sheet, prescribed assets wasn’t the solution," said Campher.
"The solution was proper projects and crowding in private sector capital at the project level. The project must stand and fall on its own feet. It must be economically viable."
Campher said Asisa, which represents most of the country’s biggest asset managers and insurers, and other private sector players were working with Infrastructure SA to staff it with the requisite expertise in the form of "experienced old hands" to ensure adequate preparation of projects.
Ramaphosa has promised to unlock more than R1-trillion in infrastructure investment over the next four years to boost economic growth and help alleviate SA’s chronic unemployment. The government’s spiralling debt has raised the spectre of prescribed assets, which were last used by the apartheid regime to fund its fiscal deficit.
Under apartheid, pension funds, life insurance companies and the Public Investment Corporation were compelled by law to invest 33%-75% of assets in government bonds.
While the ANC has previously said it would investigate prescribed assets, that has been opposed by the fund industry, while others raised concern that workers’ money would be wasted on propping up failing state-owned enterprises.
"I would say it’s off the table because everyone understands it can be of no benefit," said Campher.
Sandy McGregor, portfolio manager at Allan Gray, said the issue of prescribed assets arose only because former president Jacob Zuma’s administration faced strong resistance from
the private sector to invest in public sector projects due to "egregious corruption".
However, McGregor was less enthusiastic about proposed infrastructure bonds, saying the success of SA’s renewable
energy independent power producer procurement programme shows the private sector will invest willingly in viable projects.
"The major threat to project funding is not the lack of suitable financial structures but the crowding out of the private sector by the huge fiscal deficit," he said. "A new asset class will do nothing to resolve this. The mantra should be ‘produce viable projects and the money will come’. The problem is not a shortage of funds but a shortage of investable projects."
But SA is still a long way from seeing pension funds invest en masse in infrastructure projects. That is because most collective investment schemes, such as unit trusts, can invest only in listed instruments. Project financing typically involves a mix of unlisted debt and equity from banks along with money from development finance institutions and governments, particularly in the early stages.
Nazmeera Moola, head of SA investments at Ninety One, said it may take some time before unit trusts can freely invest in listed project bonds. Once banks and development finance institutions have established the initial financing parameters of a particular project, which would typically have a mix of 20%-30% equity with the remainder funded by debt, the first institutional investors are likely to be a small cross-section of the private investment industry.
"Project finance is a pretty complex thing," she said. "It’s quite labour intensive and you need the right expertise. Only certain fund mandates allow for project finance participation."
The presidency and the Treasury could not be reached for comment at the weekend.
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