With an audacious bid to dip into the Public Investment Corporation's coffers scuppered for now, the government is likely to be casting around for another source of easy funding. And the "dangerous eyes" that Deputy President Cyril Ramaphosa said this week were looking at the PIC could be homing in on private-sector pension funds.
A plan to force private-sector pension funds to invest in government assets has a precedent: the National Party relied on it for 33 years.
Prescribed assets - introduced in 1956 through the Pensions Fund Act and scrapped in 1989 - compelled private-sector pension funds to invest at least 50% of their assets under management in government bonds, homeland development corporations or government-owned companies, according to a presentation by Joanna Legutko for Jacques Malan Consultants & Actuaries.
Ian Cruickshanks, chief economist at the Institute of Race Relations, considers the reintroduction of prescribed assets as almost inevitable. "It is a very real risk. Where else is the government going to get the money it needs?" It is "naive" not to consider that prescribed assets could be reintroduced, he adds.
South Africa relies heavily on foreign capital. Although R69.5-billion of bonds were bought in the year to September 29, the sale of shares resulted in a net outflow in the period.
In September, the equity market recorded its worst monthly outflow since October 2008, while the bond market posted its biggest monthly inflow since March, according to Nedbank CIB.
But the sale of financial market assets is likely to accelerate if ratings agencies downgrade the country further, says Cruickshanks. And tax increases are likely.
What about an IMF loan? That would be a last resort, he says, because it would require the government to give up control of the budget.
Cruickshanks says that in terms of prescribed assets, the Treasury set the interest rate, so those managing the funds were fighting a losing battle against inflation. Consider that, in the mid- to late 1980s, inflation rose to more than 20%. Pensions funds also had no scope to invest offshore due to far stricter exchange controls.
The only possible benefit of prescribed investments in the past was that the capital was guaranteed, says Cruickshanks. But given the money pit that is SAA, for example, I doubt that is a guarantee we could now count on.
Currently, pension funds have limits on their exposure to equities, bonds, cash and property. Banks are compelled to maintain certain liquidity requirements, with a percentage of their liquid assets in government bonds, says Cruickshanks.
So what to do if the state gets its hands on private-sector pensions? Not much, frankly. Those managing these funds are likely to already be invested offshore to the maximum limit. And for people to resign to access their pension money is hardly an option in an economy shedding jobs.
Under apartheid, the funds raised through prescribed assets were used to benefit a small percentage of the population. If the practice is reintroduced, the benefits are likely to flow to an even smaller group of select individuals.
• Enslin-Payne is deputy editor of Business Times
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