Opinion: Confronting racial bias at the PIC Inquiry
JOHANNESBURG – The Judicial Commission of Inquiry into allegations of impropriety regarding the Public Investment Corporation (PIC), which is chaired by former President of the Supreme Court of Appeal, Justice Lex Mpati, assisted by Gill Marcus and Emmanuel Lediga, was established by President Cyril Ramaphosa by Proclamation 30 of 2018, published in Government Gazette No 41 797 on October 17, 2018, to investigate allegations of impropriety regarding investment decisions and other matters by the PIC in media reports in 2017 and 2018.
The terms of reference of the judicial commission required it to enquire into, make findings, report on and make recommendations on the following:
- Whether any alleged impropriety regarding investment decisions by the PIC in media reports in 2017 and 2018 contravened any legislation, PIC policy or contractual obligations and resulted in any undue benefit for any PIC director, or an employee or any associate or family member of any PIC director or employee at the time.
- Whether any findings of impropriety following the investigation in terms of paragraph 1.1 resulted from ineffective governance and/or functioning by the PIC Board.
- Whether any PIC director or employee used his or her position or privileges, or confidential information for personal gain or to improperly benefit another person.
- Whether any legislation or PIC policies concerning the reporting of alleged corrupt activities and the protection of whistle-blowers were not complied with in respect of any alleged impropriety referred to in paragraph 1.1.
It would have been appropriate in the circumstances for the terms of references to include “the impact of PIC on radical economic transformation" or “inclusive growth”, because one of its objectives, according to the PIC 2019 Integrated Annual Report, includes driving and facilitating “transformation through investments activities both in Listed and Unlisted Investments (Impact Investments and Private Equity)”.
The 2019 Integrated Annual Report describes the PIC as “one of the most influential organisations in the South African economy as it is the largest asset manager in terms of assets under management.
Moreover, the PIC has a strong focus on making investments that exceed its clients’ benchmark returns, while contributing positively to the development of the economy”.
The PIC was founded by the government in 1911 as the Public Debt Commissioners, the organisation was renamed the Public Investment Commissioners in 1984 and became the Public Investment Corporation in 2005.
This was following the promulgation of the Public Investment Corporation Act, 2004 (Act 23 of 2004), which came into effect on April 1, 2005.
This transformed the PIC into a modern asset management company.
The PIC is a registered financial services provider in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act 37 of 2002). It is regulated by the Financial Services Board, with the South African Government as the sole shareholder, represented by the Minister of Finance.
According to Bloomberg, the PIC “oversees R2.13 trillion of mainly South African government worker pensions; is the largest investor in the JSE with 12.5 percent of the market capitalisation of all companies listed on the JSE totalling approximately R1.6trln.”
At a recent Black Business Council workshop on National Treasury’s presentation titled “Restoring Economic Confidence and Stabilising the Public Finances”, Duma Gqubule, the director of the Centre for Economic Development and Transformation said: “If you look at the JSE Top 100, there’s no single black company, and if you look at black ownership on the JSE Top 100, it’s about 3 percent.”
There is no reason to doubt Gqubule, because he spent the past two decades as a financial journalist, analyst, advisor and consultant on issues of economic development and transformation.
This means that the JSE comprises 97 percent white companies and only 3 percent black companies. Dr Reuel Khoza wrote in the 2019 Integrated Annual Report that, “Over a three-year period to the end of March the PIC said its listed investments returned an annual average of 4.75 percent, ahead of the 4 percent for its peers, but below the 5.2 percent average inflation rate. Assets under management grew to R2.13trln in the financial year from R2.08trln the year before.”
This report also states that the “performance of the Government Employees Pension Fund's (GEPF’s) local listed portfolio over a three-year rolling period has been positive, returning 5.59 percent against the benchmark return of 5.34 percent. During the year under review, local listed equities outperformed the benchmark of 0.91 percent, returning 1.96 percent.
Capital market bonds returned 1.65 percent against an 0.18 percent benchmark, a significant out-performance of 1.46 percent. Money markets returned 8.02 percent against a benchmark of 7.26 percent, outperforming the short- term fixed interest Index by 0.71 percent. In general, the listed properties sector’s performance was disappointing, as reflected in the South African Listed Property Index.
The fund returned -7.22 percent against a -5.68 percent benchmark an underperformance of -1.62 percent.”
Gqubule says that even 3 percent is high, and if you remove the debt from the black companies it becomes 1.5 percent.
It, therefore, stands to reason that any commission of inquiry into the PIC would mostly interrogate the white companies, as they are almost all listed on the JSE, in which the PIC is the largest investor. Strangely all the PIC Commission of Inquiry has been into black companies in which the PIC invested and not into any white companies on the JSE.
The PIC is the largest investor in many white corporates who have admitted publicly to fraudulent activities. The most widely reported of these fraudulent corporates is Steinhoff, where investors have lost approximately R200 billion and the PIC alone has lost R24bn.
In this week Tongaat Hulett is about to release the forensic report into fraudulent activity, where the loss to the company is in many billions of rands.
EOH, the ICT company, announced recently that it discovered widespread fraud and corruption in government contracts, wiping tens of billions of rands off its shareholder value. In all three of the above cases, the PIC is the largest shareholder and has lost tens of billions of rands.
The PIC is also the largest investor in many South African companies that have taken pensioners money and squandered it offshore. Some of the chief executives of these companies are the highest-paid chief executives in South Africa today.
As an example, Woolworths, where the PIC is the largest investor, invested about R20bn in acquiring David Jones stores in Australia and has all but written off its entire investment there. If one was to calculate the total loss to South African investors from companies with failed investments offshore it would amount to almost R500bn over the last few years. In virtually all these companies, the PIC was and remains the largest shareholder.
Why is it that not a single board member, chairperson or chief executive of a JSE listed white company was called to testify at the PIC inquiry, given the loss of tens of billions of rands of GEPF and pensioners funds that the PIC invested in the white corporates?
In December 2017, the Investment Committee of the GEPF and the PIC held a meeting, after which they sent a letter of demand to Steinhoff, following the collapse in the Steinhoff share, in which they stated that “developments point to serious governance challenges at Steinhoff and that the following steps were necessary to secure their interests in the company”.
- GEPF and PIC will insist on the appointment of at least two independent non-executive directors on the Steinhoff and Steinhoff Africa Retail boards.
- GEPF and PIC will highlight their discomfort with the lack of independence of the board, including the possible conflict of interest by Dr Christo Wiese as interim chief executive.
- Furthermore, the GEPF and PIC will express their concern about the Steinhoff Audit Committee concluding the terms of reference of the investigations independently.
- GEPF and PIC will insist on representation on the Board Committee tasked with investigating the Steinhoff situation, so as to ensure that the process is transparent and that, among other matters, the terms of reference address critical governance issues.
Why did the commission deliberately ignore the tens of billions of rands lost by white corporates on the JSE, such as Steinhoff? Why were these companies not investigated? Was the commission swayed by the establishment media that focused only on black companies and blatantly ignored the white companies in which the PIC invested R1.6trln.
Was this an example of the white media defending the interest of white corporates, with the possible collusion of some who serve on the PIC commission of inquiry?
An examination of the statistics of people who were called to testify at the PIC Inquiry shows the following: Of the 88 people that were called to testify, only 5 of the 17 white people were not PIC employees or consultants. Of the 5, none was a chief executive from a JSE listed company.
Where there was a white chief executive, it was of an unlisted company called to testify against the black shareholder of that company.
The evidence leader of the PIC commission, Advocate Lubbe, decided who to call as witnesses to testify at the PIC commission of inquiry, as each witness opening statement said they were responding to specific questions put to them by Advocate Lubbe.
Additionally, most questions which black executives and PIC employees were asked to respond to, targeted black companies and black executives.
These statistics demonstrate evidence of racial bias on the part of the PIC commission.
There is a ruling by Judge President Dunstan Mlambo in the North Gauteng High Court setting aside the findings of the arms deal commission and concluding that Judge Willie Seriti failed to comprehensively investigate the case.
Similarly, how does the evidence lead Advocate Lubbe to justify putting emphasis on the 1.5 percent of black economic players as opposed to the one of Tongaat Hulett’s and Steinhoff, in which the PIC is heavily invested?
Tongaat Hulett’s share price crashed after the agriculture and agri-processing business said that the ongoing strategic and financial review of the company had revealed certain practices that would “require further examination and which, if verified, might require remedial action, including assessing the impact on its previously reported financial information”.
Without casting aspersions on the respected Justice Lex Mpati and his assistants Marcus and Lediga and seen to be wanting to prejudge the PIC commission findings, there is a prima facie case for the PIC commission findings to be taken on review for bias and for being racially driven.
There is perhaps a bigger question for the commission to answer.
Why did the commission treat black companies and black executives differently to white executives and white companies in which the PIC invested?
If this is not answered satisfactorily, it will give credence to those who say that the PIC commission was nothing but a racially motivated kangaroo commission designed to destroy black business in South Africa.
Sello Mashao Rasethaba is the chairperson of the African Entrepreneurs Council (AEC) and the Lobbying Corporation of South Africa.