The battle for the soul of the PIC
PRETORIA – If author Mervin Gumede were to revise his book ‘Thabo Mbeki and the Battle for the Soul of the ANC’ (2008) today, he would almost certainly expand his argument to include tussles over public funds and state-owned enterprises (SOEs). Barely a day passes without a story about the unending the tug-of-war over the control of the national patrimony. SA’s wealth is a rugby ball of politicians, trade unions capital and external players. Too many stories have been carried on SAA and Eskom, but the Public Investment Corporation (PIC) remains the jewel in the crown.
In 2015, a local daily carried an opinion piece which declared the PIC as “a leader in the economy.” This was based on the PIC’s eminent position as the prime investor in the JSE and the returns it accrued from those investments. The PIC, which manages pensions on behalf of the Government Employees Pension Fund (GEPF), is worth around R2.13 trillion.
For many years now, the PIC is a subject of much public contention because everyone wants to have a share of the pie. Its wealth, therefore, makes the PIC one of the most fiercely contested entities. The battle for the soul of this state asset reached the highest peak last week with the release of a document titled ‘Report of the Judicial Commission of Enquiry into Allegations of Impropriety at the Public Investment Corporation’. The 995-page report is about alleged impropriety in the Pretoria-based that were reported by the media during 2017 and 2018.
It is quite interesting that Chief Justice Mogoeng has resisted calls for an internal investigation pertaining to allegations that some judges could be compromised. Instead, Mogoeng has asked anyone who has evidence to come forward. But when it came to the wealthiest SOE, media rumours served as a basis for creating a judicial commission to investigate wrongdoing at the PIC. This tells how much this state entity is regarded, whether for good or ill intentions. But what is clear is that any enquiry to demonstrate power more than anything else.
As expected, the report found that internal procedures were flouted when making investment decisions and squarely puts blame on its former chief executive Dan Matjila as a culprit. Under scrutiny were transactions that mostly involved black-led companies such as Sekunjalo, Sagarmatha, Ascendis, etc and other bad investments including Lancaster Steinhoff, Erin Energy and S&S Refinery. The report also details the involvement of politicians and companies. All big white-owned companies like Bidvest, SASOL, large banks and appear to be beyond reproach. It is therefore unlikely that any one of them would ever be called to book.
The report’s recommendations tend to focus on governance issues and graft rather than on much more meaningful matters such as repositioning the PIC to lead all efforts of building a truly capable state. Too much money is wasted on meaningless investments in companies. A reformed PIC can drive economic development and take millions out of poverty. At this stage, the PIC is by far a key driver for investment within the white-dominated South African economy. Its equity investments account for about 12.5 percent of the JSE’s market capitalisation and it holds 28 percent of the bond market capitalisation as well as 25 percent of SA’s government bonds. Its unlisted assets make up 30 percent of its large portfolio, including KwaMashu’s Bridge City shopping mall.
Although the PIC doesn’t deliver direct benefits to the black population, its stakes in various companies is used to argue that blacks have a large presence at the JSE.
In the name of investing for greater returns, the national asset manager pumps billions of rands to traditionally white companies that are as disinterested in seeing a change in the economy. As things stand, the PIC prides itself as “the largest institutional investor in South African listed equities, controlling over 10 percent of the market capitalisation of the JSE.” And at least 20 percent of this equity portfolio is in the hands of white asset management companies who are paid exorbitant fees year on year.
This is seriously concerning that the PIC doesn’t use its advantageous standing to push for specific outcomes that support the government goal of changing the face of the SA economy. Instead, it is beset with troubles that could have been easily avoided had its mandate been narrowed to concentrate on economic development and empowerment.
The truth is that the private sector can barely breathe without funding from public coffers. In fact, this is just a tip of an iceberg of the extent the public funds prop the boisterous private companies. A sizable number of these firms feel no compulsion to give back to SA. Since the dawn of democracy, many have departed SA with billions to either relocate abroad or to invest in other countries and leaving SA barren. Some are accused of involvement in corruption and illicit financial flows, cash hoarding, etc. Where all this gets confusing is that the PIC continues to provide a lifeline to these companies that never waste an opportunity to declare that political risk is too high in SA. Others like Naspers no longer call SA after moving to Amsterdam in July 2019.
Bheki Ntshalintshali, Cosatu’s general secretary, once complained that there is a lack of transparency at the PIC and criticised the fund manager for investing outside of South Africa. “When you invest offshore, in the language of workers that means you are exporting jobs,” continued Ntshalintshali. Basically this is where the biggest problem with the PIC lies - the investigation should have rather focused on how the PIC’s present role destroys value in the SA economy through investments that uphold the vision of transformation. Ordinarily, this means all efforts to attract foreign investment are halfhearted and misplaced since monies are exported to grow foreign economies. Therefore, the report is completely silent on the abuse of national wealth which is used to develop other countries.
An argument can thus be made that the PIC investments in the JSE are an insult to millions of black public servants who never get to decide how their pensions should be spent. The trade union representation in the board is genuinely meaningless but much more active participation is necessary. Also, imagine if a different model were to be developed to at least allow the contributors to enjoy some benefit from the PIC investments. For example, the PIC invested in all four major banks. What if public servants could get favourable rates when they buy homes, cars and other properties? At the moment, they get treated like everybody while their money makes people in England and elsewhere very rich. Besides dividends being paid directly to the owners of pensions, the PIC can be useful in facilitating asset redistribution in SA.
South Africa is in a recession which could worsen with the Covid-19 and has 29.1 percent unemployment as well as millions living in poverty. With all these challenges, there is no clear strategy of utilizing funds held by both the state and private companies to reinvigorate the economy. Instead the likes of Business Unity South Africa (BUSA) want to access more state funds instead of calling their members who are chief-hoarders like private pension schemes and banks to avail funds to solve the impending crisis. The PIC can seriously redeem itself if can direct much-needed financial resources to the poor and poverty-stricken areas.
In conclusion, the PIC doesn’t make better use of its position lead the much-needed change in the SA economy, instead it is a piggybank for influential individuals, politicians, fund managers and corporations. The mainly black public sector workers are by the largest contributors via the GEPF but rank very low in the PIC’s priorities, if they feature at all. Yet, the PIC is least involved in the radical change of the South African economy to bring better life for all.
Siya yi banga le economy.
Based in Pretoria, Siyabonga Hadebe is an independent commentator on socio-economics, politics and global matters.