Evidence is mounting that to try and stave off fiscal disaster, South Africans will soon be facing the confiscation of parts of their pensions and savings. The vehicle is likely to be prescribed assets requirements – legal minimum investments demanded by the state in bonds or institutions of its choice.
African National Congress (ANC) Secretary General Ace Magashule reports that the party wishes to do this by an amendment to Regulation 28 of the Pension Funds Act. This would make ‘cheaper finance’ available for developmental purposes. As he rather verbosely put it:
“While working to restore fiscal stability, SA needs to deploy macroeconomic policy instruments compatible with economic reconstruction. Reconstruction programmes must be sufficiently financed and financially sustainable.”
Indications that this route is to be taken have been circulating for some years.
It’s hardly surprising that this is now coming to the fore. The country’s finances have been allowed to disintegrate for a decade, as mismanagement, corruption and ideological myopia undermined South Africa’s economic prospects.
Grabbing pensions and savings would keep Eskom in business, finance a new airline, plug the holes in bankrupt municipalities – and maybe even finance a massive infrastructure build, which would open all sorts of opportunities. The day of fiscal reckoning would be delayed, a few years without hard choices bought and the patronage machine fed. There is no appetite for policy reform, little for taking the steps necessary to improve governance, and at best an ambivalent approach to dealing with corruption. From a political perspective, prescribed assets are not only an attractive position, but a logical one.
Sometimes, though, we look at things from the wrong perspective. In any transaction, there are multiple parties. If the ANC is determined to go after pensions, a critical question – perhaps the critical question – is how the institutions to which people have entrusted their money will respond.
South African business has long prided itself on the quality of corporate governance. The work of the King Committee has established a globally respected standard in this regard. One of its key messages is that business cannot confine its responsibilities to the pursuit of profits and the interests of shareholders. Its business interests need to take account of its wider obligations to society.
“It is unethical,” the Committee’s third report commented, “for companies to expect society and future generations to carry the economic, social and environmental costs and burdens of its operations.”
This is an idea applicable to much more than, say, pollution or dishonest marketing. The past decade has shown the consequences of political venality. This has imposed stiff consequences on business – in the form of a depressed and uncertain environment – as well as on society. Stolen and wasted resources and missed opportunities during this period deprived millions of South Africans of the chance to fulfil their aspirations, or even simply to earn a livelihood.
The advisability of a prescribed assets regime (as a general principle) might be debatable. But in South Africa’s current circumstances it promises to deprive account and policy holders of their funds, while further fuelling the pathologies that have brought the country to this point.
To make prescribed assets viable, the state will need the cooperation of financial institutions and fund managers. Will they protect the money that their clients have entrusted to them? Or will they opt for an easy solution, for appeasement, for maintaining their relationship with government at the expense of their clients?
No doubt, some will seek to argue – to borrow the words of a former head of Business Leadership South Africa – that “(it) is the law, and our job is to comply.” To do this would be a betrayal not only of their clients, but of their responsibility as corporate citizens.
Nor is this something of concern only to the financial sector. The business community as a whole has an interest in countering this policy push. The seizure of property will not end there, and it is utter foolishness to sit by as damaging policy precedents are set. Let it not be forgotten that the truncation of property rights gained momentum in the language of land reform. Much of the business community shrugged this off as a problem for farmers to deal with; and many in the agricultural space shrugged it off as something that would hit someone else.
Business can do much, in its own interests and those of its clients, to oppose the introduction of prescribed assets. It can, for example, lobby and litigate. And although business would be demonized for it – by government, by the political class, and by a great many intellectuals – this is not only lawful, it would be ethical. It is also the price of citizenship.
Will business do this? That is the outstanding question. Both collectively as a community and as individual firms, both within the financial sector and outside of it, business needs to speak out on its intentions, audibly and unambiguously.