ANC’s controversial bid to revive Apartheid-era investment rule sparks pension industry concerns

South Africa’s ruling African National Congress (ANC) aims to revive an apartheid-era rule, compelling pension funds into government-approved investments post-election. Despite industry backlash, ANC’s economic transformation committee is pushing for prescribed assets, pledging to transform the financial sector for national development. The move, controversial since its 1956 inception, seeks to redirect pension investments to struggling state-owned enterprises. As the ANC faces a crucial vote, Deputy Chair Zuko Godlimpi defends the initiative, emphasizing the need for diversified investments beyond the Johannesburg Stock Exchange. Critics fear potential threats to pension funds in underperforming state enterprises.

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By Ntando Thukwana and S’thembile Cele

South Africa’s ruling African National Congress will forge ahead with plans to revive an apartheid-era rule compelling pension funds to plow money into certain government-approved investments, assuming it retains power in upcoming elections.

“Immediately after elections we have to get into it,” Zuko Godlimpi, deputy chair of the ANC’s economic transformation committee, told Bloomberg in Johannesburg on Wednesday.

Unveiling its manifesto last month, the ANC pledged to transform the financial sector to ensure it makes adequate funds available for the nation’s industrialization and economic development by introducing prescribed assets.

(For more on South Africa’s election, click on ELEC ZA)

The rule, was created in 1956 during White-minority rule to force investment in government bonds but was scrapped decades later. Plans to revive it have been criticized by the pension industry, which fears funds may be threatened if invested in under-performing state-owned enterprises.

The ANC is examining the measure amid pressure to restore its appeal with voters ahead of the May 29 ballot, in which it is at risk of losing its national majority for the first time since taking power in 1994.

Goldimpi dismissed opinion polls suggesting the party’s support will fall below 50% and said there were no discussions about forming a coalition.

Still, the need to revive growth and tackle one of the highest unemployment rates in the world means steps are needed to use the wealth of the country’s financial sector to boost the economy.

He said the range of prescribed assets would go beyond investing in government bonds to support struggling state-owned firms such as Eskom SOC Ltd. and Transnet SOC Ltd., which are in desperate need of funding after years of mismanagement, theft and under-investment.

“The prescribed assets conversation is about rebasing pension fund investment in productive assets,” Godlimpi said, adding that there was an assumption that it was all about Eskom and Transnet.

“It is not just that,” he said, stressing that the financial sector would be consulted. “It is about investing in different classes of assets, including private assets themselves, but that are consistent with our industrial output that we are seeking,” he said.

Such a move would also tackle the over-concentration of the country’s retirement savings in the companies listed on the Johannesburg Stock Exchange, Godlimpi said, arguing that the distribution should be more spread out to other asset classes.

Most investment is “in telecoms, retail and therefore not the most productive sectors of the economy,” Goldimpi said.

Like many countries, South Africa’s pension industry is already closely regulated in terms of what it can purchase, including a rule capping investment in international assets at 45%.