Ruan Jooste’s Rants and Cents: GEPF’s latest plan is a misguided political ploy

GEPF needs to invest in real problems Photo: Pexels.com

GEPF needs to invest in real problems Photo: Pexels.com

Published Oct 16, 2023

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The Government Employees Pension Fund chairperson Dondo Mogajane launched the GEPF’s Transformation Policy last week, marking a watershed move for economic transformation in South Africa.

The policy, unveiled at the GEPF Annual Thought Leadership Conference 2023 in Cape Town, will throw the full weight of Africa’s largest pension fund behind promoting socio-economic development and addressing historic inequalities within the country and the financial sector.

The conference was attended by influential figures from the financial sector and high-ranking government officials, Mogajane called on the financial services industry to rethink the way in which it invests and join in creating a more equitable and inclusive financial sector.

As South Africa’s largest investor, with R2.3 trillion in assets under management, he highlighted the GEPF’s commitment to driving socio-economic change within the local financial landscape through strategically leveraging current and prospective investments, guided by the Transformation Policy, said a media release.

What you need to understand about the GEPF is that it is a defined benefit fund, where the benefits are defined in terms of the rules.

In this type of fund, benefits are generally guaranteed and are not dependent on the investment returns of the fund or on the level of member and employer contributions. In layman terms, the pension you were promised is the pension you will get at retirement. Any shortfall in the kitty will be supplemented by the state. In essence, the taxpayer picks up the tab. It picks up the tab in anyway, as mostly civil servants belong to the GEPF, and their monthly contributions and salaries are funded by the taxpayer.

Mogajane said the “Transformation Policy will be used to guide investments that will promote socio-economic transformation, identifying specific impact areas that will be targeted to realise our objectives. It is important to note that ultimately if done correctly, the socio-economic transformation of our economy will result in an improved quality of life of our members, pensioners, and beneficiaries as well as the disadvantaged members of society.”

“Correctly” is the operative word here. Our government might be politically correct, but that is as far as it goes. In the 29 years of our democracy, it has had little to no success in using the money it got a productive manner. As a matter of fact, we are running out of money, and fast.

Plenty has been written recently about Finance Minister Enoch Godongwana’s drastic cost-cutting steps in government expenditure due to fiscal constraints if he is to restore public finances. There are even rumours of a VAT hike of between 1 to 2 percentage points. But that will probably be used only to maintain the expected grant relief at the level of R350. The grant was originally implemented to bring relief from the effects of Covid-19 on jobs lost during the pandemic, but has turned into more of a political campaign tool than anything else. The government will be unpopular, a year before the election, if it were to remove the grant that has been extended on several occasions.

As the tax base continues to dwindle, the national debt is on track to hit R6 trillion by 2025 to fund these social relief programmes. Yet little has been done to fuel the economy to create jobs and push corporate profits to remedy the situation. South Africa’s unemployment rate in the first quarter of 2023 was recorded at 32.9%, and is among the highest in the world.

Furthermore, Company tax in South Africa is set to shift downward in a big way, according to Statistics SA, after the mining industry more than halved its contributions in the second quarter of this year. After peaking at R31bn in the same time last year, tax from the mining sector has dropped to just R12bn. Overall, company tax has dropped to R49bn in the second quarter of 2023, down from R77bn in 2021 – although higher than the R32bn in the second quarter of 2022.

This represents a massive shift in collections from the mining sector, putting a big dent in one of the country’s most important revenue streams.

Why is the GEPF so committed to actively invest in just return-seeking, sound investments that support the transformation of the financial services sector? Yes, the investments should encourage the growth of black-owned asset managers, private equity fund managers, fixed-income asset managers, audit firms, actuaries and other relevant emerging financial service providers within the sector. But how would that help the economy, create jobs or even support more prevalent industries, Commodities is, after all, our largest export. And the financial sector is probably the most profitable playing field. Why go splurge on a sector that does not need the help, and during a time when state-owned-enterprises are falling like dominoes.

Should the GEPF not have plans to halt the further demise of the South Africa Railway agencies and their partners in crime in the South African harbours which are costing private businesses billions of lost income in addition to their own revenue declines due to mismanagement? It is contemplating calling on private companies to come to the rescue as it realises that as a government, it is pouring billions into a bottomless pit. Postbank doesn’t even have the resources to distribute the government grants, which the ruling party is so adamant to keep in play.

I understand economic transformation is important and necessary, but that will never happen if the state itself is dysfunctional. As the saying goes: you have got to clean your own house first before you tell other people that they aren't doing it right.

Whether the GEPF will channel investments into asset classes that aim to deliver “positive financial and social service outcomes for South Africa’s previously disadvantaged populations, directly addressing historical disparities” will make no damn difference if the country has no electricity, water or the most basic of needs catered for. My gosh, the country doesn’t even produce enough chickens to feed the population, and we are running out of eggs.

My point is recognising the importance of ESG factors when making investment decisions is important, but should transformation objectives not start closer to home or even on the ground? Food and energy costs are going through the roof, so transforming a concentrated financial sector will not put food on the table, and I fear the GEPF statement is just lip service and will eventually turn out to be just another empty exercise, or promise, if you will.

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