There are some deeply disturbing elements to the ANC’s post-Covid "economic reconstruction" document. And it goes beyond the creeping movement to harness private pensions to plug the chasm in state finances. In that 38-page document, the ANC’s economic policy chief Enoch Godongwana says: "Covid-19 has shown the critical role of the state. How does the state then leverage its capacity, inherent authority and capability in leading society for the recovery?"
What seems clear is that while the ANC has been thinking about the "opportunity" that Covid-19 presents to restructure the economy, its thinking has lapsed back towards a statist centralism. What’s needed, the ANC thinks, is more state intervention in the economy, not less.
This impression was underscored when Godongwana told reporters over the weekend: "If we had to stimulate this economy … it must be the state that must assume the central role thus far … that role will continue to be critical."
Only, the ANC is misreading the situation. The state may be critical in providing a cushion for the most vulnerable during a crisis, but it certainly doesn’t have "inherent authority" when it comes to economic growth. And its "capability" has been badly exposed, as its empty coffers meant it had to borrow overseas to provide relief.
Iraj Abedian, economist and founder of Pan African Capital, tells the FM that Covid-19 has caused the ANC to lapse back into its tried-and-failed economic ideas.
"Covid-19 has meant economic regimes have been thrown into chaos. It’s clear market forces haven’t proved as resilient as people expect, which has left a theoretical vacuum. In that vacuum, the ANC has gravitated back to what it knows: the statist, centralist approach, where the government controls everything," he says.
They want to say — thou shalt invest 30% in Transnet, 30% into the IDC and 30% into the DBSA, and don’t ask us any questions
Lumkile Mondi, an economics lecturer at Wits University, agrees. The pandemic "has allowed the ANC to go back to its roots with the state as a dominant institution and a leader of markets rather than an enabler", he says.
This is a problem because whenever the state has assumed a primary role in the economy, it’s been a disaster. SA is bankrupt now, because of state-owned entities like Eskom and SAA — not despite them.
As Business Unity SA CEO Cas Coovadia puts it, the ANC document "resurfaces old ideology and dogma of a significantly increased role in the economy for the state, interfering in the mandate and independence of the SARB [the Reserve Bank], supporting ailing and unstrategic state-owned companies and creating new ones".
Speaking to journalists on Sunday, President Cyril Ramaphosa likened Covid-19 to a wartime moment to restructure a "racist and colonial" economy. "We need to look to infrastructure to be the real flywheel to drive economic growth in this country," he said.
This has echoes of US president Franklin D Roosevelt’s New Deal, which put his government at the centre of the economy during the Great Depression, prioritising public works and state-backed relief. But if infrastructure will be the flywheel for SA’s recovery, the ANC is looking to private pension savings to be the grease for that flywheel.
The ANC speaks of creating a "regulatory mechanism to ensure increased pension fund investments directly into projects as real assets, which can unlock capital".
In other words, your pension could be invested directly in entities like the Land Bank, the Industrial Development Corp (IDC) and others. It’s not "prescribed assets" per se, in which the state stipulates that part of your pension be invested in state assets, but it may be the stalking horse. Especially since a growing lobby in the ANC is calling for the prescribed assets idea, even in the face of concerns that it would cause skittish foreign capital to flee.
Godongwana denies this is akin to prescribed assets. Rather, he frames it as an opportunity for funds to invest directly in infrastructure projects, rather than through large asset managers like Allan Gray and Coronation.
Intellidex’s Peter Attard Montalto says this is part of a much wider push into state-run infrastructure projects. "The question is how this is done, and if this is done in a way that [attracts] private sector money organically in a positive way, with the right institutional changes — or one that is more centrally commanded," he says.
Abedian says he wouldn’t have a problem if you were able to invest in, say, top-quality projects from the Development Bank of Southern Africa (DBSA), which provided proper returns. But, he says, the depressing reality is the ANC would most likely instead direct your pension savings to failed institutions like the Land Bank, which can’t find cash elsewhere. "These institutions have only destroyed billions. They’ve become a platform for nondelivery. Forcing anyone to invest in them would be nonsensical and a recipe for economic destruction," he says,
It’d be different if the government allowed pension funds to invest alongside institutions like the DBSA in bankable projects, and provided them with an incentive — like allowing for 10% of the returns to be exempt from tax.
"But this isn’t what the ANC really wants. It doesn’t want market forces to provide checks and balances, and they want to say: ‘Thou shalt invest 30% in Transnet, 30% into the IDC and 30% into the DBSA, and don’t ask us any questions.’ That’s false and dangerous," he says.
It’s a depressing sign that while many hoped that Covid-19 would be a wake-up call for what’s needed for growth in future, the ANC has instead looked to a past that emptied the bank accounts in the first place.
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