September 30, 2022

South African finance minister calls for pension funds to ‘co-invest’ in government initiatives

As the country struggles to bridge a huge financial gap to meet its growing infrastructure needs, Finance Minister Enoch Godongwana has urged the Government Employees Pension Fund (GEPF) to consider “co-investing ” in government infrastructure projects.

According to him, South Africa needs to fund both brownfield infrastructure projects and new builds, which will cost R1 trillion over the next five years. In other words, from its current level of around 19% of GDP, South Africa needs to increase the amount of investment in fixed assets in the economy to at least 30% of GDP, he said. he declares.

Godongwana said there were additional opportunities for pension funds to participate in collaboration with the government, especially in infrastructure development in the country, during the GEPF’s annual thought leadership conference on Thursday (September 15).

However, the administration is struggling to raise the necessary funds.

“The government cannot close this gap alone. Partnerships with the private sector will be necessary, particularly in the banking sector.

“South Africa’s investment, as evidenced by gross fixed capital creation, has lagged behind GDP for some time. This is the result of continued uncertainty internationally and domestically, as well as the resurgence of domestic restrictions on growth, the most important of which is the instability of electricity supply, he said.

He said that investing in infrastructure would be beneficial for both parties because pension funds, in particular, have substantial resources.

“Family savings that support retirement activities will increase due to a developing and job-creating economy. Moreover, greater savings will mean more funds available for economic investment, the economist said.

Godongwana agreed that the nation needs to build infrastructure projects that pension funds and the private sector are interested in investing in on top of funding issues. “As government, we are doing our part to foster an atmosphere that will encourage private sector investment in infrastructure provision. We are aware that the problem goes beyond a lack of interest in investing on the part of the private sector. The problem is often the lack of investable infrastructure projects.

“Private investment is discouraged by poor project planning and design, and confusing institutional and legal frameworks. Our Public-Private Partnership (PPP) framework needs to be updated because it takes too long to launch a PPP, he said. The Treasury Secretary explained that to address this issue, the Treasury plans to create a PPP Center of Excellence and implement a fast track approval process for lower budget projects.

“This clearinghouse will serve as a direct point of contact for private financial organizations seeking to fund major government infrastructure projects. We have also invested R100 billion over the next five years from the Infrastructure Fund, he added. Over the years, the ANC administration has approved and repealed a number of pension fund regulations, the most significant of which is their desire to adopt mandated assets to fund public infrastructure projects.

The strategy was endorsed by the party at its election convention in 2017, and it was later highlighted in its platform for the 2019 election. In 2020, it openly retracted the concept, saying it was unachievable. The prescribed assets “must be explored”, according to Godongwana, then head of economic transformation of the ANC, but they cannot be implemented without broad participation and a rigorous evaluation process by the government.

Since then, the subject of mandatory capital has been largely forgotten in conversations about pension systems.

Summary of news:

  • South African finance minister calls for pension funds to ‘co-invest’ in government initiatives
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