FIRST WORD: Editorials: Edition: March / May 2020


Let there be hope

Too much noise. Too much negativity. Pension funds can have an influential role, to be used or abused, in their reversal.

Cyril Ramaphosa this and Cyril Ramaphosa that. Will he last? What if he doesn’t? Shouldn’t he move faster? Why doesn’t he? Rarely have the pronouncements of a SA president been subjected to such divisive scrutiny, usually with consequences for despair when bias subordinates analysis. Each media exhibition of the Economic Freedom Fighters, of which there are plenty, is given airtime way disproportionate to the party’s electoral support. It fuels a perception that the country is polarised for a race war. Each time Jacob Zuma puts in a public appearance, extensively disseminated, it strengthens the sense of a fightback by his cohorts. The noise, amplified by the likes of Facebook, becomes its own reality. Through the noise, Ramaphosa is still there, trying to look forward while simultaneously watching his back and relying on trade-offs to hang in. Caution on his part matches frustration for others. Again evident in his State of the Nation address, well-intentioned promises look wishful for so long as they aren’t accompanied by financing numbers and implementation timelines. Take heart, however, from the bigger picture. He’s perhaps more powerful than he himself realises; not from his slender win at the ANC elective conference but from his polling in the subsequent general election, much better than his party would have done without him. Gradually, implicit in the tone and nuance more than the substance of SONA, his control is consolidating. Pravin Gordhan is entrenched. Accomplices of Ace Magashule aren’t. They’d be deaf not to have heard the warnings. That’s because there’s still a Constitution, despite attempts to tamper with it, and a functioning judicial system, despite such blips as indignities in the western Cape high court. There’s still a reformed SA Revenue Service, now the more likely to hit at the proceeds of corruption, and fresh executives at the National Prosecuting Authority, now the less likely to tolerate favouritism in its targeting. Of course there’s still Eskom as there are dozens of decrepit municipalities and rural areas, some even without water. Overshadowing them all, afflicting the debt-burdened economy, is a governing party still grappling with Cold War ideological disputes between market and Marxist adherents.

So easy it is to cry for Ramaphosa to accelerate market reforms in line with his intuition and inclination. At what risk to his own political future and ascendancy in the party of ‘comrades’ with dissimilar bent? On a swell of popularity and ANC dependence, probably a lot less than when he took office. What risk, then, in chopping the public sector (government’s main employment generator) or entertaining wholesale retrenchments at Eskom (whose disgruntled employees can turn off the lights)? In addition to everything else, he has to deal at stateowned enterprises with unions prioritised on protecting jobs rather than creating them. Damned if he does and damned if he doesn’t, Ramaphosa is confronted by a series of Hobson’s choices. Last amongst them, government finances being what they are, is subservience to IMF intervention that continues to loom (TT Oct’19-Jan’20). There wouldn’t be only a surrender of sovereignty. Such is the IMF’s untrammelled free-market formula, attractive though it might be intellectually, the practical consequences in terms of social stability could be infinitely worse than anything that presently threatens.

Bit by bit, drip by drip, there is demonstrable progress. Putting SA Airways into business rescue and suggesting private-sector intrusion at Eskom are indicative of a preparedness by government to reduce state strangleholds. The Budget of finance minister Tito Mboweni, awaited at time of writing, should show better than SONA the extent that Ramaphosa and his cabinet maverick are joined. In any event, SA has a bulwark that differentiates it from others that have fallen to IMF inevitability. It’s in the vigour of its financial sector, not only as the accumulator of savings but in taking decisions on how those savings are invested. So large is this savings pool – through the array of pension funds, collective investment schemes and insurance policies – that government has a partner whose influence it cannot deny and should not seek to drain. Financial institutions can invest where they choose, consistent with their clients’ best interests, and they can tell government to take a hike, as some have done in not lending to unrehabilitated borrowers. These arrangements dare not be disturbed. Potentially, however, there are two hazards. One is government prescription to invest in particular assets (see Cover Story). The other is depletion of the savings pool. When people can’t afford to save in a shrinking economy, marked by salary constraints and job losses, they won’t. They’d rather surrender insurance policies, shun discretionary investment schemes, and even resign from employment to cash in their pensions. The double-edged sword is less money for investment, to grow the economy, and a greater burden on the state, to cushion penury.

A pillar against this lose-lose milieu is company pension funds whose membership for employees is mandatory. Stimulated by tax breaks, they are the consistently proven vehicles for long-term savings provided that job hoppers resist the temptation to opt out. Preservation of savings is the recognised key to best benefits. There are riders. One is an absence of impediments on fund managers to produce optimal investment returns, as would happen with prescribed assets in whatever discreet form they might ultimately take. Another is an economy at near-zero growth, increasing the propensity of people across income groups to grab at whatever they can for support of their living expenses. The short term collides with the long. More than this, what’s good for pension funds is good for the economy and vice versa. The two are inextricable. Also, because SA pension funds comprise many millions of members and dependents, their common interest provides the glue for a social compact so frequently expounded but so infrequently appreciated. They’re a platform from which Ramaphosa can build. And should. That there are more members and beneficiaries of pension funds than there are voters in national elections can be a starting point in the numbers game of political contestation. Underpinned by this confidence, he’d be strongly positioned not only to take on his adversaries but also to articulate an unarguable message of confidence fundamental to economic growth. Either the penny drops or the rand and Ramaphosa both will. If only pension funds were better organised into a representative body, and their members better aware of their mutual interests with the state, they could be better mobilised. If only. Ramaphosa’s task would then be a whole lot easier in exciting them not only to participate in the social compact he wants but also to collaborate in the massive infrastructure projects he expects. A grab at this mass audience, which crosses party lines, needn’t be too difficult anyway. It underscores the paramountcy of consumer financial education.

Allan Greenblo,
Editorial Director.