EWC and your pension - The Witness

7 February 2019 - Based on present performance, mandating pension payments into SOEs would amount to EWC of a special kind: the expropriation of opportunities and the destruction of value. The benefits – such as they are – would go to feed the state and its ideological convictions. The costs would be borne by ordinary people trying to provide for their futures.

Terence Corrigan

South African political culture has always been marked by a strain of messianism. As a country, we seek the defining moment, the turning point, the silver-bullet solution. We are attached to the heroes we venerate and the villains we despise.

A policy of Expropriation without Compensation (EWC) fits well into this paradigm. Circling the policy debate for some years, it was thrust onto the national agenda at Nasrec in 2017, where the African National Congress (ANC) chose its new leadership, and dominated South Africa’s politics last year. It has at times been hailed as the great solution to South Africa’s woes. President Cyril Ramaphosa once waxed biblical about it, declaring that EWC would turn the country into a ‘Garden of Eden’. But unlike much of what has previously been hailed as game-changing or paradigm-shifting – the RDP, ASGISA, the NDP, South Africa’s participation in the BRICS group, or the promises of any number of brand-name leaders – EWC could well prove to be so. 

EWC is fundamentally about empowering the state. It posits that the state will enjoy expanded rights to take assets, wholly or in part, from its people. This is the common thread that has run through the various strands of the emerging EWC system, whether the proposed constitutional amendment, the regulations gazetted last year in terms of the Property Valuation Act, or the new Expropriation Bill. Each of these is about the latitude with which the state can wield its power, and – rhetoric to the contrary notwithstanding – not about land reform or redistribution.

The recent affirmation by the ANC that it is looking into reintroducing prescribed assets adds another, infinitely concerning dimension to this.

Prescribed assets refer to requirements that fund managers direct some of the money they control into investments determined by the government. In South Africa, this is familiar territory. A recent editorial in Business Day commented: ‘“Prescribed assets” isn’t an invention of a faction of the ANC. Many nationalist governments have implemented such a regime before — including the apartheid government. As Ashburton Investments’ Albert Botha points out, the National Party prescription peaked in 1977 “when a fund had to include at least 77.5% of its assets in a combination of state-owned companies and government bonds”. By 1989, shortly before it was phased out, the target was 53%.’

The most obvious target of a prescribed assets regime would be pensions. And government intrusion into this area places the question of EWC squarely before millions of South African households.  

It is common cause that South Africa is running into a fiscal conundrum from which it will prove very difficult to escape. In recent years, budgets have been marked by concerns about growing deficits and a failure to make in the revenue necessary to fund ambitious spending plans. Raising the VAT rate was a demonstration of just how dire the situation had become. There is little indication that any sort of fundamental reform is on the table. Rather, as my colleague John Kane-Berman has recently written in an analysis of the ANC’s election manifesto: ‘the manifesto shows that the ANC is still stuck in a mindset of fantasy, disdain for costs, and dirigiste ideology… Nowhere is there a hint of economic liberalisation. Instead, the state will increase both its size and its power.’

Worth over R4 trillion (2016 figures) – not much less than South Africa’s GDP – pension funds offer a means to bridge this gap. A risky one. With disposing of loss-making SOEs seemingly rejecting, and with ‘recapitalisation’ and ‘bailouts’ still very much part of the business plan, the resources in pension funds would be enticing indeed.

Given the experiences of recent years, the prospects for pension fund holders would be questionable at best. The Congress of South African Trade Unions – long both an inveterate foe of private enterprise and a supporter of the principle of prescribed assets – recently baulked at the idea. At least somewhat. In the words of one of its officials, it would not allow members’ pensions to be ‘petty cash for the state’. Any backing for the idea would be dependent of the performance of the investment, on the sustainability of the projects and on them being protected from corruption.

Based on present performance, mandating pension payments into SOEs would amount to EWC of a special kind: the expropriation of opportunities and the destruction of value. The benefits – such as they are – would go to feed the state and its ideological convictions. The costs would be borne by ordinary people trying to provide for their futures.

And doing so would be something that the country would certainly remember. For a long time. But rather than the messianic moment that so many have yearned for, it would more appropriately be an apocalyptic one.

Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).

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