ANC looks for new levers to boost South Africa’s economy
The head of economic transformation in
South Africa’s ruling party proposed a range of measures to bolster the
economy, ranging from encouraging the use of pension funds and the central bank
to finance infrastructure spending to the creation of a state bank and
pharmaceutical company.
Enoch Godongwana’s recommendations to the
African National Congress come as the government tries to revive an economy
devastated by the coronavirus pandemic.
“The Covid-19 shock is posing
unprecedented challenges, the economic crisis entailed by the pandemic is
unique,” Godongwana said in the 22 May document seen by Bloomberg. “Globally,
central banks have reverted to their original role as bankers to their
governments.”
While business and investors have been
calling for strong government action to support SA’s economy, the document may
heighten concerns about state intervention and so-called prescribed investment –
mandatory funding by private companies of certain sectors.
In the document, Godongwana proposed
changing regulation 28 of the Pension Funds Act to boost the funding of
infrastructure projects spearheaded by state development finance institutions
using private capital. South Africa’s main state-owned DFIs are the Industrial
Development Corporation and the Development Bank of Southern Africa, of which
Godongwana is chairman.
‘Financial plumbing’
He also suggested that the Reserve Bank
help finance DFIs through the creation of a R500 billion fund. Money should
also come from the Public Investment Corporation, a R2.13 trillion fund manager
that oversees civil servants’ pensions, Godongwana said.
“While it faces increasing continental
competition, the South African financial-services sector can rightly be said to
endow our emerging-market nation with ‘the financial plumbing of a rich place’ with
deep, liquid markets,” he said.
While the document is a break with the
thinking of some ANC leaders that the state should be responsible for much of
the investment in the economy, it does advocate increased government “guidance.”
“A narrow and flawed understanding of
what the developmental state is has led to the erroneous conclusion that it is
only about public investments and public ownership, with a related
over-emphasis on the limited funds of the state,” he said. “A
developmental state does not necessarily mean higher levels of state ownership,
but high levels of guidance.”
State bank
In an interview with Johannesburg’s
Business Times, which reported on the document earlier, Godongwana said the
proposals didn’t amount to advocating for prescribed assets. They merely meant
that regulations should be changed so that pension funds can invest in DFI’s if
they wish to.
Godongwana didn’t answer a call to his
mobile phone. Neither did Pule Mabe, the spokesman for the ANC.
The document also proposed the formation of
a state bank, a pet project of Finance Minister Tito Mboweni, and a national pharmaceuticals
company.
It also advocated, in contrast to the drive
of some government departments, a swift move away from coal-fired energy to
renewable power. The state-owned Central Energy Fund should be used to partner
private investors in new projects, Godongwana said.