Prescribed assets as bail out is a step in the wrong direction

Date: 30 January 2020 | Author: Thuthuka Maseko Category: Media Statements

Business Leadership South Africa (BLSA) appreciates the desperation of the Eskom question, but raises alarm about something that looks like a knee-jerk response and/or an easy fix for what’s seemingly exasperated policymakers – prescribed assets.

Congress of South African Trade Unions (COSATU), a key ruling party ally, is pushing senior members of government to consider its proposals to rescue the state’s indebted power utility before next month’s budget. COSATU made its proposals at a meeting with senior members of the ruling African National Congress earlier this month and, according to a document seen by Bloomberg, they “received broad support.”

BLSA believes that while the case of Eskom is the biggest headache, there are other concerns that lay on the periphery such as the future of the state airliners and Denel to mention but a few of these troubled institutions. The prescribed assets proposal isn’t a new idea in the history of the management of the South African economy. The apartheid state experimented with prescribed assets as far back as 1956, that’s some than 60 years ago through the Pension Funds Act. Investors didn’t benefit much from the experimentation through a period where state-owned enterprises faced little to no competition during those years as the country for the most part was closed off to international competition. One must consider that in this global village, how would these bulky state-owned companies now fare?

Bringing back a policy used by the Nationalist party government that simply prescribes a specific percentage of public sector investment will have dire consequences which will worsen the plight of the already struggling man in the street.

This impact which will have far reaching implications on retirement outcomes, will also undermine investor confidence, encourage foreign capital outflows, discourage savings, further worsening SA’s international credit rating, and undermine the country’s ability to raise foreign direct investment.

Business believes that the state should focus on restructuring SOEs before bringing back some apartheid policy, something that doesn’t necessarily have to centre on just reducing jobs – undesirable in a country with an official unemployment rate just short of 30%. Until such a review is undertaken and hard decisions are made, bringing back an apartheid law will be to sentence pensioners to a guarantee of poor returns. The past decade doesn’t provide confidence of anything else.

Business urges the governing party to learn from the mistakes of the apartheid government, who sought to stimulate the economy through the prescription of assets.