Wits University’s Professor Alex van den Heever said the Public Investment Corporation (PIC) is an inappropriate accumulation of funds and has become a target for corruption.
The PIC is the asset manager for the Government Employee Pension Fund (GEPF) and other government investment schemes, such as the Unemployment Insurance Fund (UIF).
They make allocation decisions that align with the fund’s investment mandate. The PIC invests funds on behalf of public-sector entities, including the GEPF and the UIF.
The GEPF manages pensions and related benefits on behalf of government employees and owns R2.3 trillion worth of assets.
It is Africa’s largest pension fund, with 450,000 pensioners and beneficiaries. The GEPF has:
- R1.2 trillion worth of listed equity.
- R700 billion worth of domestic bills and bonds.
- R56 billion of unlisted equity.
- R154 billion in foreign collective investment schemes.
The GEPF is the PIC’s largest client, accounting for almost 90% of its assets under management.
Van den Heever told eNCA that there is a nearly R200 billion surplus on the UIF, “which is ridiculous”.
“In international terms, your Unemployment Insurance Fund is effectively a short-term insurance arrangement funded on a pay-as-you-go basis,” he explained.
“That means your current revenues fund your current liabilities. We sit with a R200 billion surplus, multiples of the overall reserves carried by medical schemes in South Africa.”
“It makes no sense, and that fund becomes a target for corruption, as we are seeing now. There’s no reason for it.”
He said South Africa also has one of the most unusual structures in terms of the GEPF.
“We are also one of the most unusual countries in the world in that we have a government employees’ pension fund that is advanced funded,” he said.
An advance-funded pension plan is funded concurrently with the benefits accrued by employees.
These funds are set aside and accounted for long before employees retire. Advance-funded pension plans are generally defined-contribution plans and are fully funded, according to Investopedia.
“You don’t do that with taxpayer-funded government employee benefits in a defined benefit pension fund,” Van den Heever said.
“We have over R2 trillion worth of assets that are completely unnecessary, and those also should be offset against South Africa’s government accumulated debt.”
“It is an inappropriate accumulation and has also been used for improper purposes. The PIC that invests that money has become a target for corruption.”
Van den Heever’s comments come in light of South Africa facing a severe fiscal deficit, as government spending has far outpaced its revenue.
South Africa’s budget deficit widened further in August and September compared to a year ago as government expenditure continues to grow faster than revenue.
The main budget deficit was R47.3 billion. It increased to R63.3 billion, including Eskom debt relief in August 2023. This is up from a deficit of R42.7 billion in August 2022.
The provisional financing data from the National Treasury for September 2023 also points to a widening budget deficit. The main budget deficit is expected to be R12.8 billion, compared to R3.3 billion in September 2022.
The Treasury said total revenue growth was 8.7% year-on-year in August, while total expenditure grew at a stronger pace of 9.2%.
Van den Heever believes the country’s fiscal crisis has likely been exaggerated to cover up for the government’s fiscal mismanagement and corruption.
He said the government’s austerity measures it plans to put in place will only end up harming the poor.
“There’s a risk that an austerity approach at this point – when the government has failed to address the underlying causes for revenue shortfalls and the wastage of government expenditures – results in reinforcing, supporting, and accepting corruption in the state,” he said.
He explained that cutting public services as a way of mitigating the consequences of fiscal mismanagement means that the poor in South Africa end up paying for the government’s corruption and failures.
He said the country’s fiscal situation cannot be as bad as the government is making it out to be and said factors like the UIF and GEPF are assets that should be offset against the government’s debt liabilities.