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Finance minister Enoch Godongwana has called on the Government Employee’s Pension Fund (GEPF) to consider “co-investing” in government infrastructure projects, as the country faces a deep shortfall in funding to address growing infrastructure needs.
Addressing the GEPF annual thought leadership conference on Thursday (15 September), Godongwana said that there are other opportunities for pension funds to co-invest with the government, especially in the delivery of infrastructure in the country.
He said that South Africa needs to finance both brown and greenfield infrastructure projects, requiring in the region of R1 trillion over the next five years. Put differently, South Africa needs to lift the level of fixed investment in the economy to at least 30% of GDP from the current level of around 19% of GDP, he said.
However, the government is struggling to raise the necessary funds.
“Investment in South Africa, measured as gross fixed capital formation, has lagged in GDP for some years now. This is owing to continued global and domestic uncertainty, as well as the re-emergence of pre-existing domestic growth constraints – chief among them being unreliable electricity supply,” he said.
“As the government, we cannot close this gap alone. We will require partnerships with the private sector, especially in the finance sector.”
He said that pension funds in particular sit on major resources, and investing in infrastructure would be mutually beneficial.
“A growing economy that produces jobs will spur household savings on which the pension industry thrives. And higher savings will mean more money that can be invested back into the economy,” he said.
In addition to funding problems, Godongwana acknowledged that the country also needs to develop infrastructure projects that pension funds and the private sector want to invest in.
“As the government, we are doing our part to create a conducive environment for the private sector to invest in the delivery of infrastructure. We acknowledge that the problem is not merely a lack of private sector desire to invest. The obstacle is often the insufficient supply of investible infrastructure projects.
“Inadequate project design and preparation, as well as regulatory and institutional frameworks that are too difficult to navigate, are not conducive to private investment. Our Public-Private Partnership (PPP) framework is long overdue for revision, It takes too long to get a PPP off the ground,” he said.
To address this, the finance minister said that Treasury aims to create a centre of excellence for PPPs, as well as introduce an expedited approval process for projects below a predetermined value.
“This centre of excellence will be a direct interface with private financial institutions for investments in critical government infrastructure programmes. We have also capitalised on the Infrastructure Fund to the tune of R 100 billion, over the next five years,” he said.
The ANC government has, over the years, adopted and walked back various policies related to pension funds – the most notable of which is wanting to adopt prescribed assets to fund government infrastructure projects.
The party adopted the policy in its 2017 elective conference and then made it a key policy in its election manifesto for the 2019 elections. However, it publicly walked back on the proposal in 2020, saying it was not viable.
Godongwana, who was the ANC’s head of Economic Transformation at the time, said that prescribed assets were something ‘to be investigated’, but could not be instated without substantial consultation and a robust review process by the government.
Talk of prescribed assets has since all but disappeared from the discourse around pension funds.
Read: Concerns over proposed retirement bill in South Africa