Prescribed Assets: Debate Far From Over

Although there is a need to step up investment into South Africa’s poor infrastructure, fear that this will be achieved through the imposition of prescribed assets may be misplaced.

- Mariam Isa

South Africa’s R6tr savings industry is braced for the imposition of some form of prescribed assets, but fear that asset managers will be forced to channel capital into failing state-owned enterprises (SOEs) in a desperate bid to prop them up may be misplaced.

There is widespread acknowledgment within the private sector that meager levels of investment into the country’s infrastructure must be ramped up to enable the faltering economy to grow and to preserve social stability, which is rapidly being undermined by widening inequality and soaring job losses.

But industry leaders say that this outcome could be achieved without forcing pension funds, insurance companies and other financial institutions to pump the money they manage into assets with poor prospects of decent returns – a step which would spook investors and trigger large capital outflows.

“If the intention is to force South African savers to knowingly buy an instrument whose creditworthiness is poor that is, by definition, misappropriation of funds which will distort capital markets. It should not be allowed,” says Old Mutual Investment Group’s managing director Khaya Gobodo.

“There is merit to the discussion – we should all agree that there’s a big gap between what is required in terms of social and physical infrastructure and what we have. Our argument is that there is no shortage of capital – the issue is a shortage of bankable projects.”