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Johannesburg - Desperate times require desperate measures, says Sanlam Investments chief executive Johan van der Merwe, when asked how South Africa will find a way out of its stagnant economy.
Van der Merwe, who commands a business with R700 billion in assets under management, 10% of the country’s R7 trillion pool of pension savings and insurance investments, says he would consider accepting a regime of prescribed assets if it could be shown it would make a difference.
In a concession generally regarded as a heresy in the investment world – where the pursuit of maximum returns for investors is legislated as paramount – Van der Merwe says earmarking between 2% and 5% (R140 billion and R350 billion) of the country’s savings to get otherwise unaffordable national infrastructure projects up and running may work.
Forcing pension funds to invest in state projects is nothing new in South Africa. The apartheid government wrote laws to compel pension funds to invest up to 50% of their assets in government bonds and other prescribed stock such as Iscor, Sasol and homeland development corporations.
Low returns from these investments left some state pension funds, notably Transnet, underfunded and, in recent years, those pensioners have experienced great hardship.
Economic Development Minister Ebrahim Patel has said a form of prescribed investments could provide development capital. But Treasury said it would not support that being imposed on the pension industry.
Van der Merwe says he is not offering free money to government at the expense of Sanlam’s investors. He is indicating an openness to find ways of breaking up what has become an investment logjam.
“There has to be a way of getting big business and government working together,” he says. “There are talent and skills in the business sector that can help government find a way through the mess we are in.”
Van der Merwe talks from a position of strength. Sanlam Investments claims 20% compound growth annually for the past 10 years.
Last year Van der Merwe was rewarded with pay of R62.4 million, largely made up of long-term incentive payments and outperformance bonuses, on top of his basic salary of R4.3 million.
He deflects questions about his remuneration package by saying that 41% of it goes back to the taxman: “All I ask is that it is used for the benefit of the country and is not wasted on corruption.”
And that gets him back to solving the problems of an economy that has hit the buffers and is failing the impoverished majority of its citizens.
“Education across the board is the long-term answer. We are not going to go anywhere without a dramatic improvement in the quality of education,” he says.
“But first we must end corruption, which is becoming endemic. And we need leaders with strategic direction.”
Van der Merwe says the investment sector has a good understanding of the risks the country faces if confidence is not restored. “There is little prospect of growth to attract investors. The Eskom problem is a massive constraint, the political leadership shows no sign of finding a better way and we are faced with a wealth gap that is unsustainable,” he says.
Van der Merwe says he fears that without creative intervention to halt the slide downwards into stagnation and indebtedness “we are getting to a tipping point”.
Trevor Hoole, the CEO of auditing giant KPMG in South Africa, says he was taken aback and “absolutely miffed” when he discovered that the entire African continent had been left out of a global outlook survey of chief executives by KPMG International.
His dismay was mollified somewhat when he saw that other emerging economy arenas – eastern Europe and South America – were also left out.
“At first, I was indignant because I thought it was because we were not regarded as being important enough, and I thought that couldn’t be right,” says Hoole.
The study looks at the confidence levels of almost 1 278 chief executives in the US, western Europe, China, India and Australia, with 347 of them coming from companies with revenues of more than $500 million (R6.3 billion).
“Then the reality sets in. I thought that it was another sign of what is happening. The emerging markets, and South Africa in particular, are so discounted in everyone’s minds that they are focused on their own issues. The negative sentiment becomes the reality.”
Hoole says the most striking finding of the survey is that chief executives of global businesses are confident about their companies’ growth and expect to hire more staff in the next three years.
“The level of confidence expressed by global CEOs is less likely to be echoed in South Africa,” says Hoole.
He points to the recent SA Chamber of Commerce and Industry business confidence index (BCI), which says South African CEOs are less optimistic about the prospects of doing business in South Africa than they were a year ago. In fact, the average BCI of 88.8 over the first six months of 2015 was the lowest it has been in 16 years.
In the first half of 1999, the BCI measured 86.2.
According to the KPMG study, 69% of CEOs in Europe, 66% in Asia Pacific and 52% in the US are more confident than they were last year about growth and the global economy in the next three years.
In assessing their own company’s growth prospects, 70% of European CEOs, 68% of Asia Pacific CEOs and 19% of US CEOs indicated they were more confident than they were a year ago.
Most importantly, CEOs globally are set to hire, with 78% of respondents indicating they are expecting to be in hiring mode until mid-2018.
“Whereas global entities say that headcounts will increase, we believe this will not necessarily be the case in South Africa,” says Hoole.
“An improvement in the economy is what is needed to increase headcount in South African companies.”
Based on figures from Stats SA, the unemployment rate increased to 26.40% in the first quarter of 2015 from 24.30% in the fourth quarter of 2014.
“We are not as badly off as countries that are experiencing defaults on a large scale, but people abroad can see that there is a lack of leadership here,” says Hoole.
“We are drifting towards becoming a more socialist welfare state, and that is not conducive to attracting the investment dollars that we need.
“If this country is going to reverse this trend, government must become more supportive of entrepreneurs by improving access to incentives and decreasing the amount of red tape required to do business in South Africa,” says Hoole.
