Johannesburg - Economic Development Minister Ebrahim Patel's proposed plan to use a portion of public and private pension funds' savings to pay for infrastructure development had merit, but was flawed in proposed execution.
That's the view of industry experts who spoke to Fin24.com after Finance Minister Pravin Gordhan declined on Monday to back the initiative.
While details of the plan remain sketchy, there was agreement that Patel's plans would be positive for the South African economy including job creation, infrastructure development and better alignment of skilled labour with workforce demands.
However, making the contributions mandatory would not have the desired impact.
"Mandatory would be the wrong way," said Investec economist Annabel Bishop.
Surprisingly, the expectation is that if the initiative is pitched as having a strong social responsibility investment (SRI) angle, it is likely to gather sufficient support from the asset management community.
Mark Lindheim, an asset manager for Investment Solutions, said that the use of prescribed assets had been phased out in the 19802. However, he said the country still needed to come up with some innovative ways for funding investments in the coming years.
"This has to be done along SRI lines: prescribed assets is not ideal," he said, when asked about the proposed initiative.
'Delivered the goods'
Lindheim said investment along socially responsible lines internationally had "delivered the goods" and had proven it could stand as an investment class.
According to research from the Social Investment Forum, SRI is now a $25 trillion market globally.
By 2007, nearly one out of every $9 under professional management in the United States was involved in SRI-focused funds.
A report issued last year by the Emerging Markets Disclosure Project said $300bn dollars were already invested in emerging markets along SRI lines. Of this amount, at least $130bn came from Europe and the US.
According to the report, the countries that had benefited most from this investment were Brazil, China, India, Mexico, South Korea Russia and South Africa.
South Africa was second behind Brazil in terms of countries that had made the most improvements around disclosure, corporate governance, human rights, labour relations and moves toward cleaner energy and technology.
According to one respondent in the report, South Africa was "more advanced with regard to ESG [environmental, social and governance] disclosure, as well as sectors which are traditionally more high impact such as energy, metals & mining".
Asset managers quoted in the report commended South Africa, saying the country has its own sustainability index with ESG disclosure compulsory in exchange listing requirements.
"Brazil and South Africa also both have a strong background of domestic responsible investment as well as important guidelines for disclosure, as in the case of the King Reports in South Africa and the Brazilian Pension Fund Association guidelines on SRI."
In a report issued in March, Investec's Bishop said SRI investments in bonds was "attractive enough on its own... The minister has shown a workable funding strategy in this regard, provided the bonds are not mandatory holdings for the retirement industry."
Speaking to Fin24.com on Tuesday, Bishop said that apart from the reported rebuff from Gordhan, little new information had come to light since her initial report in March.
However, she believed the debate was shifting towards whether Patel would push a model which involved mandatory rather than optional contributions.
- Fin24.com