Government Employees Pension Fund + Public Investment Corporation 2016/17 Annual Report; Current challenges facing the PIC: Trade Union Input

This premium content has been made freely available

Finance Standing Committee

17 October 2017
Chairperson: Mr Y Carrim (ANC)
Share this page:

Meeting Summary

Annual Reports 2016/17

The Government Employees’ Pension Fund (GEPF) and the Public Investment Corporation (PIC) presented their annual reports.

GEPF’s 2017/18 strategic initiatives included improving: benefits administration; member and beneficiary communication and education; investment monitoring; risk management architecture; and stakeholder relations. The GEPF fund has been growing steadily and currently stood at R1.638 trillion. The funding level as determined with reference to the affordable reserves only, was at 100%. On improving benefits administration, a data cleansing project was underway to ensure an accurate member database. In an effort to address unclaimed benefits, tracing agencies had been appointed, in conjunction with in-house tracing by the Government Pensions Administration Agency (GPAA). As a means of improving investment monitoring, GEPF had set out to develop investment beliefs and risk appetite statements as well as strengthening in-house research and monitoring capacity. This saw the enhancement of oversight and reporting by the investment team, with revised strategic asset allocations being approved by Board and submitted to the Minister of Finance for consultation.

PIC highlighted that total assets under its management amounted to R1.928 trillion and the composition of the assets was as follows: Government Employees Pension Fund, 87.72%; Unemployment Insurance Fund, 7.03%; Compensation Commissioners Fund, 1.93%; Compensation Commissioner Pension Fund, 0.96%; Associated Institutions Pension Fund, 0.77%; and various other clients with smaller portfolios, 1.59%. Investment focus areas included: social infrastructure investments in affordable housing and end user financing as well as healthcare through the development of Academic Hospitals and a Healthcare Fund. PIC was on an inclusive growth investment drive. Consistent to this drive, initiatives underway included: investments in housing development; direct investments in agro-processing projects; partnerships with Land bank; rural electrification using the solar technology; rural mall development to foster rural development; industrial parks to support SMMEs; transformation of the Johannesburg Stock Exchange (JSE) property sector; support to SMMEs by creating a bank where SMMEs can access funding among others. Key corporate performance measures were outlined as follows: on its human capital composition, 92.5% of the total number of professionals were black, with 45% total number being black female professionals. Developmental Investments (PICOF) initiatives included: R100 million committed to the SA SME; R200 million committed to SA Home Loans; and R200 million committed to Fundi “Eduloan” On compliance, PIC recorded a clean audit; zero fruitless and wasteful expenditure; zero irregular and unauthorized expenditure; and zero breaches to the procurement policy and National Treasury directives during the period under review.

Unions submitted on proposals to have PIC use its funds in ways that were not consistent with its mandate. They believed bailing out ailing state-owned entities (SOEs) would not bring a good return on workers’ funds.

The Congress of South African Trade Unions disagreed with government’s proposals to raid the PIC to finance and bailout SOEs. The current challenges facing the PIC and playing out in the media were of the deepest concern to COSATU and its 1.7 million members and their families. No decision can be allowed to be made about public servants’ hard earned pensions without the involvement and agreement of their unions and federation, COSATU. It did not have an objection in principle against an audit of PIC investments. However it expressed concern with regards to how these investigations were being handled and managed. It was also not oblivious to the numerous factional battles and state capture at play across the state. COSATU was also not blind to how state organs have been and are being abused to settle scores and loot. Government needed to be very careful with how it handles its requested forensic audit of the PIC’s investments.

The Federation of Unions of South Africa (FEDUSA) expressed confidence in GEPF and PIC but recognised the need for proactivity. FEDUSA was not oblivious of the reality of state capture, looting and plundering in public entities. It expressed concern about the proposal by the Minister to institute a forensic investigation on PIC. FEDUSA was not agreeable until the rationale was understood. It did not believe such an investigation should take place, and felt it was an effort to get rid of the PIC CEO. FEDUSA was not being alarmist as some of the allegations could not be proven. However, its fears were genuine and needed assurance that worker funds were in safe hands.

The South African Federation of Trade Unions (SAFTU) submitted that bailing out SOEs, which have been bankrupted through mismanagement and corruption had to be resisted. Workers’ money should not be used to line pockets of corrupt individuals. It insisted that the PIC was a proper vehicle for the investment of workers’ money as long as it would not be used as a ‘cash cow’ by the desperate looters. SAFTU urged the Committee to explore the possibility of making GEPF and PIC funds available to fund workers without homes, who are too rich to be catered for by the Reconstruction and Development Programme (RDP) whilst too poor to approach commercial banks. It asked for assurance that workers’ monies would not be used by “jackals and hyenas”. Also, the PIC board must be democratised and be more accountable.

Solidarity Deputy submitted that the manner in which workers’ funds have been managed by PIC thus far has been exceptional. It agreed with the other unions that PIC funds must not be used to bailout loss-making entities which have been run down through corrupt practises. Workers funds should be channelled to investment worthy initiatives to ensure the conservation and sustainability of the funds. They cannot be used as capital for risky investments as the ripple effects of plundering the PIC would be catastrophic for South Africa. It emphasised that unions have to continue occupying the watchdog role. The success of the workers fund was in everyone’ interest.

The National Council of Trade Unions (NACTU) agreed with other unions. It supported a PIC investigation that would bring culprits to book. Workers’ hard earned money should not be found in the wrong hands. Workers’ money was a ‘no-go area.’ Workers’ funds must not be used to finance loss-making projects. NACTU welcomed the proposal to allow worker representation in boards. Also, having the Deputy Minister as chair of the PIC would blur the accountability lines and undermine the existing checks and balances.

Members commented that it was public knowledge that South African Airways (SAA) had approached the Public Investment Corporation (PIC) requesting funds. What action had GEPF taken to ensure that PIC does not capitulate and avail loans to failing SOEs? In the event that the funds were availed, how would pensions and pensioners be protected if SAA fails to pay back, and given that government continues to run deficits?
There was clearly some fear among GEPF members that the PIC would be captured and its funds raided to finance ailing SOEs. Members sought to deal with the perception that a huge number of SOE board members have links with criminal syndicates. EFF asked if the PIC deputy chairperson had any relationship with the Gupta family and the Deputy Minister of Finance. What was the attitude of the PIC to the letter from the Minister proposing a forensic investigations on PIC?

The Chairperson said he was agreeable to the proposal that there be worker representatives in the PIC board. ANC would come up with its study position on same. He asked for trade unions to submit briefs to the Committee to assist in making recommendations. The suspicions and scepticism about having the Deputy Minister as PIC board chair were perfectly understandable. However, issues must not be conflated given the need for some political guidance in some instances. The Committee would pass its resolutions on the issues raised on the following day.
 

Meeting report

Opening remarks
The Chairperson acknowledged the anxieties in the public domain about the Public Investment Corporation (PIC) being asked to use its funds in ways that were not consistent with its mandate. The public believed bailing out ailing state-owned entities (SOEs) would not bring a good return on PIC funds. The unions in particular felt strongly and the Committee sought to engage with the parties to come up with a set of recommendations. This was the first set of a two part process, with the follow up meeting to be held in mid-November.

Briefing by Government Employees Pension Fund (GEPF)
Ms Linda Mateza, Head: Investments and Actuarial, GEPF, took the Committee though a presentation on the GEPF annual performance. 2017/18 strategic initiatives included improving benefits administration; member and beneficiary communication and education; investment monitoring; risk management architecture; and stakeholder relations. The GEPF fund has been growing steadily and currently stood at R1.638 trillion. The funding level as determined with reference to the affordable reserves only, was at 100%.
On improving benefits administration, a data cleansing project was underway to ensure an accurate member database. In an effort to address unclaimed benefits, tracing agencies had been appointed, in conjunction with in-house tracing by the Government Pensions Administration Agency (GPAA). To improve pension benefits, GEPF had set out to implement a host of measures such as the Clean Break Principle on Child’s Pension; Preservation Fund and the Additional Voluntary Contribution Fund. The objective being to guarantee market value adjustment and address resignation benefit anomalies.

As a means of improving investment monitoring, GEPF had set out to develop investment beliefs and risk appetite statements as well as strengthening in-house research and monitoring capacity. This saw the enhancement of oversight and reporting by the investment team, with revised strategic asset allocations being approved by Board and submitted to the Minister of Finance for consultation.

Member and beneficiary communication and education was paramount. Consistent to this, a holistic communication strategy had been approved and was being implemented. A financial literacy campaign was to commence shortly, and member education campaigns via editorials and advertorials were underway. Advisory capacity to imminent retirees was also work in progress. The objective was to bring about member retention to maximum statutory retirement age. The initiatives were realising notable outcomes as resignation of members had decreased.

Furthermore, to improve the risk management architecture, a combined assurance framework had been approved and was being implemented. Training and development was also ongoing to develop and maintain high level of competence for Board and staff. Pursuant to this objective, GEPF carries out four compulsory training sessions per annum as well as industry related conferences and training events periodically.

Discussion
Mr A Lees (DA) commented that it was public knowledge that South African Airways (SAA) had approached the Public Investment Corporation (PIC) requesting funds. What action had GEPF taken to ensure that PIC does not capitulate and avail loans to failing SOEs? In the event that the funds were availed, how would pensions and pensioners be protected if SAA fails to pay back, and given that government continues to run deficits?
There was clearly some fear among GEPF members that the PIC would be captured and its funds raided to finance ailing SOEs. Has the GEPF considered the possibility of replacing PIC as its asset manager in the event that this happens? Would such a move be even possible and how quickly would it be done? Was there any possible conflict of interest among members of the PIC and GEPF that trustees were aware of, and what action was being taken to deal with same?

Mr F Shivambu (EFF) asked if any GEPF funds had been availed to institutions other than the PIC. What was the GEPF’s attitude to the Ministry’s approach towards the PIC? In its investment policy, does GPEF permit PIC to lend money to government? How much had been borrowed to government thus far? GEPF had to be honest in its responses as this would assist in managing and allaying fears in the public domain.

Mr D Maynier (DA) stated that his understanding was that GEPF recently made a direct payment to an independent newspaper. What was the current value of the loan to the independent newspaper, its terms and maturity date? He noted that GEPF had issued various media statements to the effect that it would not, under any circumstances, fund an SAA bailout. Was that the current position and was there anything in its investment mandate that would prevent an SAA bailout in the future? Also, did the GEPF share the public’s concerns about the prospect of PIC being captured given that it was PIC’s biggest client?

Ms T Tobias (ANC) asked about the extent GEPF had gone in educating the public about the importance of preservation of funds. Financial literacy programmes encouraging pensioners to invest in preservation funds had to reach the remotest areas, and stakeholders had to understand the details of preservation funds. She asked for a breakdown of payments to pension fund tracing agencies.

Dr Renosi Mokate, Board Chairperson, GEPF, addressed the question about GEPF’s position on the use of PIC funds to bailout SOEs. He explained that GEPF would want to take a comprehensive view in consultation with the Public Service Co-ordinating Bargaining Council (PSCBC) and various labour union representatives. GEPF’s core responsibility was well understood but it was also necessary to reach out to other stakeholders. GEPF had not received any request from SAA but if such a request is received, it would be considered in accordance with the relevant prescripts and parameters in line with GEPF mandate.

Major General Dries de Wit, Vice Board Chairperson, GEPF, confirmed that GEPF engaged tracing agencies and a recent report indicated there were 803 successful tracings and beneficiaries were paid the sum of R34 million. Preservation was an important element of GEPF; that was the rationale of starting a financial literacy program. GEPF was working in consultation with the Financial Services Board to fully implement the financial literacy programme. He added that the current board’s term was going to end in April 2018 and the replacement process was beginning to unfold.

Ms Mateza, in response to the question on whether GEPF was permitted to lend money to government, said it was acceptable to invest in government issued bonds. The current value of government bonds it held as at the 2016/17 financial year was R330 billion. The fund asset liability was determined by the asset liability model and the model informed GEPF’s investments policies. All investments were meant to realise financial return and have a social impact. She pointed out that 95% of its funds were listed. The bulk of the funds were passively managed. She requested that some of the responses be furnished to the Committee in writing.

Ms Tobias asked GEPF to provide the Committee with a list of black-owned risk management companies working with GEPF. Members would want to know if GEPF was consistent with the transformation agenda. She suggested a presentation on its investment policy on a later date. This would clear up the perception that GEPF and PIC were taking up risky investment portfolios.

Mr Shivambu asked for a list of all fund managers engaged by GEPF. He asked for substantial written responses to Members’ questions. What was GEPF’s view on the PIC forensic investigation recently proposed by the Minister? What would be the implications of such an investigation? Also, was GEPF consulting on its investment decisions?

Dr Mokate replied that GEPF had not received any formal communication from the Minister in relation to the said forensic investigation, hence was not in a position to comment. GEPF would reach out to the Minister to get a full understanding. Also, GEPF would remain vigilant to ensure its investments are safeguarded, and was constantly reviewing the environment and assessing whether existing policies were enough to safeguards its members’ funds.

Mr Maynier felt the response on whether GEPF shared the public’s concerns about the prospect of PIC being captured given that it was PIC’s biggest client, was unsatisfactory.

The Chairperson stated that Mr Maynier’s enquiry was fair- it had nothing to do with political party affiliations. However, GEPF’s response given the prevailing circumstances was limp and generic. He asked GEPF to have a second take.

Dr Mokate replied that there was general concern about state capture within the country. It was critical that the matter be resolved through formal processes such as an inquiry to do away with ongoing speculations. She emphasised the need for consistent vigilance even beyond the current dispensation. GEPF undertook continual reviews on how to strengthen mechanisms to safeguard members’ funds. GEPF supports the call by various stakeholders to strengthen the GEPF Act. Also, the implications of having the Deputy Minister of Finance chairing the PIC board had to be considered. Having a member of the executive as chair could undermine the existing and necessary checks and balances.

Briefing by Public Investment Corporation (PIC)
Dr Xolani Mkhwananzi, Deputy Chairperson: PIC, took the Committee through PIC’s annual performance report. Total assets under management amounted to R1.928 trillion and the composition of the assets was as follows: Government Employees Pension Fund, 87.72%; Unemployment Insurance Fund, 7.03%; Compensation Commissioners Fund, 1.93%; Compensation Commissioner Pension Fund, 0.96%; Associated Institutions Pension Fund, 0.77%; and various other clients with smaller portfolios, 1.59%.

Investment focus areas included: social infrastructure investments in affordable housing and end user financing as well as healthcare through the development of Academic Hospitals and a Healthcare Fund. PIC was on an inclusive growth investment drive. Consistent to this drive, initiatives underway included: investments in housing development; scaling investment in student accommodation; direct investments in agro-processing projects; partnerships with Land bank; green energy (solar, biomass, gas hydro); rural electrification using the solar technology; rural mall development to foster rural development; industrial parks to support SMMEs; transformation of the Johannesburg Stock Exchange (JSE) property sector; support to SMMEs by creating a bank where SMMEs can access funding; and creation of a “Black ABSA”, among others.

Overall, PIC had been creating value for its clients. It had been consistently outperforming client benchmark returns. On its investment activities and performance, the principal portfolio achieved combined internal rate of return (IRR) of 11.06%. The IRRs were expected to improve as the investment period progresses.

PIC was committed to driving transformation through its listed investments. Initiatives in that direction entailed driving transformation and building black industrialists through the external manager programme which started in April 2009. At that stage, R64 billion was invested across 18 mandates, with seven of those managed by black-owned firms. Over 80% of assets were allocated to traditional established firms across listed equities and listed properties funds. Notably, as at 1 June 2017, R92 billion had been allocated to asset managers with more than 51% black ownership. 14 of 18 of the Fund Managers were black-owned firms, and 11 of the 14 Black Fund Managers started in the PIC developmental manager incubation programme, where PIC’s support had enabled them to grow into sustainable, established businesses in the South African asset management landscape. Also, over R30 billion was allocated to black asset managers in the 2016/17 financial year.

Dr Mkhwananzi highlighted the high impact investments the PIC was involved in. Foremost, SA Home Loans was providing affordable end user financing for housing, targeting mainly affordable housing and GEPF members. PIC had advanced R10.5 billion towards the programme, and had created a total of 799 jobs and generated housing finance to the tune of 7875 of which 3147 were GEPF members. Secondly, the PIC, on behalf of its clients, the GEPF, and the Unemployment Insurance Fund (UIF), invested in Eduloan, a company that focuses exclusively on the provision of education finance and related activities to individuals. Eduloan was established in 1996 and has, to date, provided loan finance of approximately R5 billion to more than 849,000 students, the majority being from historically disadvantaged backgrounds. Eduloan currently provides loans to over 30,000 people with a total of R443 million in disbursed amounts. 95% of these loans are designated to previously disadvantaged individuals, of which 60% are women.

PIC approved a R500 million equity funding commitment to the SA SME Fund (the Fund). The Fund is a private sector led initiative with joint effort from government. The Fund had already received commitments of approximately R1.5 billion. Committed investors had already paid the required upfront 10% contribution of their commitment. The expectation was that the Fund will build a high-quality mentorship base to provide business and other forms of support to SMEs and entrepreneurs funded by it. The Fund sought to provide equity funding to funds in order to invest in high-impact SMEs.

PIC made an investment in 2015 of US$33 million and subsequent investment of US$10 million in a newly constructed start-of-the-art edible oil plant in Nacala, Mozambique. The plant produces cooking oil and soap with the capacity to add on other products such as margarine. PIC holds 70% of the equity and its Mozambican shareholder 30%. Following commissioning of the plant, the company began production of oil in April 2016 using 2,874 tons of crude oil. The plant was currently in operation with an 18-hour production shift. PIC’s investment has attracted interest from other investors in the project which PIC is currently considering.

Furthermore, PIC, on behalf of UIF, approved a R21 million loan in late 2015 which was disbursed in July 2017 to the MST Group. It was used to purchase seven mobile buses which would be used to reach out to pupils in rural areas and townships, assist in processing land claims; providing primary healthcare and dentistry; and provision of career guidance and access of technology to pupils. Since its establishment three years ago, MST had achieved the following: processed 45,000 land claims; provided 25,000 ARV initiations; provided tuberculosis testing for 15,000 people; and provided 17,500 condoms. Also, PIC disbursed R5 million from its corporate social investment budget in March 2017. Since then 216 teachers had been trained in 36 schools.

Key corporate performance measures were outlined as follows: on its human capital composition, 92.5% of the total number of professionals were black, with 45% total number being black female professionals. Developmental Investments (PICOF) initiatives included: R100 million committed to the SA SME; R200 million committed to SA Home Loans; and R200 million committed to Fundi “Eduloan” On compliance, PIC recorded a clean audit; zero fruitless and wasteful expenditure; zero irregular and unauthorized expenditure; and zero breaches to the procurement policy and National Treasury directives during the period under review.

Discussion
Ms Tobias commented that PIC was a model institution and its work thus far was commendable. She pointed out that during a Committee engagement with the JSE, the latter raised concern that government was investing in portfolios that did not constitute its main market cap- most investments were unlisted. She asked if PIC had considered investing in the market cap that yields the best returns. She asked PIC to shed light on the composition of its investment committee. There was need to ensure there were no conflicts of interest. Also, how many individuals constituted the PIC board membership and were labour unions also represented?

Mr Maynier was astounded that PIC did not make any disclosures about its unlisted investments. In this environment, it created deep suspicion. He asked for a full disclosure. He asked if the deputy chairperson was concerned that the PIC was vulnerable to state capture and further asked what he was doing to fend off such attempts- there was some public perception that the PIC board was an ‘eager to please board’. He made reference to the Minister’s recent proposal that a forensic investigation be undertaken on the PIC. The Minister had referred to specific matters. What were those in relation to? It appeared the Minister was directing an external investigation on allegations made against the CEO Dan Matjila. Had the board instituted investigation procedures to identify the individuals behind those allegations?

Mr Lees asked for details about the allegations in the public domain that government and SAA approached PIC for funding. What agreements, if any, were reached?

Mr Shivambu put Members’ questions into context. Members sought to deal with the perception that a huge number of SOE board members have links with criminal syndicates. He asked if the deputy chairperson, Dr Mkhwananzi, had any relationship with the Gupta family and the Deputy Minister of Finance. What was the attitude of the PIC to the letter from the Minister proposing a forensic investigations on PIC? He sought clarity on allocations to black asset managers. What role was PIC playing in the de-racialisation of the stockbroking space? He suggested the Committee recommend that the Minister should accept nominations from labour unions to fill the two vacant PIC board seats. Workers should have a seat on the PIC board to protect their interests. Also, the Committee should take a resolution that advises the Minister to comply with the PIC Act on board appointments. There should be robust systems to ensure PIC is incorruptible.

Dr Mkhwananzi, in response to the question on JSE listing and market caps, said PIC gets investment prescriptions on benchmarks and parameters from its clients. Investment decisions were, by and large, structural in nature and dictated by the mandates. On broadening the stockbrokers’ scope, PIC was doing its fair share to rope in black-owned stockbrokers. PIC was leading in that front. As of June 2016, R92 billion had been allocated to asset managers. Of the sum total, 51% was with black-owned asset management companies. A comprehensive breakdown could be made available. He indicated that allegations on state capture surfaced around about the time of his appointment into the PIC board. He was well qualified and had no relationship whatsoever with the Gupta family. He had no business dealings or any close relationship with the Deputy Minister. He took exception to such smear campaigns meant to tarnish his name. On the Minister’s forensic investigation proposal, the letter was received a week ago and PIC had until October 23 to respond. Hence, the board was still deliberating on how to handle the proposal. He could not comment on the board’s attitude up until a board resolution was available.

The Chairperson said it was wrong to smear people’s names unless there was evidence to the contrary. It was about people’s integrities. As far as the Committee was concerned, the deputy chairperson had no links to the Gupta family. Also, if CEO Dan Matjila had done no wrong, he had to be cleared. What was the PIC doing to clear the CEO’s name?

Dr Mkhwananzi said the PIC had formally closed any investigation related to the CEO and said the smear campaign was as a result of someone who hacked the PIC’s IT system. Management was instructed to fix the holes in terms of security in the IT system. The board hoped that once it discovered how it happened the source of the e-mails will be revealed, but it had not launched an investigation – just because it was mainly IT-based.

Mr Maynier said it was curious that formal investigations had not been instituted. The expectation was that the board should take action. He suggested a full investigation should be instituted to find out who was responsible for the fake e-mails.

Ms Tobias emphasised the need to escalate any allegations questioning the integrity of government institutions. There was need to get into the bottom of the issues so that they are not left hanging. Allegations had to be dealt with so that they are not left to various interpretations.

Briefing by Congress of South African Trade Unions (COSATU)
Mr Matthew Parks, Parliamentary Coordinator, COSATU, said COSATU does not agree with government’s proposals to raid the PIC to finance and bailout SOEs. The current challenges facing the PIC and playing out in the media were of the deepest concern to COSATU and its 1.7 million members and their families. It was also a matter of great concern to the 400 000 plus pensioners dependent upon the GEPF. COSATU viewed this as a matter of the highest concern and one that needed to be dealt with urgently to protect the hard earned pensions of workers. It was an issue that it cannot afford to fail upon. No decision can be allowed to be made about public servants’ hard earned pensions without the involvement and agreement of their unions and federation, COSATU.

COSATU does not have confidence in government’s assurances that all is well or that workers’ monies were well protected. It was deeply alarmed by the clouds surrounding the PIC and government’s intentions. COSATU was disappointed to hear Treasury indicate that it cannot guarantee that PIC funds would not be used to bail out SOEs such as SAA. It was alarmed to hear SAA had already asked the PIC for a bail out this year and that Denel and the SABC were next. It expressed shock that other Ministers were now looking to the PIC to fund their budgets. COSATU will not support or accept these “Dangerous Eyes”. It rejected them with contempt.

COSATU understood the mandate of the PIC is first to grow the government employees’ pension fund, the unemployment insurance fund and the compensation fund. Second that these investments after generating healthy above inflation returns for their members and beneficiaries, namely workers, are to be invested in ways that will protect and create jobs, provide sustainable development, boost the industrialisation and infrastructural development of the nation. COSATU made it very clear to government that the PIC is not a slush fund. It is not there to balance the budget. It is not there for deficit funding. It is not a kitty for cash strapped ministries. It is not a bailout fund for state owned enterprises that have been run into the ground by corrupt leaders. It is workers’ money. It is to take care of workers when they have retired, lost their job or been injured on duty.

COSATU and its affiliates will not agree to bail out an SAA where looting is the order of the day. COSATU will not agree to using the PIC to throw workers’ monies down a black hole that has become synonymous for state capture and looting. All PIC investments are subject to strict investment codes, which include good governance etc. SAA clearly is not investment worthy at this stage.

COSATU did not have an objection in principle against an audit of PIC investments. However it was concerned about how these investigations are being handled and managed. COSATU will not condone any wrongdoing if it occurred at the PIC. If it did occur then the law must be applied. It was also not oblivious to the numerous factional battles and state capture at play across the state, in particular in the run up to the ANC’s National Conference. COSATU was also not blind to how state organs have been and are being abused to settle scores and loot. Government needed to be very careful with how it handles its requested forensic audit of the PIC’s investments.

Briefing by Federation of Unions of South Africa (FEDUSA)
Mr Dennis George, General Secretary, FEDUSA, expressed confidence in the GEPF and PIC but recognised the need for proactivity. FEDUSA was not oblivious of the reality of state capture, looting and plundering in public entities. It expressed concern about the proposal by the Minister to institute a forensic investigation. FEDUSA disagreed with this until the rationale was understood. It did not believe such an investigation should take place, and felt it was an effort to get rid of CEO Dan Matjila. The looting in SOE was systematic and commenced when Minister Gigaba was still the Minister of Public Enterprises. FEDUSA was not being alarmist as some of the allegations could not be proven. However, its fears were genuine and needed assurance that worker funds were in safe hands.

FEDUSA was aware that some board positions were vacant and it believed they should be filled by worker representatives. It called for worker representation not only on the PIC board but in all SOEs as a means of strengthening accountability and transparency. It was important that at least 50% of the board positions were occupied by labour representatives. These would have a responsibility to safeguards members’ interests. Empirical evidence from research conducted in Germany’ co-determination model, had discovered that companies with worker directors perform 30% above the market benchmark. Including worker directors was also key to ensure inclusive growth. Also, FEDUSA was vehemently opposed to selling of Telkom shares as it was at least a steady revenue stream for government.

Briefing by South African Federation of Trade Unions (SAFTU)
Mr Zwelinzima Vavi, Secretary General, SAFTU, condemned possible use of PIC funds to bail out bankrupt SOEs. Such massive bailouts would put the PIC itself in danger of becoming bankrupt, because the GEPF is a defined-benefit pension fund, which legally must pay out the full pensions and benefits that its members are entitled to. If its money disappeared down the drain in failed investments in these loss-making SOEs, then Treasury would have to bail out the GEPF itself to fill the gap, to make sure the workers receive their pensions. So indirectly, taxpayers will have paid the price, by injecting millions of rands, via the GEPF, into the pockets of bankrupt SOEs. This diversion of tax revenues will deepen the country’s economic crisis, and will inevitably lead to tax increases and/or spending cuts, further delays in implementing the national health insurance scheme, comprehensive social security, free education, infrastructure expansion and maintenance, and to less spending on essential services. It will therefore be an assault on the living standards not just of retired public servants but all poor South Africans and on the goal of creating a better life for all.
Bailing out SOEs, which have been bankrupted through mismanagement and corruption had to be resisted. Workers’ money should not be used to line pockets of corrupt individuals. He insisted that the PIC was a proper vehicle for the investment of workers’ money as long as it would not be used as a ‘cash cow’ by the desperate looters. To use workers’ money for a R12 billion bailout of SAA would be bad enough but it is reported that after bailing out SAA, the government will be looking for more cash for similar bail-outs for Eskom, PetroSA and Denel, which have been at the centre of allegations of corruption and mismanagement by the network of looters around the Gupta family. These were exactly the sort of dodgy investments which the PIC’s mandate to invest responsibly ought to exclude.

SAFTU was also particularly concerned that the PIC’s Chairman is Deputy Minister Sfiso Buthelezi, who has been accused of being a beneficiary of companies that illegally secured contracts worth at least R150 million from the Passenger Rail Agency of South Africa (Prasa) and some of its suppliers, while he was its board chairperson.

SAFTU was also very concerned at the letter sent by Minister Gigaba to his Deputy Minister, Sfiso Buthelezi, who is also the PIC’s chairperson, demanding an internal forensic audit of the PIC. Given that presumably the PIC is already regularly audited, the only logical explanation of the Minister’s call for this additional audit was that he is fishing for evidence that could justify the suspension of its CEO Dan Matjila, who has opposed the idea of investing money in organizations like SAA or Eskom because of the financial risk, and replace him with a lackey.

He urged the Committee to explore the possibility of making GEPF and PIC funds available to fund workers without homes, who are too rich to be catered for by the Reconstruction and Development Programme (RDP) whilst too poor to approach commercial banks. He asked for assurance that workers’ monies would not be used by “jackals and hyenas”. Also, the PIC board must be democratised and be more accountable.

Briefing by Solidarity
Mr Johan Kruger, Deputy Chief Executive, Solidarity, submitted that the manner in which the workers’ funds have been managed by PIC thus far has been exceptional.

Notwithstanding this, he agreed with the sentiments expressed by the other unions. GEPF funds must not be used to bailout loss-making entities which have been run down by corrupt practises. Workers funds should be channelled to investment worthy initiatives to ensure the conservation and sustainability of the funds.
They cannot be used as capital for risky investments as the ripple effects of plundering the GEPF would be catastrophic for South Africa. He emphasised that unions have to continue occupying the watchdog role. The success of the workers fund was in everyone’ interest.

Solidarity had requested the following information from GEPF and PIC to no avail: precautionary measures taken to prevent state capture; failure of the PIC to take action against inadequate corporate management at institutions such as Eskom where funds have been invested; possible contradictions in the mandates of the PIC and the GEPF; risk analysis and disclosure of information in that regard; and specific incidents of possible maladministration. It was of the utmost importance that the information requested be studied to investigate allegations of state capture attempts and of investments in unlisted funds and in SOEs. Solidarity members, which include current public service employees and pensioners, were anxious about rumours of state capture. Solidarity needed to get answers to try to reassure it and the public at large that their funds are safe and that they are managed in a responsible way. Rumours about state capture and dubious investments in failing state-owned enterprises should not be left unanswered. If the information was not availed, it would leave Solidarity with no option but to approach the courts.

National Council of Trade Unions submission
NACTU agreed with other unions. It supported a PIC investigation that would bring culprits to book. Workers’ hard earned money should not be found in the wrong hands. Workers’ money was a ‘no-go area.’ Workers’ funds must not be used to finance loss-making projects. NACTU welcomed the proposal to allow worker representation in boards. Also, having the Deputy Minister as chair of the PIC would blur the accountability lines and undermine the existing checks and balances.

Discussion
Ms Tobias asked Solidarity to clarify who should determine the soundness of an investment. Who should also determine and measure projects which, in Solidarity’s opinion, were deemed risky and not worthy of investment. Also, PIC should look into facilitating home loans for workers at flexible interest rates. She suggested that various models in this regard be scrutinised.

Mr D Hanekom (ANC) said the PIC had done exceptionally well. The PIC is a creature of statute and in terms of the law, the Minister had a role to play. Thus, the Committee did not have the clout, except in terms of changing the law. Trade unions have the clout, not the Committee- the Committee could only advise. Did unions believe that having the Deputy Minister as chairperson of the PIC board was the best arrangement? The Committee was in agreement that there was a strong case for worker representation on boards. The Committee could thus make recommendations to that effect.

Mr Maynier sought clarity on how the unions would possibly nominate a worker representative to the PIC board. He asked the unions to expand on the point.

Mr Shivambu agreed that there was need for more accountability and co-determination. Worker representatives should have a say in the management of their funds. A two-pronged approach should be taken. In the short term, the Committee should recommend that the existing PIC board vacancies be filled by worker representatives. A resolution should be taken that the Minister must ensure that board vacancies were filled by workers. In the long term, Parliament would need to legislate specific quotas so that worker representation is not an optional consideration and left to the Minister’s discretion. The housing scheme proposal to be anchored by PIC was sensible and should be looked into. He believed contributions by trade unions were useful. Labour should unite to bring about some degree of accountability. Forensic investigations should be treated with suspicion. If the Minister was genuine about dealing with governance issues, the first port of call would have to be Eskom and Transnet and all other SOEs. Why was an investigation being called for in an institution with relative stability?
The Chairperson was agreeable to the proposal that there be worker representatives on the PIC board. Further, he felt Mr Shivambu’s proposal that worker representation on the PIC board be legislated was agreeable. The ANC would come up with its study position on same. Consistent to this, the trade unions must insist on a meeting with the Minister. He asked for trade unions to submit briefs to the Committee to assist in making recommendations. The suspicions and scepticism about having the Deputy Minister as PIC board chair were perfectly understandable. However, issues must not be conflated given the need for some political guidance in some instances. On allegations raised by the unions against the Minister, he must have a right of reply. A Committee resolution would be drafted and sent to the Minister.

Mr Shivambu proposed that it must be legislated that the PIC should be the sole investment vehicle of the GEPF. The PIC might decide to take GEPF money elsewhere and there would be no legal basis to challenge such a decision. It would be sensible to democratise the board but it had to be ensured that there are no loopholes. Unions should make substantial submissions as the owners of the funds. Members, as representatives, would then execute the mandates given.

The Chairperson agreed. He appealed to the unions not to consider withdrawing their funds from GEPF and allow the process sufficient time to revolve.

Mr Parks welcomed Mr Shivambu’s proposal that the Minister should appoint worker representatives to constitute the PIC board. There must be a law spelling out clear thresholds. He also agreed with the proposal to legislate that GEPF funds are managed by the PIC. COSATU would look at ways of strengthening the PIC. The PIC was not government’s petty cash but was entrusted with workers’ money.

Mr Kruger said Solidarity would furnish the Committee with its recommendations. PIC work had to be scrutinised because it was entrusted with workers money. He agreed that the fiduciary role of PIC should be legislated.

Mr George said the Minister had no role to tell the PIC what to do. SAA cannot be eligible for bailouts as the current board’s term had expired. FEDUSA was amenable to having continual engagements. It was FEDUSA’s view that workers’ money should not be thrown into another bottomless pit. He reiterated that FEDUSA was not supportive of the Deputy Minister being the PIC chair as it would leave the GPEF vulnerable to abusers.

Mr Vavi said he was encouraged by the broad consensus on the matter. He pointed out that there was not one SOE board being chaired by a Minister, thus PIC was an exception. Why the need for a political principal as chair of the PIC board? He emphasised that SAFTU had in principle no objection against PIC funds being invested in SOEs but had serious problems with the current individuals and circumstances whereby SOEs needed bailouts due to mismanagement. Those driving the agenda must find the money elsewhere. Also, the proposed forensic audit was a smoking gun for something else.

Ms Tobias said the Committee would need to scrutinise the proposals brought forth. She suggested that the final recommendations be made after the second meeting. The Committee had to apply its minds on why, in the first place, there was a need for the Deputy Minister to occupy the position of PIC board chair. A balanced view had to be considered.

Dr Mkwananzi assured unions that PIC would consider all the concerns raised. The mandate for GEPF should be clear. The Committee should rest assured that all ventures meet the minimum criteria of investment.

The Chairperson said the Committee would pass its resolutions on the issues raised on the following day.

The meeting was adjourned.
 

Share this page: