Question NW3981 to the Minister of Finance

Reply:

a) It is too early to provide a detailed answer to the question as the amended Regulation 28 only came into effect on 1 January 2023. The first investment reports, post the amendment, will be submitted to the Financial Sector Conduct Authority in 2024. Secondly, it will be difficult to make the comparison since there is no reference point to compare changes in investment in infrastructure due to the ERRP with the amendment to Regulation 28. It is also not only retirement funds that are expected to invest in infrastructure, but other asset managers that are not subject to Regulation 28.

In general terms the financial sector continues to heavily fund government. As noted in the MTBPS, National Treasury will seek to achieve infrastructure investment growth through establishing an Infrastructure Finance and Implementation Support Agency that will systematically address the need to crowd-in private sector finance and expertise into the public infrastructure programme. In addition, government will also widen the scope for concessional borrowing by creating new mechanisms through which private-sector investors and multilateral institutions can co-invest with government for selected infrastructure projects. These interventions will lay the basis for broader investment by private sector including pension funds through the 45% asset allocation to infrastructure investment in Regulation 28.

b) The share of foreign exposure relative to the 45% upper limit increased across all institutional investors moderately. Where increases in offshore asset allocations have occurred, retail investors i.e., unit trusts have accounted for the majority in percentage terms. For all institutional investors, offshore exposure remains at about 23% of total assets under management (AUM). The data suggests that the impact of the increases in offshore allowance has expanded the scope of possible outflows but has not triggered actual large outflows in line with the maximum permissible amounts.