Question NW759 to the Minister of Finance
26 April 2024 - NW759
Pambo, Mr V to ask the Minister of Finance
(1)In light of the manner in which he changed the policy of prescribed assets, as a way to induce local and/or domestic investment in developmental assets in 2019, what measures have been put in place to ensure that any changes to the policy is on sound policy grounds regarding prescribed assets; (2) whether the cap on international investment will be reduced; if not, why not; if so, what are the relevant details?
Reply:
1. The instrument to encourage local and/or domestic investment in developmental assets is Regulation 28, which is a legislative instrument issued by the Minister of Finance through the Pension Funds Act. The purpose of Regulation 28 is to protect investors against poorly diversified investment portfolios and exposure to risky assets by prescribing maximum investment thresholds that a pension fund may invest in, in line with asset categories allowed by the Regulation. However, to recognise the imperative of promoting investment in infrastructure, Regulation 28 was amended to set the overall investment in infrastructure across all asset classes at 45 per cent. Infrastructure in this context includes public and private infrastructure like water, energy, hospitals, and transport.
The amended Regulation 28 came into effect in January 2023. Due to the long-term investment horizon of retirement funds, they are well placed to hold investments in infrastructure through listed companies and fixed income instruments. Retirement funds can do this whilst ensuring that their principal responsibility, which is to safeguard the savings of individual pension savers with enough returns on these investments, is fully met.
To ensure that the policy objective is met, measures to track the level of investments in infrastructure are being developed.
2. The 2020 Budget Review outlined reforms to modernise the foreign‐exchange system to maximise trade and investment benefits in a globalised capital environment, while complementing the African Continental Free Trade Agreement, to which South Africa is a signatory. The reforms were aligned to the Organisation for Economic Co‐operation and Development (OECD) best practice Code of Liberalisation of Capital Movements. The National Treasury, alongside the Reserve Bank, Prudential Authority and the FSCA, will evaluate the impact of these reforms on the prudential, fiscal, and monetary policy frameworks. This research is intended to generate adjustments to improve alignment of the frameworks and may affect the pace at which these reforms continue to be implemented.