The AYO affair shows the GEPF should stop backing the ANC’s destructive BEE project, pull out of the stock market and support the public sector instead
According to media reports, a deal has been struck outside court between the Public Investment Corporation (PIC) and Iqbal Survey’s company AYO Technology. Out of the R4.7 billion of Government Employees Pension Fund (GEPF) funds that GEPF’s manager PIC invested in AYO in 2017, about R600 million is said to have been rescued. But PIC remains a shareholder with a 25.1% stake in AYO, becoming a chair of the board and securing a couple of seats as a part of the deal.
PIC’s heavier presence in the board will allegedly serve the purpose of stopping AYO from losing more money and move up its share price. It remains to be seen if this will be the case. One must hope that the large stake (a risk that the PIC continues to take on state pensioners’ and GEPF members’ behalf) should at least make it possible for PIC to stop AYO from paying out dividends. During its downward spiral over five years, AYO managed to pay out about R3 billion in dividends to its holding companies, the major one being Survey’s Sekunjalo Investments.
The whole affair illustrates what is wrong with the GEPF’s investment policy.
First, the GEPF is used to promote the project of creating a black business class under the banner of black economic empowerment (BEE). This is, by definition, a minority project and has nothing “broad-based” about it, focusing instead on the creation of an elite minority straddling the political and financial sectors.
The BEE project has destroyed the ANC from within and created a “social movement of a special kind”, embedded in all corners of the state: in municipalities; in the finances of hospitals and provinces; in the South African Revenue Service; in the parastatals (not least Eskom), even in the police and security cluster, as well as in the National Prosecuting Authority.
Second, over half of GEPF’s R2.3 billion in financial assets are placed in riskier investments in listed and unlisted companies. To the benefit of the finance industry, every year the GEPF props up share prices on the JSE by buying tens of billions of rand in new shares. It is the JSE’s biggest customer. This is why, in October, the members of GEPF were shocked to find that their pension claims had been substantially reduced.
Bad stock market years for key companies on the JSE led the independent auditors to reduce the so-called “actuarial factor” in the GEPF’s defined benefit mathematical formula. Unfortunately, the pension claims of members are also “defined” by the vagaries of the stock markets, which the GEPF’s cabal of asset managers are obsessed with. In its 2022 annual report, the GEPF complained: “Naspers and Prosus are in the top 10 holdings of the GEPF equity portfolio. Both stocks fell more than 50% in value over the year ending 31 March 2022.”
Third, through its manager the PIC, the GEPF acts as a commercial player in relation to the government’s and Eskom’s finances. The GEPF holds 20%, or R81 billion, of Eskom’s debt and 14%, or R536 billion, of the government’s domestic debt (March 2022). Both the draconian budget cuts of the treasury and the drive to privatise the assets of Eskom are motivated by a debt crisis that the state-owned GEPF is part and parcel of creating.
It is lending its money to the government and to Eskom at market rates as if it is a private investment company. This is an irrational and ideologically motivated commercial relationship that is at odds with the needs of South Africa. The GEPF is running with a hefty yearly surplus of plus-minus R50 billion after paying pensions and benefits to its members. The neoliberal policies of the government and the corporatisation of public entities, such as the GEPF, seriously constrain our ability to solve the debt crisis at Eskom and to stop the austerity campaign that aims to reduce public services as a share of the economy and privatise public assets.
The lesson from the AYO affair is that GEPF should stop lending its support to the ANC’s destructive class project and break with the “casino capitalism” logic of its high-flying financial asset managers. The lesson from the Steinhoff and Tongaat debacles, as well as the recent writing down of the members’ pension claims, is that the GEPF should phase out its prominent role on the stock market and instead support the public sector with its amassed R2 trillion plus fortune.
The GEPF’s investment policy should prioritise lending at negotiated rates within the public sector family, securing both state pensions, the public companies and public services. This would make an enormous contribution to dealing with the present crisis in South Africa. It is a win-win proposition for the stability of the fund and the majority of South Africans.
The only true broad-based black empowerment project is a project that builds a welfare state for all in South Africa, on the basis of redistributive policies which can drive a project of low-carbon reindustrialisation. A huge pension fund like the GEPF, that doesn’t risk its funds for political or class ideological reasons, will be an integral part of such a project and vision for the future, putting to rest the nightmare of a society breaking apart in front of our eyes.
The authors are programme managers, economists and researchers at the Alternative Information and Development Centre.
