Damaged road during an oversight visit to Bree Street by Joburg Mayor Kabelo Gwamanda on July 24, 2023 in Johannesburg, South Africa. The visit follows the technical report made by the City's Technical Team on the gas explosion , which led to infrastructure damage. (Photo: Gallo Images / Luba Lesolle) 
Prior to May elections, the African National Congress, which had ruled South Africa since apartheid rule ended in 1994, pledged to make it mandatory for the financial sector to make adequate funds available for industrialization and economic development. But the party lost its outright majority in the vote and entered into a coalition with nine rivals, some of which oppose the plan, and it’s unclear if the new administration will implement the policy.
The Financial Sector Conduct Authority, a government regulator, has warned that any move to dictate to pension funds how to invest would infringe on their fiduciary duties.
Masondo said that a prescriptive investment policy would adversely impact on the effectiveness and efficiency of the capital markets, and money allocated to under-performing state companies that they would not otherwise have received could be squandered.
Read More: South African Regulator Cautions Against Prescribed Assets Plan
“Recipients of the prescribed funds may be incentivized to manage the entities inefficiently as they will be guaranteed funds regardless of how they are managed,” he said. Pension funds may also earn below-market returns, impacting on their ability to meet their liabilities, and forcing them to increase contributions, while subjecting retirees to lower benefits, he added.
“Foreign investments and investor confidence in the efficiency of the capital markets will be undermined, thus reducing available savings,” Masondo said.
In March, South African President Cyril Ramaphosa said as much as 1.6 trillion rand ($91 billion) in public-sector infrastructure investment and a further 3.2 trillion rand from the private sector will be needed for the country to achieve its infrastructure goals by 2030.
“We do have a huge financing gap for our investment portfolio as well as industrialization, but I don’t think that asset prescription is the right solution,” Masondo said.