PIC must link funding to interventionism
It is understandable that the idea of getting the Public Investment Corporation (PIC) to bail out South African Airways (SAA) has caused such consternation among citizens and opposition politicians. Apart from being reckless, it would be immoral and criminal to use pensions of public servants and other public funds to back a company that has shown such flagrant disregard for the most basic standards of corporate governance and ethics.
Still, there is a case for the PIC to broaden its mandate to include a much more interventionist role in the economy. It is already playing this role, but half-heartedly.
Through its R1.9-trillion war chest, it owns a third of shares of publicly quoted companies on the JSE and has supported bonds of many state-owned enterprises. Most recently, it has been building up a property portfolio and funding projects outside SA’s borders. SAA is unable to raise funds from commercial banks because it is a badly managed company. It has failed to learn a single lesson in the past decade or so from committing the same crime. Some of its apologists have even tried to play the race card, accusing banks of being antitransformation. It is true banks need serious internal transformation and progressive policies in their lending practices, but to suggest they oppose transformation is a step too far. If it makes money, they will back it.
The problem with SAA is its reluctance to embrace reforms and listen to simple logic. Its business model is archaic, it’s bloated and lacks visionary leadership. Like banks, opposition MPs are correct to resist another bailout. The new board has yet to show it is up to the task and its first test would be whether it can recruit and support a competent CEO to carry out the bold reforms that are required. Until then, the PIC should stay away from it.
There are many potentially lucrative and viable assets that the PIC can support, as part of wider efforts to restructure the economy and enable its industrialisation. It is commendable that it is supporting platinum miner Lonmin, which has cost shareholders billions over the years. Saving jobs is very important, but cannot be the only reason for remaining invested in Lonmin.
The sale of South African assets by Anglo American, the former South African mining giant, is another opportunity for the PIC to contribute meaningfully to economic transformation. Similarly, the retreat from Africa by Barclays Africa is another golden opportunity that shouldn’t be squandered.
The steel industry is another industry that needs a major restructuring to support industrialisation better and the PIC can enable this. Players have not shown evidence they have a long-term plan beyond rushing to the government for protection and selling minority stakes to BEE partners. Instead of supporting and co-investing with other partners, the PIC needs to lead the way and its board representatives must be more vocal on strategy matters beyond the issues of transformation and executive remuneration. For this to happen, its mandate needs to be changed to make more strategic, but riskier, investments than at present.
This is not a call for reckless adventurism and support for pet projects of politicians and their friends. Rather, this is a proposal for a much more nuanced, deliberate and interventionist approach to investment, especially in the strategically significant sectors of the economy such as mining and manufacturing. Instead of buying passive stakes, the PIC should consider using its muscle creatively and its directors should participate more actively in the selection of executive management.
Since its corporatisation, the PIC has done well. The management has to be recognised for sensible investments and contribution to transformation. Bad deals — yes, there have been some — have been limited. These good returns have been the result of a combination of a conservative investment philosophy and a favourable economic cycle. Its past success should therefore not be exaggerated. The PIC should work much more closely with other agencies of the state such as the Industrial Development Corporation and the Development Bank of Southern Africa.
Regarding the leadership issue, it will have to build up a skills set beyond its current capability, which is mainly project evaluation and performance monitoring. A few weeks ago, it called on aspirant directors to enlist on its database for appointment on investee companies. This is an opportunity to recruit individuals who will contribute meaningfully to a revised mandate. Pity that early in May, Finance Minister Malusi Gigaba missed an opportunity to bring in changes and modernise the board. Like his predecessors, he named his deputy, Sfiso Buthelezi, business man turned-politician, as chairman of the board. This diminishes prospects of him being an agent for vital economic restructuring.
GOOD RETURNS HAVE BEEN THE RESULT OF A CONSERVATIVE INVESTMENT PHILOSOPHY AND A FAVOURABLE ECONOMIC CYCLE