Investec economist Annabel Bishop has described Economic Development Minister Ebrahim Patel's proposal to use pension funds to promote development as "workable".
This comes as Patel revealed that he was exploring ways of investing private and public retirement funds in development projects by issuing development bonds.
Patel's strategic plan is aimed at meeting the needs of a developmental economy and as such aims at improving the level of equity, reducing income inequalities, providing decent work and achieving balanced, broad-based industrialisation.
"Indications are that the funding needed for Minister Patel's macro-economic strategic plan will come from the issuance of development bonds to access the wealth held in the public and private retirement funds industry," Bishop said in an opinion piece.
She commented in that if Patel received access to such bonds, it was expected to be issued in the long-end of the maturity spectrum, which would be a "favourable outcome" as it would normalise the yield curve in this period, which has always been "very thin and relatively illiquid".
It would also create pricing for State-owned entities to issue at this maturity.
"It is unlikely that the reintroduction of prescribed assets for retirement funds will occur, unless there is insufficient take up of the development bonds," Bishop noted.
She added that the social responsibility of investing in bonds specifically aimed at fostering an enabling environment at the macro level for the reduction of poverty and inequality through job creation and sustainable economic growth was likely attractive enough on its own, along with the shortage of supply in the long-end of the yield curve, to make absorption of these bonds likely.
However, Bishop warned that South Africa did not have a "bottomless pit of financing."
She said that if the funds were not well and efficiently spent, it would tarnish the moral attraction of the issuance, while the waste from any resulting corruption would be difficult to make up in later years.
In 2003, business, government and labour leaders agreed that pension funds should play a greater role in developing the country, but the proposals were never implemented.
Patel reportedly said that he would need about 5% of private retirement savings and a share of the R700-billion government pension fund's assets
Edited by: Creamer Media Reporter
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