The South Africa government has admitted burning its fingers on black empowerment investments made by the Public Investment Commission (PIC) — the investment vehicle for government employee pensions.
In a candid account of the performance of the Isibaya Fund, South African Deputy Finance Minister Mandisi Mpahlwa admitted to “burnt fingers”. The fund, however, constitutes only about 3,5% of the PIC’s investment portfolio.
The commission, which acts as investment manager for the Government Employees Pension Fund has produced an investment performance of 16,2% for the financial year ended March 31 2002. It nevertheless had shed about R300-million in about five years.
Neill Maree, PIC portfolio manager of the Isibaya Fund, told members of Parliament serving on the finance portfolio and select committees on Friday that the book value of investments was approximately R506-million.
However, the market value as at the end of March 2002 was just R202-million — “a loss of R300-million”.
He noted that most of the investments made — through special purpose vehicles — were in empowerment companies. Much of this had taken place in the period 1997 to 1998 — just before the Asian market’s decline.
The value of most of these newly listed companies had fallen to zero.
While investment in the N3 and N4 toll road projects had seen growth and Black Employment Equity (BEE) employment creation, an investment of R13-million in Macmed had seen it reduced “to zero market value”.
Another investment in PQ Africa — an amount of R100-million — was now worth just R21-million, while an investment in the Carewell Group was worth R70- million, “but is worth only R2,3-million now”.
An investment in Midi TV of R61-million is also now “down to zero”, said Maree. An investment in Penta Publications amounting to R16,2-million was now also worth nothing.
Maree said the investments were made through special purpose vehicles structured “in such a way that a rising share price would have meant everyone would have won … not only the PIC as investor but the empowerment groups funded as well.”
The drop of share prices in a bear market “led to a situation of value diminishing to virtually zero (in some cases)”. The PIC board took the decision to halt the Isabaya Fund investments “and relook at ways of reinvesting in this fund … SPVs structured in this way did not work”.
The deputy minister said the investments marked an early period “of a major drive towards empowerment”. South Africa had learnt from the experience, he said.
“The strategy over BEE has been in evolution over time… we continue to engage to refine and approach broadly in line with the emerging framework for BEE. I think it is important to make that point. We need to have the capacity to enable us to properly consider … we get lots of proposals and we have to apply our minds and have technical ability to assess sustainability.”
Mpahlwa said the issue of empowerment was something “we see ourselves as players in … we don’t take the view that we are supposed to be the only funder of empowerment … there are a lot more players in South Africa that can make a contribution to funding empowerment”. – I-Net Bridge