The South African Federation of Trade Unions (SAFTU) warmly welcomes the Report of the Commission of Inquiry into the Public Investment Corporation (PIC) and congratulates President Cyril Ramaphosa for appointing Judge Lex Mpati, former Reserve Bank Gill Marcus and Emmanuel Lediga. The country is indebted to these three good South Africans who over months went through their job with absolute integrity and honour.
The Commission of Inquiry Report is scathing about the extreme malfeasance that took place in the PIC under the leadership of the former CEO Dan Matjila. But larger questions about the safety of workers’ pension funds are vital to raise, now, since the PIC’s criminality is just the tip of the iceberg. Workers whose pension fund managers over-invested in the Johannesburg Stock Exchange (JSE) saw their values drop by 28% from a peak just over two years ago to the low on Thursday. Most of this crash occurred this week as the catastrophic implications of the coronavirus became clearer.
Since South Africa’s stock market capitalisation as a share of GDP (the “Warren Buffett Indicator”) was the highest ever recorded for any country at that peak level (352%), our argument that worker pensions need to be redirected to real economic activity, not just casino capitalism, is now more urgent than ever – with even worse declines in the JSE anticipated in coming days and weeks. In this context, the PIC was absurdly overoptimistic in claiming to be worth more than R2 trillion at peak, since so much of the pension funds were placed in such extremely risky outlets as the JSE, instead of advancing our society’s and economy’s genuine interests.
Since the Steinhoff scandal broke in 2017 we have repeatedly called for investigation and prosecution of pension looters, but beyond the main suspects, we have insisted on including the individuals and institutions that have caused such damage: the regulatory bodies, stock exchanges, auditing firms and investment portfolio managers. Those who advised the funds like the PIC who were managing workers’ money to invest in Steinhoff have to explain how they could give such advice.
As we warned fifteen months ago, “The price the poor majority have to pay is living in a corrupt kleptocracy, in which money created by the labour of workers is squandered in speculative and often fraudulent ventures, while suffering under an economy relegated to junk status, with sluggish growth, grinding poverty for millions and unemployment six times the world average. Such cases also dispel the myth that the rich cannot afford to pay higher taxes. They have made themselves so rich that South Africa has become the most unequal society in the world.”
The JSE nurtured many of the companies that the PIC looked into, such as Steinhoff, and therefore also needs to be investigated. After all, in recent days we also learned that the South African corporate elite are considered (in the global consultancy PwC’s biannual survey) the third most corrupt on earth, behind only Chinese and Indian corporations.
Matjila’s dalliances with these corporations as well as with the increasingly notorious class of nouveau-riche “Black Diamonds” unveiled in the PIC Report, not to mention the documented pay-offs to the ruling party and even trade unions, reveal the need to end crony financial capitalism and the parasitical version of “Black Economic Empowerment.” This toxic combination is wrecking our workers’ and society’s chances to recover from the Zupta Era.
In summary, the findings of the Commission are:
- Dan Matjila approved subsequent investment deals “even where no value has been proven from the first deals.” The Commission found a “A consistent behaviour, when interacting with potential investees, or meeting without anyone else present, of not keeping records or minutes or any written audit trail of such interactions. This constitutes a breach of Dan Matjila’s fiduciary duties.”
- Matjila approved a massive R9.35 billion loan to an empty investment firm, Lancaster, owned by Jayendra Naidoo. In no time the debt ballooned to R11 billion as it was not being serviced. SAFTU calls on the new PIC Board to pursue this matter in order to recover every cent of that R11 billion. Matjila, who had approved this, must face the music.
- The report found there was an “outright manipulation by Dr Iqbal Survé of the valuation numbers to increase the Ayo valuation from its own initial staff assessment (by former CIO, Mr Malick Salie) of R2.3-billion to range between R10-billion and R15-billion, ultimately determining a value of R13-billion, which translated to the R43 per share or R4.3-billion paid by the PIC for its 29% investment in Ayo.” But even Matjila acknowledged to the inequiry that Ayo’s value was only estimated at R292 million then. Today, Ayo’s value is estimated to be a mere R819 million. Indeed, “The Ayo transaction demonstrates the malfeasance of the Sekunjalo Group, the impropriety of the process and practice of the PIC as well as the gross negligence of both the CEO and CFO.” SAFTU believes that the inflation of the value was deliberate scheme to milk workers’ pensions dry. SAFTU finds this criminal and calls for all those behind the impairment to be arrested and trialed for fraud.
SAFTU workers lament that the majority of civil servants contributing to the Government Employees Pension Fund are ordinary workers: the cleaners who sweep the floors in hospitals (soon to be filled with coronavirus victims) and other government offices, the security officers, the nurses, teachers, police, correctional services officials, etc. These workers put money aside so that they can have a near decent pension when they become vulnerable members of the society – the pensioners. Combined the fund has grown to over R2 trillion – until the recent stock market crash.
SAFTU workers also lament that the PIC Report fingers a shell company – Lancaster – run by a former trade unionist, Jayendra Naidoo (not to be confused with former general secretary Jay Naidoo). It is deplorable that having been a worker-leader, one of our own was seduced by the most obnoxious of capitalists, Steinhoff’s Markus Jooste, and that he persuaded Matjila to part with billions of our members’ funds.
A SAFTU affiliate which since 2018 has organised workers within the PIC, the National Union of Public Service and Allied Workers Union (NUPSAW), regularly complained about Matjila’s “culture of fear and victimisation” as well as the “lack of transparency and … unfair labour practices.” The incentive system, according to NUPSAW, is “open to undue meddling.” A full overhaul of the PIC is in order.
The PIC Report acknowledges that by 2019, “COSATU accused the PIC of looting pensioners’ funds and claimed that they had lost faith in the PIC and demanded that labour federations have representation on the Board of the PIC.”
But this comes after allegations of the largest federation’s financial manipulation by Matjila, who directly solicited solicited donations for COSATU and the ANC from individuals whose companies the PIC has invested in.”
Matjila’s lousy excuse: “I mean we didn’t have a policy that says I can’t relay requests of certain individuals to people who are able to assist them or organisations that are able to assist them … they could have said no.” Since Matjila wielded massive over at least two named businessmen who made these donations, the PIC Report rejected Matjila’s excuse with contempt.
It is only when you consider whose money has been used by fat cats like Matjila, Surve and Naidoo does it sink in, how really cruel and heartless is modern financial capitalism. The act of stealing from the workers – who role is to provide the most basic services to other members of the working class and the under class – must be punished, and these men, their lawyers, their accountants, their bankers and their public relations firms must pay a penalty for systemic deception and criminality.
What SAFTU workers fear is that this report will, like others before it such as the SARS report, gather dust in the understaffed offices of the National Prosecuting Authority, without any action taken to make those fingered in the Report for their ugly deeds.
To illustrate our concern, Jooste still walks free, living the high life. But he was the man who led Steinhoff at the time the GEPF held 428 million shares in the scam company, with the JSE assessing its market value at R24 billion at end-November 2018. A week later, startling revelations of “accounting irregularities” led to the collapse of the international retailer’s share price.
As at January 23, 2018‚ the GEPF held 392-million shares in the company‚ with a market value of R3bn. Between end November and January 23‚ the share price had fallen from R56.26 to R7.84. At one stage‚ at end-December‚ the value of the GEPF’s stake in Steinhoff fell to as low as R1.8bn. The report on this was handed over to the Hawks who have proven to have no claws. Jooste continues to play golf and enjoy his mansions, while thousands of workers face a bleak future here and abroad.
SAFTU fears that the same may happen even in the case of the likes of Matjila, Surve and Naidoo. SAFTU calls on the NDPP to pull their resources together to ensure that these fat cats are prosecuted, so that they spend the rest of their lives behind bars for stealing from the most vulnerable members of society – the pensioners. We also desperately need a rethinking of a crony casino capitalism within which investment managers have treated worker pensions with the most utter disregard, in favour of their narrow class interests.
We need a new system that rejects and punishes the sorts of entrepreneurs who benefited from the looting of PIC. They confirm a warning that the great African liberation theorist Frantz Fanon made in his book, The Wretched of the Earth: “In its beginnings, the national bourgeoisie of the colonial countries identifies itself with the decadence of the bourgeoisie of the West. We need not think that it is jumping ahead; it is in fact beginning at the end.”
Above this SAFTU calls on its unions and members to discuss the future of the GEPF. The unions should consider pushing for a Pay As You Go system where :
- Such paradoxes don’t occur and
- Where pensions are not exposed to such risks. In such a PAYG system, almost all (or all!) financial assets of the GEPF would be put in government bonds and serve the aim of halting the debt crisis and invest in social investment projects and programs. Presently the GEPF would run with a yearly surplus of some R20 billion at a regulated interest of 5% on only half of those R1.8 trillion. The GEPF doesn’t need to maximize its returns to any pensions, but the state finances need lower interest rates. The state debt should be delinked as much as possible from for-profit financial capitalism. The giant GEPF funds can be the tool to do so for a progressive government.
That would also put most of the PIC directors without a Job.
- In a transition to a PAYG system, the authorities and the GEPF board should immediately recognise that the law only demand 90% funding.
- In the wait for a new GEPF Law that introduces the change to a PAYG system, the Parliament can simply change the 90% rule to a 60% rule (which is accepted by credit ratings agencies in US for a public scheme like GEPF).
- The change to a PAYG system that pay pensions “ as you go along” and lend money to the government only, or mostly to the government, can be in place within 2-3 years.
- The unnecessary surpluses not needed to run the GEPF scheme, that are now corrupted at PIC could in fact be that “Sovereign Wealth Fund”, but not in order to build “Smart Cities” but to fix the basics, like infrastructure, health, education, water, housing, etc.
SAFTU as a worker controlled workers movement, will not take these suggestions forward until such a time that members have been given a mandate on this critical issu