This column is by Stuart Theobald and was first published in Business Day.

No-one wants to say this too loudly, but pensions are political. If we are to have sensible discussions over what should and shouldn’t be done with pensions, it is important to accept this starting point.

Before you jump onto Twitter with a tirade about your money that you worked hard for being yours to do with as you please, take a breath. Let’s think about why pensions have this special character.

Pension regimes deal with a public policy issue. We need people to be economically independent in retirement. Ideally, we need them to reach retirement with enough money to maintain a lifestyle matching that of their earning years.

Pension schemes have thus been developed with strong incentives to encourage retirement savings. Some countries have compulsory systems, but in SA we’ve taken a voluntary approach in which companies and employees are incentivised to contribute to pensions through a generous tax deduction.

You can contribute up to 27.5% of your income, capped at R350,000, to your retirement savings and not pay tax on that money. People earning at the 45% marginal tax rate could save R157,500 a year in tax by putting R350,000 into their pensions. They are taxed, to some extent, on withdrawals, but the tax deferment over a lifetime of contributions makes an enormous difference to how much they have at the end of it.

This public subsidy for retirement savings is often used as a justification for restrictions on the way that money is invested on public policy grounds. There are legitimate and illegitimate kinds of restrictions.

The legitimate ones are those that serve the primary public interest objective: ensuring retirees are not financially vulnerable. To do that, governments worldwide impose a set of rules on how the money can be managed, known as prudential guidelines. These effectively impose an appropriate risk/return framework on pension fund investment.

In SA, pension funds are subject to regulation 28 of the Pensions Fund Act that places ceilings on exposures to single issuers and certain asset classes.

Prescribed assets

Good pension systems also boost a country’s savings rate and, therefore, economic growth. As we learn often in developing countries, a first step towards economic growth is pension reform.

So far so good. The problem arises when politicians try to dictate exactly what should be done with these savings. We have had an unhealthy discussion in SA about prescribed assets. This was partly how the apartheid government funded itself, by forcing pensions into parastatal bonds. It is at odds with the original public policy intention because it undermines the returns earned on pensions, damages the incentives for people to contribute to them, and weakens the probabilities that they will be financially secure in retirement.

It also undermines the economic growth objectives of having savings by restricting the amounts available and the market discipline of active decision making over savings — the choice and oversight investment managers apply.

In the last few weeks there has also been a brouhaha about foreign exposure in pension funds. Foreign exposure is important from a prudential perspective because it allows diversification, which improves the risk-return profile of a portfolio. But too much is problematic because it increases risks.

Retirees have to pay for their lifestyles in rand, and taking on too much currency risk worsens the likelihood of being able to do so (just like how banks cannot have large mismatches in the currency of their assets and liabilities).

This is not uncommon — it was found in a 2019 study of pension schemes by the Organisation for Economic Co-operation and Development that about 82 of 84 countries studied, from Australia to Zambia, had some form of foreign exposure restriction on pension schemes. (I say “about” because much depends on definitions, but the 40% foreign limit in SA is not unusual compared with the rest of the world).

A problem in SA is that foreign investment exposure has historically been limited by exchange control when it should rather be limited by prudential regulation. Regulation 28 does set limits, but only by reference to exchange control rather than directly applying itself. That came to the fore when a further relaxation of exchange controls caused confusion about how it affected regulation 28, such that it has now been withdrawn for public consultation.

Debates are also ongoing about mobilising pension funds for infrastructure investment. This can be healthy — there are many forms of infrastructure investment that are ideal for pension funds because it can provide long-term cash flows at low risk. But this can also be unhealthy if pension funds are expected to invest not because of the economic benefits to savers, but because of other public policy priorities.

In these and other debates about pension funds, the public policy position must be looked at with clear eyes. We need to understand what it is we want to achieve with pension systems before we try to engineer the outcomes.

Theobald is chairman at Intellidex.

SA’s deep problems are simply not being dealt with at the requisite speed, says Intellidex’s Peter Attard Montalto. Featured in Financial Mail. 

The point of ratings agencies’ actions is that the risks are rising as the moment is approaching.

This column was first published in Business Day. 

Markets and investors will be only slightly surprised by the double downgrade bonanza at gin-o’clock on Friday evening as within 30 minutes three ratings agencies issued their updates. It will reinforce existing fears and outlooks, although none of the agencies is that specific on a fiscal crisis timing-wise. The point of downgrades, though, is that the risks are rising as the moment approaches.

Domestically there will be the usual uninformed hyperbole against the ratings agencies from the usual suspects. This is amusing and not always unwarranted. Why, for instance, was Moody’s so reluctant to cross the junk boundary but is it now so eager to cut again? It shows they had no understanding of the policy dynamic in recent years. Yet while ratings agencies are painfully backwards looking, often it is a useful crystallisation of views already in place among domestic and foreign investors.

The effects of drifting further into junk are also underappreciated by many in SA — which the Treasury started to hint at in its release after the announcements. Ratings have some automated impact deep into the risk, exposure and counterparty modelling of offshore bank and market markers, which will now create a further drag on SA and its banks.

Rand and dollar bonds that once maybe looked a little undervalued might look fair value now in analysis by investors of a wide range of other countries that is not focused on the detail in SA. These impacts are accumulating slowly but steadily against SA and make funding harder and more expensive.

Vaccine procurement

There is another potential shock factor for SA being watched by investors but that they are not fully aware of yet. The government seems to be seriously lagging behind the global curve on vaccine procurement. There was no mention or monies in the medium-term budget policy statement for this either in the current or next fiscal year. The government’s reliance on overseas development aid to pay for access to the UN’s Covax scheme has fallen through and orders have not been placed for the recently announced efficacious vaccines.

While the president has talked much about options to get access to the Oxford vaccine based on SA’s participation in trials, the government actually has to place the orders. Equally, while Aspen is to manufacture the J&J vaccine partly in Durban, again the government can’t just ask nicely, it has to place some orders.

Why is this important? Business and investors are thinking about the downside risk potential from second and third waves in economies — about those that will be able to stay open with vaccine provisions, and those that will need further lockdowns due to a lack of vaccines. Vaccine orders are being seen as correlated to economic growth in 2021, a crude but not incorrect way of looking at it.

Given the shooting-in-the-foot style of lockdown earlier this year and the continuing inability to wheel out meaningful stimulus, the lack of a vaccine would put SA in a very poor light and worsen fears of economic risk — not to mention humanitarian risk from hunger, which persists; underemployment and inequality.

All levers of stimulus support will be much diminished the next time, making the issue graver still. Fiscal policy simply has no room left and further deterioration in state-owned enterprises (SOEs) will limit it further now and into the future. Monetary policy has slight room but it is very diminished without opening a Pandora’s box of unorthodoxies, which the Reserve Bank won’t entertain. Financial sector policy has some marginal room for additional loosening but buffers are much eroded after the recent crisis, so there is a limit to protect financial stability.  

Turgid prose

Politics is also likely to be more fractious during the next waves given wage freezes in particular (and the job cuts implied). We have seen the head-in-the-sand attitude to the SABC last week. There might be no alternatives to retrenchments. That pragmatic realisation even came to SAA in the end.

The ANC national general council documents released last week showed there are no new ideas at all, just the usual turgid prose. Any document that uses the term “lumpen” in a serious manner should be viewed suspiciously.

At the core of all of this — as we think about future waves and the views of investors, business and the lens of the ratings agencies, which were all united in seeing a limited impact from the Economic Reconstruction and Recovery Plan — is that we are bound by the maths and in need of a new pragmatism about the ideas already on the table.

The fiscal cliff is in sight, albeit perhaps about two-and-a-half years away. Here we come — maybe faster rather than slower if 2021 and future waves are not handled much better.

Attard Montalto is head of Capital Markets Research at Intellidex.


Is broad-based black economic empowerment (B-BBEE) working to transform SA’s economy? A tough question to answer, but a new consolidated report, to be researched by Intellidex, could now point the way. Featured in Times Live

While there has been some recovery, the stress is still there – the unemployment rate is still about 1.85-million higher than in the first quarter, notes Intellidex’s Peter Attard Montalto. Featured in Business Tech.

Following the ANC’s August NEC meeting, Intellidex’s Peter Attard Montalto said that it is unlikely that any calls to remove the president would fly until at least 2022, when the ANC elective conference will be held. Featured in Business Tech. 

Ramaphosa could use the conference this week to shift emphasis away from public projects.

This column was first published in Business Day. 

The infrastructure debate has been overly focused on public infrastructure. That’s the kind that includes roads, railways and ports, as well as hospitals, schools and government buildings. The other kind — private infrastructure — has not been much talked about. If we are to turn around the economy, that must change. President Cyril Ramaphosa could use his infrastructure conference this week to do so.

The oft-cited 30%-of-GDP goal for infrastructure investment in the National Development Plan includes both public and private investment. Public works & infrastructure minister Patricia de Lille recently said her goal is to get infrastructure spending up to 23% of GDP by 2024, 15 percentage points of that from private infrastructure and the balance from public infrastructure.

In 2019, investment was 17.9% of GDP, 12.5% of it private and 5.4% public.

Private investment has always been the bigger component. Yet, in all the moves by Ramaphosa to boost infrastructure investment, such as establishing the Infrastructure Fund, now within the Development Bank of Southern Africa, and Infrastructure SA as a co-ordinating body, none have focused explicitly on driving private sector investment.

This week’s investment conference will be a beauty parade of companies making public the investment plans they have anyway. It is an exercise in optics that allows the president to demonstrate to politicians that the private sector is important. But what really matters is shifting the underlying conditions that affect private sector plans in the first place.

The post-1994 investment peak was 2008, when private sector investment hit 15.9%. That followed several years of strong GDP growth in which demand exhausted private sector capacity and investment for expansion became essential. In the same year, public investment was a strong 7.6% but the record was in 2009 when it hit 7.9%. That year the government used its fiscal space to lean against the post-financial crisis recession.

However, a lot of that investment was squandered by corruption and weak project management, resulting in poor return on investment. Public sector spending has fallen sharply since 2015 largely because the state-owned enterprises (SOEs) began to struggle to raise debt on public markets to fund further investment. Spending in itself is not the point — it must provide value for money through better public services.

General deindustrialisation

We now face unprecedented fiscal pressure on the public sector with the SOEs deep in junk territory, far worse than the junk sovereign. Raising funding for infrastructure will be hard. The Infrastructure Fund and Infrastructure SA will not be able to fix that, at least not without a wider economic recovery. We need growth-enhancing private sector investment that will allow the economy to grow, building tax revenue and repairing the government balance sheet.

You can see what’s been going on by digging into the private sector investment numbers published by the Reserve Bank. By far the biggest investment line item is machinery and equipment, which peaked in 2008. Its decline tracks general deindustrialisation due to electricity supply problems and cost hikes. Mining exploration investment has fallen dramatically. It peaked in 2007 at R4.1bn, but in 2010 it fell off a cliff, dropping to R525m.

Some areas have grown over the period — ICT equipment, unsurprisingly, as companies have become increasingly digital and communications networks have grown. Private sector spending on transport equipment and construction works (such as roads and bridges paid for by the private sector) has been growing too, arguably to compensate for a lack of state provision in those areas.

To drive private investment, we need to accelerate the growth areas and tackle those that have been struggling. A simple way to accelerate ICT investment would be to provide more spectrum to the cellular companies. Providers would immediately invest to expand capacity. A spectrum auction is set down for March 2021, which, would you believe, has been on the cards since 2007 when the policy directive was first issued.

Haphazard efforts

If you want to turn the trend in investment in machinery and equipment, that too is easy. Get rid of the requirement to go through the expensive and slow process of obtaining a licence from the National Electricity Regulator of SA for any plant over 1MW. Allow companies to generate their own electricity and feed excess into the grid or at least wheel it to customers or their other operations.

The mining sector is a disaster. The collapse in investment coincided, and was certainly caused by, haphazard efforts to amend the Minerals and Petroleum Resources Development Act. Those have at times included ministerial pricing controls for the domestic industry; compulsory purchase of stakes in mines by the government for free; and chaos over royalty taxes and “strategic” minerals. Separate, but related, has been a battle over amending the Mining Charter, one largely about BEE ownership interests. The last decade has been by far the worst for mining investment since 1960 when records began.

If Ramaphosa could fix these issues, it would be a big step forward for the infrastructure effort. Projects that were unviable would be made viable overnight. The economics would suddenly start to work for private investment to happen. The investment conference is the opportunity.

This is a unique opportunity to work closely with the chairman at Intellidex on research projects in financial services and capital markets in South Africa.

The senior research assistant position allows for considerable career development in advanced research in financial markets, development policy, and a diverse range of other topics from philanthropy to behavioural finance.

Job responsibilities and tasks will include:

Requirements for the role:

Intellidex offers a unique environment that draws together top academic skills, financial markets research and insight on South Africa’s policy development. We work with financial institutions and companies, as well as domestic and international policy-makers to improve outcomes for all South Africans. Intellidex is well-recognised for high quality research and you will become a core part of a highly skilled team, providing significant learning opportunities to advance your career.

Our standards are high. You will be working with MBAs, CFA charterholders and PhDs on our team to ensure that Intellidex delivers high levels of client satisfaction and responds dynamically to new business opportunities.

The role would be based either in Sandton or London. Working hours and location can be flexible including working from home to some extent but must have flexibility to be available at all hours when necessary.

Career progression is possible into project and research leadership roles.

Applicants must be prepared to take a numeracy and writing test.

If you are interested in the position, please complete the form below, including a covering letter in which you show your experience meets the requirements listed above. There is no deadline for applications, but the role will be filled as soon as a suitable candidate is identified.

Please note that failure to load the correct documents will result in your application not being processed

Intellidex was founded in 2008 as an independent research company focused on financial services and capital markets. We support a worldwide client base ranging from institutional investors to banks.

We are looking to strengthen this core function of our business by hiring a financial analyst to work specifically on banks in South Africa, as part of a dynamic research and consulting team.

The right candidate will have a background as a sellside equity analyst or in financial research on banks for a consulting firm. They must be comfortable with indepth financial analysis of banks, generating revenue forecasts as well as narrative reports interrogating strategy.

This is a senior-level position with opportunity to grow into leadership in either research or consulting. The right candidate will be expected to become a recognised thought leader in South Africa on the banking sector.

The position will involve ongoing analysis of bank financial and market share performance including developing earnings models and forecasts. Outputs would be both routine reports on bank performance and research support for project work. There is room for creative research on non-financial drivers of bank performance too, as well as input into financial sector policy development.

Clients include investors with an interest in bank debt and equity exposures, and financial services clients in supporting strategy development alongside our strategy consulting function and our macro-political advisory business. The role is collaborative, working closely with our fixed income, equity and strategy research analysts.

The ideal candidate will have:

Intellidex is well-recognised for quality research and you will become a core part of a highly skilled team, providing significant learning opportunities to advance your career.

We have offices in Sandton, where this position will be based, London and Boston.

We offer an entrepreneurial environment in which you will have considerable latitude to shape your role. Remuneration will be a mixture of basic (in the senior researcher range) and performance-based pay (which would show recognition for business development too).

Our standards are high. You will be working with MBAs, CFA charterholders and PhDs on our team to ensure that Intellidex delivers high levels of client satisfaction and responds dynamically to new business opportunities.

If you are interested in the position, please complete the form below, including a covering letter in which you show your experience meets the requirements listed above. There is no deadline for applications, but the role will be filled as soon as a suitable candidate is identified.

Please note that failure to load the correct documents will result in your application not being processed

Intellidex finds that there is no evidence that the rapid public sector wage increases have been accompanied by or driven by increases in productivity. Featured in Business Day. 

Business Unity SA says public service workers are paid too much for what they doResearch conducted by Intellidex shows that government workers are paid an average of R400,000 and have seen increases far bigger than anyone else. Featured in Business Tech. 


Pay rises have been fastest for those on the lowest salary levels and has been progressively slower higher up the hierarchy, Intellidex notes in its public sector wage bill report produced for BUSA. Featured in Business Tech. 

Business Unity South Africa commissioned Intellidex to research various aspects of the public wage bill in South Africa. Threport is titled “The Public Sector Wage Billan evidence-based assessment and how to address the challenge.”  

Access it here. 

One must target what is most important in a resource-constrained world and hope the rest will follow.

This column was first published in Business Day. 

Does attempting to compact the deep divisions between conceptions of the economy ensure the failure of President Cyril Ramaphosa’s economic reconstruction and recovery plan (ERRP) and the recent medium-term budget policy statement (MTBPS)?

Failure would be setting the sights too low and accepting a return to only 1% growth, or indeed only returning to the previous 1.5%-2% growth average as inequality still rises. Success would be Ramaphosa’s 3% growth target — recouping the more than 2-million jobs lost this year — and maybe then nibbling away at the historic stock of unemployment (particularly of the youth).

Success would be a more dynamic economy in which people can access employment and set up companies and invest more freely and easily.

The divisions are deep and often glossed over with talk of bonhomie. A number of interactions with people “on the other side of the aisle” have driven this home to me recently.

Cutting through all the specifics — at root between the two sides of the economic argument — is the belief, or not, in resource constraint.

On the one side there is an understanding that economic and fiscal policy must be optimised with a limited set of imperfect tools and a limited allocation of means (capacity, revenue and debt issuance) to go around. Everything is suboptimal and therefore if we can’t have the best, the second best is better than the rest.   

The other side, however, doesn’t believe the resource constraint is binding, and higher ideals such as human rights and solving all the country’s problems simultaneously must override. We can have our policy cake and eat it and some voodoo modelling can be produced to show growth will end up being 6.5% at the end of it.

When one starts to set this against an iterative process of interactions between the two sides, as tension and tempers rise and as SA remains stuck in the mud, so things can seem stale. But this doesn’t mean the fundamental divide can be wished away.

Both sides agree we want lower inequality and lower poverty, more employment and more investment, better and fairer growth, dignity and human rights. 

Yet each side believes the other’s path leads to ruin and the failure to achieve these goals — or indeed to compound existing problems.

Social compacting is a death cult because it pretends to gloss over these irreconcilable differences and sustains an unsustainable status quo to the point of destruction.

You cannot gloss over constraints — they exist or they don’t. True, they can be further away or nearer, but ultimately you believe that the Treasury is doing the right thing now or it isn’t.

Business ultimately sees a small window of upside that needs to be seized and is pragmatic enough to believe that not all solutions can be solved in one step when there are capacity constraints. One must target what’s most important in a resource-constrained world and hope the rest will follow as much as possible, with the state guiding and nudging.

To try to solve all problems at once risks missing the opportunities available. This is especially true of needing an investment-led, labour-intensive economic recovery where every single ask in terms of local content and empowerment and corporate tax and prescribing how it must happen and with what money from whom, will simply derail the whole thing.

The just-energy transition is an example of this where interests are happy to squabble over getting everything just right while also reinventing global capitalism and finance and missing the opportunity for cheap energy and protecting the transition of coal jobs, which, if you can just pick two things, are all that matter here.

When positions can’t be reconciled, political leadership at the highest level is about deciding winners and losers when everyone can’t be satisfied. This will be particularly important for the just-energy transition but also for fiscal policy, the public sector wage bill (which cannot be negotiated in some kind of trade-off) and for skills immigration reforms.

Here, talk-shops such as the Presidential Economic Advisory Council can be of use. While its report into the ERRP process was a mixed bag concerning blockages to reform, the president can make choices that could eventually work. 

If all sides want the same outcome for jobs and development, then what separates them is that one has a pragmatic fear of an explosion that throws the country off the fiscal cliff as the resource constraint is ignored, with the result that there are even worse outcomes for jobs and development.  That view of sustainability is the key to the divide.

Between now and March is the time for a large number of key choices, especially on the public sector wage bill and energy policy. They cannot wait.

• Attard Montalto is head of Capital Markets Research at Intellidex.

The JSE, in partnership with Intellidex, put forward a position paper to policy makers that proposes exchange control reform. Featured on CNBC Africa. 

The level of expenditure cuts being pushed down to the provinces has never fully crystallised into hard choices until now. Provinces and municipalities will be in shock when they understand the full gravity of events, says Intellidex’s Peter Attard Montalto. Featured in Financial Mail. 

Take-up of the state-guaranteed loans has been poor, with about R16bn being extended. If you are using R200bn as a starting point, that’s just 12% and it’s fair to say it’s been a failure. Check out Lukanyo Mnyanda’s Business Day column, featuring Intellidex’s Stuart Theobald.

The JSE’s move to list instruments across many currencies will bring it into line with exchanges such as Mauritius and Dubai, which list hard-currency instruments, says Intellidex chair, Stuart Theobald. Featured in Business Day.

The possibility of ratings cuts in the coming six months by most agencies has solidified. This is particularly because National Treasury is unable to give them sufficient detail on the public sector wage bill cuts, says Intellidex’s Peter Attard Montalto. Featured in Business Tech. 

Basing future estimations on a 0% wage increase for public workers may already put the budget outside the realm of reality, says Intellidex analyst Peter Attard Montalto. Featured in Business Tech.