By Abel Sithole
The Public Investment Corporation (pic), the largest investor in the South African economy and one of the largest on the continent and globally, exudes confidence in South Africa's promising future in the years ahead. With unwavering optimism, PIC sees a bright path for the nation's growth and development.
This comes as the PIC delivers its integrated annual report for the year to March 2024 during which it grew Assets under Management (AuM) by R95 billion to R2.7 trillion, approved unlisted investments of R8.5bn, and declared a cumulative dividend of R381 million over the past three years.
The period under review has been characterised by elevated interest rates, inflation, and the cost of logistics globally. These are legacies of the Covid-19 pandemic, and the cost-of-living crisis, and supply chain disruption caused by geopolitical conflict which has elevated shipping costs worldwide.
The PIC’s optimism is fuelled at the beginning of the fourth quarter by a fall in interest rates, subsiding inflation, and in South Africa, the elimination of debilitating power cuts with more than 150 days of no load shedding marked recently as well as an expected improvement in household finances brought about by the withdrawals from the two pot pension system.
Growth in AuM and investment performance are the two most important metrics that guide the PIC in its mandate. Since its corporatisation in 2005, The PIC’s AuM has grown from R461bn to R2.7trl at the end of March this year.
The PIC manages assets on behalf of several clients, most notably the Government Employee Pension Fund (GEPF), whose assets account for 88% at R2.4trl, the Unemployment Insurance Fund (UIF) portfolio, which accounts for 5.6% of the PIC’s AuM at R149.5bn having stabilised after relatively higher withdrawals to facilitate the Temporary Employee/ Employer Relief Scheme during Covid-19.
The Compensation Commissioner’s Fund (CC) portfolio, accounts for 2.2% at R59bn while the Compensation Commissioner’s Pension Fund (CP) accounts for 1.9% at R51bn at the end of March this year. A total of 13 other clients, which account for 2.4% of the total, whose assets stood at R64.3bn for the review period.
Next year marks five years to the target period of the National Development Plan of 2030. The PIC will use the current conditions and positive momentum to invest in South Africa’s growth to ensure a strong finish to the decade.
The PIC is encouraged by the formation of the Government of National Unity (GNU) and the positive response it has had from financial markets as it recently marked 100 days with a positive rally in the bonds and equity markets.
However, the government must take some steps to ensure that it builds on these positive steps and the PIC is ready to play its role. The two most important actions that the government must take are to remove South Africa from the greylisting by the Financial Action Task Force (FATF) and to improve the rating from the current sub investment grade. These two actions will significantly reduce the cost of borrowing for South Africa.
The PIC takes note of the progress made by the South African government in addressing eight out of the 22 areas of concern raised by the FATF. The PIC urges all affected sectors to support the country’s effort to be removed from the greylist by June 2025 at the earliest.
The PIC has also noted the latest South Africa long-term sovereign debt rating of BB- from Fitch, with a stable outlook. The rating outlook is a reward for the country’s progress in implementing reforms in 35 key areas covering energy, water, logistics, and telecommunication.
The National Treasury was tasked with implementing these reforms and current indications are of the positive impact they have had. The challenge now is to expand the reforms to other areas of the economy, such as the digital and green economy, and sustain the momentum to improve the investment rating.
In maintaining the stable outlook, Fitch noted South Africa’s constrained growth, high levels of unemployment, poverty, and inequality as challenges but noted features such as the credible monetary policy and the implementation of economic reforms as among many positives.
A key feature of the global economic outlook in the year ahead is how the world manages record debt levels stemming from the pandemic and the cost-of-living crisis. This starts with the two largest economies of the United States and China but is also true for the rest of the advanced and developing economies.
Fitch has noted South Africa’s favourable debt structure and local currency denomination as a positive for South Africa. The government must build on the fiscal consolidation path it has pursued since the onset of the pandemic as part of the solution to addressing economic challenges.
Other key government priorities that the PIC aims to support are investment in renewable energy, as well as support in education and skills development to address unemployment as well as healthcare to achieve the noble goal of providing free universal healthcare at the point of treatment.
The PIC notes South Africa is a significant investor in the nascent area of green hydrogen. Through several Development Finance Institutions, South Africa launched a $1bn (R17.5bn) SA H2 Fund to explore investment opportunities in the green hydrogen value chain in South Africa and other parts of the continent. The PIC is currently not an investor in the fund but notes South Africa’s leadership role in the area.
Alternative and unlisted investments
To support economic growth, the PIC is a significant investor in unlisted companies that contribute to the development of South Africa. These include investments in alternative energy solutions, township property development, and the agriculture sector. A total of R8.5bn was invested in unlisted entities in the year under review.
Job creation
Since corporatisation in 2005 to March 31, 2024, the PIC’s portfolio investee companies have facilitated 190 258 jobs, including 79 500 in general sector-agnostic funds, 28 413 in agriculture, and 18 738 in mining.
Bridging the digital divide
The PIC, on behalf of the GEPF, invested R714m in the Digital Infrastructure Consortium, a level 1 B-BBEE company that is 100% black-owned, with black women commanding a 42.5% share.
The transaction allowed the company to acquire about 19.5% of MetrofibreNetworx, an open-access fibre network and internet service provider that was established in 2010. The company provides 10 000 km of fibre to homes and businesses in all provinces except Limpopo and the Free State, 61% percent of homes served are in urban areas, with 31% in peri-urban areas.
The investment supports a key government objective of bridging the digital divide.
Housing
The PIC views housing as a right and source of dignity with modernised human settlements that bring people close to economic opportunities and breaks historical spatial planning patterns.
Over the past decade, the PIC has collaborated with other asset managers, commercial banks, and leading development finance institutions to develop inner-city residential rental properties – and, in the process, supported numerous property entrepreneurs.
Partners include the Urban Housing Finance, the Johannesburg Housing Company, the Gauteng Partnership Fund, and the Royal Bafokeng Resources Properties. Bringing dignity to our people, including workers, is a source of immense pride for the PIC.
Abel Sithole is CEO of the PIC
BUSINESS REPORT