Comments on: Public Investment Corporation Bill
By Professor Nicholas Biekpe Director Africa Centre for Investment Analysis University of Stellenbosch Business School
History of Public Investment and the State
- Public Debt Commissioners (PDC)in 1911
- Objective:
-To place trust funds under a single authority
-To deposit government's emergency funds
- Initially government trust fund and the South Africa Railways and Harbours were invested in PDC
- In 1924 the PDC mandate was extended and to include provincial administrations
- 1924- the PDC was further expanded with further mandate to grant loans to local authorities among other things;
- 1926- An amendment which saw the establishment of government sinking funds;
- 1969- further amendments
- 1984-saw another amendment which resulted in the Public Investment Commissioners Act (No
45 of 1984)
Why the numerous amendments throughout history?
- The State, like the private sector, needs financial resources to perform;
- Optimization of financial resources;
- Better wealth-generating models;
- Proper accountability;
Public Investment Corporation
Structure of corporation:
- Board of Directors
- Management
- Sub-committees
- Office of the Minister?
Governance and Private sector- Lord of the Rings?
Private sector's false sense of believe that it is a touch-bearer of corporate
- governance
- Maxwell affair in the 80s
- WorldCom, Enron, Parmalat etc.
- Insider-trading is not government induced;
-Governance is as good as the individuals who implement it
Government and Governance
- Government is accountable to parliament and acts within the constitution;
- Good track record of the Treasury Department;
- Reserve Bank and Government-the independence of the Governor;
- Good track record of government-linked institutions
- SAA
- Eskom
- Denel
- DBSA
- IDC
Management structure and governance of Corporation- Different?
Independence of Board decision
- Not different from any private-sector organization.
- As a private sector organization the motive is along profitable business lines;
- Government building successful PPP models;
- Directors appointed based on expertise will help strengthen the Corporation's position in
the market;
Legal Environment of Corporation
- Corporation likely to provide better legal environment compared to the Public Investment Commissioners;
- Issues on transparency likely to be at par with other private-sector corporations
What will actually determines the success of Corporation?
- Expertise of Board of Directors;
- Role played by government;
- Most importantly the value added by Corporation's staff.
Potential Merits of Corporation
- Better legal environment;
- Potential for better governance- at par with private sector;
- More control over assets under administration;
- Better human capital because the Corporation will no longer (I hope) be bounded by government pay structure;
- Better positioned to raise funds to support vital empowerment projects;
Issues to be addressed
- Proper Governance Structure to be put in place;
- The role of board of directors to be properly defined;
- Corporation will need to be transparent in order to meet the market's expectation;
- Concerns of current external Asset Managers with a financial stake in public Investment Commissioners need to be addressed.
At the end of the day?
- The success of any company depends on:
- The level of training of its staff;
- Expertise of the Board Members;
- The aims and objectives of the organization;
- The legal and regulatory framework in place;
- Greater economic environment and among other things;
We have entrusted the Treasury Department with the economy for the last ten years. Based on format of the
current draft bill, I see no reason to doubt the government's intentions.