The NPC’s Risky Revival of Apartheid-Era Financial Control

South Africa’s National Planning Commission (NPC) released a report this week that calls for a complete rethink of how the country’s financial system operates. It frames the discussion around one of the economy’s most basic challenges: channelling capital into long-term, productive investment.

Specifically, the report highlights South Africa’s underinvestment in gross fixed capital formation (GFCF) — the roads, power plants, water systems, ports, rail, factories, and technology that underpin a functional and productive economy.

The NPC, an advisory body within the Office of the President, is tasked with long-term thinking on growth, jobs, and inequality. Its latest report argues that the country’s financial system is structurally biased toward short-term, private returns rather than sustained public investment. The consequence, the commission warns, is a trap of persistent inequality.

On the surface, this diagnosis is reasonable. South Africa’s fixed investment rate has been declining sharply, from 20% of GDP in 2014 to around 15% today. The real controversy, however, lies in the NPC’s proposed solution.

At its core, the report calls for the government to take a far more active role in directing the flow of both public and private capital. This includes targeting pension funds and other institutional investors, essentially steering their assets into state-backed infrastructure projects. In substance, the proposal amounts to a modern reincarnation of prescribed assets.

Prescribed assets are not a new concept in South Africa. Under apartheid, the government legally compelled pension funds and insurers to invest a portion of their portfolios in government bonds and state-owned enterprises. The policy lasted from 1958 to 1989. Its aim was to secure cheap funding for the state and strategic industries during a period of international sanctions and isolation.

History tells us that much of this capital was misallocated. Forced investments went to inefficient monopolies and politically motivated megaprojects, and they masked the state’s fiscal weaknesses. When these entities encountered trouble, taxpayers bore the cost through bailouts.

In the 1970s, prescribed assets delivered returns of just 7% while inflation ran at 11%, because the state deliberately set low interest rates to borrow cheaply. The Truth and Reconciliation Commission later examined these practices, framing prescribed assets as tools of coercion and instruments of political control.

That history matters today because the NPC’s logic walks uncomfortably close to it. By the 1980s, South Africa faced mounting economic pressures. According to the report, during this time the government “discovered a convenient ideology for justifying free markets in neoliberalism” and reduced direct state intervention, subsequently “dismantling institutionalised cooperative structures between balance sheets”.

The report indicated that this shift laid the groundwork for a neoliberal macroeconomic framework, which emphasised controlling inflation and public debt while giving private capital broad autonomy. In such a framework, the state shaped the economy through taxes, regulation, spending, and financial oversight, but it did not directly command capital.

The NPC claims that the neoliberal model, as implemented in post-apartheid South Africa, prioritised investor interests over society at large. Capital, the report argues, chased short-term returns and which are invested offshore, rather than funding local infrastructure. The result was underinvestment in critical sectors and the entrenchment of inequality.

In response, the NPC proposes what it calls a “single complex adaptive financial system,” in which banks, pension funds, development finance institutions, households, state-owned enterprises, and government are part of a tightly co-ordinated web. Investment decisions, both public and private, would be actively steered by the state toward national development objectives. Pension funds are at the heart of this proposal.

The report contains two headline recommendations for pension funds. First, it suggests reducing offshore investment. Currently, Regulation 28 allows retirement funds to invest up to 45% of assets abroad. Second, it recommends that pension funds allocate 20% of their assets to local infrastructure. According to the NPC, this could unlock a R1 trillion infrastructure pipeline, backed by the state. So, should these projects fail, the state, and ultimately taxpayers, would carry the risk. To enforce compliance, the report proposes annual infrastructure investment plans and quarterly reporting to the regulator. In practical terms, this is a prescription reminiscent of apartheid-era policies.

This is where the proposal collides with reality. Regulation 28 was overhauled in 2022 precisely to encourage infrastructure investment, defining infrastructure as a separate asset class, and allowing funds to invest in both public and private projects, up to a cap of 45%. Despite these regulatory reforms, pension fund allocation to infrastructure remains around 2%. While some see this as market failure, the truth is more nuanced.

Pension funds already recognise the appeal of infrastructure as a long-term asset. Unlisted infrastructure typically delivers stable, inflation-linked cash flows over decades, aligning with the long-dated nature of retirement liabilities. In theory, it is a perfect match.

The constraint is not ideology; it is bankability. Only about 20% of South Africa’s pipeline of infrastructure projects is genuinely investable for pension funds. When weak revenue models, governance risks, political interference, and regulatory uncertainty are stripped away, the realistic funding needs are around R75 billion to R100 billion — far below the scale implied by the NPC’s recommendation.

Globally, pension funds can invest in infrastructure through a variety of instruments such as municipal and green bonds, corporate infrastructure bonds, public-private partnerships, and dedicated infrastructure funds. In South Africa, this market is still underdeveloped. Only a handful of listed infrastructure counters exist on the Johannesburg Stock Exchange, and while the project bond and green bond markets are growing, they remain small. As a result, meaningful infrastructure exposure is largely confined to private markets, requiring deep due diligence by trustees to protect fiduciary duty and safeguard pensioners.

This brings us to the core risk in the NPC’s proposal. Pension funds exist to protect and grow the retirement savings of millions of ordinary South Africans. They are legally bound to act in the financial interest of their members, not to fulfil policy objectives or political ambitions.

South Africa does not need a return to apartheid-era financial controls dressed up in modern planning language. Prescribed assets did not save the apartheid economy. They delayed its reckoning and transferred the cost to the public.