Every few years, South Africa’s investment policy debate gives rise to a variant of the same argument: the country faces an infrastructure crisis, and private capital is not filling the gap.
The solution, the theory goes, is that private pension funds, which are custodians of member assets roughly the equivalent of our GDP, must be directed, nudged or compelled to invest less offshore and more at home, in the real asset economy. Less in listed equities; more in government bonds, municipal infrastructure and development finance.
The thesis sounds reasonable. But the data to disprove it is hiding in plain sight.
First, let’s start with the myth that there is a shortage of capital. This stems from the foundational claim that there is a shortage of capital seeking infrastructure exposure.
The reality is that in the decade after 2008, interest rates globally fell to near zero, driven by a savings glut that central banks struggled to offset.
Today, structurally higher interest rates, stubborn inflation and intensifying competition between public and private borrowers for funds suggest capital is becoming scarcer.
But a critical nuance applies: private capital committed to infrastructure has grown dramatically over the past two decades, reaching $1.5-trillion by 2024, with a 16% compound annual growth rate over the preceding decade. Last year alone, infrastructure fundraising hit a record of nearly $200bn – 60% higher than 2024.
This demonstrates that infrastructure funds globally are not struggling to find funding; they are battling to find bankable projects with credible governance, enforceable contracts underpinned by a strong commitment to the rule of law, and management teams capable of delivering them.
There is another conceptual confusion worth discussing.
The argument for asset prescription implicitly borrows from the macroeconomic idea of a savings-investment balance. That is, if domestic savings are not financing domestic investment, capital that could be redirected into the real economy is being wasted offshore.
But contractual savings, the kind accumulated through pension funds, are not surplus discretionary resources. Rather, they are deferred wages, held in trust under fiduciary obligations for the workers who earned them.
A pension fund investing in international equities is not withholding capital from South Africa; it is fulfilling a legal duty to its members. Conflating these two things is not an economic argument, it is sleight of hand.
Evidence from home
South Africa’s recent history proves the point. During the early rounds of the renewable energy independent power producers procurement programme, private capital, domestic and foreign, flowed rapidly and competitively into the creation of new electricity generation capacity.
Bid prices fell sharply as investors competed to deploy funds. Across the programme as a whole, private sector investment of more than R256bn has been committed, which underscores how quickly capital mobilises once the conditions are right.
The programme stalled not because capital dried up, but because the state, through Eskom, refused to sign power-purchase agreements. That is a governance failure, not a reflection of how much offshore exposure pension funds are permitted.
The behaviour of South African JSE-listed companies tells a similar story.
On a net basis, domestic companies have been exporting capital for years, shifting primary listings abroad, allocating capital overseas and accumulating elevated cash balances at home.
This is not recklessness, but rather the rational response of management teams with fiduciary obligations to shareholders, operating in an environment of policy uncertainty, regulatory instability, and the documented destruction of value by state-owned enterprises (SOEs).
When people with genuine skin in the game choose not to invest locally, the revealed preference matters.
To suggest that the appropriate solution is to compel pension funds to lend to government, SOEs and municipalities – at rates the market would not freely offer, because the market understands the risks – is, in effect, to ask pension fund trustees to transfer those risks directly to workers saving for retirement.
It does nothing to address the governance failures, corruption and policy inconsistencies that made domestic investment unattractive in the first place.
Paring back the offshore allowance, as has been suggested, is also inconsistent with global best practice.
The Organisation for Economic Co-operation and Development’s annual survey of pension fund investment regulations covers more than 80 countries. It confirms that the world’s largest, deepest and best-governed pension systems, including those in the US, the UK, Canada, Australia, the Netherlands and Norway, operate without any quantitative limit on foreign investment whatsoever.
Instead, pension trustees are required only to act prudently and in the interests of their beneficiaries. Many of these countries are major recipients of global portfolio flows – not because domestic pension funds are compelled to invest locally, but because their economies offer attractive opportunities and their institutions are credible and well governed.
Among the countries that do impose caps on foreign investment – largely emerging markets – the restrictions tend to be either relatively high or broadly framed.
Chile, whose pension system is often cited as an emerging-market benchmark, allows its most growth-oriented fund to invest up to 100% offshore and sets a system-wide aggregate cap of 80%. By end-2024, Chilean pension funds had allocated approximately 48% of their total assets abroad. In Colombia, the figure had reached 52%.
By contrast, the countries that maintain hard, restrictive foreign investment caps represent a different group: the Dominican Republic, Egypt, India, Nigeria, Uganda, Zimbabwe. With some variation, these countries are generally characterised by having weaker institutions, capital account vulnerabilities, or explicit policies of financial repression.
Against this backdrop, South Africa’s decision to raise the offshore limit for pension funds under regulation 28 from 30% to 45% in 2022 was a step in the right direction. But it merely meant the country became less restrictive, rather than highly restrictive.
The loudest voices in the current debate are now advocating a reversal of even this modest progress. This should not be allowed to happen.
Where we should be going
Academic evidence reinforces this picture. An analysis of pension systems in 39 countries has found a statistically significant negative relationship between quantitative investment restrictions and fund returns.
The effect was particularly pronounced for emerging-market economies. Restrictive quantitative limits effectively compel pension funds to hold lower-returning domestic assets and forgo the diversification premium available from international portfolios.
A South African study in the Investment Analysts Journal in 2023 draws on data extending back to the 1930s, covering 92 years of local market history. It found that an unconstrained optimal portfolio would have allocated 39% to offshore assets, which would have reduced annual return volatility from 10% to 8.7%, while increasing annual returns by 1.1 percentage points.
The implication is clear: restricting offshore exposure does not protect pension fund members. It disadvantages them.
None of this means that South Africa cannot attract private capital for infrastructure. It can, and it does — when projects are properly structured, governance is credible and contracts are enforceable.
The country’s infrastructure gap is real, so it is good news that concerted efforts are under way to create an environment where private capital can partner with public infrastructure providers through opportunities that preserve the fiduciary obligations of trustees and the interests of the pension funds they oversee.
The second phase of Operation Vulindlela has projects designed to attract private investment in energy and electricity, freight logistics, water infrastructure and housing.
National Treasury’s metro trading services reform, which requires metros to establish ringfenced, professionally managed and independently licensed utilities, represents the most operationally advanced intervention to sustainably improve municipal service delivery and, in doing so, create investable counterparties for private capital.
Pension funds will invest in South African infrastructure when the risk-adjusted return is appropriate. Compulsion is only necessary when the return on offer is too low – which is another way of saying that the risk is too high, the price is wrong, or both.
The answer is not to force retirement savings into unattractive investments, but to make those investments attractive in the first place: through credible policy, capable institutions, clean governance and bankable projects.
Capital is not scarce. Confidence is. And no pension fund regulation in the world can manufacture that.
Marie Antelme is an economist at Coronation Fund Managers; Pieter Koekemoer is head of personal investments at Coronation.
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Top image collage: Rawpixel; Currency.
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Well said. The cold shower of open competition, however bracing, has always been a wonderful discipline. We’re on the right track; let’s not be distracted or diverted from the path we seem to be choosing.
Great article