A new report by the National Planning Commission (NPC) argues that South Africa’s financial system is structurally incapable of directing capital towards productive investment and proposes changes to Regulation 28 to unlock about R1 trillion for infrastructure and the Just Transition.
The NPC is a statutory body that advises the President on long-term strategic planning and national development, including the formulation of the National Development Plan (NDP).
The report, titled Transformation of South Africa’s Monetary Architecture, 1983–2024, was compiled over three years by Professor Mark Swilling of Stellenbosch University and political economist Dr Steffen Murau, with input from leading sector experts.
The report presents a set of 14 recommendations aimed at reconfiguring the interlocking balance sheets that constitute South Africa’s monetary architecture. These recommendations target retirement funds, development finance institutions (DFIs), banks, shadow banks, state-owned enterprises (SOEs), and the broader private sector with the objective of increasing investment in growth-catalysing and sustainability-oriented gross fixed capital formation (GFCF).
If implemented, the NPC estimates that these 14 recommendations could unlock as much as R5 trillion in domestic capital for infrastructure, small business, and sustainability-oriented investments.
“The rationale for the report stems from research reports compiled by the NPC’s Infrastructure Task Team,” the NPC said in a statement on Tuesday. “These reports investigated the investment requirements to achieve the infrastructure goals of the Cabinet-approved National Infrastructure Plan 2050 with specific reference to energy, water and digital infrastructure.”
Using the World Bank’s Beyond the Gap methodology, these reports found that an additional R150 billion needs to be invested to close the gap between what is needed and what is spent on fixed capital and operational costs. “The question this raises is, where will this additional R150bn come from?” If monetary and fiscal policies remain unchanged, this means the additional funding will not come from quantitative easing, or from increased spending, higher taxes, or more borrowing, the NPC said.
Structural challenges in SA’s monetary architecture
The NPC report identifies structural failures in the South African financial system. Chief among these is the inability of the system to direct capital towards productive domestic investment. Despite decades of regulatory reform, black economic empowerment (BEE) initiatives, and fiscal interventions, the report finds that capital continues to be concentrated in liquid, offshore, and extractive assets rather than in productive domestic sectors.
The authors highlight three key problems:
- Persistent inequality. Financial exclusion remains widespread, particularly among women-headed households and low-income communities. Access to banking services has expanded in quantitative terms, but household asset accumulation has been limited.
- Underinvestment in GFCF. Public and private investment in infrastructure and fixed assets remains low relative to economic needs. DFIs, retirement funds, and banks have not deployed capital in ways that catalyse economic growth or inclusivity.
- Absence of macro-financial governance. South Africa’s financial system is highly regulated, but there is no systemic mechanism to co-ordinate the complex interactions among public and private balance sheets. This absence of “directionality” prevents the financial ecosystem from generating scale in domestic investment.
The report traces these failures historically, noting that the liberalisation of financial markets in the 1980s, the GEAR reforms in the 1990s, and banking consolidation in the 2000s reinforced a system that favours liquidity, short-term returns, and offshore flows over long-term domestic capital investment. The lack of a co-ordinated approach across DFIs, SOEs, and private investors has perpetuated this pattern.
To overcome these challenges, the report identifies a series of “elasticity spaces” – interventions that could reconfigure balance sheets to unlock new or expanded flows of capital.
Redirecting retirement fund assets
One of the report’s recommendations concerns Regulation 28 of the Pension Funds Act, which governs how retirement funds may invest, including limits on exposure to certain asset classes.
According to the report, the expansion of retirement fund balance sheets since 1994 has far outpaced the rate of investment in GFCF. Funds were allowed to externalise up to 45% of their assets by 2023, resulting in potential outflows of about R2.5 trillion.
The report argues that the perception of limited domestic investment opportunities has led retirement funds to maintain high levels of liquidity and offshore investment. This has created a vicious circle: low domestic investment reduces economic growth, which in turn limits domestic investment opportunities.
Swilling and Murau propose a negotiated balance sheet reconfiguration in which a gradual reduction of the 45% externalisation limit is correlated with an increase in investments in GFCF. They recommend that at least 20% of retirement fund assets be redirected towards domestic infrastructure and productive fixed assets.
The proposed mechanisms include:
- Annual infrastructure investment plans for retirement funds, with reporting requirements in quarterly reports.
- The creation of investment vehicles similar to REITs or the United Kingdom’s Long-term Asset Fund, allowing long-term “patient capital” investments with tax incentives.
- Sovereign and non-sovereign guarantees to de-risk long-term infrastructure investments.
- The use of listed notes to provide retirement funds with secure exposure to unlisted infrastructure assets.
According to the report, if implemented, these measures could unlock a pipeline of projects worth about R1 trillion, significantly increasing GFCF and supporting inclusive growth.
The Government Employees Pension Fund and the Public Investment Corporation, as the largest institutional investors in South Africa, would play a central role in this proposed reconfiguration.
Aligning DFIs and SARB oversight
The report identifies DFIs as another crucial channel for mobilising domestic capital. Currently, the governance and supervision of DFIs are fragmented. The NPC recommends that DFIs be brought under the regulatory oversight of the South African Revenue Bank to harmonise governance structures, improve systemic stability, and increase market confidence in their balance sheets.
For example, feedback from the Development Bank of Southern Africa’s proposed transfer from National Treasury to the SARB suggested that the DBSA’s loan book could expand from R120bn in 2023 to about R400bn purely through balance sheet reconfiguration. Applying this model to all DFIs could raise their collective balance sheets from R350bn to R1.4 trillion, unlocking capital for domestic GFCF without new fiscal or monetary interventions.
New credit guarantee vehicles and infrastructure funds
The NPC also proposes a new credit guarantee vehicle (CGV) to replace large-scale sovereign guarantees, which have proved fiscally unsustainable. The CGV would provide rand-denominated guarantees to unlock private investment in public infrastructure projects worth about R50bn.
Similarly, the report emphasises strengthening the DBSA Infrastructure Fund, which has funded R340bn worth of projects as of 2025, with R281bn already at implementation stage. The goal is to expand this fund to support up to R1 trillion in infrastructure projects, mobilising private co-financing through blended finance mechanisms.
Macro-financial governance
Central to all recommendations is the concept of macro-financial governance, which the NPC defines as the “systematic tracking, modelling, and co-ordination of interlocking public and private balance sheets.” Rather than relying solely on fiscal or monetary levers, the state should act as a strategic orchestrator, identifying opportunities where capital flows can be redirected toward inclusive growth and long-term infrastructure investment.
The report cautions that coercive interventions that undermine investor returns could trigger capital flight and fail to increase GFCF. Instead, co-ordinated balance sheet negotiations, strategic guarantees, and incremental governance improvements are essential.
The NPC notes that “effective execution capability does not precede implementation; it gets built in order to implement”, advocating for incremental, mission-oriented interventions rather than ad hoc measures.
SOEs, banking, and shadow banks
The report identifies SOEs as another critical leverage point for balance sheet reconfiguration.
Following the 2024 general election and the abolition of the Department of Public Enterprises, governance of SOEs remains uncertain, with serious implications for investment confidence. Proposed interventions include shareholder diversification (without compromising majority public ownership), project pipelines, and guarantee mechanisms. Strengthened SOE balance sheets could leverage domestic and international capital and increase investment in GFCF, particularly in sectors such as electricity, water, and transport.
In the banking sector, the report calls for revisiting risk-reward profiles to encourage longer-term lending and greater exposure to infrastructure and small business financing. Lessons from the rooftop solar financing “revolution” (R80bn between 2022 and 2024) are cited as examples of how banks can mobilise private capital for development.
The NPC also suggests easing regulatory barriers to allow new entrants to increase competition, in line with the SARB’s climate change programme and financial sector reform.
Shadow banks, with more flexible regulatory environments, are identified as potential “heavy lifters” in channelling private capital into GFCF. By designing incentives for longer-term investments and structuring deals in partnership with DFIs and retirement funds, shadow banks could play a central role in the proposed balance sheet reconfiguration.
Small businesses and the middle class
The NPC report recognises that household balance sheets, particularly those of women-headed households, are closely linked to small formal and informal businesses. Access to affordable finance for these businesses is critical for reducing inequality and promoting inclusive growth.
Beyond small businesses, the report advocates for building a stable middle class through redistributive household finance mechanisms, matched savings schemes, and blended mortgage guarantees. Expanding access to affordable credit for small businesses directly supports household wealth accumulation and addresses structural inequality.
Green investment imperatives
The report sees the SARB’s climate change programme as an opportunity to catalyse balance sheet reconfigurations across banks, DFIs, and retirement funds, supporting investments in renewable energy and climate adaptation projects.
The NPC notes that transition risks related to stranded assets could amount to R1.8 trillion between 2013 and 2035, highlighting the need for proactive financial sector interventions.
Additionally, the report recommends developing a “green GFCF” indicator to incorporate the valuation of biodiversity and ecosystem services, ensuring that increased investment in fixed assets does not degrade natural capital.
Other recommendations
The report’s other key recommendations are:
- Requiring non-financial companies listed on the JSE to incentivise reinvestment in GFCF alongside sustainability reporting.
- Expanding the scope of project-level blended finance initiatives, including public-private partnerships and Independent Transmission Projects for energy and water infrastructure.
- Aligning the GEPF’s investment mandate with the NDP’s targets to increase GFCF to 30% of GDP, including funding BEE companies executing priority projects.
- Encouraging retirement funds, DFIs, banks, and shadow banks to co-ordinate strategically across a “macro-financial governance platform” to maximise system-wide efficiency and avoid duplication or misallocation of capital.
This is another sign of the country’s fate to become another Zimbabwe. It would be fine if the country had not fallen into destructive state of corruption, incompetence and the brain drain of essential skills of which BEE plays a pivotal role. I can’t help but wonder where all the millions of Zimbabians, Mozambicians and the rest that fled to South African to avoid the same direction that their countries went.
The report has some excellent thoughts and ideas. I have no issue of lowering offshore exposure to about 35%; however, what needs to come first is
1. Strong governance on these capital projects so we don’t get theft, and funds are invested in the best way
2. SA companies and not Chinese etc., who have the skills and resources should be given the tenders unless we don’t have the skills
3. BEE requirements should be halved to ensure BEE does not become a tax and an additional cost to make certain parties rich who add little value.
This is a significant and potentially contentious recommendation from the NPC. The rationale of steering more capital toward domestic “productive investments” is understandable from a national development perspective, especially given the urgent needs in infrastructure and energy. The argument that it could deepen local capital markets is also a valid long-term goal.
However, the proposal inevitably raises major concerns for retirement fund members and trustees. The primary one is risk concentration. A lower offshore limit directly reduces the crucial diversification that protects retirees from purely South African-specific economic shocks, currency depreciation, and sectoral volatility. It forces a heavier bet on a single, struggling economy.
A key question the final policy must answer is: what specific, credible mechanisms will ensure this redirected capital is deployed into genuinely productive and well-governed domestic investments, rather than simply inflating asset prices or flowing to inefficient state-owned enterprises? The success of this policy hinges entirely on the “productive investment” part of the equation.
Thank you for reporting on this. It’s a complex trade-off between national policy and individual fiduciary duty that warrants very careful debate.