Sovereign wealth fund targets R30bn
The government is forging ahead with the launch of a sovereign wealth fund, which will initially have a targeted capital amount of about R30 billion, Finance Minister Tito Mboweni said in his 2020 budget speech yesterday.
Plans to launch the fund as a means to preserve and grow the national endowment were initially announced by President Cyril Ramaphosa during his State of the Nation address.
Mboweni took it a step further, saying the government is serious about its plan and the sovereign wealth fund will be an “important long-term tool for saving and investment for future generations”.
“It can also contribute to strengthening the fiscal framework,” Mboweni said. “We must learn to save during the good times and a fund can play an important role as a counter-cyclical fiscal tool.”
Parliament will be responsible for formulating the legal, administrative and procedural issues involved in launching the fund. Mboweni didn’t give a timeline.
Since Ramaphosa announced the government’s ambition to launch a sovereign wealth fund, he has been criticised because public finances are dire and SA cannot afford to pool funds to capitalise it.
Countries that have launched such funds usually have low government debt and run budget surpluses, which are channelled into it. And sovereign wealth funds are usually used by resource-dependent countries and economies.
Norway is often used as a case study. Its fund has $1 trillion (R15 trillion) in assets that were built from the country’s oil wealth. However, sovereign wealth funds can also be used as a vehicle for looting and corruption, as Angola’s fund has been used to benefit patronage networks in the state.
SA doesn’t run a budget surplus and has debt problems, which economists say will make it difficult for the government to launch a sovereign wealth fund.
Mboweni revealed that SA’s gross national debt is expected to increase to 71.6% of gross domestic product over the next three years and the budget deficit is expected to drop to 5.7% over the same period, from the current 6.8%.
To fund the sovereign wealth fund, National Treasury said it is conducting a feasibility study.
“The proceeds from the allocation of spectrum and the sale of non-core assets [might] capitalise such a fund,” the treasury said.
“In addition, a fiscal rule that saves fiscal surpluses in the fund could help to manage volatile revenues.” – Moneyweb
Moneyweb
The establishment of a state-owned bank, which President Cyril Ramapahosa touted during his State of the Nation address, will involve the amalgamation of existing banks that are owned by the state.
The government owns and operates several banks – mainly Postbank, a subsidiary of state-owned enterprise the SA Post Office and KwaZulu-Natal-based Ithala.
Unlike commercial or privately owned banks, state banks are not profit-driven and largely support SA’s socio-economic development agenda of including unbanked individuals in the formal banking sector.
In a briefing with journalists ahead of the 2020 budget speech yesterday, Deputy Finance Minister