Soon-to-be launched sovereign wealth fund targets R30bn in capital

Treasury to conduct feasibility study on source of capital. - Moneyweb

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 on Wednesday.

Plans by the government to launch a sovereign wealth fund as a means to preserve and grow the country’s national endowment were initially announced by President Cyril Ramaphosa during his State of the Nation Address two weeks ago.

Mboweni plans to take it a step further, saying the government is serious about plans to establish a sovereign wealth fund, which will be an “important long-term tool for saving and investment for future generations”.

“It [the sovereign wealth fund] can also contribute to strengthening the fiscal framework. We must learn to save during the good times, and a fund can play an important role as a counter-cyclical fiscal tool,” the finance minister said during his speech.

Mboweni said parliament will be responsible for formulating the legal, administrative and procedural issues involved in launching the fund, although he didn’t give a timeline for this process.

Ramaphosa’s wealth fund proposal has drawn criticism due to the dire state of SA’s public finances.

Countries that launch sovereign wealth funds usually have low government debt and run budget surpluses. Excess government funds are usually channelled into the fund to capitalise it.

Norway is often used as a case study for a successful sovereign wealth fund. The country’s fund has $1 trillion in assets that were built from the country’s oil reserves.

Sovereign wealth funds can however also be used as a vehicle for looting and corruption, an example of which is Angola, where the 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 successfully run such a programme.

Mboweni revealed that SA’s gross national debt is expected to increase to 71.6% of GDP over the next three years, while the budget deficit is expected to drop by a small margin to 5.7% over the same period, from the current 6.8%.

National Treasury says it is conducting a feasibility studies on the viability of such a fund. Funding may need to come from “the proceeds from the allocation of spectrum and the sale of non-core assets to capitalise such a fund”.

“In addition, a fiscal rule that saves fiscal surpluses in the fund could help to manage volatile revenues.”