With the government’s debt levels worryingly high and SOEs in dire straits, economists are questioning the wisdom of the president’s proposal
17 February 2020 - 13:27
byRoxanne Henderson
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
New ideas are hard to come by, so it was a case of déjà vu for many investors when President Cyril Ramaphosa again touted the idea of a state-owned SA bank and sovereign wealth fund.
The desire for the country’s wealth, minerals, land and its banks to be owned and shared by all South Africans harks back to 1955, when the ANC and allies adopted the Freedom Charter. The government proposed a sovereign wealth fund as early as 2010, while plans to form a state bank that will improve access to credit, are yet to get off the ground.
But now is not seen as the right time to push them through. The government’s coffers are all but dry and its debt levels worryingly high. Besides, most state-owned entities are in disarray — their finances plundered after years of corruption and mismanagement.
“To actually talk about a sovereign wealth fund in our context really is quite honestly a distraction,” said Cas Coovadia, MD of the Banking Association SA. “What we’ve got to concentrate on is getting our negative fiscal situation sorted out. It should be taken off the table.”
The National Treasury shot down the idea of a state-owned bank last year, telling parliament that it would be hard to justify in the absence of major market failures. At least 90% of adults use some form of financial service, the Treasury said, citing a 2018 report by the Finmark Trust. Also, only 1% of South Africans made use of the national post office’s financial-services arm Postbank.
“Government should be getting smaller and reducing SOEs, not creating new ones,” said Chris Eddy, head of investments at 10X Investments.
Ramaphosa is leaving the details to finance minister Tito Mboweni when he presents his budget speech later this month.
“We question how either of these can be realistically capitalised against the backdrop of weak growth and fiscal exhaustion,” Absa economist Peter Worthington said. The inclusion of these proposals in the president’s speech on Thursday was regrettable, he said.
While creating a sovereign wealth fund could be exciting and place SA in the same league as Nordic and Middle Eastern nations, the timing is poor, said Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town.
“The sovereign wealth fund has been proposed for years at this point, but perhaps it is a sign of consistency that the government keeps bringing it up as a priority,” he said. “There are other things that are significantly more important, and that should be further ahead in the queue.”
While SA grapples with a moribund economy and 29% unemployment, it is also trying to turn around its ailing state-owned companies. The government already owns a development bank, an agricultural bank and a lender focused on industrial projects.
Though Ramaphosa’s speech highlighted the need to repurpose state-run companies “the decision to establish a state bank, at a time many SOEs are in severe trouble, is inexplicable,” Business Unity SA said in an e-mail. “We must also question what a state bank can do that the private banking sector can’t.”
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Why SA doesn’t need a sovereign wealth fund now
With the government’s debt levels worryingly high and SOEs in dire straits, economists are questioning the wisdom of the president’s proposal
New ideas are hard to come by, so it was a case of déjà vu for many investors when President Cyril Ramaphosa again touted the idea of a state-owned SA bank and sovereign wealth fund.
The desire for the country’s wealth, minerals, land and its banks to be owned and shared by all South Africans harks back to 1955, when the ANC and allies adopted the Freedom Charter. The government proposed a sovereign wealth fund as early as 2010, while plans to form a state bank that will improve access to credit, are yet to get off the ground.
But now is not seen as the right time to push them through. The government’s coffers are all but dry and its debt levels worryingly high. Besides, most state-owned entities are in disarray — their finances plundered after years of corruption and mismanagement.
“To actually talk about a sovereign wealth fund in our context really is quite honestly a distraction,” said Cas Coovadia, MD of the Banking Association SA. “What we’ve got to concentrate on is getting our negative fiscal situation sorted out. It should be taken off the table.”
The National Treasury shot down the idea of a state-owned bank last year, telling parliament that it would be hard to justify in the absence of major market failures. At least 90% of adults use some form of financial service, the Treasury said, citing a 2018 report by the Finmark Trust. Also, only 1% of South Africans made use of the national post office’s financial-services arm Postbank.
“Government should be getting smaller and reducing SOEs, not creating new ones,” said Chris Eddy, head of investments at 10X Investments.
Ramaphosa is leaving the details to finance minister Tito Mboweni when he presents his budget speech later this month.
‘Fiscal exhaustion’
“We question how either of these can be realistically capitalised against the backdrop of weak growth and fiscal exhaustion,” Absa economist Peter Worthington said. The inclusion of these proposals in the president’s speech on Thursday was regrettable, he said.
While creating a sovereign wealth fund could be exciting and place SA in the same league as Nordic and Middle Eastern nations, the timing is poor, said Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town.
“The sovereign wealth fund has been proposed for years at this point, but perhaps it is a sign of consistency that the government keeps bringing it up as a priority,” he said. “There are other things that are significantly more important, and that should be further ahead in the queue.”
While SA grapples with a moribund economy and 29% unemployment, it is also trying to turn around its ailing state-owned companies. The government already owns a development bank, an agricultural bank and a lender focused on industrial projects.
Though Ramaphosa’s speech highlighted the need to repurpose state-run companies “the decision to establish a state bank, at a time many SOEs are in severe trouble, is inexplicable,” Business Unity SA said in an e-mail. “We must also question what a state bank can do that the private banking sector can’t.”
Bloomberg
Sona 2020 — is the driver half-asleep at the wheel?
Nation in need of a fearless leader
PETER ATTARD MONTALTO: Will SA be going forward or just accelerating into a wall?
HILARY JOFFE: Tito can pull a couple of levers, but they will take time to work
Sona 2020 long on promises, short on detail, says Fitch
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Related Articles
VAT hike may be only option
LUKANYO MNYANDA: The good and the bad: lessons from Greece and the UK
NEWS ANALYSIS: Smart cities forgotten as Ramaphosa focuses on ‘stark realities’ ...
READ IN FULL: State of the nation address 2020
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.