We want a sovereign wealth fund but not now, Ramaphosa says

SA is not ready for a sovereign wealth fund but it remains a long-term objective of the government in which resuscitated state-owned enterprises (SOEs) would play a key role, President Cyril Ramaphosa says.

The establishment of a sovereign wealth fund has long been on the ANC’s agenda, but with the fiscus saddled with a mountain of debt and the government faced with enormous service delivery challenges this has been a far-off dream.

“With our current fiscal position with substantial current account and budget deficits it is currently not the most opportune and favourable time for us to establish a sovereign wealth fund,” Ramaphosa said in the National Assembly in reply to a question by finance committee chair Joe Maswanganyi.

“Funding for service delivery remains under pressure for us,” he said. In these circumstances, the most appropriate policy path was to use any additional resources to reduce the debt burden and improve the delivery of services.

“While the conditions do not currently exist for the immediate establishment of a sovereign wealth fund this is an objective to which we should continue to work. We are committed to creating a sovereign wealth fund. It is generally accepted that we should have a sovereign wealth fund,” Ramaphosa said. It could be used to support economic and social development.

“Sovereign wealth funds are by their nature often used by many countries to harness national resources for economic as well as for social development. They are often used to preserve and to grow a country’s wealth for the benefit of future generations,” he said.

While other countries use revenues from their natural resources to fund their sovereign wealth funds, the government does not own the mines and mining royalties in SA. But they could also contribute to a sovereign wealth fund.

One of the possible routes for the establishment of a sovereign wealth fund, Ramaphosa noted, was through the reform and consolidation of SOEs which when eventually profitable would pay dividends which could be invested in the sovereign wealth fund.

The proposed centralised architecture for SOEs would provide an opportunity for the creation of a sovereign wealth fund once they start making profits. However, strategic SOEs such as Eskom, Transnet and SAA have had losses for years and rely on government bailouts to continue operating.

Ramaphosa acknowledged that state-owned enterprises were “in the doldrums”, but was confident they could improve under the new structure which would see them incorporated into a wholly state-owned, single holding company, with the possibility of private sector investment in the subsidiary companies. This structure would provide the capacity to build a sovereign wealth fund.

“We have gone beyond desire and wish and are now getting into building the nuts and bolts of how this sovereign wealth fund could operate.”

He referred to the Public Investment Corporation as an example of what the sovereign wealth fund could become.

ensorl@businesslive.co.za