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No sovereign wealth fund for SA

THE GOVERNMENT has quietly dropped plans to establish a South African sovereign wealth fund originally mooted to help manage the country’s foreign reserves and to stabilise the value of the rand.

Economic Development Minister Ebrahim Patel, in reply to Freedom Front Plus MP Corné Mulder, said the creation of such a fund “is best timed with stable or rising commodity prices. In light of market conditions, no immediate steps are contemplated”.

Ebrahim Patel Minister of Economic. Photo: Leon Nicholas. Credit: Independent Newspapers

South African development finance institutions, Patel said, were continuing to invest elsewhere on the African continent on projects that would have been suitable for a sovereign wealth fund to consider.

Patel first mooted the idea of a sovereign wealth fund in 2010, about a year after being appointed to the cabinet, in his New Growth Path document.

Bloomberg reported at the time that Patel said he could not give answers on the size of the fund. “We are putting this on the table,” he said.

While questions were put to the ministry on Friday, there was no explanation why a green paper had not been produced on the proposal, while Patel had promised the details would be worked out in 2011.

Treasury spokesman Jabulani Sikhakhane referred questions to the Department of Economic Development.

DA finance spokesman Tim Harris said the idea was “another fine example of a half-baked idea”, which was characterising the economic development ministry. “The New Growth Path is going nowhere. Instead, the National Development plan would take South Africa forward.”

Harris said countries with lots of oil, such as Saudi Arabia, tended to establish such funds. In South Africa it was not obvious how such a fund would be financed “and we, in any case, missed extracting benefits from the last commodity boom”. He believed that the Treasury’s reasoning against the establishment of such a fund, which would probably have involved extra taxes on mining, had prevailed.

Economists.co.za chief economist Mike Schussler said: “I think it is logical. We don’t have a current account surplus… we have a deficit. It is typical for countries with surpluses to establish these funds, such as China and countries of the Middle East.”

Clearly policymakers in the Economic Development Department had not understood the dangers of establishing a wealth fund in deficit conditions, which could lead to an outflow of funds instead of the intended inflow, Schussler said.

Harris said the fund idea was based on the concept of “state capitalism”.

José Filomeno de Sousa dos Santos, the son of Angolan President José Eduardo dos Santos, recently swept in and out of South Africa to market the country’s new $5 billion (R45.5bn) sovereign wealth fund, as well as to talk to fund managers and investors here.

Asked whether South Africa should follow the Angolan example, he said Angola’s fund, established with seed capital of $1bn in August, was created to promote growth and improve socio-economic conditions in his country. South Africa was advanced in terms of industrialisation, he argued.

Eight African countries have established wealth funds: Algeria, Botswana, Angola, Nigeria, Gabon, Mauritania, Equatorial Guinea and Libya.

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