President Cyril Ramaphosa. The writer says not even the President should have access or the right to determine what the uses and limits of a Sovereign Wealth Fund should be. Photo: Phando Jikelo/African News Agency (ANA)
President Cyril Ramaphosa. The writer says not even the President should have access or the right to determine what the uses and limits of a Sovereign Wealth Fund should be. Photo: Phando Jikelo/African News Agency (ANA)

OPINION: The wealth of a sovereign

By Bheki Gila Time of article published Aug 21, 2018

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CAPE TOWN – The wealth of our sovereign, and by extension that of our citizens, is in such a parlous state as to keep us searching for ways to better our situation. This has resulted in a spirited search for solutions. In this search, the torchlight of inquiry has shone for some time on the esoteric but generationally important topic of the Sovereign Wealth Fund. Not for the first time. And to be sure, not just recently neither. 

We have been here for some time in full cacophony refusing to be interrupted as we toss things up and about, busy rummaging, minding and pondering. The platoons in a dedicated search were heralded into a call for action by the announcement of the Minister of Economic Development indicating the possibility of establishing a Sovereign Wealth Fund.

The prerogative of a wealthy nation to debate long and hard about the choices it moots to move to advanced levels of prosperity, is oft’ crafted out of the comforts of intellectual citadels and scarcely refer to the lives of its already comfortable citizens. 

It would not matter to them as to what brought them to those levels, so long as the material conditions of their sovereign are capable of underwriting the common baseline of private needs of the citizenry and the provision of public amenities shared by all in common usage. And so the luxury of the discourse winds imperturbably, inured from the pressures of a poverty ravaging environment. 

South Africa, at least reckoned as a whole, hardly qualifies to the exclusive membership of wealthy nations. Perhaps in parts. But that part of the country which is rather too small to attract the epithet of a nation.

In this globular sphere of our search, there seems to be an equatorial divide between the two hemispheres. There are the economic proponents on the one hand and a formidable cluster of political analysts on the other. The trenches are dug deep and the parapets raised indignantly very high. 

From the moment we adopted a constitution to define the extent and the qualitative content of our freedoms, we brought into the democratic vortex a schism of attributes. Rich and poor. Literate and illiterate. Empowered and disempowered. Liberal and the illiberal. The vulnerable young and the intractable old. Patriarchy and humanism. The list is rather long and could be made even much more so if we venture into the smaller areas of people’s everyday lives. And so the nation brings all these dichotomies along each time we enter into any discourse that has a public interest in it.

The reasons are many and so are the objections for the support or otherwise of the sovereign wealth fund. Pity though that the platforms on which such an important topic is contested are not widely accessible. The reasons and so are the objections, are too numerous and diverse to enumerate in seriatim. Instead, it is possible to group them in four broad categories. The first category relates to the reasons why our country requires a Sovereign Wealth Fund in the first place. 

The second category responds to the mechanics of how such an altruistic Fund could be established. The third preoccupies itself with the ability of the sovereign to manage such a fund. In their considered opinion, no democratic government can ever manage such fund efficiently without turning it into a political feeding trough for the unscrupulous and politically connected. There is the fourth calculus category. For them, all things considered, funds are about money, or aptly numbers. And therefore until the model of defining beneficiaries is well articulated, we are on a voyage of serendipity.

Along the way, there would be mavericks who criss-cross these hemispheric divides with gleeful abandon, just so the heat around the equator does not abate. It is somewhat tempting to put the gravity of the debate around the issue of who would have control over the Fund. Not because this is the most important question to ponder, but rather the questions relating to why there should be one, the mechanics of establishing one and who benefits therefrom, could be responded to with a dignity of structure that defines a robust debate with a purpose. 

But we are all survivors of a vicious set of public politics defined by an unknown quantity called post-Guptarism. And so the state is held in perpetual contempt as a hopelessly corrupt institution beyond redemption. Another new fund busy accumulating lots of money will be rotting flesh for the corrupt vultures, so the theory postulates.

The courts in this country have taught us differently however and therefore there is little need to exaggerate a fairly contained situation. But so did Parliament, notwithstanding their doubtful speed at the beginning. Considering their oversight responsibilities, hosting all the political parties sitting as equals, a function to overseer the mandate given to the executive would best be carried out by Parliament itself. 

No single Minister or President for that matter, should have access or the right to determine what the uses and limits of such fund should be. The reason is found in the etymology of the Fund. Appropriately called the Sovereign Wealth Fund, it is about the Sovereign. In our constitutional construct, government and the executive are reposed with the mandate to govern the state, an obvious ruling party prerogative. The final arbiter of all matters sovereign, however, resides with Parliament.

The reach of transformation was bound to make a lot of noise, as it moves from the lowest levels of employment equity to the highest forms. The apogee of the transformation project is represented by a sovereign wealth fund managed by a state bank established for the purpose. The immediate purposeful objective of a Sovereign Wealth Fund is to consolidate the country’s balance sheet. 

There is too much national value lying around whose potential commercial value is staggering. So much of it. But that’s a discussion for another day. And so are all the minerals to which a reasonable premium could be attached if exported unbeneficiated out of the country. The examples are all over the place. Yet the idea should not be lost. Whilst Kuwait started the first Sovereign Wealth Fund circa 1952 purely to take care of the non-renewable nature of their hydrocarbons, our Sovereign Wealth Fund should be established along the same principle of non-renewability of our mineral resources.

It is worth repeating in these privileged spaces that deep in the heart of any Sovereign Wealth Fund is an architecture against unknown future events which could suddenly plunge a country into desperate depths of poverty. Or rather, calamity. For in truth, poverty is a social calamity of unspeakable proportions. 

In the attempt to contribute to the debate, it is unavoidable to clamour for the redefinition of the debate. And that is, what threshold of tolerance which our Sovereign is capable of in withstanding the ravages and irreversible effects of generational poverty. If such parameters could be established, we stand a chance of responding to the pragmatic matter of mechanics.

Notwithstanding the nobility of the endeavour, we must guard against common falsehoods. The most prominent is that wealth funds are only created by countries with surfeit. South Africa has had surfeit for over 100 years hitherto. Fact that we have not trapped it in a Wealth Fund, is an argument of 1886. Too late now. Ergo, a decision must be taken without any more prevarication. The true and most uncompromising debate we must have is how to control it if we are to create wealth, eliminate poverty, endure the prospect that someday our minerals shall be depleted, and the diversification of our productive economy into a service economy.

There is another more subtle and pretentious co-conspirator. It is the linking of the argument with a contango or backwardation argument. That argument is a veneer of sophistry that narrows the necessity of such a laudable initiative to simply the timing of the price of minerals. Let the fund be formalized and its terms of reference published by Parliament. As the argument peters towards the calculus, by the Lord’s Grace, we would have veered far off from the equator of banal disquisitions.

Ambassador Bheki Gila, is a Barrister-at-Law.

The views expressed here are not necessarily those of Independent Media.

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