S. African finance minister announces formation of sovereign wealth fund

Tito Mboweni, Finance Mnister of South Africa. (Photo by Sean Gallup/Getty Images)
Tito Mboweni, Finance Mnister of South Africa. (Photo by Sean Gallup/Getty Images)

Finance Minister Tito Mboweni on Wednesday announced the formation of the South African Sovereign Wealth Fund, which will serve as a counter-cyclical fiscal tool.

“This will ensure that we continue to invest in the future generations of this country in a fiscally-prudent manner,” the minister said in his Budget Speech in Parliament.

The fund has a target capital amount of about 30 billion rand (about 2 billion U.S. dollars), Mboweni said.

This came as South Africa is struggling to contain rising debt amid sluggish economic growth and a budget deficit projected to widen to a near three-decade high of 6.8 percent in the coming fiscal year.

“A Sovereign Wealth Fund is an important long-term tool for saving and investment for future generations,” Mboweni said.

It can also contribute to strengthening the fiscal framework, he said.

“We must learn to save during the good times, and a fund can play an important role as a counter-cyclical fiscal tool,” said the minister.

There are a variety of possible funding sources, such as the proceeds of spectrum allocation, petroleum, gas or minerals rights royalties, the sale of non-core state assets, future fiscal surpluses and money the government sets aside, according to Mboweni.

Given the legal, administrative and procedural issues involved, a relevant bill will be submitted for consideration in parliament, the minister said.

Preferred options for the establishment of a state bank are now ready, Mboweni told lawmakers.

The architecture will be that of a retail bank operating on commercial principles, he said.

Last year, Parliament passed legislation which will allow state-owned enterprises to apply for banking licences.

The proposed state bank will be subject to the Banks Act, and will have an appropriate capital structure and performance parameters on investments and loan impairments, said Mboweni.

It will be regulated by the Prudential Authority on its own merits, he said.

“We will also consolidate the currently fragmented system of national and provincial Development Finance Institutions,” Mboweni said.