In his budget speech the Minister of Finance, Tito Mboweni announced the formation of the South African Sovereign Wealth Fund (SWF) with a target capital amount of about R30 billion.
“Mr President, a Sovereign Wealth Fund is an important long-term tool for saving and investment for future generations. It can also contribute to strengthening the fiscal framework. 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 finance minister during his speech.
Sovereign wealth funds are state-owned investment funds that invest in real and financial assets, such as stocks, bonds, real estate, and precious metals; or in alternative investments, such as private equity funds or hedge funds. Sovereign Wealth Funds have been crucial instruments and mechanisms to save and redistribute wealth in resource rich countries like Norway, Saudi Arabia, and the Emirates kingdoms.
A majority of Sovereign Wealth Funds are either future savings funds for the future generations or fiscal stabilisation funds, or both. The creation of a sovereign wealth fund was aimed to hold equity stakes in companies on behalf of all South Africans instead of individuals doing so as a result of BEE. The SACP has welcomed the announcement as the idea was initially proposed by the party.
Mboweni also announced that the preferred options for the establishment of a state bank were now ready.
“Last year, this House passed legislation which will allow state-owned enterprises to apply for banking licences. In July 2019, I tasked the Deputy Minister of Finance with the responsibility to undertake the state bank project. Madam Speaker, I am pleased to inform the House that preferred options for the establishment of a bank are now ready.
“The architecture will be that of a retail bank operating on commercial principles. The state bank will be subject to the Banks Act, and will have an appropriate capital structure and performance parameters on investments and loan impairments. It will be regulated by the Prudential Authority on its own merits.
“We will also consolidate the currently fragmented system of national and provincial Development Finance Institutions,” the minister said.
