President Cyril Ramaphosa of South Africa plans to set up a sovereign wealth fund (SWF) and has received the backing of his party the African National Congress, Reuters reports, citing senior party officials.
In 2010, then Economic Development Minister Ebrahim Patel had brought up the idea of a sovereign wealth fund in his New Growth Path document, about a year after he was appointed to the South African cabinet. The idea was raised again in 2013, but it never happened, with critics calling it a half-baked idea.
Sovereign wealth funds are designed to preserve wealth, and it is usually instituted during periods of commodity boom. Most oil-producing nations in the world have sovereign wealth funds. Nigeria’s SWF, funded with dollars earned from the export of crude oil, has grown in excess of $2 billion, and is managed by the Nigerian Sovereign Investment Authority (NSIA).
A member of the ANC’s National Executive Committee, Zizi Kodwa suggested to Reuters that the government could fund the SWF with its mineral wealth.
“South Africa has a lot of mineral wealth, but it’s not up to the ANC to decide where to take the money from,” Kodwa said.
“A sovereign wealth fund could be an important source of stimulus, that is what we are saying.”
Analysts say while setting up a sovereign wealth fund is not a bad idea, the timing is wrong, especially with the current challenges facing the mining sector in the country.
Ramaphosa says a sovereign wealth fund could help boost economic growth.