The ANC envisages a big role for the state in the country’s future, despite current high debt and the need for cuts. The party has committed itself to a National Health Insurance scheme and Expropriation Without Compensation,  two mammoth ventures that will expand the role of government.

In last week’s State of the Nation Address, there was a commitment to allow a greater role for private electricity producers, streamlining government, and speeding up spending on infrastructure. But government still believes it can solve the deadweight of the state enterprises on the economy without privatisation, and is not prepared to free the labour markets to begin to tackle unemployment. If government wants private power producers to come into the market, it should also allow them to buy Eskom’s plants.

It does not really matter whether this type of reform is an outcome of the President’s need to manage alliances within the party or true belief. For the time being, big bang reform that can give a far bigger role to the private sector and restore confidence and growth is not going to happen.

ANC-type reform priorities will be made up of attempts to make government more efficient and bigger, continued social transformation, and an attempt to gain greater influence over the private sector.

This is what may well lie behind plans to set up a Sovereign Wealth Fund and a state bank, announced by President Cyril Ramaphosa in his State of the Nation Address last week. These are substantial undertakings and come at a time when the capacity of the state is severely overstretched. Expanding the role of government in the aftermath of almost a decade of state capture, corruption, and mismanagement is highly ambitious.

There are big risks from these ventures, but they would face strong regulation.  A Sovereign Wealth Fund would have to be squeaky clean and highly transparent to do business with the largest offshore financial institutions. The state bank would have to report to the Reserve Bank, and the Sovereign Wealth Fund would also report to local financial regulators. Could there be a fresh start free of the problems of the qualified audits often given to state bodies?

Should government not be focusing its efforts elsewhere? The resources for the bank and the fund might be better spent on health, education, or indeed servicing debt.

It also might well be asked if a state bank is really needed, as the President said, for “ensuring the poor have access to financial services. “

Can this not be left to the private sector, particularly when new model banks like Capitec and TymeBank are already serving the lower income market?

Might the state bank not crowd out private sector efforts in the sector?

According to the Independent Communications Authority of South Africa, more than 80 perecent of South Africans have access to smartphones, which the new type banks use to easily service the poorest. Smartphone penetration doubled in the two years up to 2018, and in time it is highly likely that even most of the very poorest will soon have access to these devices.

Government does not bring value added over the private sector in the creation of a state bank.

The President said a Sovereign Wealth Fund is “a means to preserve and grow the national endowment of our nation, giving practical meaning to the injunction that the people shall share in the country’s wealth.”

To varying extents the people of South Africa, or at least pension holders, are already invested in the country’s national endowment. And the poorest receive grants and services that are ultimately paid for by SA’s big corporate taxpayers.

What we can probably expect is that the Fund will buy stakes in some of the country’s leading listed and even unlisted companies. From the President’s words, it would also act as a financing source for equity investments in corporate South Africa.

In South Africa’s current financial straits, such a venture would seem to be an unnecessary diversion of resources from the business of government in poverty alleviation.

Would it not be better for such a fund to have assets that could be used, if need be, to get South Africa through a shock. These would be offshore and in industries in which South Africa does not compete, to create a hedging mechanism for government revenue. 

Sovereign wealth funds are usually set up by governments that receive a windfall in revenue either in taxes or dividends from oil or mineral sales. Norway has the word’s largest wealth fund, which is well managed and highly transparent.

South Africa has not benefited from any recent mineral price windfalls, partially because mining has been in decline due to uncertainty over policy.

An example of a fund which South Africa might wish to replicate is the Government of Singapore’s Temasek Holdings. It is used both to house government stakes in companies such as Singapore Airlines and Singapore Telecom, but also to invest offshore.

Would our government think of housing public enterprises in a rationally managed entity such as one modelled on Temasek? While government would be the owner, management would be ensured complete independence. The past few years might indicate that such an arrangement might be a stretch too far.

In South Africa’s case a Sovereign Wealth Fund could be a mechanism for greater control of the private sector, even if the altruistic motive of giving South Africans a stake in the country’s endowment lies behind its creation.

Most funds of this sort have strict investment criteria, often with an ethical tinge.

There would be a strong requirement to invest in domestic firms with solid empowerment credentials. Might government also insist that a stake entitles it to the appointment of directors, and also a say in hiring and procurement? 

One issue is how these aims might contribute to achieving the highest possible return for the shareholders, who are the taxpayers.  It could also be a mechanism for the state to choose the industries of the future, which is often a precarious task.

Pressures might well be brought to bear on the wealth fund to meet urgent domestic needs. Might the bank aimed at helping the poor be forced to cough up in an emergency?

Details on how these ventures will be financed will be given in next week’s Budget. Borrowing for these ventures will be difficult in present circumstances. If government demands a private sector “contribution” to these ventures now or in time, there is bound to be a further loss of confidence.

Instead of setting up its own fund as a source of additional finance for the economy, why does the state not expand the role of the Industrial Development Corporation and the Development Bank, or use the BRICS bank, and the World Bank’s private sector arm, the International Finance Corporation, for financing private sector growth?

In the ANC worldview the private sector is a “social partner” to be part of social compacts, along with labour and civil society. This is formally done through the National Economic Development and Labour Council search for consensus. But did the private sector really agree to the plans for expropriation or a new health system? As much as it is a search for consensus, there could also well be a measure of control implied in the process.

Nods were given to the private sector in the State of the Nation Address. “Let us frankly admit that the government cannot solve economic challenges alone” and then again, in reference to high unemployment, “Government cannot solve the problem alone.”

Then, might not a great deal more faith be placed in private enterprise?

Jonathan Katzenellenbogen is a freelance financial journalist. Jonathan’s views are not necessarily the views of the IRR.


  1. On a State Bank: The actions of the ANC show that those who have power (from local up to National government) have little understanding of economics. Therefore anyone committing actual money to a ‘State Bank’ run by such ‘economic illiterates’ is probably just ASKING for it to disappear down a money pit. The ANC gets enough from us in taxes, and with these ideas, I reckon that they’ve run out of ‘other peoples money’ and need more to finance further spendthrift ways!


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