The South African Communist Party (SACP) has reiterated its desire for South Africa to establish a sovereign wealth fund, citing the country’s wealth of natural resources that can capitalise said fund.
What the SACP is ignoring is that a sovereign wealth fund is a highly sophisticated institution, relying not only on a non-corrupt and highly competent investment infrastructure and government, but on a vibrant free market economy to fund it – two things that the SACP doesn’t want, and South Africa does not have.
Having a wealth of natural resources is insufficient for funding a viable sovereign wealth fund. Diamonds, metal, gas and oil don’t just magically extract themselves. There is an incredibly expensive, complex process in which resources are gathered, refined and sold; a process undertaken in South Africa by various companies which currently face many regulatory hurdles, attacks by government, labour union brutality and a scourge of violent crime.
The SACP’s wrongful assertion that natural resources belong to all South Africans is also a work of fiction. Resources belong to those who own the physical land in which it is located and invest the capital and effort to extract and refine said resources. Any other assertion is a childish fantasy.
Mining in South Africa could be far more profitable if it was deregulated, and mining companies were allowed to deal with their issues without the petty oversight of a government that seems ideologically opposed to their existence. The growth of this sector would create many more direct jobs, while also generating money that would filter into additional job creation across the economy.
A sovereign wealth fund would require the sector to be running at peak efficiency. Yet the SACP wants to nationalise all natural resources and bring their extraction under the purview of the state – the same state that butchered Eskom and caused rolling blackouts for the better part of over a decade. The same state that has destroyed municipalities and service delivery, and ensured that our infrastructure, shipping and railways continue to decay.
Tend to flounder
Historically, nations which nationalise their industries and their natural resources tend to flounder. Venezuela’s nationalised oil has prevented it from truly profiting from its natural resources. Zambia has faced constant headaches due to its nationalisation of copper. And this is not to mention the Soviet Union, where the nationalisation of its entire economy led to a zombie-economy that had to burn straw to pretend that the factories were still running.
South Africa is not equipped to run a vast state-run natural resource mining enterprise. And it shouldn’t be. It is far better to enable the private sector to extract, refine and sell these resources, and then tax them. This costs the government less and produces far more for society as a whole.
The SACP cites countries such as Norway and the oil-rich Arab states as positive examples of sovereign wealth funds backed by natural resources. Yet, it fails to understand that Norway is a sophisticated democracy with an accountable and responsible government, and that the sovereign wealth fund is backed up by a vibrant free market. The oil-rich Arab states are also, for the most part, vibrant free markets. But even then, their reliance on oil has made them susceptible to dictatorship, instability, factional violence and economic turbulence.
If a sovereign wealth fund is to be established, it cannot rely on natural resources. And I would argue that the South African government has little business establishing investment funds funded by taxpayer money either.
Looted repeatedly
UIF, the National Lottery Commission, the Public Investment Corporation, and the tax-funded budget are all looted repeatedly by government officials, cadres and politicians.
Do we really want to create yet another fund just to line the pockets of the most greedy and malevolent? A sovereign wealth fund is a pipe dream. Let’s stop wasting time and energy contemplating it, and rather focus on implementing the policy reforms we need to enable a fast-growing, vibrant free market economy that can deliver wealth to hard working South Africans.
[Image: https://www.flickr.com/photos/bbcworldservice/3530049591]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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