SA missed the opportunity to establish such a savings pool during the seven years of the commodity supercycle
Various countries in the world use sovereign wealth funds as government investment vehicles funded through foreign exchange assets and managed separately from official reserves. The Norwegian sovereign wealth fund is the largest, at more than $1-trillion. It is largely funded through proceeds from resource rent tax on oil and gas projects.
SA is a deficit economy, and there is not much to be harvested through net exports given that the trade balance has averaged 0% of GDP while the services and income balance has been in deficit over the past five years. The country also lacks oil resources, though in February 2019 French oil giantannounced the discovery of gas off SA’s coast that has a potential value of as much as R1-trillion that could be the source of royalties to fund a sovereign wealth fund.
SA has missed out on the fat seven years of the commodity supercycle from 2004 to 2011, largely as a result of a lack of supportive policy measures, deficient energy supplies and underinvestment in infrastructure. This is a period during which many resource-rich countries bolstered their sovereign wealth funds. Between 2010 and 2019, mining companies paid billions of rand in state royalties, which the government did not ring-fence but used as part of the national income.
Key success factors for sovereign wealth funds are a sound institutional framework, good corporate governance and strong capabilities or excellent management — all dimensions that have been lacking in the state if we look at the condition of our state-owned enterprises , state-owned asset manager the Public Investment Corporation, which has backed questionable deals in recent times, and some of the development finance institutions that were in the past undermined by governance failures.
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