12 September 2024
In the May 2024 election manifesto adopted by all Alliance partners, we made a firm commitment to establish a Sovereign Wealth Fund within the next five years, counting from June this year following the elections. The Sovereign Wealth Fund is crucial to achieve our nation's economic and broader social transformation and development priorities. To begin with, we outlined the priorities in the manifesto. The government must not backtrack on the commitment to stablish the Sovereign Wealth Fund.
South Africa is richly endowed with natural resources, boasting some of the world's largest reserves. Yet, contrary to the principle that these resources belong to the people as a whole, they are being exploited by profit-driven capitalist interests who prioritise private wealth accumulation over the collective good. This is largely a function of the current mining regime, where the state's custodianship of minerals is, in practice, articulated in bourgeois terms and managed as a common affair of the extractive bourgeoisie.
In the words of President Cyril Ramaphosa, speaking on 29 August 2024 in response to a clarity-seeking question in parliament, “…public revenues or royalties derived from mineral resources have historically not been very reliable or consistent”. Considering that royalties from our mineral resources are insignificant and excluding corporate income tax and wages – since every industry pays both – after covering production costs, the entire remainder of the value from our mineral resources and related labour processes goes to profits.
The ultimate value of our mineral resources – which takes the profit form – does not belong to the people as a whole. Instead, it belongs to the tiny minority that constitutes capital personified – the extractive private shareholders or owners who receive dividends from these profits. Rather than justifying the perpetuation of this economic and social injustice, the government must act as the chief representative of the people as a whole. This requires, among other changes, a shift away from the bourgeoisie-embedded state custodianship of our nation's mineral resources.
As the SACP, we cannot accept the notion that our natural resources are insufficient or incapable of funding the establishment of a Sovereign Wealth Fund. Income from our natural resources, including, yes, a share of profits, as well as royalties, which must be reviewed to be adequate, reliable and consistent, must be used as a primary source of funding to establish the Sovereign Wealth Fund. This stands in stark contrast to the current extractive-minerals regime, which allows the capitalist mining bosses to exploit these resources for private gain while millions of our people suffer under conditions of deprivation and poverty.
Also, the government must not shy away from considering a once-off corporate income tax, (inclusive of a strong focus on minerals) above a certain threshold to fund the Sovereign Wealth Fund.
Globally, revenue from natural resources – particularly oil, gas and minerals – has been a significant source of funding for many Sovereign Wealth Funds. These state-owned investment vehicles manage income from national resources to meet long-term economic strategic objectives and preserve society's wealth to look after the needs of the people as a whole, as opposed to a tiny minority. By leveraging natural resource revenue as part of national resources, governments that do so have established Sovereign Wealth Funds and use these funds to invest in diversified portfolios, ensuring that the wealth generated from finite resources supports national economic and broader social development priorities.
Natural resource revenue has been a cornerstone for many Sovereign Wealth Funds. These funds enable governments that wisely manage their natural resources to transform volatile and finite resources into stable, long-term economic diversification. Most of these Sovereign Wealth Funds typically strengthen their nation-state ownership, not only within their own national economies, but also globally, in other countries, by investing in equities (ownership stakes) across a wide range of asset classes, including real estate, bonds and infrastructure, and using revenue from these and other investments to generate state revenue to support national economic and broader social development priorities.
The following examples demonstrate how different countries have successfully leveraged revenue from their natural resources and state ownership in the economy to establish and grow their Sovereign Wealth Funds.
Norway's Government Pension Fund Global, often referred to as the Norwegian Oil Fund, is one of the largest and most well-known Sovereign Wealth Fund globally. It was established in 1990 to invest surplus revenues from the country's petroleum sector. Its purpose aims to safeguard and increase the value of Norway's petroleum revenues for future generations. It is currently estimated to be over US$1 trillion.
The Norwegian Sovereign Wealth Fund is about 17.9 trillion in rand value terms based on Monday, 9 September 2024's exchange rate terms. Note the huge difference of R10.93 trillion between this and South Africa's R6.97 trillion gross domestic product in nominal terms at market prices in 2023. In the same vein, compare the huge difference between the values of South Africa's nominal gross domestic product and the two Chinese Sovereign Wealth Funds that we return to.
Abu Dhabi Investment Authority is funded by revenues from Abu Dhabi's oil exports. Established in 1976, it is one of the oldest and largest Sovereign Wealth Funds in the world. Its mandate is to diversify the emirate's wealth away from oil dependency and help ensure national economic security, especially in terms of financial stability. It is currently estimated to be over US$900 billion.
Kuwait Investment Authority was established in 1953. It is one of the oldest Sovereign Wealth Funds funded by Kuwait's oil revenues. The fund was initially created to manage the country's oil wealth and contribute to national economic security, especially in terms of financial stability. This Sovereign Wealth Fund also manages the General Reserve Fund and the Future Generations Fund, with the latter specifically designed to ensure long-term financial national security, especially in terms of finance. It is also over US$900 billion. It has been instrumental in sustaining Kuwait's economy through various financial crises and ensuring that the country's oil wealth benefits future generations.
Qatar Investment Authority was established in 2005 and is funded by Qatar's natural gas and oil revenues. Qatar uses this Sovereign Wealth Fund to diversify its economy and reduce its dependency on hydrocarbon revenues. This Sovereign Wealth Fund is currently over US$500 billion. Its investments have supported Qatar's efforts to diversify its economy.
Saudi Arabia's Public Investment Fund is primarily funded by revenues from Saudi Arabia's oil industry, particularly through Saudi Aramco, the state-owned oil company. This Sovereign Wealth Fund was established in 1971. It has gained prominence in recent years as a key vehicle for the country's Vision 2030 plan, which aims to diversify the country's economy and reduce reliance on oil. Its current value is estimated to be over US$700 billion. This Sovereign Wealth Fund has helped position Saudi Arabia as a key player in global investment.
A strong focus on state ownership and the growth of the public economy has also been crucial in building key sources of funding for Sovereign Wealth Funds. In this regard China is a notable example, particularly through its strong focus on developing and increasing its total domestic productive forces as rapidly as possible – especially by pursuing industrialisation through an adequately funded and high-impact comprehensive industrial policy.
China Investment Corporation was established in 2007 and initially funded with US$200 billion from the country's foreign exchange reserves, which are accumulated through trade surpluses, particularly from the export of finished goods and services. While not directly linked to natural resource revenues, the creation of China Investment Corporation was influenced by the need to manage the country's substantial reserves effectively, which are partially driven by revenues from state-owned enterprises – including those in the energy and resource sectors. It is currently estimated to be over US$1.3 trillion, 23.31 trillion in rand value terms, based om Monday, 9 September 2024's exchange rate. It was created to diversify China's foreign exchange holdings and invest in a broad range of global assets, including equities, bonds, real estate and infrastructure.
China's State Administration of Foreign Exchange is another Chinese Sovereign Wealth Fund. It is primarily managed by the State Administration of Foreign Exchange (SAFE). It also derives its capital from China's substantial foreign exchange reserves. Although SAFE is not explicitly tied to natural resource revenues – China's energy sector and state-owned enterprises contribute indirectly to the reserves it manages. It is currently approximately US$1.1 trillion, about 19.72 trillion in rand value terms, based on Monday, 9 September 2024's exchange rate. This Sovereign Wealth Fund has been instrumental in managing China's foreign reserves – estimated to be the largest in the world. The fund's investments are diversified across the globe, and it plays a key role in supporting the country's national economic security, especially in terms of financial stability and economic development.
There is a notable difference between China's approach to state-owned enterprises and what we have seen in South Africa. China is unapologetic in developing its state-owned enterprises, ensuring they are adequately recapitalised to keep pace with the times, including through cutting-edge technological upgrades and other enhancements to their productive capacity. In addition, China is by far decisive in dealing with corruption when it rears its ugly head and has thriving state-owned enterprises in many sectors.
In the manufacturing sector in China, there are many state-owned enterprises that directly take part in the economy by, among others, producing and exporting finished products – including to our country. Others have been so successful that they have become significant global players to be reckoned with. Likewise, in sectors such as finance, major Chinese state-owned banks are now part of high-raking enterprises globally. In particular, sufficient state support, including, notably and unapologetically, through the fiscus, and sovereign rules-setting to build favourable national operating environment, have enabled many Chinese state-owned enterprises to thrive domestically and expand globally. The state in China has a demonstrable capacity to discipline capital, rather than the other way around. This is the context under which Chinese state-owned enterprises have contributed to its thriving Sovereign Wealth Funds – we just highlight only two above.
The Chinese approach stands in stark contrast to the neo-liberal and state-capture approaches that have led to the sorry-sight situation facing many state-owned enterprises in South Africa. While China's model has enabled its state-owned enterprises to thrive and expand globally, the toxic combination of neo-liberal policy prescripts, including austerity, and state capture in South Africa has hamstrung or even ruined the capacity of many state-owned enterprises to generate revenue and settle their own debts. China's strategic focus on decisive state ownership, adequate recapitalisation and technological advancement of its state-owned enterprises has contributed to its economic diversification and growth, whereas the neo-liberal and state capture approaches in South Africa have often led to state-owned enterprises and general economic underperformance, corruption and a weakening of public entities.
Promising the people of South Africa that revenue from state-owned enterprises will establish a Sovereign Wealth Fund could be synonymous with kicking the can down the road. First and foremost, many state-owned enterprises in our country found themselves plunged into debt or operational crises by a combination of neo-liberalism and state capture. These state-owned enterprises are in fact in need of financial support and a favourable operating environment to realise a turnaround.
For that to happen, South Africa must shift away from neo-liberal aspects of the macro-economic framework and operating environments that combined with state capture to plunge the affected state-owned enterprises into the crises they found themselves in. This action must go hand-in-hand with decisively holding those who were involved in state capture activities accountable and clamping down on any form of corruption, bad governance and maladministration.
While all of this happens, state revenue from the mineral wealth of the country must be enhanced and must serve as a source of funding to help establish our nation's Sovereign Wealth Fund. As it succeeds, this fund can also contribute to turn around the public economy, including by building additional state-owned enterprises in different sectors, including the financial sector, in pursuit of the Freedom Charter's vision on building ownership by the people as a whole in our economy.
The SACP will strongly oppose any neo-liberal restructuring of our state-owned enterprises.
Mapaila is the SACP General Secretary
