Introduction
In setting out to build a Sovereign wealth fund for SA there are questions we need to answer:
First. What is its Purpose? Ameliorating our dire deficit of Jobs and poverty. It will not simply be a store of wealth but a catalyst to support targeted economic growth delivering jobs and reducing poverty whilst creating wealth.
Second. What is the economic model it serves? Neither financialised capitalism nor socialism. Net fixed capital creation in partnership with profitable businesses and in service of our purpose. Practical and efficient
Third. What are our sources and applications of capital? We do not have a budget surplus but have non-financial capital (public and private land) in sufficient quantity. Significant pools of capital lie idle in institutions.
Fourth. Governance. In or outside of government? A hybrid seems the safest. This is the key to success. Statutory and practical. The Santiago Principals are a guide but cannot define our approach. We can learn from the experiences, positive and negative of many. Either a new Chapter 9 or an SPV could work. Whichever we choose will require an Act of Parliament.
Fifth. Limitations and ambitions need to be clearly stated. What can it not do? How ambitious the scale? There are projects of government which have the potential to be the seeds of the Fund.
Sixth. What are the delivery mechanisms we choose to begin with?
We have considered answers to these questions and set out some below as a straw dog. Context matters and to that end we have included some annexures.
First thoughts
Poverty and unemployment continue as a scourge on the lives of most South Africans. We have not delivered on the promises of our constitution or the liberation movements. This increases the probability of social, political and economic chaos.
Much attention is being given to the green shoots emerging in SA for which we are grateful. To take a lesson from agriculture, these shoots need careful tending: fertilizer, water, weeding and protection from pests. There is no trivial route to harvest. Also, these shoots are emerging in the context of external threats. A sophisticated, conscious strategy is needed.
In and among these shoots is an emerging an, as yet undirected, conversation that could shape a better future. OV2 is tackling spatial inequality and investigating demand led housing finance. COGTA and Treasury are considering new institutional arrangements for municipalities, Dept Public Works is planning better allocation of state assets in land and buildings through a proposed SA Property company. The survival of the GNU holds hope for new strategy and tactics for the governance of the economy.
At the recent investment summit, once again we heard expressed a desire for a Sovereign Wealth Fund with no public information on how to achieve one. DPW holds a key. SA has an asset base of land and buildings which allocated with purpose can stimulate large scale investment in new fixed assets to the long-term benefit of the country. Also, Wingfield (270 hectares of well-located but infrastructurally underserviced land) in Cape Town is a good place to start. The questions we set for ourselves as we begin will determine the longer-term impact and the quality of the lessons learnt.
Sovereign Wealth Fund. A new Chapter 9 Institution?
Given that land is an asset of the country. That the state owns and does not fully utilize its holdings. That vast tracts of agricultural land were acquired by government for redistribution but not delivered to small and medium sized black farmers. That mining businesses were prepared to donate land at scale – prevented only by really odd tax laws and the question of governance. Why, when land (or anything else) is offered as a donation for the healing of apartheid trauma and the economic well-being of the country should the donor pay donations tax. Imagine the tax bill when 100 000 hectares of land valued at R20000 per hectare is involved!
Land mobilisation is one of our most significant challenges.
Who receives the land, how it is allocated, to what purpose and how it is kept out of the hands of a corrupt elite, how the entity that receives it is governed are all valid concerns that have been considered. These questions lead us to consider the potential of a Sovereign Wealth Fund based on land. Much work has been done in considering this and much more is needed.
In essence the Sovereign Wealth Fund (SWF) will invest land as first capital in endeavours – for profit and not – in pursuit of the reduction of poverty through catalyzing sustainable jobs and building assets that deliver redress from the traumas of apartheid. Click here to read more
Land the primary asset
History
Land is an asset of our country. In the “absence” of money in the fiscus we can use it as stimulus for investment.
The land question is not simply about who stole whose land and when. It is not simply about dispossession and colonialism. It should be about addressing poverty and inequality now. It should be about utilizing national assets to deliver jobs and changing our economic base, to minimise poverty and create that “better” life for all.
We are at risk of the land question remaining a cheap tool of the politically aspirant who try to manipulate us into entrenching extractive elites, undermine our democratic gains and rob us of a better future. The best solutions are not always primarily in the interest of the most powerful. A focus on improving the lives of the poor is possible. A considered, careful investment of this asset, consciously to address the legacies of colonial, race-based development will also positively shift our national psyche.
Land mobilisation is one of our most significant challenges. The state owns millions of hectares of under-utilised land, much of it well located. Companies and private landowners control strategic parcels near logistics hubs, peri-urban areas and transport corridors. Both sources are essential. Tax structures such as capital gains and donations tax discourage landowners (as offered during the mining Phakisa some years ago) from contributing land. Rezoning processes move slowly. Ownership records require consolidation. Tenure disputes remain unresolved. These difficulties demand a rethink of the allocation of land as an asset of the country.
Our history as taught is often not accurate. Click here to read more
Significant quantities of cash have accumulated on the balance sheets of SA businesses, which, given political risk, lack of opportunity and the ability to invest in SA, we risk losing to more welcoming countries. To keep the finance which has been generated here in our economy we need large scale, lower risk opportunities. Preferably ones which deliver jobs and build net fixed assets at scale.
Who owns the Land?
Many detailed analyses have been attempted. They have been examined and combined with the “best available” current information. Our numbers might not be 100% accurate but they are more than good enough for planning and should inform the “Cadastre program” that the Dept of Minerals has been promising for years. View Dialogue Report
The cash in support
In support of this concept there exist multiple, large pots of unproductive and trapped money. An example involves unclaimed benefits in pension funds. SA has almost R100bn in such funds and we could follow the examples of UK, Kenya, Ireland and Australia amongst others to release a portion of that money, with purpose, into our economy via the SLF. From just this example the fund could raise R40bn as the financial part of the catalyst. Click here to read more
