Assessing the feasibility and prerequisites for establishing a sovereign wealth fund in South Africa

Mbalo, Usiphile

Assessing the feasibility and prerequisites for establishing a sovereign wealth fund in South Africa

Thesis / Dissertation

2025

Publisher

University of Cape Town

Department

Graduate School of Business (GSB)

Faculty

Faculty of Commerce

Abstract

In 2023, the Sovereign Wealth Fund (SWF) Institute reported that assets under management for the 173 global SWFs totalled in excess of US$ 11.5 trillion, with Africa contributing only US$ 132.69 billion. These funds are invested both domestically and internationally, resulting in a favourable impact on their own countries. The objective of the present study was to determine what the prerequisites to create a SWF in South Africa. The research delineates a SWF and analyses the history thereof. The study additionally examines investment methods, governance structures, and frameworks for SWF. Within the South African context, a well-managed SWF may enhance intergenerational equity, foster inclusive growth, and bolster fiscal resilience amid global volatility and domestic socioeconomic problems. Revenue from mineral resources or the divestiture of state-owned assets may enable a SWF to stabilise South Africa's economy against foreign shocks, diminish reliance on debt, and furnish a sustainable source of revenue for social and infrastructure development. The 2020 announcement by the former Minister of Finance set an intention for the South African Government to establish a SWF by allocating ZAR 30 billion, as well as exploring various funding solutions through the sale of spectrum, allocation of petroleum, gas, and mineral rights, sale of non-core state assets, and future budget surpluses. The announcement was received with enthusiasm; however, a persistent question lingered: can South Africa establish a SWF, or is it simply an elusive ambition? The present study gathered data through semi-structured interviews with diverse industry executives in finance, development finance, and asset management. The researcher employed a qualitative exploratory research methodology to obtain insights regarding South Africa's potential for establishing a SWF. The study's major findings indicated that a SWF should be seen as a savings vehicle capable of aiding future generations considering the country's escalating debt. The SWF may potentially support South Africa during economic difficulties. For South Africa to establish a SWF, it must be founded on a robust legislative framework that enables the fund to be agile, competitive, sustainable, governed effectively, and insulated from political interference. South Africa possesses a pre-existing model from which it can derive insights and enhance to establish the fund.

Keywords

Developmental finance

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