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South Africa could use mining royalties to set up sovereign fund – minister

The government would earn R9.2bn from mining royalties in the 2020/21 fiscal year, analyst predicts.
Minister of Mineral Resources and Energy, Gwede Mantashe. Image: GCIS

South Africa could use mining royalties to set up a proposed sovereign wealth fund, Mineral Resources and Energy Minister Gwede Mantashe said on Wednesday.

President Cyril Ramaphosa said in an annual address to parliament last week the government had decided to establish a sovereign fund, but he did not say how the fund would work.

Many analysts are sceptical about the idea, given that South Africa does not have large oil and gas revenues, its mining industry is in decline and it has large fiscal and current account deficits.

“The president spoke to the sovereign wealth fund … Many people asked the question, ‘where will the money come from?’ I can tell you that all the mines pay a royalty to the state. It can be used to start a royalty fund,” Mantashe said during a parliamentary debate, before his allotted time ran out.

Peter Attard Montalto, head of capital markets research at Intellidex, estimated the government would earn R9.2 billion from mining royalties in the 2020/21 fiscal year, too little for a fund of a meaningful size.

He said it was not clear what purpose the fund would serve.

Remarks prepared for Mantashe and circulated by his ministry on Wednesday also noted that draft petroleum legislation published for public comment in December proposed that future owners of petroleum production rights could contribute to a sovereign fund via a “resource rent tax”.

Setting up a sovereign fund is a longstanding ambition of leftist elements in the governing African National Congress (ANC) party that favour strong state control over Africa’s most industrialised economy.

The South African Communist Party, which is closely aligned with the ANC, wants the fund to hold equity stakes on behalf of the nation.

Finance Minister Tito Mboweni is expected to give more details on the fund during a budget speech next week.

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Buti, there is not enough money in the country to start any fund. You are robbing Peter to pay Paul.

Haha! Gwede Mantashe! I said, I said Gwede Mantashe!

Such a simple mind, bless him. When he heard the question, “where will the money come from?”, he took it literally, stroked his beard and very kindly thought to share with us where money comes from: information that only he must know in his exalted position as Comrade of Mines (and he only learned very recently) that, “What’s this? The mines pay us royalties? I must mention this to the president!”. Did so in parliament, then sat back down to great cheers from his comrades. Gwede Mantashe, have a cookie.

Gwede Mantashe! The question is not, “where does money come from generally?”, but “where will the EXTRA money, that is not already being spent 1.06x times over (6% deficit, no?) come from?”. On second thoughts, I’ll have that cookie myself.

Yaa Right.

Why would people with the long finger pestilence want a Sovereign Wealth Fund?

Good idea.

Return all the BEE shares to this fund and distribute it fairly to all black people.

End of comments.

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