Africa Briefs

26 February 2020 | Economics

SA could use mining royalties for sovereign fund

South Africa could use mining royalties to set up a proposed sovereign wealth fund, mineral resources and energy minister Gwede Mantashe has said.

President Cyril Ramaphosa said in an annual address to parliament recently 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 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 last week, 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.

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. – Nampa/Reuters

Kenya sets belt-tightening target

Kenya's government plans to cut state spending in the financial year starting in July to 23.6% of gross domestic product (GDP) from 26.0% in the current fiscal year, the finance ministry said in its budget policy statement.

Belt-tightening measures will help the government meet its target to reduce the fiscal deficit for the period to 4.9% of GDP, down from 6.3%/GDP for this fiscal year, the ministry said in the statement seen by Reuters.

The Treasury plans to borrow 222.9 billion shillings (US$2.21 billion) locally to plug the budget gap and tap another 345.1 billion shillings from foreign sources, the statement added.

President Uhuru Kenyatta's government has been criticised by voters for borrowing heavily since coming to power in 2013, and his administration was forced to raise its borrowing ceiling last year after breaching initial targets.

Kenya's fiscal deficit, which peaked at 9.1% of GDP in the 2016/17 financial year, has been exacerbated by higher spending on infrastructure projects including a new railway financed by China.

Fiscal gaps have been accompanied by the consistent failure of the Kenya Revenue Authority (KRA) to meet the government's lofty revenue collection targets. – Nampa/Reuters

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