South Africa sees the creation of a new state company that will manage its R155 billion ($9.2 billion) property portfolio as a path to a potential sovereign wealth fund.
President Cyril Ramaphosa announced the establishment of the firm, which will oversee 88 000 buildings and 5 million hectares (12.4 million acres) of land, in his state-of-the-nation address last month.
The South African National Property Company will also be tasked with redirecting about R6 billion that government entities pay to private landlords annually into the development and upkeep of state-owned precincts, helping create jobs and stimulate the economy.
“We think that there is a long-term, value-creation opportunity that almost becomes an anchor of a sovereign-wealth fund over time,” Dean Macpherson, the minister of public works and infrastructure, said in an interview in Bloomberg’s London offices last week.
Scaling up the new firm’s portfolio to form the basis of a sovereign wealth fund would transform the state’s property assets into a “dividend-paying engine for the nation,” a brochure about the planned company states.
While the government is by far the biggest owner of real estate in South Africa, years of neglect and graft have led to many buildings falling into disrepair or being taken over by squatters.
The planned management overhaul comes amid mounting concern about the fate of the central business districts of cities such as Johannesburg and Durban that have become bywords for urban dysfunction.
Macpherson said his department will oversee the new entity, and “substantial progress” must be made toward setting it up in the next 12 months.
“There’s currently a R28 billion maintenance backlog in public assets that is going to become a problem for the fiscus, because these assets are declining in value,” Macpherson said.
“Something has to be done now to reverse that, or else the value comes down and the maintenance costs become beyond the point that people would want to invest.”
Public-private partnerships are seen as the primary mechanism for undertaking targeted development, while financing could be generated by renting state properties, the brochure showed.
The government also plans to set up a development fund to help capitalise the property company and raise money for projects, the minister said.
BLOOMBERG