Sovereign Wealth Fund: Still a mirage

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“There is a sudden realisation that mining in itself is not sustainable and its contribution to economic development comes to an end,” said Mines and Mining Development minister Walter Chidhakwa at a recent Mining Industry indaba.

Painona with with Tapiwa Nyandoro

He further noted that “minerals were finite resources and there was need to invest the proceeds of their exploitation so that the country would have lasting benefits from the resources.”

The observation by the honourable minister may have pre-occupied his counterparts elsewhere some 60 or more years ago.

These countries, well endowed with mineral and other resources soon found their foreign currency resources more than they would need in the short to medium-term.

In fact, too much foreign reserves can lead to an appreciation of one’s currency leading to negative effects on a country’s manufacturing industry which gets priced out of both exports and the domestic market.

One solution is to keep those reserves within reason by investing the surplus in foreign equities and debt markets. Such investment funds recently came to be known as Sovereign Wealth Funds — SWFs. SWFs are State-owned. They are defined as “ssets held by governments in another country’s currency”.

This is one dream that Team Zanu PF has, though it is still but a mirage. The reason of course is that Zimbabwe is running huge budget, trade and current account deficits.

It has no surplus funds. It actually needs investment from other countries’ SWFs to unlock its own mining industry potential.

It is estimated that SWFs may collectively be holding over $3 trillion at present. Norway, from its North Atlantic oil fields, may have the World’s largest SWFs estimated to reach a trillion United States dollars by 2020.

By and large, SWFs are said to play the “long game” on the World’s stock exchanges and bond markets. As much as a billion dollars a week pass through the Norwegian fund’s headquarters.

The government’s mandate to the Norwegian fund is to slowly, but carefully build wealth to help fund that country “long after the oil and gas reserves run out”. Chidhakwa shares this sentiment.

The Norwegian fund is said to have high moral principles which guide its investment strategies, and is transparent and open.

It is said to work “with reason and not with force” and aims for the “triple bottom line” as regards profits, society and the environment.
It is a good potential partner and investor that Finance minister Patrick Chinamasa must actively court to his array of experts, as he seeks to securitise untapped national assets.

Profits and taxes from the oil and gas industry give the Norwegian government oil fund $1 billion a week.

How the fund started, how it grew to its current level and how it is managed should provide a good case study for Zimbabwe.

Only after a thorough study of this and other SWFs should the Finance and Mines ministries map their long-term strategies.

Given the public’s perception of widespread looting at the Marange Diamond fields, a trip to Norway by the two ministers and the Auditor-General could be a highly-profitable investment by the fiscus.

Corruption needs to be nipped in the bud if ever we are to see a genuine Zimbabwean SWF in the foreseeable future.

Our Cabinet ministers should “sit back” listening to experts and consultants, before “leaning back” to think out their own path to sustainable economic growth.

The temptation for Zanu PF team is to borrow money to fund recurrent expenditure in line with the short term, unrealistic plans the manifesto imposes on it. That would be irresponsible.

All monies prudently borrowed and secured by untapped assets should go towards capital projects, which once complete operate on a full cost recovery plus basis, to generate wealth and create jobs whilst leaving a surplus to pay of the loans.

Platinum Group Minerals mining and refining, where the nation’s rich reserves give it a comparative advantage could be a starting point. So could iron ore mining, steel making and oil from coal or gas plants.

These projects are long term and require sizeable investments. SWFs have the capacity and patience to fund such activities.

Apart from Norway’s SWFs, there are other big ones such as the Russian and Chinese ones to name, but a few.

Provided good bankable projects are put before SWFs, it should not be impossible to raise transformative loans and attract sizable foreign direct investment from the same source.

A good national reputation as regards public governance and recognition of property rights is, however, extremely important.

On paper, Zimbabwe’s National Indigenisation and Economic Empowerment Fund is an SWF. At the moment, it may have more liabilities than assets.

The situation will not change for some time as Zimbabwe’s imports out-value exports by a long margin.

Total government revenue too, is not enough for government needs, while the Central Bank could virtually be insolvent.

It still has to be capitalised and its debts need to be hived off before it can grow any reserves, the surplus of which could then be passed on to an SWF.

It is thus time the likes of ZMDC, Zesa and Arda were listed on the regional Stock Exchanges to enable SWFs to invest.

At the same time the polluted political, governance, international relations and regulatory landscapes need all to be detoxified. Cabinet’s work has been cut out for it.