Securitisation of minerals ‘desperate, risky’ decision

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PLANS by government to securitise the country’s minerals in order to acquire desperately-needed funding for infrastructural projects and its latest economic blueprint, ZimAsset, will be detrimental to the welfare of future generations.

Kudzai Kuwaza

Securitisation is the creation and issuance of tradable securities, such as bonds, that are backed by income generated by an asset, a loan, public works project or other revenue source.

Zimbabwe’s economic downturn, which is showing signs of resurgence, has been characterised by a debilitating liquidity crunch, massive unemployment brought about by retrenchments and company closures and a serious investment deficit.

This has presented a huge challenge for the Zanu PF government as evidenced by the continued shifts in pay dates for civil servants, a development that is unprecedented.

This has stoked fears government could eventually fail to pay its workforce, a spectre alluded to months ago by former finance minister Tendai Biti. This has also spawned serious doubt over its ability to fulfil ambitious promises made during last year’s poll campaign that included creating more than 2,2 million jobs.

The securitisation of minerals would also inject funding to enable government to meet its civil servants’ salary obligations.

Efforts to get funding for ZimAsset, which requires about US$27 billion to implement, has so far proved futile. Finance minister Patrick Chinamasa went to China earlier this year and returned empty-handed as the Chinese reportedly wanted “bankable projects instead of policy pronouncements”. Negotiations, however, are still underway.

The reluctance of donors to channel funding directly through government has only worsened the state of government’s coffers, making the securitisation of minerals to raise funds an enticing prospect.

The World Bank has, however, warned of the negative impact of taking this route.

“Securitisation of minerals is one way of financing things; however, it brings a lot of risks. It’s not an easy solution because you might end up giving away more than you are getting,” outgoing senior World Bank country economist for Zimbabwe, Nadia Piffaretti, said during a media briefing last week.

“It is really not advisable at your (Zimbabwe’s) development stage. You might just take away the future of your children. When you get a loan you know what the costs are. You sit down and negotiate on penalties and interest rates. You have a good picture of what you are getting into. It’s even better when you get a grant.”

According to an investor prospectus Investment Opportunities in Zimbabwe, Government of Zimbabwe 2006 (as printed in the ZIIC Investor’s Prospectus 2009), the country’s mineral reserves are estimated to be 13 million tonnes of gold, 2,8 billion tonnes of platinum, 26 billion tonnes of coal, 5,2 million tonnes of copper, 4,5 million tonnes of nickel, 16,5 million tonnes of diamonds and 930 million tonnes of chrome among others.

However, local economist Godfrey Kanyenze argues that estimates without carrying out a comprehensive geological survey are fraught with problems.

“Securitising minerals is like barter trade, one of the parties is bound to feel cheated,” Kanyenze said. “With estimations you may overstate or understate.”

He said government’s decision to consider the securitisation of minerals was a sign of its desperation and irresponsible spending.
Kanyenze said the efficient revenue collection by the government shows that there was no need for government to take the route of securitisation. He pointed out that the country’s revenue collection systems compared favourably to other countries in Sadc.

Kanyenze added that the major problem was the money generated from various taxes and levies such as the Aids levy was not used to address the country’s priorities.

He said government failed to use collected revenues for basic necessities such as improving electricity and water supply, but used it, for instance, to buy a fleet of brand new Range Rovers for government ministers and other senior government officials.
“If you have no fiscal discipline, you go on securitising, compromising the ability to benefit from export earnings,” he said.

Kanyenze also said the securitisation of minerals would severely weaken the negotiating powers of government as it would be trading on unseen and unexploited resources, thus prejudicing future generations.

He also warned the current scenario where there are policy contradictions and inconsistencies within government could prove a stumbling block in the securitisation of minerals.

Economist Eric Bloch concurs calling securitisation a “highly dangerous policy” that will frighten away foreign investors.

Without the necessary laws and documents put in place to guide the process it could have considerable damaging effects on the country’s economy, but the process will have few takers, he said.

The inherent dangers of securitising minerals should bring about other options of acquiring funding as Piffareti pointed out last week.

“I would advise Zimbabwe to try and access concessional loans as much as possible. When you start securitisation, there are many issues and typically securitisation is legitimately pulling the tool box, but it is not advisable as a panic button approach because that typically leads to things that are not in the country’s interest,” said Piffareti.tonnes of diamonds and 930 million tonnes of chrome among others.

However, local economist Godfrey Kanyenze argues that estimates without carrying out a comprehensive geological survey are fraught with problems.

“Securitising minerals is like barter trade, one of the parties is bound to feel cheated,” Kanyenze said. “With estimations you may overstate or understate.”

He said government’s decision to consider the securitisation of minerals was a sign of its desperation and irresponsible spending.

Kanyenze said the efficient revenue collection by the government shows that there was no need for government to take the route of securitisation. He pointed out that the country’s revenue collection systems compared favourably to other countries in Sadc.

Kanyenze added that the major problem was the money generated from various taxes and levies such as the Aids levy was not used to address the country’s priorities.

He said government failed to use collected revenues for basic necessities such as improving electricity and water supply, but used it, for instance, to buy a fleet of brand new Range Rovers for government ministers and other senior government officials.

“If you have no fiscal discipline, you go on securitising, compromising the ability to benefit from export earnings,” he said.

Kanyenze also said the securitisation of minerals would severely weaken the negotiating powers of government as it would be trading on unseen and unexploited resources, thus prejudicing future generations.

He also warned the current scenario where there are policy contradictions and inconsistencies within government could prove a stumbling block in the securitisation of minerals.

Economist Eric Bloch concurs calling securitisation a “highly dangerous policy” that will frighten away foreign investors.

Without the necessary laws and documents put in place to guide the process it could have considerable damaging effects on the country’s economy, but the process will have few takers, he said.

The inherent dangers of securitising minerals should bring about other options of acquiring funding as Piffareti pointed out last week.

“I would advise Zimbabwe to try and access concessional loans as much as possible. When you start securitisation, there are many issues and typically securitisation is legitimately pulling the tool box, but it is not advisable as a panic button approach because that typically leads to things that are not in the country’s interest,” said Piffareti.

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