HomeBusiness DigestLack of funds hampers Sovereign Wealth Fund

Lack of funds hampers Sovereign Wealth Fund

LACK of fiscal space among other concerns such as a deteriorating economy are delaying the operationalisation of the Sovereign Wealth Fund (SWF) meant to build savings and share wealth across generations, businessdigest has learnt.

Hazel Ndebele

SWFs are special purpose investment funds or arrangements that are owned by the government. They have diverse legal, institutional and governance structures that enable them to hold and manage assets to achieve financial objectives. The objectives are achieved by employing a set of investment strategies that include investment in foreign financial assets (savings) and investment in physical and human capital (fiscal outlays).

According to the Zimbabwe Economic Policy Analysis and Research Unit (Zeparu) report titled Policy Research on Global Best Practice in Establishing and Managing a Sovereign Wealth Fund in Zimbabwe published in October last year, there are concerns within government that if the current macro-economic challenges are not addressed, they could undermine plans of establishing a vibrant SWF.

Macro-economic Planning permanent secretary Desire Sibanda told businessdigest that lack of funds had delayed implementation of the SWF Act. The SWF, which was set up in 2015, is meant to create savings and share wealth.

“Although it is important to have a SWF, the delay has been caused by lack of fiscal space. We have huge mineral resources and we need to learn from other countries, as mining picks up, we need to focus on SWF,” Sibanda said.

The Zimbabwean government enacted the SWF legal framework in 2014 and subsequently set up a SWF in 2015 and is progressing towards operationalisation. It is stated in the Act that the SWF will be primarily funded by 25% of royalties from mineral exports and special dividends on sales of diamonds, gas, granite and other minerals through the Zimbabwe Mining Development Corporation and that the Reserve Bank of Zimbabwe (RBZ)will be the primary custodian of the fund.

According to the Zeparu report, stakeholders from government who were engaged during the compilation of the report highlighted the importance of a stable macro-economic environment which encompasses; stable fiscal regime, balance of payments surplus and sustainable debt levels before the fund can be put in place. However, Zimbabwe has a high debt overhang of more than US$10 billion.

Apart from the importance of macroeconomic stability, the stakeholders who included representatives from the ministry of Finance, Ministry of Mines and Mining Development, RBZ, asset management companies and various mining boards, according to the report, stated that there should be no political interference to guarantee the operational autonomy of the asset manager to mitigate undue influence.

Need for transparency on revenues, good corporate governance and mineral prices which need to be increasing rather than declining are needed to enhance the potential size of resources that can be set aside for the SWF, stakeholders pointed out in the report.

“While they (stakeholders) endorsed the policy decision (to set up a SWF) they still expressed caution given the economic context and the challenges that government is grappling with,” reads the report. “It was noted that the policy intentions are noble and the decision reflected government’s commitment to take the necessary sacrifice.”

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