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Zim needs stronger investments management framework for govt

GOVERNMENT investments have become an economic growth strategy for emerging economies, a welcome departure from heavy reliance on traditional fiscal systems through taxes.

With the rising trend of public-private partnerships (PPP), governments in Africa can only participate if they have a robust government investments management framework. Government investments have been instrumental in New Zealand, Norway, United Kingdom, Japan, China, Australia, Singapore, Vietnam and the United States to build their economic competitiveness unlike African countries such as Zimbabwe which continue to be trapped in dysfunctional economics of high taxes.

This article builds upon my previous article on: “Zimbabwe must build strong institutions” by providing a constructive critical perspective on Zimbabwe’s government investments management framework (GIMF).

Consequently, the public only gets to know a bit about government investments when the funds have already been looted. Not much is known about institutions and companies where government has investments and how they are performing. How can investors trust our investment environment when there is very little known about our own GIMF?

While government investments management has received little attention from multilateral financial institutions like the World Bank, International Monetary Fund, African Development Bank, United Nations Development Programme and international donors in Zimbabwe, evidence of the dysfunctionality of the system have continued to grow louder.

Cases of the National Social Security Authority, Agricultural and Rural Development Authority, Zimbabwe Electricity Supply Authority, Air Zimbabwe, Grain Marketing Board and National Railways of Zimbabwe and so on, provide adequate empirical evidence of a poor or weak GIMF.

The society and private sector companies continue to pay the price for the dysfunctionalities through high taxes. The government of Zimbabwe has investments in state-owned enterprises (SOE), parastatals and private companies through various government ministries, departments and institutions, but not much is known about the framework being used to manage these government investments.

Further, Treasury reports and national budgets do not provide much on statistics of how much dividends have been received or will be received from government investments. Unlike in South Africa, the Public Investment Corporation (PIC) contributes significantly to the treasury and gross domestic product of South Africa, managing over R2 083 trillion in assets, according to the corporation.
It is very unfortunate that Zimbabwe sooner or later could find itself suffering from a “Dutch Disease” and squander a shortlived windfall from natural resources in a way that weakens the economy’s long-run potential (Bernstein et al, 2013, Journal of Economics), if a robust government investments management framework (GIMF) is not established.

Government investments management as a fiscal strategy plays a critical role of managing taxation systems and sustainable development which has been highly used in countries like Australia, New Zealand, Canada, Norway, South Korea, China and Japan to name a few. A government investments management framework can be defined as an institutionalised system of managing government funded assets through an independent institution on behalf of government.

This institution should be managed by highly qualified professionals and investment experts not economic mavericks.
In Japan, government assets are managed through the Japan Investment Corp (JIC), South Africa’s Public Investment Corporation (PIC), Singapore’s Investment Corporation (SIC), South Korea’s Korea Investment Corporation (KIC) and China’s Investment Corporation (CIC) to name a few. Many of the government investment corporations have played a critical role in the economic growth, competitiveness and prosperity in these countries.

A study by Guo Qingwang Jia (2007) of China Financial Policy Research and Renmin University of China showed that there was a positive relationship between economic growth from 1978 to 2004 and government public capital investments in China.

There is no avoiding the fact that, if government investments are managed effectively, economic growth can be realised. Evidence from Zimbabwe shows that where there seems to be an absence of a robust framework of government investments management, economic implosion, corruption and looting are inevitable, and sustainable investors shun such places.

A government investments management framework plays a critical role in advising government on investment options and management, driving good corporate governance, appointing suitable directors — not just the popular guys in town — and enhances public investments accountability. With an institution being available to manage government investments, its function under a framework will be to ensure there are returns on government investments and act as a Chinese wall to political interference in government-invested companies.

Many cases of corporate failure in Zimbabwe where government had investments point to political interference taking advantage of the absence of a clear government investment management system and the government being directly involved in investments management.

However, emerging economies like Vietnam managed this challenge by developing a public investment management (PIM) law which has become its cornerstone for economic growth (Nguyen et al, 2019). The framework allows government to focus on its core business of managing policy formulation and implementation for economic growth.
In Zimbabwe, this must not be confused with the Zimbabwe Investment and Development Authority (Zida), an investment regulatory system.

Government investments management in Zimbabwe has many questions but only few answers. Not much is known by the public about the inventory of private and public companies in which government has investments through various vehicles.

Further, it has been a very long time since the minister of Finance gave a public announcement of any dividend being received by government. Our annual national budgets do not provide much by way of statistics of government investment returns.

There is very little known about the office or the chief government investments officer in the Finance Ministry, responsible for managing government investments.

The current set-up appears chaotic to an extent that each ministry appoints its own directors to any institution under its ministry where government has investments.

While government investments management has been evident in driving economic growth in many emerging economies, symptoms of absence in Zimbabwe have been palpable. The trend of poor corporate governance which continues to be exposed by the Auditor-General annually has repercussions as shown by companies being referred to judicial management, corporate incest, looting and asset stripping, perennial losses in invested companies and investments without returns (IWR).

Cases can be cited of government investments that have gone for long periods without any returns. Most of these symptoms have been evident in the economy’s poor performance and competitiveness. The reality is that a government’s investments management framework is a flagship of the domestic investment environment.

To date, the Norwegian Sovereign Fund Management is a beacon of government investment management. In Africa, countries like Botswana, Rwanda, Mauritius and South Africa have developed public investment frameworks which have contributed significantly to economic growth.

The authorities need to develop a robust GIMF to drive good corporate governance, public investor shareholder activism, fiscal sustainability, investment returns and economic development in Zimbabwe. Many economists have advised that higher taxes will never bring economic growth for Zimbabwe but always lead to more borrowing as investors avoid the country and businesses fail or go underground while entrapping the country under the slavery of the international financial system.

Government should set up an independent institution dedicated to government investments management. This institution, such as the Zimbabwe Investment Corporation (ZIC), could be located in non-government offices to avoid daily interferences but have reporting mechanisms to the Ministry of Finance.

So far, the Zimbabwe Revenue Authority has proved to be an effective institution for collecting taxes for the government which a ZIC could do on the government investments management. This proposal should not be confused with the Zimbabwe Asset Management Company (Zamco) set by the Reserve Bank of Zimbabwe (RBZ) which falls short on this function. The investment corporation should be managed by qualified professional investment experts and analysts with a clean track record locally and internationally.

In conclusion, government should seriously review how government investments are being managed and develop a framework to guarantee economic sustainability beyond banking on natural resources and traditional fiscal systems.

The future of economic sustainability and growth in Zimbabwe lies in a robust government investments management framework beyond privatisation, disposal and commercialisation of parastatals. Even if all these strategies are implemented, without a robust and clear government investments management framework, there will be no sustainable economic turnaround. Government can only become a viable investment partner in a public-private partnership provided it demonstrates a strong government investments management system.

Rodney Ndamba is an academic and founder of the Institute for Sustainability Africa (Insaf), an independent multi-disciplinary think-tank and research institute. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past-president of the Zimbabwe Economics Society — kadenge.zes@gmail.com and mobile: +263 772 382 852.

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