In 2014, the Sovereign Wealth Fund of Zimbabwe Bill was signed into law and a board was established to run with the establishment and operationalisation of the national wealth repository.
According to word on the streets, Government proceeded to invest at least $1 million as capital. As part of the establishment and capacity building process, a number of international visits were undertaken to learn how other countries have implemented their own national funds successfully. Then came the debate about whether or not it is appropriate for a country in debt, running a budget deficit, running a trade deficit, and accordingly struggling with foreign currency and cash shortages, you name it, to be establishing a Sovereign Wealth Fund whose traditional purpose is understood by most to be that of building savings on the back of excess national revenue.
Here is the point we weigh in. While it is true that most of the classical cases used as success stories in sovereign funds, and perhaps the authors of the Santiago Principles on sovereign fund governance best practice, it is our considered opinion that the standard model does not fit the Zimbabwean circumstances.
Zimbabwe is richly endowed with mineral wealth and natural resources (including oil and gas prospects) the bulk of whose value has not even been determined. Investment in comprehensive exploration (alone) will run into multiple billions of dollars in costs (also yet to be determined). Now, even if we assume that some exploration has been done, and that we have comprehensive feasibility studies that are all ready for investor engagement and financial close, we still must contend with how quickly, and how, exploitation and beneficiation of these resources can be done. As this takes place, the theory goes, national revenues will rise, debt servicing capacity will improve, the budget (and trade) deficit will close, and the economy will start performing sustainably. That’s the elementary text book analysis of causation. The argument, here, is that Zimbabwe should only begin to consider establishing a SWF at the point of economic sustainability.
We disagree with this traditionalist approach, because it assumes that the only reason for the establishment of a SWF is to save excess funds.
We believe that the case for Zimbabwe’s SWF is to create a vehicle through which international capital from multi-lateral institutions and bilateral arrangements, development partners, private global investors, and indeed from other SWFs can be directed into the exploration, exploitation and beneficiation of “sovereign resources” — the term we have coined to refer to all the potential value that should be transferred to the SWF of Zimbabwe in terms of the Act, so that the board and management of the fund can get on with the business of developing appropriate structured finance arrangements with partners, based on these sovereign resources.
Rather than wait until some day in the future when the Zimbabwean economy has fully recovered and is running budget surpluses (somehow), before the SWF comes to life, our argument is that the SWF should be used, starting today, as one of the instruments by which Zimbabwe’s economy will convert the talk of resource-driven investment into the walk of real investment growth in domestic production, export growth, and job creation.
The fund, even if for the appeasement of the scholars we call it by other names than “Sovereign Wealth Fund”, must be seen outside the box of traditional definitions.
We particularly differ with the view that a sovereign fund is “a residual investor” of wealth that has already been created by the economy. This view limits it to a privilege of the wealthy, as opposed to a vehicle for the unlocking of opportunity. We therefore prefer to see the primary mandate of our SWF as that of promoting economic development by leveraging off sovereign resources in partnership with local and global actors and capital markets.
In this way, today’s generation can hope to see the establishment of our national wealth storehouse, and to contribute as communities, families and individuals, to the creation of trans-generational wealth. This is why we believe that the full implementation of the SWF of Zimbabwe Act is overdue. Until such a time as the board and management of the fund are at work, this idea remains a missed opportunity.
This article was compiled by Felix Kumirai a transformational strategist and resource mobilisation consultant at GENESIS GLOBAL FINANCE. The contents herein are for information purposes only, and GGF does not accept responsibility for any loss arising from the use of materials or opinions contained in this article.