Introduction
The Administration of Estates Amendment Act was published in the Gazette towards the end of November, though it will come into operation on a later date to be fixed by the President. The main purpose of the Act is to turn the Master’s Office into a parastatal, as we explained in Bill Watch 14/2024 [link]. That is not all the Act sets out to do, however: it also purports to repeal section 22 of the Sovereign Wealth Fund of Zimbabwe Act. The repeal is contained in the last section of the Act, which comes at the end of a long and rather tedious schedule. Not surprisingly therefore parliamentarians did not discuss the repeal during the Act’s passage through the National Assembly and the Senate – they probably didn’t realise it was there.
When we analysed the Bill in Bill Watch 14/2024, we speculated that the repeal had been inserted by mistake because it had nothing whatever to do with administering deceased estates. Our speculation was nearer the mark than we realised, because precisely the same repeal is contained in section 30 of the Finance Act, 2024 [link] which was gazetted in October. So section 22 of the Sovereign Wealth Fund of Zimbabwe Act has been repealed not only once, but twice.
The mistake is not just one of repeating the same provision in two separate pieces of legislation. It was a serious policy mistake to repeal section 22 of the Sovereign Wealth Fund of Zimbabwe Act, as we shall suggest in this bulletin.
Effect of Repeal of Section 22
Section 22 of the Sovereign Wealth Fund of Zimbabwe Act read as follows:
“(1) The assets of the Fund [i.e. the assets of what is now called the Mutapa Investment Fund] shall not be used—
(a) to provide credit to the Government, public enterprises, private sector entities or any other persons or entities; or
(b) as collateral for debts, guarantees, commitments or other liabilities of any other person or entity, whether public or private.
(2) Any contract, agreement or arrangement, to the extent that it purports to encumber the assets of the Fund in a manner referred to in subsection (1), whether by way of guarantee, security, mortgage or any other form of encumbrance, is void.”
Put very simply, section 22 prohibited the Board of the Mutapa Investment Fund from allowing the Fund’s assets to be used as security for the debts of the Government or any other entity, whether public or private.
With the repeal of section 22 this prohibition has fallen away and the Board is now free to mortgage the Fund’s assets and pledge them as the Board thinks fit.
The Fund’s assets comprise the Government’s shares and other interests in a large number of parastatals and government-controlled companies across the economic spectrum. They include:
Kuvimba Mining House (Pvt) Ltd
Hwange Colliery Company Ltd
National Oil Infrastructure Company of Zimbabwe (Pvt) Ltd
Zimbabwe United Passenger Company Ltd
National Railways of Zimbabwe
Air Zimbabwe (Pvt) Ltd
Tel-One (Pvt) Ltd
Netone Cellular (Pvt) Ltd
Silo Food Industries Ltd
Cold Storage Company Ltd
People’s Own Savings Bank
Zimbabwe Power Company (Pvt) Ltd
Industrial Development Corporation of Zimbabwe
Cottco Holdings Ltd
Now that sec 22 has been repealed all these companies and their assets can be used as collateral against debts – not just debts of the Mutapa Investment Fund but also Government debts, parastatal debts and, conceivably, debts of politically influential individuals.
What Motivated the Repeal?
Zimbabwe’s sovereign debt is now more than US$21 billion according to the latest Public Debt Report issued by Treasury last month [link]. Most of the debt which is owed to the IMF and the World Bank arises from loans contracted more than two decades ago, but over the past decade Zimbabwe has relied on Chinese lenders to finance projects such as Hwange Thermal Power station, upgrading Robert Mugabe and Victoria Falls international airports, developing Marange diamond fields and rehabilitating the Harare water system.
It is probable that the Chinese lenders are understandably afraid that Zimbabwe may default on its debts and want to hold collateral on some of the assets they funded, as they have done in Zambia and Tanzania.
Undesirability of the Repeal
While it is understandable for creditors to want security for the money they have lent the Government over the years, it is unfortunate that they have been granted their wish in this manner. This is so for two reasons:
- Lack of parliamentary oversight. If the Board decides to mortgage assets of the Fund – which are national assets – in order to appease the country’s creditors, they will be able to do so without first securing approval from Parliament. The Board is obliged to send quarterly and annual reports to the Minister of Finance under section 12 of the Act, and the Minister is supposed to lay them before Parliament, but if the Board reports that it has mortgaged assets of the Fund, Parliament will be presented with a fait accompli: the mortgage will already have taken place and in practical terms will be irreversible.
- 2. The value of the Fund’s assets will be lowered. Any mortgage of the Fund’s assets – which, we repeat, are really national assets – will lower their value for so long as they are mortgaged, and if the creditors foreclose on the mortgage – i.e. if they sell or take possession of the assets as a result of the Government failing to repay its loan – then the assets will be lost altogether. Using the Fund’s assets as security for current debts is not the best way of fulfilling the Fund’s first objective set out in section 4 of the Act, which is to “make secure investments for the benefit and enjoyment of future generations of Zimbabweans”.
Legal Validity of the Repeals of Section 22
Both the two repeals of section 22 – the repeal through the Administration of Estates Act and the repeal effected by the Finance Act – are open to legal challenge.
Repeal through the Administration of Estates Amendment Bill
Although the clause repealing section 22 was included in the Bill from the beginning, and although the long title to the Bill mentioned that the Bill would amend the Sovereign Wealth Fund of Zimbabwe Act, the amending clause (clause 6) was tucked away at the end of the Bill and, as we have said, it was not mentioned in the Bill’s memorandum. Whether it was hidden deliberately or by accident, the result was the same: it was overlooked and was not debated in Parliament.
The Constitution enjoins all institutions of government to be transparent. Transparency is one of the principles of good governance, which according to section 3(2) of the Constitution bind all institutions and agencies of government in Zimbabwe, and according to section 9 of the Constitution the State must implement policies and legislation to develop transparency. Hiding important legislative provisions away where they won’t be seen is the very opposite of transparency and violates the Constitution, at least in spirit.
Whether the violation invalidates the repeal of section 22, however, is doubtful. The long title of the Administration of Estates Amendment Bill did mention that the Bill would amend the Sovereign Wealth Fund of Zimbabwe Act, and alert parliamentarians who read the Bill carefully could have discovered the amendment and worked out its implications for themselves. It is unlikely therefore that a court would rule the Bill unconstitutional on the ground of lack of transparency.
Repeal through the Finance Act
The repeal of section 22 through the Finance Act, 2024, is open to challenge on a more substantive ground. As we said in Economic Governance Watch 1/2024 [link], Finance Bills are supposed to deal only with taxes and revenues. Packing Finance Bills with other measures such as amendments to the Sovereign Wealth Fund of Zimbabwe Act is inimical to good government (because the extraneous measures are not considered by the Cabinet), unparliamentary (because parliamentarians are not allowed time to debate the extraneous measures properly if at all) and unconstitutional (because the Senate cannot alter the measures since they are contained in a money Bill).
It would probably be futile to challenge this particular extraneous provision however, because even if a court were to find that the Sovereign Wealth Fund of Zimbabwe Act should not have been amended by a Finance Act, section 22 would still have been repealed by the Administration of Estates Amendment Bill, and that repeal, as we have said, is probably legal.
Conclusion
Even though the repeal of section 22 of the Sovereign Wealth Fund of Zimbabwe Act is probably valid, it is certainly undesirable. And whatever its legality, parliamentarians were denied a proper opportunity to debate it, which amounts to a failure of our democratic processes. Depressingly, it is a failure that is likely to be repeated. The latest Finance Bill, which is due to be passed by Parliament in the coming week [link] contains further amendments to the Sovereign Wealth Fund Act as well as amendments to seven other Acts, all of which should be thoroughly debated but which will be nodded through because they are contained in a Finance Bill.
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