The SWF is said to be a key success factor in Zim-Asset, the new medium-term economic blueprint.
A SWF is a state-owned investment fund. In our case, it will be financed by 25 per cent of royalties payable from mining duties and fees; 25 per cent by special dividend on the sales of diamonds, gas, granite and other minerals, and profits and proceeds from strategic investments. The fund is also envisaged to invest in gold bullion, precious minerals and other precious metals as well as foreign assets.
SWFs are created by resource-rich nations to diversify the total revenue base and accumulate savings for future generations. One might argue that, as a resource-rich country, it is our long overdue right to create our own fund, and that the leaders in Zanu (PF) are certainly not behaving irresponsibly or playing with fire by creating this fund. This is true only for those who do not know that a SWF is funded by budget surplus, and that its creation is ideal when a government has little or no international debt.
A budget deficit is inevitable this fiscal year and apparently we do not have convenient resources to finance it. Our revenue inflows are shrinking and this fiscal year we will miss our revenue collection target by $100m. This is, however, despite the obvious fact that we have overspent our budgeted expenditure by a long way.
This implies that we have to carry over the deficit to the next fiscal year, which will reduce the real budget for 2014. This is very important to look at because the money that is being proposed to fund the SWF is currently all feeding into the Consolidated Revenue Fund (CRF), which funds the budget, which is also in deficit. Does it then make sense to further reduce the little revenue currently accruing to the CRF by creating an SWF?
Zimbabwe, in her wisdom, is pushing to have a SWF although it has an unsustainable external debt of around $10.7bn, with the majority of that already in arrears.
By merely looking at the SWF’s envisaged sources of funding, we will see that ours is a commodity SWF. This type of fund is financed by exporting commodities. This might sound ideal for Zimbabwe, since more than 80 per cent of its exports are raw materials. However, the continued export of raw materials is not compatible with the aspirations of current policies such as the Industrialisation Development Policy, whose success is largely anchored on vigorously promoting value addition. We also know that the prices of commodity exports are vulnerable to external shocks.
What really are Zanu (PF)’s intentions? Well, by looking at the fund’s targeted investment areas, we see that it is aiming at making investments in gold bullion, among other things.
This reminds me of the President’s words some months back: “If we back our local currency with gold, it is possible for such a currency to be equivalent or to be even valued higher than the US dollar.”
One might be left to suspect that the revolutionary party wants to use the SWF as a vehicle to generate gold so that it can fulfil its plan of introducing the Zimbabwe dollar backed by gold.
The focus right now should be on ways of urgently raising money to help our economy grow – approaches like the the Commercial Farmers’ Union’s proposal and speeding up efforts to securitise our minerals.
Exploration and quantification of our mineral resources is, therefore, key. The country should be pushing forward the plan to conduct an aeromagnetic survey to take stock of our mineral wealth underneath, so that we know the price we can give to a piece of land.
Zimbabwe has been identified as the richest country in the whole world, by looking at the resources per capita. However the reality is that we are very rich underground and very poor on the surface.
A sovereign wealth fund is just one of those brilliant ideas that would work in a different reality. If, for example, government settles its external debt, makes budget surpluses, improves industrial competitiveness and the terms of trade today, I will write a different story to this one.
Post published in: Opinions & Analysis