The Centre for Natural Resource Governance (CNRG) has warned that Zimbabwe is not yet ready to have an effective Sovereign Wealth Fund (SWF) despite the rolling out of the programme by President Emmerson Mnangagwa recently.
Over the past week, President Mnangagwa renamed the Sovereign Wealth Fund (Chapter 22:20) to Mutapa Investment Fund through SI 156 of 2023.
Sovereign Wealth Fund in its most basic sense is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, and precious metals, or in alternative investments such as private equity funds or hedge funds.
In the Zimbabwean context, the Mutapa Investment Fund is the SWF according to SI 156 of 2023.
At a family level, this is when after paying expenses the family is left with a saving that is not just put in a piggy bank, but in a long-term investment for future use such as 30 years from now.
The most key factor is that ordinarily, SWF are built out of budget surpluses which Zimbabwe has not fully realized in years due to the economic meltdown.
The SWF are also premised on sale of natural resources but again Zimbabwe has been found wanting on this front.
Zimbabwe again has an ailing infrastructure and poor service delivery which militates against the SWF establishment.
In an interview with The Weekly, CNRG’s Gender and Extractives Officer, Tracy Mutowekuziva expressly outlined the reasons why Zimbabwe is not ready for SWF and urged the government to address them first for the noble goal to be achieved.
Economic challenges
“Zimbabwe still faces major economic headwinds like high inflation of 106.3 % according to existing current statistics. There is great unemployment rate. However, SWF requires strong economic fundamentals first, which makes the country not ready at this stage,” she said, adding:
“While sovereign wealth funds have benefited many nations by supporting long-term growth and stability, it seems Zimbabwe still has progress to make before fully embracing this model. The country faces ongoing economic and institutional challenges that a SWF could exacerbate if not carefully implemented. It is important to address these challenges first before the SWF is established.”
Institutional maturity
Mutowekuziva who has vast experience in the extractives sector said the other reason why Zimbabwe is not yet ready for SWF is because of its lack of strong institutions.
“For a SWF to succeed, Zimbabwe needs highly capable institutions with proven integrity in overseeing finance and investment. Those foundations are not fully in place in Zimbabwe,” she said.
Budget Priorities
She added that another drawback is the fact that Zimbabwe is a country with pressing needs that current tax revenues are struggling to address which include healthcare, education, infrastructure development and maintenance. A SWF may therefore end up diverting funds from immediate development goals which is not the point why it must be established.
“Establishing and growing the fund would require financial resources that may be better spent addressing immediate needs in the country right now. Past experiences managing state funds haven’t always been positive in Zimbabwe, so trust would need to be rebuilt,” she said.
Zimbabwe faces economic and political instability currently. This could undermine the proper management and oversight needed for a sovereign wealth fund to succeed.
“There’s a risk that lack of transparency or accountability in the investments could undermine confidence both domestically and abroad. It’s a complex decision. Building wealth for the future could help, but stability would be paramount to realize the pros and avoid potential cons,” said Mutowekuziva.
CNRG Executive Director Farai Maguwu weighed in saying Zimbabwe’s ballooning sovereign debt which stand at $17.5 renders, renders the country not ready for SWF. He said Zimbabweans must be very worried this might be yet another vehicle to loot public resources.
Benefits of a Sovereign Wealth Fund for Zimbabwe
- It could help Zimbabwe diversify its financial assets beyond just foreign currency reserves. The fund could invest globally to generate stronger long-term returns.
- Careful investment of the funds could support important development priorities in Zimbabwe like infrastructure, healthcare, education, etc. This could boost the economy over time.
- It might give Zimbabwe more leverage in negotiating with international partners and organizations by demonstrating a commitment to strong fiscal management through the sovereign fund.
- Successful funds in other countries show how sovereign wealth can stabilize an economy and provide a savings vehicle to support future generations.