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One of the most famous parables from the Christian Bible is the parable of the Talents. As recorded in the book of Matthew, a Master went to his servants and according to the abilities of each person, one servant received five talents, the second received two, and the third received only one. He entrusted them with this wealth expecting to see what each servant would do with it. It is a parable that is a reminder of one of life’s most difficult skills at an individual, family, community, or national level; the ability to make use of one’s resources efficiently and effectively. In the last century, a myriad of ways to invest wealth have mushroomed. One such innovation has been the burgeoning idea of Sovereign Wealth Funds with more than one hundred countries across the globe controlling such an entity. Zimbabwe’s own Sovereign Wealth Fund was enacted into existence in 2014 and President Mnangagwa recently renamed it the Mutapa Investment Fund (MIF/The Fund) and made key alterations with a recently released Statutory Instrument. It has raised questions about its governance, financial and asset structures. This article with analyze those changes.
Purpose of a Sovereign Wealth Fund
A foreign concept to most people who are not in the investment industry, what is a sovereign fund? A sovereign fund is a state- or government-owned investment entity or fund, which acquires and manages public assets by “investing in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity funds or hedge funds in order to achieve a variety of macroeconomic purposes. In simpler terms, a Sovereign Wealth Fund is an investment company owned by a country that is set up to gain some return for investments made. The Mutapa Investment Fund (MIF/The Fund), according to its establishing act states that the Fund has been set up to make secure investments for the benefit of Zimbabweans, support the development objectives of the Government, including its long-term economic and social development; to support fiscal or macroeconomic stabilization, and to contribute to the revenues of Zimbabwe from the net returns on its investments.
No one can raise alarm to these intentions because they are standard practice amongst Sovereign Wealth Funds across the globe but as anything Zimbabwean, the devil is in the details. Zimbabwe’s Sovereign Wealth Fund Act was first proclaimed 9 years ago and little to no work has been done to get it off the ground. A leading academic on Sovereign Funds in Africa, Munashe Matambo, points out that a Board was appointed in 2015 and another last year. “A CEO was appointed last year [2023] too and staff from the Office of the Accountant General were seconded to it, but nothing tangible has been done with regards to using it as a stabilization, development, and savings instrument.” A significant stumbling block is that prior to the recent amendment, the Wealth Fund was reliant for its funding from mineral royalties which because of the poor resource collection instruments in government have not in any significant way reached the Sovereign Wealth Fund. Moreover, the opaqueness of how much is in the fund is very evident. Section 16 of the Act states that the Reserve Bank of Zimbabwe (RBZ) is the primary custodian of the Fund. However, no reports are publicly available showing how much and what assets are in the fund. Statutory Instrument Amendment 156 of 2023 does make critical alterations to the original Act and we’ll analyze the three important ones: governance, financial management, and the transfer of government assets to the Fund.
Questions of Governance
The amendments to the Sovereign Wealth Fund Act were done insidiously through the Presidential Temporary Powers Act. This fraught Act has been used repeatedly since the reign of President Mugabe to usurp and dance around the legislative role of the Parliament of Zimbabwe. Ideally, President Mnangagwa through ZANU PF MPs should have tabled the request for amendments to the act. His decision to sidestep the parliamentary process is evidence that either he holds distrust in his own MPs to push through the amendments or that a debate on the amendments will open a can of worms and raise questions that will be difficult to answer, embarrassing the government.
The amendments reduce the size of the board from 9 members to 8 members and half of those members must be women. This is progressive since most boardrooms are still majority male in most public and private spheres. However, this noble change is diluted because the source of power still lies in the President. The MIF Chairperson and board members are appointed by the President after consulting the Minister. The minister in question here is his right-hand man, Mthuli Ncube. More poignantly, Mthuli Ncube’s Deputy is President Mnangagwa’s son, Kuda Mnangagwa. Effectively, MIF which should ideally be as independent as possible from the government is another extension of President Mnangagwa’s direct control. Furthermore, the Act in Section 23 allows the Minister to direct investment if it is deemed to support infrastructure development. This weak governance structure which is prone to abuse is reminiscent of what occurred with Angola’s Sovereign Fund under its former President Dos Santos. President Dos Santos appointed his son as head of the Sovereign Fund where he allegedly stole funds amounting to $500 million[1].
Transfer of Government Assets to The Fund
One of the challenges that the Fund has faced since 2014 is that it seems to have insignificant assets under management. That is, we do not know how much capital the Fund controls. A key amendment that has been brought forward is the government ceding its shareholding in about 22 companies to the Fund. The list of the companies is below:
This move read alongside the government’s privatization push which Mthuli Ncube has been advocating for does make policy sense. Shifting the companies from direct government control into an investment fund can be seen as a step in the right direction. However, this logic falls flat when analyzing the list of companies. The companies cover a wide range of industries from telecommunications, agriculture, mining, transportation and oil and gas. Some of those companies are profitable (since they are private companies, verification is difficult) but the majority have been publicly admonished for draining the state coffers. It is very difficult to see where the fund will receive dividends from to grow their assets under management. It is not even clear how much these companies own, who they owe and how much they owe, all factors which are central to the Fund’s success.
This setup is a stark contrast with two very well-run Sovereign Wealth Funds, the Norwegian Fund (Norway) and the Pula Fund (Botswana). These two sovereign funds rely on profits garnered primarily from oil and diamonds respectively, Norway’s fund which was established in 1990 currently controls USD$1.1 trillion. That money is invested in 9,000 publicly-listed companies across 70 countries around the world. The investments generate a return of about 3% a year, which is what goes into the national budget to provide everyone in Norway with those public services[2]. The Pula Fund was an important project in re-distributing the wealth received from the Botswana government’s partnership with De Beers for diamond reserves.
A cautionary tale regarding Sovereign Wealth Funds, in general, is that there is still scant evidence supporting their ability to distribute funds in an equitable manner that benefits the general populace. This is because most Sovereign Wealth Funds function in extractive industries that rarely provide broad-based economic growth that benefits livelihoods through job creation and sufficient infrastructure development. Conceptually, there is strong reliance on trickle-down economics where there idea is that a large company such as an investment fund can distribute its profits to benefit everyone. That idea has been routinely debunked. There then becomes a risk of having a wealthy investment fund juxtaposed alongside inequality and inequity amongst the populace as is the case in Chile and Botswana. The Funds end up being at best ameliorative rather than transformative.
No exchange control limitations
The most controversial amendment to the Fund reads in Section 12, “investments made under this Act, the Fund may without restriction or delay in a freely convertible currency transfer the following funds into and out of Zimbabwe…” It goes on to list a myriad of ways that the Fund can essentially work without limitation regarding the movement of foreign currency. This situation is perplexing because of the very strong foreign currency control rules that are in place for every other entity in Zimbabwe. This benefit that only 22 large companies will is an unfair advantage in terms of competition with other companies. For example, Zimplats which is a direct competitor with Kuvimba Mining House will be subjugated to the foreign currency controls mandated by the RBZ while Kuvimba as the amendment reads will not have such limitations.
In addition, illicit financial flows are very high in Zimbabwe[3]. It will not be difficult for the 22 companies in one way or another to become ‘quasi-legal’ money laundering vehicles for those who control the Fund, which as highlighted earlier, is the President, family associates and close political allies. Central to the success of the Norway and Botswana Funds was strong governance infrastructure which ensured that no leakages occurred. Unfortunately, Zimbabwe’s history with resource management is extremely poor as highlighted in the Diamond scandals and Gold Mafia expose. Moreover, the Act also amends the Public Procurement and Disposal of Public Assets Act which is designed to provide transparency when public companies such as the 22 listed in the table above go to tender. This combination creates a strong pathway for the ransacking of publicly owned companies by other private sector players to occur.
Conclusion
One can only wonder; if the Zimbabwean government was one of those servants who was given talents in the Parable of talents, how many would it have received. One, two, five, ten? What is for sure is that based on the design and structure of the finance, governance, and transfer of assets of the Mutapa Investment Fund, the Zimbabwe government would have likely fared worse than the servant who simply dug his talents, they would have run away with the talents! The lack of transparency regarding the assets under management, the total control the President and his family have over the Fund, and the poor performance history of the ascribed parastatals as well as the numerous illicit financial flows bedeviling the country, it is hard to see how this Fund will in any way perform for the benefit of the masses of Zimbabwe, albeit in an ameliorative way.
Sources
Matambo M, (2012), Factors impeding the operationalization of Zimbabwe's commodity-based Sovereign Wealth Fund. Johannesburg: University of Johannesburg. Available from: http://hdl.handle.net/102000/0002 (Accessed: 22 August 2017).
Government of Zimbabwe (2023) Statutory Instrument 156 of 2023.
Government of Zimbabwe (2023) Sovereign Wealth Fund of Zimbabwe Act, 2014
[1] https://www.aljazeera.com/economy/2019/12/17/angola-recovers-more-than-5bn-in-stolen-assets [2] https://www.resilience.org/stories/2023-04-17/will-more-sovereign-wealth-funds-mean-less-food-sovereignty/