admin
Kennedy Mavhumashava
THE Zanu-PF election manifesto for the July 31 poll sets out three broad categories of indigenous beneficiaries to secure 51 percent shareholding of foreign firms under the indigenisation and economic empowerment programme. The first key segment of beneficiaries are employee share ownership schemes under which workers of foreign-owned companies within the indigenisation threshold must collectively own 10 percent of the firms’ relevant shareholding. In this respect, the beneficiaries are employees working for a specific company.
The second category of beneficiaries are locals through community share ownership trusts. This covers the immediate and direct communities in whose land a foreign-owned company that is indigenising operates from. Ten percent shareholding of such firms must be owned by communities.
The third and final category includes the wider population of Zimbabwe who would benefit under a sovereign wealth fund (SWF). These are the masses that neither work for the indigenising companies nor live in areas where indigenising firms extract and process resources.
The SWF would account for 31 percent shareholding. For the time being, according to the manifesto, funds are being warehoused
temporarily at the National Indigenisation and Economic Empowerment Fund.
Consistent with the terms of its winning manifesto, the Zanu-PF government has come up with an economic plan, Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset), a document which draws much from the revolutionary party’s pre-election policy outline.
A key part of the 129-page Zim Asset document is a commitment to establish a SWF. Minister of Finance and Economic Development, Cde Patrick Chinamasa recently reiterated that position saying legislation to facilitate the creation of the facility should be in place by February next year. However, he said because of budget constraints, the setting up would be delayed. Money that was earmarked for that, said the minister, would instead, be used to build and rebuild infrastructure, which has suffered over the past decade of economic challenges.
The SWF Institute defines a SWF as a State-owned entity or investment fund formed from budget and trade surpluses, resource export earnings and proceeds from privatisation. They invest in real and financial assets such as shares, bonds or precious metals.
Aware that most natural endowments like oil, gas and other minerals are finite, more resource-rich countries are setting up SWF to ensure their economies don’t suffer much when the resources get depleted.
The other reason why SWFs are increasing in importance is for the countries to diversify their revenue bases and protect themselves from price volatility. There are two types of SWF, defined through how they are financed – commodity and non-commodity SWFs. The former are created through commodity (like oil, gas and diamonds) exports or income the government earns through taxes, while the latter are formed through transfers of assets from official foreign currency reserves.
Mr Obert Sibanda, a Bulawayo businessman urged the Government to move fast in coming up with the fund saying the country would benefit immensely from it.
“It is a good idea but it must be well managed,” said Mr Sibanda, a former Zimbabwe National Chamber of Commerce president.
“The Government might want, through this fund, to hold shares in trust for the people. This happens when, for instance, a company is selling its shares and you may find out that the people do not have money to buy them. So the Government might want to help them buy or buy on their behalf. That is very important if you consider that not many Zimbabweans have enough money to individually buy shares in indigenising companies. That is where the Government comes in.”
The history of SWFs goes back to the 1950s, as rich, oil-producing Asian countries sought to deal with consistent budget surpluses. Oil-rich Kuwait established the world’s first fund in 1953 to invest its excess petro-dollars.
Abu Dhabi, one of the seven emirates that form the United Arab Emirates established its own on 1976, followed by Singapore in 1981 and Norway in 1990.
Since then, the number of SWFs has increased dramatically, with about 50 in place by last year worth a cumulative $5 trillion.
The Norwegian fund, called the Government Pension Fund-Global is one of the fastest-growing, because in the 23 years it has been in existence, it has become the biggest by value of assets. Funded by oil, it is worth $737 billion. Saudi Arabia’s is at the number two spot with $675,9 billion worth of assets, according to the SWF Institute. The UAE one is third ($672 billion) followed by China Investment Corp ($575 billion), SAFE Investment ( China, $567 billion), Kuwait Investment Authority ($386 billion), Hong Kong Monetary Authority Investment Portfolio ($326 billion), Government of Singapore Investment Corp ($285 billion), National Welfare Fund (Russia, $175 billion) and Temasek Holdings (Singapore, $173.3 billion).
Mr Sibanda said while the specific model of Zimbabwe’s proposed fund is unknown yet, 31 percent of proceeds from indigenising firms and diamond revenue can be a viable starting point.
He said the now-defunct National Investment Trust was formed along the lines of SWF as it held shares in trust for ordinary people. However, management deficiencies at the trust, said Mr Sibanda resulted in some people who had bought shares from it losing after it collapsed.
“My fear is it must be done well. Some of us bought shares from the trust and the rest is history,” he said.
The setting up of a SWF is one of the main assumptions of the Zim Asset that is projected to anchor the growth of the economy from this year until 2018. Other assumptions include improved liquidity and access to credit by key sectors of the economy such as agriculture, increased foreign direct investment, setting up of special economic zones and enhanced revenue collection.
In the next few years, diamonds at Chiadzwa would drive the national economy, and to a large extent the global market as well. It is predicted that the deposit would contribute at least 30 percent of global output. This suggests that demand for local diamonds would rise; necessitating an increase in production at Chiadzwa.
Buoyant international demand and resulting rising output would naturally deplete the deposit. Without insightful investment of revenue, future generations would only get to know about the gems through history of a glorious past.
Botswana would soon exhaust its diamonds as it now exploits deeper-lying diamonds which are therefore expensive to extract. Russia is facing that challenge as well. A mineral extracted this way becomes uncompetitive when seen against that from Chiadzwa where it is obtainable near the surface, thus more cheaply mined and sold.
But the SWFs Russia and Botswana have would help prevent their economies, which depend on diamonds and oil respectively, from collapsing.
Five of the top 10 SWFs — Norway, Saudi Arabia, UAE, Kuwait, and Russia are funded by oil while five others are not funded by commodities.
Of the nine in Africa, eight are based on oil income while one is funded by diamonds.
Algeria has Africa’s largest SWF at $77 billion. Set up in 2000, it is funded by oil. Libya’s was established in 2006 and is worth $65 billion and driven by oil income. Diamonds have funded the $6, 9 billion Batswana one since 1996 while Angola has had an oil-funded $5 billion SWF since last year.
Nigeria’s has investments of about $1 billion and it is two years old. It is driven by oil revenue as well. Gabon, Mauritania, Equatorial Guinea and Ghana have oil-backed funds valued at $400 million, $300 million, $80 million and $70 million respectively.
Mr Dominic Mubaiwa, a former senior mining executive said while in many countries, SWF were originally established using surplus income, Zimbabwe, which has had deficits in recent years because of the economic challenges, could come up with innovative ways notwithstanding its difficult circumstances. The fact that Zimbabwe has had deficits he said, cannot stop the creation of the fund, as a deliberate policy can be put in place mandating certain levels of taxes and royalties to be deposited into the SWF.
“It will benefit the population,” he said.
“Whatever model we will have I don’t see any challenges if we manage it well. We have diamonds and our SWF can draw much from the mineral. This is a high value resource which must be seen to be significantly benefiting the people today and well into the future. Funds can be invested in infrastructure for instance and other areas that can move the economy forward. Some economies have been built on this.”
Online Reporter