adminTichaona Zindoga
A good number of people will not be able to say the words “sovereign”, “successful” and “sufficient” – add wealthy to the mix – in one sentence especially in relation to a small, developing world country like Zimbabwe. The words seem contradictory, diametric.And given that “sovereignty” is one of the watchwords for the political class that has been pursuing revolutionary and nationalist political ends in the country, for which they have seemingly courted a backlash, the contradiction becomes more pronounced.
So, when we are told that for the new economic blueprint, Zim Asset to work, Government will mobilise funding from domestic resources and that the creation of a “Sovereign Wealth Fund” will be given priority, many people may wonder what this sovereignty may yet bring.
According to Zim Asset, the Sovereign Wealth Fund, will “backstop and provide predictability and sustainability to Government innovative funding.”
It will be useful to unpack the concept of the Sovereign Wealth Fund (SWF), and test its efficacy from an economist viewpoint and global trend. A SWF is defined as a government-owned enterprise that invests a portion of its country’s foreign-exchange reserves in global financial markets.
These reserves consist of a balance of payments surplus, also called a current account surplus that are created because the payments received in overseas currencies for the country’s exports, such as natural resources or manufactured goods, exceed what its residents are paying for imports.
Bryan J Balin of the Johns Hopkins University School of Advanced International Studies, Washington DC traces the phenomenon back to the 1950s where Kuwait, through the Kuwaiti Investment Board created an SWF to manage the “excess” oil revenues Kuwait was expected to garner in the coming years.
In the 1970s, oil exporters such as the United Arab Emirates, Saudi Arabia and Alberta used their SWFs as a way to absorb excess liquidity that could potentially overheat their economies.
Recently such countries as South Korea, Venezuela, Iran, and Algeria have joined the fray, though they are much more geographically and economically diverse than their older counterparts and newer funds represent countries that are not commodity exporters, are not necessarily facing excessive financial liquidity, and are often times still quite economically underdeveloped — a far cry from the “over abundance” scenarios that spurred the first two rounds of sovereign funds, says Balin.
Top holders of SWF globally include the Abu Dhabi Investment Authority, Taiwan, Libya, Ireland, Nigeria, Chile, Botswana, Azerbaijan, East Timor, Uganda, Angola, and Papua New Guinea.
They rake in trillions of United States dollars annually. Sovereign wealth funds are funded through three strategies, namely through revenues on commodities owned or taxed by the government, transfer of assets from foreign exchange reserves and disbursement of sovereign debt on international markets.
Zimbabwe, as a resource-endowed country fits the bill, on the first strategy.
Has the country not been referred to as part of the “Persian Gulf of Strategic Minerals”?
Former Rhodesian Prime Minister Ian Smith, said Zimbabwe belonged to the “most richly mineralised parts of our world” and cites in his 1997 book, The Great Betrayal, how America viewed the country within the Persian Gulf of Minerals nexus. He reports that upon the United States Congress Committee on Strategic Minerals and Mining sent a mission to investigate the wealth of the region, “they produced a commendable report and in most expressive language termed the area ‘the Persian Gulf of strategic minerals of our earth’.”
Apart from the greatest world deposits of gold, diamonds, platinum and chrome, they itemised a list of other strategic minerals in which many countries, including the USA and Canada, are deficient. The only other country where one could find a similar conglomerate of these minerals was the USSR; if the Soviets could have gained control of this area, therefore, they would have had a virtual world monopoly.
America had to exploit the opportunity.
Zimbabwe’s diamonds have hogged the limelight since 2006 with revelations that the country has a quarter of the world’s reserves.
ZimTrade, the national trade development and promotion organisation, states that over 40 different minerals are known to exist in Zimbabwe, including gold, nickel, the platinum group of metals, cobalt, chrome, iron of antimony, arsenic and tungsten, lead-zinc, lithium, graphite, black granite and asbestos.
Zimbabwe and South Africa are said to share the world’s biggest platinum reserves. Even more flattering are reports that Zimbabwe is tipped to be the heir to the platinum throne after South Africa.
Zimbabwe along with Russia and North America are said to have lower platinum group metal ounce cash costs and receive substantially higher by-product credits than South Africa.
The strength of Zimbabwe’s minerals has been touted to form a reasonable basis for the creation of a commodity exchange market.
The wealth is there, as is the will to exploit the same.
If the wealth of the country is harnessed sufficiently – which is not exactly the case today as there is little by way of exploration, quantification and securitisation – Zimbabwe may be able to get and invest and get returns.
And maybe one may see the end to the not so glorious hunt for alms and even labelling of the “highly mineralised” country as “highly indebted poor country”.
Online Reporter