Zimbabwe’s Treasury will with immediate effect remit a quarter of mining royalties to the Sovereign Wealth Fund (SWF) after President Robert Mugabe yesterday signed into law a bill to set up the fund, which is meant to secure investments for future generations and support economic growth.
A sovereign wealth fund is a state-managed pool of money drawn from the country’s reserves, set aside for investment in strategic areas that benefit the economy and its citizens. Funding for sovereign wealth funds is typically accumulated from revenues generated from the export of a country’s natural resources, such as minerals.
Resource-rich African states, especially those with oil reserves, have joined the global SWF trend and set up funds to be ring-fenced for strategic investment.
Oil-rich Algeria has Africa’s biggest SWF, worth $77.2 billion, followed by Libya, whose fund is also backed by oil.
Botswana’s diamond-backed fund is worth $6.9 billion – the third largest on the continent – followed by Africa’s number one oil producer Nigeria on $1.4 billion.
Senegal, with its non-commodity fund, is ranked 5th at $1 billion.
In Zimbabwe, the fund is seen as the anchor of the southern African country’s long-term economic and social development programmes.
Zimbabwe is desperate to revamp its ageing infrastructure, which includes electricity-generating plants, roads, rail and water treatment facilities, which have been neglected for the last 20 years.
According to the Act, the SWF will be funded through mining royalties, with the Reserve Bank of Zimbabwe being its primary custodian.
“There shall be paid into the account of the fund with the Reserve Bank of Zimbabwe as the primary custodian of the Fund…such portion (not exceeding a quarter ) of the royalties payable in accordance with Chapter VII (Mining Royalties, Duty and Fees) of the Finance Act in respect of each of the following minerals – gold; diamonds; coal; coal bed methane gas; nickel; chrome; platinum and any mineral that may be specified for the purposes of Chapter VII of the Finance Act as allocated by the Zimbabwe Revenue Authority and specified in the Finance Act to be payable in the fund,” reads part of the SWF Act.
The government has previously hinted that it could also use shares acquired through the implementation of its indigenization law to mobilize cash for the SWF, but the Act makes no mention of that.
Every withdrawal from the fund must be approved by Parliament and be accounted for and proceeds from the fund may not be used as collateral for credit to government, public enterprises and the private sector, according to the law regulating the SWF.
The fund will be managed by a 10-member board appointed by the Minister of Finance, with the approval of the President.
The SWF set up comes at a time when the country is saddled with a $10 billion debt with multinational finance institutions such as the World Bank, African Development Bank and the International Monetary Fund, precluding access to further funding from these organizations.
Zimbabwe is also struggling to fund capital projects amid tightening fiscal space, with revenue collections tapering off as the economy stalls.
Over 90 percent of the country’s revenues is committed to recurrent expenditure, leaving very little for capital projects in a country whose infrastructure needs exceed $14 billion, according to the African Development Bank.- The Source