The Zimbabwe we want (pt 8) – A Sovereign Wealth Fund is critical to development

via Bulawayo24 NEWS | The Zimbabwe we want – A Sovereign Wealth Fund is critical to development by Vince Musewe and Elton Mangoma 14 April 2014

In the Zimbabwe we want, a Sovereign Wealth Fund must be managed as the country’s endowment to future generations. It is not a fund to be plundered by government and used to meet current needs, but a savings account that must accumulate over time and be used to meet future developmental needs.

We all know that the mining and other resources of a country cannot be replenished. It is therefore important that we save the income generated from those depleting resources now for the future. The fund can also be used to replenish the resource industry in the future and replace industries. Huge income earned from resources can be easily abused and the Sovereign Wealth Fund can be a mechanism to ring fence or protect that income from immediate abuse, and cushion the country from the risk of sudden large inflows of excess income. This, of course, requires discipline, patience and foresight.

The Sovereign Wealth Fund can only be viable where there is disciplined fiscal management and there is no temptation to use that money for recurrent expenditure. In a country such as Zimbabwe there exists a huge probability of abuse of a Sovereign Wealth Fund to meet current revenue gaps.

One can give here an example of personal savings, where you religiously save 10% of your monthly income for the future. It’s a discipline where you build wealth over time.

This implies that we must seek to maximise the returns on the savings but we must invest them prudently so that the investment value of the Sovereign Wealth Fund increases with time before we can start spending. We must also ensure that where we invest Sovereign Wealth Fund income, we achieve real returns.  The Fund must be managed like a stand-alone investment portfolio that is well diversified at least, beats inflation.

Critical of course, is that the management of this fund is removed from unnecessary political interference, a habit which we must unlearn as a country. Establishing a viable Sovereign Wealth Fund will take time and discipline.

What we must see happen first is the efficient management and maximisation of resource revenues including transparency and accountability within the resources sector. These resources must first be managed differently, and not as we have seen in the diamond sector, before we can create viable long term saving mechanisms. We must also see a government that takes its responsibilities seriously and has a genuine long term interest in developing the country.

The morality of any government plays a significant role for a country to have a viable Sovereign Wealth Fund. A government that has a history of misallocation and mismanagement of funds does not create any confidence; a government that is run like a political party instrument, as we have in Zimbabwe, can hardly be expected to have the discipline to sacrifice for future generations. At the end of it all, that is what will determine whether we will still have a Sovereign Wealth Fund ten or twenty years from now.

The institutional structure and culture of the country is very important and will determine the success of a Sovereign Wealth Fund. In the Zimbabwe we want, we will insist for transparency and accountability in government to ensure that government never acts as a reckless owner of the country’s resources but rather as a responsible custodian of our national assets. The management culture must change.

There is no doubt that a Sovereign Wealth Fund can make significant positive impact on the wealth of the country in the future and can also improve the quality of life of all Zimbabweans however; we will have to be prudent and patient.
In the Zimbabwe we want, we expect high corporate governance standards especially in government institutions. Cadre deployment, political favours and lack of accountability in the government continues to kill the potential of our country. That is no longer acceptable.

Vince Musewe is an economist and author based in Harare. Elton Mangoma is a Zimbabwean politician and entrepreneur. You may contact Vince directly on vtmusewe@gmail.com

 

COMMENTS

WORDPRESS: 9
  • comment-avatar
    Roving Ambassador 7 years ago

    Putting the cart before the horse.
    There is no funds for anything with these looters. and the’policies’ are not geared for economic development.
    The truth is there is no policies in this regime, the focus is on pillaging.

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    Yes! But we have to get there first!

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    Mike Nyathi 7 years ago

    Stop the stupid academic pieces and come up with a plan of action please

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    itayi 7 years ago

    Vince Museve and Elton Mangoma – a combination easy to guess. There is so much said about a sovereign wealth fund to the extent that it now seen in some quarters as the panacea to third world economies. To justify this claim some economists cite examples that include among others Brazil, Malaysia and so forth. The sovereign wealth fund is equated by these economists to a magic wand that once adopted then an economy takes off to dizzy heights overnight. A short excursion into this flawed exposition reveals an utterly faulty assumption of an economy driven by so called natural resources, a supposition that is so erroneous and misplaced that it does not even warrant attention. Russia, one of the countries that have of late adopted the sovereign wealth fund has not developed to anything exceptional. In spite of being touted as being part of the BRICs almost fourteen years on Russia’s economy boasts a raw material base and is just as vulnerable as any if not sitting on the periphery of industrialized countries.
    The last thing that the Zimbabwean economy needs is this copy and paste approach as being suggested by Vince Musewe and Elton Mangoma. Zimbabwe’s economy should not be anchored on false drivers (borrowed solutions) but instead needs a revisit of fundamentals – and for this matter a radical re-look of these fundamental. The assumption of resource potential can only see the Zimbabwe economy featuring, like that of Russia, at the bottom of the least developed twenty years from now. What a tragedy that would be for the generations of Zimbabweans that look to inherit from us!
    Modern economies should first accept globalism as a feature that is here to stay. To illustrate a point perhaps elusive to our not too economic erudite Vince on the dynamism that results in to the allocation of productive factors in a global economy. A significant growth of China and India is on account of American technology, American companies and indeed American management. It is not in dispute that over 70% of graduates of India Institute of Technology (IIT) are absorbed by NASA and American technology enterprises. So the control factor that is so central to the sovereign wealth fund is exposed as wholly inadequate for the first world economy that Zimbabwe deserves in twenty to thirty years from now. Closer to home, a multiplicity of worldwide tourist destinations have rendered the sector far more complex in planning than previously perceived by similar cut and paste advocates. One of the errors of Zimbabwe economic blueprint was to assume tourism as a low hanging fruit, which it has turned out not to be – leaving the second rate ZIMASSET (forgive my spelling) planners totally confounded. More examples can be cited but for want of time but the bottom line is that Zimbabwe needs to seriously go back to the drawing board and revisit fundamentals and the assumptions that underlie them.
    Let us cursorily take peek at some of the factors to a futuristic economy.
    1.Nano technology
    2. New fuels and sources of energy
    3. ICT
    4. Research and technology
    5. Services

    It is easy to see that Vince and Elton are but dinosaurs pretending on providing solutions to a modern economy. They expose themselves clearly self serving motivated, like those in zanupf by no other than a rush to get to political office.

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    Mukanya 7 years ago

    Sovereign Wealth Fund is already in existence The ZIM-CORRUPTION as opposed to the non-starter ZIMASSET; Come on Vincent and Elton join the bandwagon!

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      Kusvikazvanaka 7 years ago

      As it stands today, most Zimbabweans just want food on their tables, Okay, ..let me do my basic budget here: I have 22 years in the teaching field. I teach at a primary school north of Gokwe in midlands. Anyway…I have Three teenager kids. I earn $368,00 a month: Rent: $00, Transport to get my Salary $10,00, Groceries $75,00: School fees $ 180, Clothing $90,00,…do not ask me where I get the extra…Maybe EXTRA lessons for those that want better grades..

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    Zim Patriot 7 years ago

    Eish, Sovereign Looting fund, all the plotters, thieves and corrupt would love this as witnessed by the blatant theft and opulence they have “corruptly” grown accustomed to. Yebo Comrades we want another Sovereign looting fund to loot and leave the rest of the comrades dirt poor asap!! Lets pray for our beloved Zimbabwe, we really need repentance…..

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    There is no human dignity. We need to get back to basics.
    Us humans are accepting for barbaric inhumane behavior by others. It just perpetuates the misery and attitude I can do what I want and so what if hurts others.

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    Zim Patriot 7 years ago

    As long as the 2% steal and loot the 98% will remain impoverished and obedient….Lets hope the Lord delivers us asap. As a country we need to humble ourselves and pray for a solution to our woes. Woes created by so few individuals but enabled by so many peace loving people!!!!!As always all in the Lords perfect timing.