Analysts dim on Zim’s new state fund

By Tawanda Karombo Time of article published Nov 17, 2014

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Harare - The Zimbabwean Sovereign Wealth Fund (SWF) funded from mineral royalties will not work unless President Robert Mugabe’s Zanu PF-led government addresses poor confidence in the country’s economy, declining foreign direct investments as well as a woeful budget position, experts told Business Report on Friday.

The political uncertainty emanating from fights to take over from Mugabe have added to investor worries in the country. Lack of investments, coupled with a flat-lining economy characterised by a continued decline in productivity and rising imports has seen most companies and businesses battle to stay afloat.

Cash-strapped to fund infrastructure development, considered key in attracting investments, the government of Zimbabwe has sought to create a SWF funded from mineral royalties. Mining companies in Zimbabwe already view the royalties on minerals such as platinum, coal and others as too high.

Takunda Mugaga, an economist, told Business Report on Friday that the SWF envisioned by the government was bound to fail as the environment in the Zimbabwean economy is currently not conducive to its feasibility. He said the strategy adopted by the government for its implementation and funding modalities were wrong.

“The primary conditions necessary is that you (need to) have a budget that is well functional while FDI inflows should be healthy. If you look at these sectors in Zimbabwe, they don’t exist,” he said.

The mining sector in Zimbabwe, which the government is hoping to will help prop up the fund is faced with a 1.9 percent negative growth for this year. Finance Minister Patrick Chinamasa has blamed this negative revision on softer commodity prices.

Mugaga said mineral resources would not be able to fund the SWF as the industry was not contributing “much to revenues”.

Mugabe signed the SWF into law this week, according to a government gazette seen by Business Report. The gazette says the Zimbabwean central bank will administer the fund, with the Finance Ministry mandated to remit royalties collected from mining companies into the fund.

It adds that the minerals from which royalty payment contributions will be used to finance the fund include “gold; diamonds; coal; coal bed methane gas; nickel; chrome; platinum and any mineral that may be specified… to be payable” into the fund.

Zimbabwe needs to develop its infrastructure in double quick time although it is saddled with a $10 billion debt which it is failing to repay. The IMF says Zimbabwe’s “external position is precarious, with low international reserves, a large current account deficit, an overvalued real exchange rate, and growing external arrears” and adds that “credit and deposit growth have slowed down sharply”.

Other experts said the banking sector liquidity crunch was worsening after non-performing loans surged to 20 percent, according to a statement by central bank governor John Mangudya this week.

They added that treasury bills which the government was offering in settlement of debts owed to companies such as Meikles and Seedco were not attractive.

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