National wealth fund: good idea but Zim's reality suggests 'not now'

Jun 2, 2011

There is no shortage of fancy ideas coming out of the Zimbabwean government to deal with national challenges. There have been innumerable ones over the years, but almost invariably things get messed up in implementation. By most indices Zimbabwe is much worse off than it was ten years ago, let alone 30 years ago at independence.

Now a Zimbabwean minister has just announced that the country is going to set up a Sovereign Wealth Fund "in line with global trends to ensure that future generations benefit from mineral resources being mined today."

The idea is to set aside money from exports into this fund for investment, a sort of national savings account. 

Similar schemes by oil-rich Middle Eastern nations are often given as examples. Embattled Libya's has been much in the news recently. After patching up its relations with western countries after previous tensions over allegations of supporting terrorism, Libya unleashed its wealth fund in western investment markets, to warm welcome. 

What explains the timing of Zimbabwe's talk of setting up its own wealth fund?  

It is the government's controversial plan to make it a requirement that foreign investors cede 51% equity to black Zimbabweans as part of an aggressive 'indigenisation'/empowerment program. There have been many misgivings from various quarters about the implementation, including the issue of how locals would access the big bucks required for mining. The most serious concerns are over suspicions that the government plans stakeholding expropriations. It denies this, but doubts are widespread after the way most white-owned farms were forcibly taken over  in the past 10 years. 

On paper a national wealth fund is a noble initiative, but it is no coincidence that the countries that have been successfully able to do this are disproportionately cash and savings-rich oil states. Zimbabwe is broke, struggling to pay its civil servants even a few hundred dollars each a month. Where would the money to start this fund come from?

Even if mineral and other exports were to suddenly shoot up, the country is also in deep debt, and with countless immediate needs crying out for expenditure from at least 10 years of economic decline. The prospects of a sudden economic spurt that would be sufficient to meet these overdue needs is extremely low. The prospects of one that would be of a magnitude that there was a surplus that made it possible to set aside hundreds of millions of dollars in such a fund, let alone the billions realistically required for mining and other big-ticket investments is approximately zero.

 Nice idea...but at the present level of economic management, it's one for perhaps 20 or 50 years from now.


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