A Sovereign Wealth Fund is critical to development

By Vince Musewe and Elton Mangoma

Chapter 8 in Vince Musewe and Elton Mangoma’s series on the “Zimbabwe we want”

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 [email protected]