US$100m for Sovereign Wealth Fund

Martin Kadzere

Senior Business Reporter

AN equivalent of US$100 million has been set aside in the National Budget to operationalise the Sovereign Wealth Fund (SWF), established about five years ago to build reserves for long term savings, Finance and Economic Development Minister Professor Mthuli Ncube said last week.

SWF is a State-owned investment fund that is established from the balance of payment surpluses, official foreign currency operations, the proceeds of privatisation, government transfer payment, a fiscal surplus and resource earnings.

Zimbabwe passed a law in November 2014, the Sovereign Wealth Fund of Zimbabwe Act and subsequently set up a SWF in 2015, but funding shortages hampered operationalisation of the fund.

Prof Ncube said the broader objective of the fund is to build reserves that will facilitate investments for future generations, support socioeconomic development programmes as well as fiscal or macroeconomic stabilisation.

The fund was to be primarily funded by 25 percent of royalties from mineral exports and special dividends on sales of diamonds, gas, granite and other minerals through the Zimbabwe Mining Development Corporation.

“The fund now needs to be capacitated in order to perform its functions,” said Prof Ncube in the 2021 National Budget presentation. “In this regard, Government has set aside resources equivalent to US$97,5 million to capacitate the fund and ensure its objectives are achieved,” he added.

Many of the countries that use sovereign wealth funds have economies that are heavily reliant on one source of income, for instance oil revenues in Norway and the Middle East, according to a 2017 World Economic Forum report.

The investments made through the SWFs are effectively a way for those countries to diversify and become less reliant on a single stream of income.

Norway, home to the world’s biggest SWF, is a significant producer of crude oil and began using a SWF for investments in 1996. Its mission is to build up wealth for when the oil and gas reserves run out and revenues dwindle.

Norway’s SWF has grown to become one of the world’s biggest investors in stocks, owning nearly US$1,2 trillion worth of assets. It owns shares in over 9 000 companies worldwide including Apple and Microsoft, according to the Sovereign Wealth Fund Institute.

Other countries with sovereign wealth funds that are financed from oil and gas revenues include Abu Dhabi, Kuwait, Saudi Arabia and Qatar.

These countries have economies that depend heavily on their natural reserves, making them vulnerable to the fluctuations in oil and gas prices.

China has a number of SWFs that are not generated from commodities, including the third largest in the world — the China Investment Corporation. It was created around 13 years ago to diversify China’s foreign exchange holdings and now has a value of over US$1 trillion.

Globally, more countries are using SWFs, with more than 40 new funds created since 2005, primarily from emerging markets such as Mexico and Turkey.

According to the Sovereign Wealth Fund Institute, the combined assets of top 90 SWFs is now nearly exceeding US$8 trillion, more than double the size of what it was in 2007.

In Africa, countries are racing to establish SWFs. South Africa plans to use money from mining royalties to establish a US$$2 billion sovereign wealth fund.

Djibouti created a sovereign wealth fund and is targeting contributions of US$$1,5 billion within a decade.

The fund will target investments locally and neighbouring countries in the Horn of Africa.

Mozambique has also proposed model for a sovereign wealth fund as it prepares to reap as much as US$96 billion — more than six times the size of its current gross domestic product — from liquefied natural gas projects, according to media reports.

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