Last month the President caused concern in some quarters when he used the Presidential Powers Act to publish regulations amending the Sovereign Wealth Fund of Zimbabwe Act, and again when he followed up the amendments by publishing a general notice exempting the Fund from having to comply with the Public Procurement and Disposal of Public Assets Act.
A spokesperson for the opposition CCC Party said the regulations legalised looting on a grand scale, and similar views were expressed elsewhere.
Before we examine the Act and the amendments, however, we should be clear about what are sovereign wealth funds.
The Nature and Purposes of Sovereign Wealth Funds
Sovereign wealth funds are investment funds set up by governments from surplus revenues or assets, or from the proceeds of privatisations. Countries which get their income from oil production or mining, for instance, may set up sovereign wealth funds to invest part of that income against a time when their oil and mineral resources are depleted, or to cushion State revenues from fluctuations in the price at which their oil and minerals are sold. The sovereign wealth funds of Kuwait and Norway are examples of such funds. The trustees of a sovereign wealth fund are expected to manage and invest the fund’s assets to further the fund’s objectives, which may include:
· building up savings for future generations
· countering the effects of fluctuating prices of minerals and other natural resources
· diversifying the country’s economy through investments in new industries.
The Sovereign Wealth Fund of Zimbabwe Act
Objectives of the Fund
The Act sets up a sovereign wealth fund with objects which span all the usual objectives of sovereign wealth funds we have just noted, namely:
· to make secure investments for the benefit of future generations
· to support the Government’s development objectives
· to support fiscal and economic stabilisation, and
· to contribute to Government revenues.
Board of the Fund
The Fund is vested in the State with the President as trustee but is administered by a Board which before the President’s amendments, consisted of a Chief Executive Officer and nine other members appointed by the Minister of Finance with the President’s approval. All Board members had to be “persons of recognised integrity” and could not be members of the Government or Parliament or employees of the State. The Minister had to give public notice in the Gazette of appointments to the Board.
Under section 11 of the Act again – before the President’s amendments – the Minister of Finance could give the Board general directives as to how they were to exercise their functions, and the Board had to comply with them.
Reports by the Board
Under section 12 of the Act the Board has to report to the Minister every three months on its activities and the state of the Fund. It also has to give the Minister a very detailed annual report on the Fund’s plans, operations and performance in each financial year. The Minister is obliged to table all these reports in Parliament within two weeks after receiving them.
Assets of the Fund
According to section 14 of the Act, the following amounts of money must be paid into the Fund:
· a portion of the royalties received by the State from the mining of various minerals, including gold, diamonds, nickel, chrome and platinum. The portion, i.e. the percentage, must be prescribed in the Finance Act.
· a portion, which again must be prescribed in the Finance Act, of a “special dividend” which the Minerals Marketing Corporation is obliged to pay to the State from the sale of minerals.
· any other money that may come to the Fund, whether through profit on investments, appropriations by Parliament, or otherwise.[Note here that section 14 envisages money being paid into the Fund, not shares or other assets]
Under section 15 of the Act the Board is supposed to invest the money of the Fund in accordance with an annual investment mandate approved by the Minister; its investments must be in gold bullion, precious stones and precious metals and foreign or local assets (section 16(3)(b) and (c)) and the Board must keep an up-to-date schedule of its investments open to public inspection at its offices and posted on its website (section 16(4)).
Prohibition against use of Fund to pay off debt
The Fund is not allowed to invest in Government debt, e.g. Treasury bills, nor in providing Government guarantees (section 16(3)(c) of the Act). Under section 22 of the Act, the assets of the Fund cannot be used to provide credit for the Government or parastatals or any other entities, nor as collateral for governmental or any other debt.
Audit of accounts of Fund
Under section 25 of the Act, the Auditor-General is supposed to audit the Fund’s annual accounts and, in terms of the Audit Office Act, the audit reports must be sent to the Minister of Finance and laid before the National Assembly.
Assessment of the Act and the Management of the Fund
The Sovereign Wealth Fund of Zimbabwe Act is generally a sound piece of legislation, with provisions ensuring that the Board manages the assets of the Fund prudently and with the utmost transparency.
Shockingly, however, those provisions have been almost completely ignored ever since the Act came into operation in June 2015.
The Minister finally got round to appointing persons to the Board in March this year. Who managed the Fund before then is not clear, but whoever did so could not have done it legally because under the Act the Board alone has power to administer the Fund.
Even the appointment of Board members was defective, because although the Board is supposed to have nine members only seven members were appointed. Could the Minister not find nine “persons of recognised integrity” to fill the Board? Apparently not.
Assets of the Fund
As we noted earlier, the Fund is supposed to receive a specified portion of royalties and special dividends paid to the State on the mining and extraction of minerals. That portion has never been specified in the Finance Act, as it was supposed to have been, so presumably the Fund has not received these revenues.
It did have some assets, however, because when the Minister of Finance announced the appointment of the Board he was quoted as saying:
“So far [the Fund] has assets in the coal sector, oil and gas, lithium and is keen to have assets in the gold sector. Outside the mining sector, there is a new pharmaceutical joint venture with a company from the United Arab Emirates.”
Earlier, in June 2021, it seems that the Fund received a dividend of US$520 000 from Kuvimba Mining House for its 6,5 per cent shareholding in the large mining company.
Questions arise about these assets, among them:
· What exactly are the “assets” – shares, piles of minerals, or what?
· Equally importantly, how did the Fund acquire the assets? Did it buy them? If so, where did it get the money to do so? If the Government donated the assets to the Fund, under what law was the donation made? It must be remembered that the Minister of Finance cannot transfer the Government’s money or assets to anyone else, even to a parastatal body, without being authorised to do so by a law – an Appropriation Act, in the case of money.
Lack of transparency
We pointed out earlier that the Board is supposed to send the Minister detailed reports on its activities and plans, quarterly and annually, and the Minister is supposed to lay the reports before Parliament. No reports have ever been laid before Parliament. Admittedly there was no Board to prepare the reports until March this year, but since then two quarters have gone by without a report.
The Board is supposed to keep a schedule of the Fund’s current investments at its offices and allow the public to inspect it. The Board is also supposed to post the schedule on its website so that the public can have access to it. Does the Board even have a website? We invite readers to search the web for it.
The Auditor-General is supposed to audit the Fund’s accounts, as we have said, and send audit reports to the Minister who must lay them before the National Assembly.
If the Fund’s accounts were ever audited, the audit reports have never been laid before the National Assembly.
The way in which the Fund has been managed shows a disregard for the law that is shocking even by Zimbabwean standards. It may be an exaggeration to call the Fund a “looting machine” but without full and public disclosure of what was paid into the Fund and what has been taken from it, it is impossible to tell if that description is justified or not.