A critical assessment of the institutional, legislative and governance structure of Zimbabwe’s sovereign wealth fund.

Abstract

This research assesses the institutional, legislative and governance structure of Zimbabwe’s Sovereign Wealth Fund. Though Zimbabwe’s Sovereign Wealth Fund Act takes into cognisance the Santiago Principles which are regarded as the international best practices of managing Sovereign Wealth Funds the Sovereign Wealth Fund has got an inadequate institutional, legislative and governance structure. The study sought to assess the extent to which Zimbabwe’s Sovereign Wealth Fund conforms to the Santiago Principles. The study also sought to examine the rationale behind establishing a Sovereign Wealth in Zimbabwe. Furthermore, the study also examined the challenges faced by the government of Zimbabwe in implementing the objectives of the Sovereign Wealth Fund. The study made use of purposive and snowball sampling techniques in selecting respondents to the study. The research gathered data through interviews and documentary search. Literature reviewed revealed that the International Working Group Santiago Principles are generally regarded as the international best practices for managing Sovereign Wealth Funds. Usually Sovereign Wealth Funds are created to achieve multiple goals and objectives. Some of the reasons that account for the establishment of Sovereign Wealth Funds include stabilization and diversification of the economy, creating a development, savings and pension fund, combating inflationary and deflationary conditions, and enhancing political influence. The research findings revealed that Zimbabwe generally adheres to the Santiago Principles. However, there are major inconsistencies in the legislative framework of the Fund that may impede the efficient administration of the Fund. Furthermore, the research findings revealed that the Zimbabwe has multiple reasons for establishing a Sovereign Wealth Fund. The reasons include creating a development fund, a savings fund, a stabilization fund and to supplement Zimbabwe’s national budget. In addition, the research findings revealed that the main challenges confronting Zimbabwe’s Sovereign Wealth Fund are inadequate seed capital, human resource capacity constraints, and an economic environment that is not conducive. The study concludes that the Sovereign Wealth Fund empowers the President and the Minister of Finance to interfere in the affairs of the Sovereign Wealth Fund yet ideally it is meant to be an autonomous entity. The study recommends that Parliament rather than the President must be the trustee of the Fund. Furthermore, the study recommends that Parliament in consultation with treasury must give policy direction to the Fund. In addition, the study concludes that the multiple actors and objectives of the Fund make the implementation of the objectives of the Fund difficult. The study recommends that the distinction between National Indigenization and Economic Empowerment Board and the Sovereign Wealth Fund must be explicitly disclosed. The study also concludes that Zimbabwe rushed to create a Sovereign Wealth Fund because it does not meet the prerequisite conditions to do so. The prerequisite conditions include incurring a budget surplus and being highly industrialized. To the contrary Zimbabwe is navigating through dire fiscal straits with a high debt overhang, weak fiscal legroom and is incurring budget deficits. The study recommends that Zimbabwe needs to strengthen its macroeconomic fundamentals so as to support the implementation of the objectives of the Sovereign Wealth Fund.