Zimbabwe’s planned sovereign wealth fund may get as much as a quarter of mining royalties and the same share of “special dividends” on state mineral and metal sales. Parliament will also be able to appropriate money to benefit the fund.
A 16-member board will decide on the fund’s activities, allowing it to make withdrawals, primarily to pay for infrastructure developments, according to a draft of the Sovereign Wealth Fund of Zimbabwe Act.
“That document will be taken to parliament sometime early next year,” Fred Moyo, the country’s deputy mines minister, said in a Nov. 22 interview by phone. “It’s critical for us to have a sovereign wealth fund, and that’s what every nation should do to address vulnerable situations.”
President Robert Mugabe, who extended his 33-year rule in July elections, is considering a range of options to finance the recovery of Zimbabwe’s economy, which shrank by 40 percent between 2000 and 2008. The country suffered from inflation estimated at 500 billion percent by the International Monetary Fund after the seizure of white-owned commercial farms slashed exports of crops including tobacco and roses.
As well as the sovereign wealth fund, the government is considering the sale of bonds, securitization of remittances, re-engagement with international finance institutions and the creation of special economic zones, according to a separate document signed by Mugabe and obtained from the Ministry of Finance on Nov. 15.
Zimbabwe has the world’s second-largest deposits of platinum and chrome and reserves of minerals ranging from coal and iron ore to gold and diamonds. Investment has been held back by a law compelling foreign and white-owned companies to sell or cede 51 percent of their local assets to black Zimbabweans or the government. Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. (IMP) and Rio Tinto Plc (RIO) are among companies that operate in the country.
The fund’s income will come from no more than a quarter of all mining royalties as well as the equivalent from ’special dividends’ on sales by the Minerals Marketing Corp. of Zimbabwe, which sells minerals on behalf of the state. The law defines special dividends as 50 percent of the gross value of any sales made by the state-owned Zimbabwe Mining Development Corp. from any project it’s involved in.
The ZMDC has joint ventures with a number of companies on the Marange diamond field in the east of the country.
A 10 percent royalty is currently levied on platinum miners’ revenue while diamond production attracts a 15 percent charge. Other precious stones have a 10 percent royalty levied on them while the charge for gold is 7 percent and other precious metals face a 4 percent charge. A 2 percent charge is levied on base and industrial metals as well as coal-bed methane. The royalty on coal production is 1 percent.
If the endowment needs more money to “help promote the object of the fund” or doesn’t have enough cash to pay staff, parliament can legislate to appropriate more money as an advance or as a grant, according to the bill, which doesn’t set out where this money would be taken from.
The law also amends the legislation governing the ZMDC, allowing the accountant-general to set the period of time between any sale of diamonds and the payment.
The fund will function under the September 2008 Santiago Principles, which set out measures for better disclosure and regulating risk management, according to the bill.
The fund will operate under the oversight of the Reserve Bank of Zimbabwe.