News / Local
Mnangagwa's Mutapa Fund likely to create oligarchs
09 Oct 2023 at 08:50hrs | Views
FEARS abound that President Emmerson Mnangagwa's self-serving Mutapa Investment Fund project has hallmarks of how Russian state assets were sold for a song or brazenly stolen during its transition from socialism to capitalism.
Russian oligarchs made their money by snatching up valuable state assets at dirt-cheap prices.
They used various methods to grab the properties.
Sometimes oligarchs stripped their acquisitions of assets or acquired natural resources and then sold them off and shipped the money abroad.
Mnangagwa on 19 September gazetted Statutory Instrument (SI) 156 of 2023, which changed the name of the Sovereign Wealth Fund of Zimbabwe to Mutapa Investment Fund and brought 20 state-owned entities under one board.
According to the SI, entities under the Mutapa Investment Fund will be exempt from the Public Procurement and Disposal of Public Assets Act, which compels public enterprises to go through the Procurement Regulatory Authority of Zimbabwe to pay for goods and services.
The affected companies are Defold Mine, Zupco, Kuvimba Mining House, Silo Investments, National Oil Company of Zimbabwe, Cold Storage Commission Limited, PetroTrade, POSB Bank, NetOne, National Railways of Zimbabwe, TelOne, Arda Seeds, Zimbabwe Power Company, PowerTel Communications, Allied Timbers, Telecel, Air Zimbabwe, Industrial Development Corporation of Zimbabwe, Cottco and Hwange Colliery Company.
The placement of these entities under the Mutapa Investment Fund has stoked fears that the board of the fund will covertly sell assets of the parastatals to politically connected individuals with links to the ruling Zanu-PF party.
In an interview with The NewsHawks, prominent economic analyst Professor Gift Mugano said: "My fears are centred around the lack of transparency and accountability. The fact that the fund is exempt from public scrutiny worries me a lot. The reason why we want public scrutiny is that we want to make sure that there is no wastefulness in terms of how procurement is done. So, for me that is the first thing I am worried about. It worries me a lot because we need transparency. Number two, I am not a lawyer, but I can follow that in things like these, you would like the Parliament to be involved, but when there is a presidential decree in it, again it creates challenges in terms of economic governance, because Parliament has a legislative role and it looks like its mandate has been taken away."
Prof Mugano added that the importance of subjecting parastatals and transactions involving public entities to parliamentary scrutiny is to provide much-needed oversight.
"If it is done by the President, then they would have missed an opportunity to get views from members of the public in particular. I am not saying any insinuation that there are no legal advisors of the President, but I think the more the better and we need to follow processes," he said.
"Finally, I would like to see our sovereign wealth fund focusing on our natural resources, minerals in particular. It would then help us to benefit from the minerals in times of surpluses where prices are very good and we are making good money from our minerals. But when we see 20 state-owned enterprises being put under the sovereign wealth fund, I have a bit of a challenge because, traditionally, the wealth works well when it is focusing on minerals because those are infinite."
Prof Mugano also questioned why the government did not leave parastatals to stand alone and then allow reforms and restructuring of the enterprises as legal entities and then come up with an ideal model of each depending on its status.
He said some could have been allowed some to undergo privatisation, others commercialisation and others could go for a blend of public and private ownership.
"There are quite useful models to drive success and improve performance of state-owned enterprises. My fear is that if they are lumped under a fund, which is owned by the government, it is still the same government putting them under one roof, but then impeding any possibility of external players to work on them as individual entities," Prof Mugano said.
Former Finance minister Tendai Biti said the Mutapa Investment Fund is illegal.
"The instrument does not meet the test of the law and must be rejected as it is illegal. This law was unnecessary," Biti said during a radio show on Wednesday evening this week.
"They are transferring the public shares into a private vehicle. The government already owns the shares; I think the issue is to sell shares as quickly as possible without public scrutiny."
Biti added that the law is very clear that any procurement in Zimbabwe must be subject to public accountability and transparency.
"Under section 340 of the constitution, neither the President nor ministry of Finance secretary George Guvamatanga could seek not to exclude the operations of Public Procurement Act from any transaction," he said.
But the Finance ministry's permanent secretary Guvamatanga told a meeting of businesspeople in Victoria Falls on Monday that the entities under the Mutapa Investment Fund are not covered by the exemption.
Guvamatanga said only Mutapa Investment Fund, as a standalone investor holding government shares in each of the firms, has that privilege. The parastatals in which Mutapa has shares will remain separate legal entities that must still go through procurement regulations.
"To be clear, in terms of the law, as contained in the general notice published last Friday, the exemption applies only to the fund, and not to any other entities listed on the schedule. The fund merely owns shares in those entities, but (the SI) does not change their legal character or separate legal entities distinct from the fund," Guvamatanga said, adding: "All this noise that we're seeing, that every entity has been exempted, is not correct." Guvamatanga says the government has exempted the Mutapa Investment Fund because the fund will need to make quick decisions as an investment fund.
"Because the fund, by its nature, will operate and compete in competitive markets, in both the international and competitive markets, competing against private equity funds and such types of businesses, the fund will need to be quick, efficient and cost-effective," Guvamatanga said.
"In some instances, by its nature, it will be involved in market-sensitive transactions which, as investment brokers will know, will require such transactions to be handled differently. As such, it was important to place it at par with its peers."
But this has failed to calm the nerves, stoking suspicions that the politically connected will exploit the Fund in circumstances similar to what obtained in Russia during the rule of Boris Yeltsin who became president of the country in July 1991.
During this period the oligarchs emerged as well-connected entrepreneurs who started from nearly nothing and became filthy rich through purchasing expensive public assets for a song using their connections to corrupt government officials. This was during Russia's transition to a market-based economy.
In post-Soviet Russia, the corrupt system saw the rise to international prominence of Russian billionaires who now own expensive superyachts such as Roman Abramovich, Alisher Usmanov, Boris Berezovsky and Oleg Deripaska.
They were the opportunists who took advantage of the messy and corrupt market that emerged in Russia after the dissolution of the Soviet Union in 1991.
In the aftermath of the collapse of the Soviet Union, the newly formed Russian government set about selling off Soviet assets to the public via a voucher privatisation programme.
The Soviet state assets which were sold to the oligarchs for a song included hugely valuable industrial and energy machinery which they in turn sold abroad and stashed their earnings in foreign bank accounts rather than investing it back in the Russian economy.
The first generation of Russian oligarchs were mostly hustlers who had made their money on the black market or by seizing entrepreneurial opportunities in the late 1980s, when the Soviet Union began to loosen its stringent restrictions on private business practices.
Scholar Harry Atkins in a study report titled How Did Russia's Oligarchs Get Rich from the Fall of the Soviet Union? made clear explanations on the issue.
Atkins wrote: "Arguably, in his haste to transition Russia into a market economy, Boris Yeltsin, the first President of the Russian Federation, helped to create a set of circumstances that perfectly suited the emergent oligarchy. Assisted by the influential economist Anatoly Chubais, who was tasked with the role of overseeing the privatisation project, Yeltsin's approach to transforming the Russian economy – a process that no one expected to be painless – was to deliver capitalism via economic ‘shock therapy'. This entailed the sudden release of price and currency controls. Though this approach was widely advocated by neoliberal economists and the International Monetary Fund (IMF), many felt that the transition should be more gradual."
Fears abound that the same situation can happen in Zimbabwe under the Mutapa Investment Fund.
Russian oligarchs made their money by snatching up valuable state assets at dirt-cheap prices.
They used various methods to grab the properties.
Sometimes oligarchs stripped their acquisitions of assets or acquired natural resources and then sold them off and shipped the money abroad.
Mnangagwa on 19 September gazetted Statutory Instrument (SI) 156 of 2023, which changed the name of the Sovereign Wealth Fund of Zimbabwe to Mutapa Investment Fund and brought 20 state-owned entities under one board.
According to the SI, entities under the Mutapa Investment Fund will be exempt from the Public Procurement and Disposal of Public Assets Act, which compels public enterprises to go through the Procurement Regulatory Authority of Zimbabwe to pay for goods and services.
The affected companies are Defold Mine, Zupco, Kuvimba Mining House, Silo Investments, National Oil Company of Zimbabwe, Cold Storage Commission Limited, PetroTrade, POSB Bank, NetOne, National Railways of Zimbabwe, TelOne, Arda Seeds, Zimbabwe Power Company, PowerTel Communications, Allied Timbers, Telecel, Air Zimbabwe, Industrial Development Corporation of Zimbabwe, Cottco and Hwange Colliery Company.
The placement of these entities under the Mutapa Investment Fund has stoked fears that the board of the fund will covertly sell assets of the parastatals to politically connected individuals with links to the ruling Zanu-PF party.
In an interview with The NewsHawks, prominent economic analyst Professor Gift Mugano said: "My fears are centred around the lack of transparency and accountability. The fact that the fund is exempt from public scrutiny worries me a lot. The reason why we want public scrutiny is that we want to make sure that there is no wastefulness in terms of how procurement is done. So, for me that is the first thing I am worried about. It worries me a lot because we need transparency. Number two, I am not a lawyer, but I can follow that in things like these, you would like the Parliament to be involved, but when there is a presidential decree in it, again it creates challenges in terms of economic governance, because Parliament has a legislative role and it looks like its mandate has been taken away."
Prof Mugano added that the importance of subjecting parastatals and transactions involving public entities to parliamentary scrutiny is to provide much-needed oversight.
"If it is done by the President, then they would have missed an opportunity to get views from members of the public in particular. I am not saying any insinuation that there are no legal advisors of the President, but I think the more the better and we need to follow processes," he said.
"Finally, I would like to see our sovereign wealth fund focusing on our natural resources, minerals in particular. It would then help us to benefit from the minerals in times of surpluses where prices are very good and we are making good money from our minerals. But when we see 20 state-owned enterprises being put under the sovereign wealth fund, I have a bit of a challenge because, traditionally, the wealth works well when it is focusing on minerals because those are infinite."
Prof Mugano also questioned why the government did not leave parastatals to stand alone and then allow reforms and restructuring of the enterprises as legal entities and then come up with an ideal model of each depending on its status.
He said some could have been allowed some to undergo privatisation, others commercialisation and others could go for a blend of public and private ownership.
"There are quite useful models to drive success and improve performance of state-owned enterprises. My fear is that if they are lumped under a fund, which is owned by the government, it is still the same government putting them under one roof, but then impeding any possibility of external players to work on them as individual entities," Prof Mugano said.
Former Finance minister Tendai Biti said the Mutapa Investment Fund is illegal.
"The instrument does not meet the test of the law and must be rejected as it is illegal. This law was unnecessary," Biti said during a radio show on Wednesday evening this week.
"They are transferring the public shares into a private vehicle. The government already owns the shares; I think the issue is to sell shares as quickly as possible without public scrutiny."
Biti added that the law is very clear that any procurement in Zimbabwe must be subject to public accountability and transparency.
"Under section 340 of the constitution, neither the President nor ministry of Finance secretary George Guvamatanga could seek not to exclude the operations of Public Procurement Act from any transaction," he said.
But the Finance ministry's permanent secretary Guvamatanga told a meeting of businesspeople in Victoria Falls on Monday that the entities under the Mutapa Investment Fund are not covered by the exemption.
Guvamatanga said only Mutapa Investment Fund, as a standalone investor holding government shares in each of the firms, has that privilege. The parastatals in which Mutapa has shares will remain separate legal entities that must still go through procurement regulations.
"To be clear, in terms of the law, as contained in the general notice published last Friday, the exemption applies only to the fund, and not to any other entities listed on the schedule. The fund merely owns shares in those entities, but (the SI) does not change their legal character or separate legal entities distinct from the fund," Guvamatanga said, adding: "All this noise that we're seeing, that every entity has been exempted, is not correct." Guvamatanga says the government has exempted the Mutapa Investment Fund because the fund will need to make quick decisions as an investment fund.
"Because the fund, by its nature, will operate and compete in competitive markets, in both the international and competitive markets, competing against private equity funds and such types of businesses, the fund will need to be quick, efficient and cost-effective," Guvamatanga said.
"In some instances, by its nature, it will be involved in market-sensitive transactions which, as investment brokers will know, will require such transactions to be handled differently. As such, it was important to place it at par with its peers."
But this has failed to calm the nerves, stoking suspicions that the politically connected will exploit the Fund in circumstances similar to what obtained in Russia during the rule of Boris Yeltsin who became president of the country in July 1991.
During this period the oligarchs emerged as well-connected entrepreneurs who started from nearly nothing and became filthy rich through purchasing expensive public assets for a song using their connections to corrupt government officials. This was during Russia's transition to a market-based economy.
In post-Soviet Russia, the corrupt system saw the rise to international prominence of Russian billionaires who now own expensive superyachts such as Roman Abramovich, Alisher Usmanov, Boris Berezovsky and Oleg Deripaska.
They were the opportunists who took advantage of the messy and corrupt market that emerged in Russia after the dissolution of the Soviet Union in 1991.
In the aftermath of the collapse of the Soviet Union, the newly formed Russian government set about selling off Soviet assets to the public via a voucher privatisation programme.
The Soviet state assets which were sold to the oligarchs for a song included hugely valuable industrial and energy machinery which they in turn sold abroad and stashed their earnings in foreign bank accounts rather than investing it back in the Russian economy.
The first generation of Russian oligarchs were mostly hustlers who had made their money on the black market or by seizing entrepreneurial opportunities in the late 1980s, when the Soviet Union began to loosen its stringent restrictions on private business practices.
Scholar Harry Atkins in a study report titled How Did Russia's Oligarchs Get Rich from the Fall of the Soviet Union? made clear explanations on the issue.
Atkins wrote: "Arguably, in his haste to transition Russia into a market economy, Boris Yeltsin, the first President of the Russian Federation, helped to create a set of circumstances that perfectly suited the emergent oligarchy. Assisted by the influential economist Anatoly Chubais, who was tasked with the role of overseeing the privatisation project, Yeltsin's approach to transforming the Russian economy – a process that no one expected to be painless – was to deliver capitalism via economic ‘shock therapy'. This entailed the sudden release of price and currency controls. Though this approach was widely advocated by neoliberal economists and the International Monetary Fund (IMF), many felt that the transition should be more gradual."
Fears abound that the same situation can happen in Zimbabwe under the Mutapa Investment Fund.
Source - newshawks
