The Sunday Mail
Tawanda Musarurwa
Senior Business Reporter
Zimbabwe has the capacity to fund its growth agenda, but there is need for financial institutions and cash-rich entities such as pension funds to effectively deploy current savings, according to an expert.
With foreign sources of capital drying up, domestic savings have become vital for local investment.
While there are claims that Zimbabwe is overbanked — having more than 19 banking institutions — some market watchers believe this cannot be the case since companies are still struggling to access working capital.
Although pension funds have the capacity to directly fuel economic growth by providing additional funds for investment, local pensions funds have a lot of money tied up in property, which is not being leveraged for other investments.
SEF Prospero Capital managing director Mr Francois Molife said both financial institutions and pensions funds can play a role in ensuring that the economy is funded from local resources.
“In Zimbabwe there is huge savings component which is not accounted for. For instance, most residential properties are mortgage-free, hence there are refinancing opportunities that can release billions in Zimbabwe dollars. There are a lot of savings in hard currency, a component of which is in households,” he told a Zimbabwe Association of Pension Fund (ZAPF) engagement.
“The country has an estimated 5,2 million communal herd, valued at US$1,3 billion (US$250 per beast), and there is more money in other soft commodities.
“There has to be a strategy developed by formal institutions to convert the latent potential in current savings so that they can fund the economy’s growth requirements.”
He said while the 2021 Budget projects the economy to expand to $116 billion, pension fund contributions stood at $5,2 billion as at December 2020.
“Emerging opportunities are clear in view of this deficit, for instance, with regards to the commodities exchange. But how ready are the pension funds to release funds towards these new opportunities,” he said.
Latest figures from the Insurance and Pensions Commission (IPEC) show that investment property and listed equities constitute 51,6 percent and 37,8 percent of pension funds’ investments.
Mr Prosper Matiashe, an actuary, recently said since local pension funds are disproportionately invested in property and equities, they are not investing in vital economic sectors.
“Pension investments should match the natural behaviour and interests of the economy. The Zimbabwean economy is centred on agriculture and mining, and according to estimates, agriculture contributes 17 percent to Gross Domestic Product (GDP), while mining contributes 16 percent to GDP, and tourism contributes 6,5 percent,” he said.
“But the Zimbabwe Stock Exchange doesn’t show the same profile. On the ZSE, agriculture contributes 9,3 percent to market capitalisation without Innscor, or 12,2 percent if we take 40 percent of Innscor. Mining contributes 2,7 percent to market cap, and tourism contributes 3,1 percent to market cap.”
Analysts also claim investment financing should also focus on the manufacturing sector, which is critical to the economy.
It is believed that if pension funds are going to shift from their time-tested investment strategies, they need to undergo a hard reset.
“While almost every pension fund has one, not every fund is consistently and loyally abiding by the provisions of their investment policy statement (IPS). It’s certainly no news to most trustees that failure to diligently follow an investment policy statement is considered a breach of fiduciary responsibility, and yet their engagement with their IPSs at times makes it seem they are not alert to this principle,” said Risk and Investment Management Consultants actuaries Gandy Gandidzanwa and Itai Mukadira.
“The adoption of the IPS, although wide in our sector, has been largely in response to regulatory requirements. The culture of crafting and taking full ownership of an IPS was not there prior to the onslaught of the regulatory provisions mandating every fund to have one in place. The industry has tended to then treat this simply as a compliance tick-box exercise to ‘satisfy the needs of the regulator’.
“This is quite an unfortunate stance on what is globally otherwise considered a prudent standard good practice. The real challenge is that an IPS is worthless without the acknowledgement that its existence is necessary. Trustees need to believe in the reason for its creation to give it real value. Investment performance varies over time and should be evaluated frequently.”
