Mutapa Investment Fund: Extracting value from SOES
THROUGH various pieces of legislation, starting with the Presidential Powers Act, the Sovereign Wealth Fund of Zimbabwe was renamed to Mutapa Investment Fund (MIF), paving the way for repositioning the sovereign wealth fund.
Statutory Instrument (SI) 156 of 2023 brought about 22 state-owned enterprises (SOES) under the huge umbrella of the MIF.
Subsequently, SI 51 of 2024 brought in another seven, to make the MIF one of the largest ever corporate bodies in the history of Zimbabwe.
The fund
The sheer size of the behemoth that is MIF is mind-boggling, to which there are various schools of thought around this. Large diverse conglomerates can face difficulties in governance, strategic alignment, and operational efficiency.
Therefore, questions, such as how is it even possible to manage such an entity, or will the 24 hours in a day be sufficient for the executives and board to apply themselves to the needs of the enterprise? I will touch on my views around this further down.
The SOES are a vital cog in the economy. Various texts have been known to indicate that our SOES used to contribute somewhere in the region of 40% towards the country’s GDP.
I believe that such a measure still does not do justice to how vital some of the SOES are to the economy. Electricity, for example, provided by Zesa Holdings and its subsidiaries is one of the most fundamental requirements for us to even be able to discuss having any sort of gross domestic product (GDP) in the first place.
It has been widely reported that some SOES have been a burden to the fiscus, which is obviously not ideal, as a dividend is instead expected from the entities.
Apart from accountability and the decisions of those charged with governance, both of which I shall avoid getting into, a key challenge of some of these entities is that there is need to balance the social aspects and profitability.
This results in a situation where entities are not profitable, thus failing to support the government and the nation. In order to restore the MIF entities, funding is a key contributor.
In the absence of cheap and long-term financing given our current predicament as Zimbabwe, innovation will be key.
Environmental, social, governance
Environmental, Social and Governance (ESG)! These have been the buzz words for the past couple of years. It will be remiss if I do not touch on this aspect, given how topical it has become.
Much like ethics, I cannot go through an entire article without embedding this. MIF can be a key contributor to the nation in these three categories.
It is known that circular businesses are more profitable long term and of course, more sustainable in the long term. Given that the major shareholder is the government, which is founded on principles of the “S” in ESG, embedding ESG will be a natural process.
I touched earlier on balancing profitability and the social mandates, and I believe MIF can adequately achieve this. It will be vital to ensure that the entities run commercially while serving their social mandate for the development of the country.
Restoring the MIF entities will have numerous knock-on effects on downstream industries in virtually all sectors of the economy.
Unemployment will be reduced, and the overall well-being of the people will be improved, all the while building wealth for current and future generations.
Furthermore, key line items like current taxes will be paid in full and on time as the board and executives will have no incentive to evade or avoid.
Excess funds, after considering the group working capital and expansion needs can be paid back to the fiscus to ease the burden on taxpayers. MIF can potentially be one of the first truly ESG compliant entities.
How to extract value
Coming back the topic at hand – how can value be extracted from SOES, particularly those under the umbrella of MIF. This is not to say that non-mif entities cannot have the same apply to them.
Most of what I will go through will be applicable to all, and in some instances even private sector entities can borrow the same. The cooperation between MIF and other SOES outside its portfolio will be one way the other entities can benefit.
Synergies
Under the ambit of Mutapa are 29 legal personas, or between 27 and 29 entities, depending on how one chooses to count them. These entities can be further classified into sectors, which including the Industrial Development Corporation, span across virtually all sectors.
The inter-company transactions will be a good opportunity for the entities to benefit from one another, by leveraging off each other’s strengths, markets and opportunities.
The balance sheet
The multi-billion-dollar balance sheet, which the MIF has created is a huge opportunity for access to funding. Having such a balance sheet allows the innovation I touched on earlier, given the absence of cheap funding for the country. Structures can be put in place to raise capital from traditional and non-traditional sources, including the diaspora, who are keen to invest back home.
MIF is in a unique position to move funding around to prop up struggling entities, which have great potential. This will allow treasury to focus on other key areas of concern, and even have MIF support treasury when necessary.
I will also expand on the concerns around the size of the fund and highlight that countries, though slightly different, have trillions under their sovereign wealth funds (e.g. Norway), so MIF is actually the correct size.
If anything, it should even grow. The concerns around managing a large diverse conglomerate, though understandable, should be taken positively as economies of scale come into play.
Given that the shareholder’s expectations can be reduced significantly to social mandate and profitability alignment should be straightforward to achieve.
Continuing with the theme of having ethical and competent officials will ease any potential friction that might occur, thus making MIF’S size a huge advantage as opposed to a deficiency. The huge size will make raising capital a lot easier.
Shared costs
Having a head office watching over such a huge portfolio will allow dedicated research and development into areas of common interest.
Projects, which otherwise would be too capital intensive, can be explored.
These can be technical and innovation, such as development of unique computer systems, which make sense if there is a huge off-take base that exists easily through the various MIF entities.
Efficiency
Agility and adaptability will be important for the potential of these entities to be fully realised. Areas of concern include procurement and travel.
Some of the SOES operate in cut-throat industries, which require quick and efficient decision-making. Allowing the executives to move with haste will be critical. Of course, public funds remain public funds, so there can be no way that operations can run without oversight.
Accountability
The previous point brings me to the issue of accountability. These being public entities at the end of the day, the need for accounting cannot be overemphasised.
The need for speed in decision-making should be balanced off with accountability, wherein reporting should allow for disclosing key decisions and justifications thereof.
Areas where certain exemptions are applied should be clearly shown, clearly showing the benefits derived from the decision. Accountability will be further expanded to include production of International Financial Reporting Standards (IFRS) and International Sustainability Standards Board (ISSB) compliant financial statements.
Timely IFRS and ISSB statements
Reporting will be very critical. Going back to the basics, per the conceptual framework – MIF and its entities, should provide information that is useful to existing and potential investors, lenders and other creditors in making decision about providing resources to the entity.
Adhering to global standards will be important to ensure that the information is understandable, comparable, relevant, faithfully presented and verifiable.
IFRS will guide the financial reporting, while the non-financial information should be guided by ISSB standards or another appropriate framework.
To top it all off, the information should be provided timeously. All the effort and reporting will be most impactful, if stakeholders are informed early on.
Key metrics
Measuring key matrices will assist the MIF to monitor its subsidiaries.
Creating a dashboard to review performance against set targets will aid in deriving value from all the organisations under its purview.
Identifying key red flags early on will be important to take corrective action ahead of time to put the train back on track (figuratively and literally for National Railways of Zimbabwe (NRZ).
Expansion
MIF should grow, exponentially in perpetuity. The investments office of the entity, working closely with finance, should be continuously looking for opportunities to grow and opportunities to partner with other entities locally, regionally and globally. The new investments must be guided by the ESG principles and profitability. This will help spread risk and increase the return to the shareholder, i.e. the government. A venture-capital-esque model might need to be considered in the future as well.
Conclusion
The success of the Mutapa Investment Fund will largely depend on effective governance, balancing social and financial objectives, and adapting to changing economic and environmental landscapes.
Through effective future focus, stakeholder engagement, measuring success, innovation, accountability, transparency and efficiency MIF can be the anchor of the on-going economic turnaround.
The assets under its ownership can be utilised to bring value to the fiscus and the country in general.
Mavengere is a director responsible for finance, technical and education at the Institute of Chartered Accountants of Zimbabwe, which is the largest and longest standing PAO in Zimbabwe. — technical@icaz.org.zw or Twitter: @Owenmavengere.