Zimbabwe Must Craft Policies, Strategies to Benefit from its Resources

The MEFMI discussion forum was held in Harare, Zimbabwe on 23 May, 2013. The event which was financed by the Norwegian Embassy in Harare provided an opportunity for some senior government officials and industry executives to exchange views and share experiences on optimal utilisation of natural resources through strategies that promote sustainable economic growth and development.

The discussion forum was guided by a presentation made by Mr. Jan Isaksen, a highly respected Economist with diverse insight not only in the area of natural resources management but also the wider Norwegian economic policy and planning. The event was officially opened by Dr Desire Sibanda, the Permanent Secretary in the Zimbabwe Ministry of Economic Planning and Investment Promotion.

In his opening remarks Dr Sibanda applauded MEFMI for bringing to the fore the importance of natural resources management. He said, “Through-out the African continent, ordinary men and women as well as corporates are extracting natural resources to enhance their lives. Although in some circles, natural resources management is considered within the framework of power, process and practice and how these shape access, control and use of natural resources, it is my belief that governance systems should be crafted in the context of empowering and enriching the nations that are endowed with the natural resources.”

Dr Sibanda bemoaned the fact that while the Africa region is resource rich, state control over the use and management of income from natural resources is largely ineffective because the state lacks the resources and capacity to enforce appropriate controls. He said, “It is my sincere hope that, through this forum, we can learn and share on how best to utilise income generated from the natural resources that abound in our country, for the benefit of all citizens.”

The knowledge and experience shared by Mr Isaksen at the discussion forum is invaluable as he has been involved in preparing the Norwegian Long Term Programme during the period 1974 to 1977. He explained that this is the first development blueprint for Norway after it had become clear that considerable amounts of oil and gas had been found on the Norwegian Continental Shelf (NCS). Mr. Isaksen has since then closely followed the development of the Norwegian economy and has immense understanding of what drives it. His experience and insight is quite relevant to Zimbabwe and the African continent’s natural resource management situation which is endowed with precious stones and other natural resources.

In his presentation Mr Isaksen stated that the effectiveness of the Norwegian experience is based on the technical, institutional and organizational arrangements, which are the main pillars of the Norwegian management of natural resource wealth.

He said, “A few aspects which may be of relevance for other countries include strategic handling of its new found natural resources. For Norway this was led by the adoption of ‘10 oil commandments’. This was backed by national policy on the handling of investment and upstream activities such as the transfer of technology and the cooperation in research and development of Norway’s petroleum policy as well as cooperation agreements made with the oil companies.” Mr Isaksen stated that the Tax Act which Norway adopted has also positively influenced economic growth in the country. He said, “With a special tax of 25%, it gave a marginal tax rate in the range of 76%, uplift was introduced as a relief against the special tax, with 10% of cost price of production and pipeline installations over 15 years. Crude oil sales were to be valued at Norm Price. As prices increased in the late 70s the special tax rate was increased from 25% to 35%, and uplift reduced. In 1992, a major reform of the general tax system in Norway was enacted. This necessitated certain changes in the petroleum tax system, since the general income tax rate was reduced from in excess of 50% to 28%. Thus, the Special Tax was increased to 50%, giving a marginal tax rate of 78%. The recently introduced production allowance was abolished and Uplift was reintroduced.”

A special feature of “the Norway Model” is that whereas other sovereign funds invest in illiquid markets, private equity and hedge funds, the Norwegians invest in thousands of different bonds and shares. The fact that it does not invest heavily in any company but keeps its 8000 companies and 4000 different bonds is looked at with a mixture of disdain and admiration from other fund managers.

Said Mr Isaksen, “The model has served the fund reasonably well. In the 2007 to 2008 period when the crisis was on, we had a negative return of 23% during only one year. Overall the fund has exceeded expectations. Also the Fund never buys shares for more than 10% of one company. Only recently has the Fund been allowed to buy property. It has, despite management’s suggestions not been allowed to invest in infrastructure and private equity. In 2007 the allocation for equities was increased from 40% to 60% and the pattern of regional allocation has been changed, cutting the allocation for Europe from 60% to 40%.”

He urged Zimbabwe to carefully craft policies and strategies to avoid the twin evils of a natural resource curse and the Dutch disease if the country is to benefit from its vast mineral deposits. “In addition, there is sometimes a rapid movement of capital and labour from other traded sectors to the resource sector, a phenomenon known as the Dutch Disease”, he said.

The natural resource curse is a phenomenon where a resource rich country or region fails to develop economically despite its resource base due to poor governance, rampant corruption or civil wars or other conflicts that arise due to the resource endowment. Mr Isaksen also said some countries suffer a rapid increase in aggregate demand often leading to overheating of the economy and inflation and an appreciation of the currency. He said economies could suffer due to the “spillover loss effect” of crowding out of the non- resource-traded-goods sector, leading to permanent loss of capacity and technological progress in these sectors.

In her closing remarks, H.E. Ingebjorg Stofring, Ambassador of the Royal Norwegian Embassy stated that the Norwegian experience is very useful because the technical, institutional and organisational arrangements that are seen as the main pillars of the Norwegian management of natural resource wealth can be replicated or adapted to other countries.

Ambassador Stofring said, “I wish to point out that in many of the resource rich countries such as Zimbabwe, pioneering efforts at entrustments over use and management of resources are required in order to correct the imbalance where there is just a trickle-down effect of the income generated. This is in part because the policy thrust is not clearly defined to benefit the nation but is designed in terms and processes that benefit external agents and their functionaries.”

She said Zimbabwe has in the past managed to build successful manufacturing and commercial agricultural sectors based on income generated from its natural resources. She also added that countries in the MEFMI region should take lessons from Botswana, which rose from a low to a middle-income country status on economic growth driven by the diamond trade.

The Ambassador urged MEFMI to continue in its endeavour of promoting cross pollination of ideas and their application for the benefit of the nationals of the MEFMI region.