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Nqobile Bhebhe, Senior Business Reporter

Bulawayo City Council has unveiled a new policy in which it plans to diversify its investment portfolio by investing excess funds in portfolio investments that offer the highest returns at minimum risk.
This is in line with the proposed investment strategy known as ‘City of Bulawayo Investment Policy’ that is expected to be effective from 1 February 2023.
The planned investment policy is administered under the Urban Councils Act Chapter 29:15, The Municipal Finance Management Act Chapter 22:19 and the Bulawayo City Council Treasury Instructions.
Citing Section 302 (1) of the Urban Councils Act Chapter 29:15 the council said it has authority to exercise investment powers.

“The section states that: ‘If a council has in any fund or account moneys, which are not immediately required for the payment of expenditure payable from that fund or account, then, unless otherwise provided in this Act or any other law, the council shall hold such moneys as balances on current account with a commercial bank or shall invest them in one or more of the following ways—
“(a) balances or deposits with, or bills issued by, any person registered in terms of the Banking Act [Chapter 24:01]; (b)Treasury bills; (c) locally registered securities which are issued by—(i) the State or a municipal council; or (ii) a statutory corporation established by or in terms of a law in force in Zimbabwe or which are guaranteed by the State; (d) deposits with the Post Office Savings Bank; (e) shares in or deposits with a building society registered in terms of the Building Societies Act [Chapter 24:02]…”

According to the council’s latest minutes, the primary goal is to ensure the safety of the principal, while managing liquidity requirements and providing the highest investment returns at minimum risk.
Council also seeks to ensure the diversification of permitted investments. However, the investments may not be undertaken with a view to speculate.
A detailed document contained in the latest council report indicates that the local authority will invest in less than one year fixed deposits and other low risk investments.

The objective is to maximise returns from authorised investments, minimising risk and maintaining adequate liquidity to meet cash flow needs, it said.
A fixed deposit is a financial instrument offered by banks or non-bank financial companies that pays investors a higher rate of interest than a typical savings account until the maturity date.
According to the report, officials to be tasked with the project will periodically enquire from reputable banks regarding the cost of investment and the interest rates offered, based on the amount to be invested.
A list of the banks and their conditions as well as the risk profile shall be compiled and the finance manager shall discuss with the investing official and the investment distribution.

“The investments must be made on excess funds. The investments shall be made on short term guaranteed fixed income investments,” reads part of the report.
“All investments will comply with the provisions of the Urban Council Act and the Public Finance Management Act. In addition, due diligence will be exercised regarding the client to invest with.”
However, the investment of funds must not affect the liquidity of the municipality and shall ensure risk management principles are observed, said council.

The implementation of the policy comes at a time when the local authority says it is financially handicapped to procure key infrastructure to deliver efficient service delivery. It also noted that the 200 percent interest rate charged by the banking sector is crippling its ability to provide services to residents and other ratepayers as it cannot borrow funds from the open market to replace or repair its ageing infrastructure.
Owing to the prohibitive high interest rates, the council claims it cannot borrow to replace or repair ageing infrastructure as well as buy new capital assets.

According to the document, the preservation and safety of investments is the main objective of the investment programme.
The structure of the investments will be to obtain the optimal possible returns, taking into account investment risk constraints, cash flow needs.
However, the investments may not be undertaken with a view to speculation and the policy does not apply to entities under the control of City of Bulawayo unless it is expressly stated in any agreement.
In 2018, council officials said the city was seeking to establish the first Municipal Bank in the country in a bid to attract more investors while unravelling new revenue streams for the local authority.
It was expected to boost investor confidence and ensure that resources meant for infrastructure development are not diverted for other purposes.