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Are Budget projections achievable?

TWO important events took place in the country in the last seven days.

First was the signing of the Bilateral Investment Promotion and Protection Agreement (Bippa) between South Africa and Zimbabwe on November 27. This was followed by the National Budget Statement that was presented on Wednesday. The Bippa was supposed to be a defining moment for foreign investors.

This has not been the case as it is already entangled in controversy even before implementation.

In South Africa, for example, the signing of Bippa did not generate as much excitement as anticipated.

South African farmers who lost land during reforms in Zimbabwe argue that the agreement ignored their property rights. But they failed to persuade a South African court to stop the signing of the agreement.

However, the court ordered the South African government to protect the land rights of its citizens in Zimbabwe and also to respect the rulings of a regional court on the same issue.

Back home it does not seem that all parties in the inclusive government freely supported the signing of Bippa.

That such a seemingly important event could only get low key publicity in state media could be a sign that the agreement did not get everyone’s blessings particularly those long accused of disrespecting private property rights. If the Bippa could unsettle some people, especially those with a penchant to reap where they did not sow, then investors must view it as a positive concession provided that it is respected.

The country’s problem in the past was not the lack of bilateral investment agreements, but rather the wanton disregard of these contracts. Several farmers were evicted from their farms despite the fact that Bippas existed between their countries and Zimbabwe.

This week, for instance, the German embassy reportedly wrote to the Zimbabwe government requesting it to stop the takeover of a farm owned by a German national. An investment protection agreement exists between the two governments.

On the budget, it is encouraging to note that Finance minister Tendai Biti did not change course in proposing economic policies that are friendly to industry. When he presented his statement in July the state media accused him of being anti-poor.

Lately, the minister has been vilified for failing to provide funds for the 2009/10 farming season. Considering all that pressure Biti could have easily buckled under and constructed a populist budget.

The budget was production oriented although some of the targets are unlikely to be met because of lack of resources. Projected revenues of US$1,4 billion look overly optimistic. Currently, tax collections per month amount to US$90 million which translates to US$1 080 million annually.

Equally the projected 40% growth in mining for 2010 is unrealistic considering that the sector needs huge capital outlays for it to operate optimally and the forecast tobacco crop of 200 million kilograms also looks overly optimistic.

Considering the existing consumption culture it remains to be seen how investment and savings can grow from 4% of gross domestic product to the projected 14,3%. As noted in the presentation 85% of the population is the poor whom Biti described as “the submerged and drowning”.

Another 13% whom the minister classified as the “floating or dog-paddling middle class” is not much better off than the poorest class. The income streams for these groups are low and most of it is spent on basic commodities.

Very little, if any, is saved and, better still, invested. Indirect taxes such as Vat, excise and customs duties are likely to remain the main sources of fiscal revenue for the next few years until industry fully recovers. In 2009 Vat and customs duties contributed 65% of the cumulative revenues of US$685 million. Direct taxes on corporate and individuals contributed below 19%.

The fiscal discipline that resulted from strict adherence to cash budgeting is commendable considering a past of uncontrolled spending.  Cumulative revenues to October amounted to US$685 million against expenses of US$640,8 million.

This implies a surplus of US$44,2million. The adverse impact of restricted spending on service delivery by government ministries and departments cannot be underscored but that has to be accepted as the reality. There is no money to spend. In the 2010 budget expenditure bids amounted to US$12 billion against possible maximum collections of US$1,4billion. The discipline employed in the current year has to be carried into the future despite huge expectations from government units.

The Zimbabwe Stock Exchange is expected to become competitive now that transactions costs are to be lowered from 7,5% on both purchase and sale to 3,21%. The average in the region is 3,5%. In addition, the decrease of withholding tax on dividends to 10% from 15% is expected to further enhance the attractiveness of the local bourse. The other positive measure for the market is the reduction of basic corporate tax from 30% to 25%.

Notwithstanding these few notable positives from the budget the year ahead is not expected to be smooth. The country still faces what Biti termed “humongous” problems chief among them a lack of funding. The global political agreement should be fully implemented to restore confidence among the providers of capital. Without that the budget projections will only be a wish list.

 

Ranga Makwata

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