The Confederation of Zimbabwe Industries (CZI) has proposed an importer-financed export incentive scheme, which lessens pressure on the central bank to look for foreign currency for importers.
BY FIDELITY MHLANGA
In its submission to Treasury for consideration in the 2018 national budget to be announced on Thursday, CZI said the new incentive would relieve the pressure on the 5% export incentive scheme introduced last year.
“We recommend replacing the 5% export incentive scheme with an importer financed export incentive scheme.
“The idea behind the scheme is to empower the banks to find exporters with the funds who would be willing to let them be used by importers at a premium, which then becomes the incentive for the exporters,” CZI said in a paper seen by Standardbusiness.
Companies have been struggling to make foreign payments for raw materials due to the prevailing foreign currency shortages.
The Reserve Bank of Zimbabwe (RBZ) believes the solution to the forex shortages is to increase exports and come up with a 5% export incentive, which is backed by the $200 million facility from the African Export Import Bank. The incentive comes in the form of bond notes.
The RBZ recently said the incentive was serving its intended purpose of promoting and securing exports after exports grew by 40% in the first 10 months of the year compared to the same period in 2016.
CZI said duty on hybrid and electric cars must be suspended as this would result in significant savings in terms of fuel over the long-term.
It said there was need to come up with incentives or policies that support the primary/raw material production industries in Zimbabwe as the high demand for forex was caused by the need for imported raw materials.
“We recommend the introduction of incentives for companies that engage in contract farming activities to develop business linkages, and farming in the country,” CZI said.
“We also recommend the introduction of policies, which govern that a certain percentage of every $1 allocated for forex for importation of raw materials with potential locally goes towards primary production development for example in cooking oil, maize and milk.”
The country’s manufacturing sector capacity utilisation dropped by 2,3 percentage points to 45,1% in 2017 from 47,4% last year weighed down by cost and shortage of raw materials, low local demand and foreign currency shortages.
The industry lobby group said due to the fact that vast quantities of foreign currency were being utilised to import raw produce, these funds can be used to support farmers in their farming activities if government put closure to land bankability challenges.
The call from CZI came as business leaders and economists urged Treasury to roll out a raft of measures to augment the prevailing optimism and confidence since the inauguration of President Emmerson Mnangagwa on November 24.
Buy Zimbabwe economist Kipson Gundani said the budget should come up with measures to tame unnecessary public expenditure, which has aggravated an imbalance between the economy and the financial services sector.
“The budget should address two fundamental issues like cutting down on unnecessary public expenditure, which has led to an unsustainable fiscal deficit causing a serious imbalance in the economy and financial services sector,” he said.
Treasury is projecting a $1,8 billion deficit by end of the year from $1,4 billion last year due to government’s failure to live within its means.
This has seen government borrowing on the domestic market through the issuance of treasury bills, thereby crowding out the private sector.
Gundani said it was critical that government addresses the shortage of foreign currency as it had become the Achilles Heel to economic revival, crippling industrialisation efforts and affecting the country’s ability to import critical raw materials.
While the country has improved by merely two places from 161 to 159 in the ease of doing business ranking, Gundani said more must be done to reduce the cost of doing business in the productive sectors of the economy.
“Treasury must deal with the cost of doing business in the productive sectors of the economy such that we minimise the dependence on imports and correct the current account imbalance,” he said.
“Lastly, the budget should promote the ethos of confidence building, which includes, dealing with debt and other overarching macroeconomic ills.”
Confederation of Zimbabwe Retailers president Denford Mutashu said the budget should address supply side challenges, which will eventually lead to price stabilisation.
“Restoration of market forces will go a long way and there should be no room for price prescription and controls as these had debilitating effects in 2007/08,” he said.
“The ease of doing business, if addressed well and with political will, should spectacularly improve our competitiveness.
“However, business itself should also deal with glaring inefficiencies and complement government efforts.
“The budget should not be a collection of figures for mere presentation, but practical, pragmatic and funded.
“Corruption and smuggling, if addressed, will help restore confidence and build social trust.
“There have been tremendous gains in the economy on plastic and mobile money transactions but the RTGS [Real Time Gross Settlement] system and mobile money parallel market rates have had a serious dent on the progress, especially for companies that rely on imports.”
Consumer Council of Zimbabwe executive director Rosemary Siyachitema said attention should be given to improving productivity levels in the economy.
“The biggest thing we need now is to produce, produce and produce until our productivity levels are at a level that we are able to export more, have more foreign currency and come back to oil our economy,” she said.
“When the economy is working, our consumers get affordable goods and more people get employed.
“This means they will get money in their pockets and living standards will improve.”