Finance and Economic Planning minister Patrick Chinamasa has set the tone for economic recovery, ticking the right boxes with a raft of reforms, analysts have said.
BY TATIRA ZWINOIRA & MTHANDAZO NYONI
In his 2018 National Budget presentation last week, Chinamasa proposed far-reaching reforms to end policy inconsistencies, reversals and hesitations of the past.
He said government would amend the Indigenisation and Empowerment Act to make the 51:49% threshold applicable only for diamond and platinum sectors.
These legislative amendments are effective April 2018.
Last year, the Confederation of Zimbabwe Industries (CZI) said the manufacturing sector was seriously hampered by the indigenisation legislation, which chased investment from the sector.
Economist John Robertson said the indigenisation policy changes would definitely start improving industry and investment.
“I think this is going to immediately tell industrialists who want to start a factory that now they can do that without having to comply with anything that would reduce their asset base. So previously they saw the prospect of losing half their total company and even being voted off their own board of directors by the people having 51% shares which is now not going to happen,” he said.
“The security is assured. We need to make sure that in the time to come, they will repeal the whole Act [Indigenisation] and simply say that for platinum and diamonds these will be simply controlled by government. So, the businesspeople and the sector will be controlling their own business investment and that is what they wanted, the security of ownership of the assets in their company.”
Robertson said no one wanted this thing of being told what assets they could keep and which ones they could not when it was their own capital.
Chinamasa also introduced measures to cut the wage bill and these include a freeze on recruitment, retiring those aged above 70 and reducing the duplication of posts. He also proposed other cost-cutting measures such as minimising fuel benefits, limiting the issuance of vehicles, reducing foreign delegations while also cutting foreign missions and reducing support to parastatals, among others.
He also proposed the reform of public enterprises, which have been a drain on the fiscus while their contribution to the economy has been whittled to 2% from a peak of 60% due to inefficiencies and corporate governance deficits.
Already, 70% of parastatals are technically insolvent, representing an actual or potential drain on the fiscus that Chinamasa said government would cut unless the institutions came up with quick turnaround strategies. He said last year’s financial audits indicated that 38 out of 93 public enterprises incurred a combined $270 million loss due to weak corporate governance practices and ineffective control mechanisms.
The projected budget deficit of $627 million translates to about 4,5% of the gross domestic product (GDP), which Zimbabwe National Chamber of Commerce chief executive officer Chris Mugaga said might be a little too optimistic.
“Maybe reducing the fiscal deficit to below 5% is optimistic because when the economy is growing at 4,5% you cannot reduce the fiscal deficit to that level. I am saying look at the economic growth targets for 2018, it will be very difficult if not impossible to think of reducing the fiscal deficit to less than 5% in a year,” he said.
“Some of these measures like expenditure rationalisation need a buy in which is serious from his [Chinamasa’s] colleagues [in Cabinet] also in government so it cannot certainly be a stroll in the park. It will be met with its own resistance especially on those who have been thriving on bread crumbs and spoilages. But, it [the Budget] was brave and also quite positive.”
Mugaga said there was need to look at the democratic space and putting in place policies that could improve that space as failure to do so would result in the policies being short.
Economist Moses Chundu said the key to the attainability of these budget targets lay not so much in the quantum of the targets but in the content of his preamble, which was premised on President Emmerson Mnangagwa’s inaugural speech.
“In the preamble, it is a clear admission that until now the fiscus was not being managed well and a commitment to a new and better way of doing business was not being done. So without going into the specific proposed interventions, I believe the answers lies in the preamble to the extent the administration walks the talk,” he said.
“Given the revenues and expenditures measures, the budgeted deficit is quite attainable. What would have been overambitious is to assume that the current deficit would disappear overnight.”
Chundu said the growth rate was a bit on the optimistic side as this year’s major contributor to GDP growth being agriculture may not contribute that much growth seeing as we are coming from a strong base year.
“It can only be feasible if the other sectors respond fast enough to the various stimulus initiatives being proposed which is unlikely given the lagged effect of policies on economic variables,” he said.
Consumer Council of Zimbabwe executive director Rosemary Siyachitema said it was a promising budget, which needed to be quickly supported by action so that consumers benefit.
“The minister talked about ensuring that people would be able to get from the banks, the money that they worked for and that is a good thing. Maybe we will start seeing the queues at the banks disappearing,” she said.
Zimbabwe Clothing Manufacturers Association chairman, Jeremy Youmans, said while the budget was very positive and set to redevelop the economy, there had been a major misjudgement made with regards to the excise duty that has been proposed cotton fabric imported into Zimbabwe.
“The proposal to apply duty of up to 30% plus $2,50 per kg is being imposed by the ministry of Finance outside of an agreement with the sectors involved,” he said.
“This proposal is to increase the current rate of duty from 10% to an effective rate averaging 85-90%. This would lead to an increase in the local cost of production of a garment by about 55-60%.”
Youmans said the sector did not understand why Chinamasa proceeded to include such an item in the budget when they were “fully aware of the consultation process that had been gone through with the ministry of Industry, and needed to be completed. They were formally notified of this”.
“We had hoped with a new government, things would be more procedural and transparent. This proposal needs to be suspended until there is a formal agreement from the stakeholders.”
Oil Expressers’ Association of Zimbabwe chairman, Busisa Moyo said the positives were that government was following through on austerity measures and working the talk in line with Mnangagwa’s inauguration speech.
“This is a big local and international confidence booster. The second positive is that local industry will continue to be supported until the high cost environment has been dealt with and the third positive is that all duties on soap raw materials are now effectively rebate-able and this has the effect of lowering costs for the sector and to consumers and can potentially generate foreign currency,” he said.
A Bulawayo-based economic analyst, Reginald Shoko, said the budget was a step in the right direction although it was still consumptive with limited productivity capacity incremental policies.
Zimbabwe Commercial Farmers’ Union president, Wonder Chabikwa, said the budget was a huge shift by government and should be applauded.
“As agriculture sector we used to get below 6% allocation of the national budget but this time we got over 8,5% which is a plus and we are happy about that. We want to encourage more allocation to agriculture in order to retool and increase production,” he said.