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2017: of ‘new dawn’, rising expenditure

After an all doom and gloom year, the new administration which took over the reins after a military takeover of government last month has said the business as usual approach is a thing of the past.

BY NDAMU SANDU

2017 was a tough year for businesses, with the economy forgotten as politicians jostled to succeed Robert Mugabe.

Mugabe was shunted into retirement after the military intervened to arrest the Zanu PF factional wars that were spinning out of control.

In came Emmerson Mnangagwa, whose mandate is to clean the mess created by his predecessor and mentor.

New economic order

In his 2018 national budget, Finance minister Patrick Chinamasa announced a new path aimed at restoring discipline and fostering a stronger culture of implementation.

The new path, he said, required political will to correct fiscal imbalances and financial sector vulnerabilities, public enterprises and local authorities reform, improving investment environment that is not conducive and dealing with corruption in the economy.

Chinamasa said political will was required in the re-engagement with the international community, stimulating production, and exporting as well as creation of jobs.

To show its commitment to the new path, government rationalised the total youth officers and ward development coordinators establishment to 3 530 from 7 269.

Chinamasa said government would save $1,6 million per month and $19,3 million per annum. Government also retired 528 civil servants without the requisite qualifications.

Indigenisation review

Government made a bold step in attracting foreign direct investment (FDI) by amending the controversial empowerment legislation to make the 51:49% threshold applicable only to diamond and platinum in a year in which rising expenditure wreaked havoc in the economy.

In his 2018 national budget, Chinamasa said the 51/49 threshold would not apply to the rest of the extractive sector, nor will it apply to the other sectors of the economy, making them open to any investor regardless of nationality.

The Indigenisation and Empowerment Act was seen as a stumbling block in attracting FDI.

Rising govt expenditure

Government failed to cut its coat according to the size of the cloth with expenditure outstripping revenue collected, forcing government to borrow from the domestic market.

While cumulative tax and non-tax revenue collections was up 2,6% above the projected revenue to $2,812 billion in the period January to September, expenditure raced to $4,65 billion against planned expenditure of 3,1 billion.

Thus, government incurred an expenditure overrun of $1,55 billion. It was forced to borrow from the domestic market and issued treasury bills worth $1,75 billion in the period.

Other than crowding out the private sector, Chinamasa said the level of treasury bills had created a situation whereby, there is a disparity between high levels of virtual money against available United States dollars and bond notes. The scarcity is translating into exchange premiums that stoke the rising prices of goods and services, Chinamasa warned.

Prices zoom out of control

The year would be remembered by the manner in which prices galloped out of the reach of citizens at a time of waning disposable income.

Prices made a giant leap in September following social media messages warning Zimbabweans to stock basic commodities as the economy would degenerate into the 2008 era of shortages.

Government responded by monitoring prices on 16 products.

The new administration fears reintroducing price controls would wipe away products from the shelves.

At the same time, 2018 is an election year and the administration fears a backlash, hence the numerous engagements with manufacturers, wholesalers and retailers.

Biting foreign currency shortage

The US dollar became a rare commodity, giving rise to a flourishing black market.

Government responded by coming up with legislation which prescribes a 10-year jail term for offenders. This, however, did not chase away currency traders from the streets.

The number of illegal foreign currency traders has increased since the military-backed push ousted Mugabe in November.

Cash blues

The introduction of the bond notes on November 28 last year was supposed to alleviate the cash crisis. Instead, the surrogate currency worsened the situation, with the dollar disappearing from the formal system.

Economists had warned against the introduction of the bond note fearing it would chase good money (dollar) from the formal system.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya was adamant the introduction of the bond note was necessary to grow the exports base.

Last year, Mangudya told state media that he would resign if the bond note project failed.

Capacity utilisation

The manufacturing sector’s 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.

Industrial capacity utilisation reached its peak at 57,2% in 2011, before sliding to 44,2% in 2012, 39,6% in 2013, 36,3 % in 2014 and 34,3% in 2015.

The survey revealed that manufactured output volume grew by 5,5%, with growth in output recorded by companies whose machinery is less than 10 years old.

Mangudya’s new lieutenant

Economist Jesimen Chipika became the second female deputy governor of RBZ in April, succeeding Charity Dhliwayo whose second and final term ended on March 31.

Brainworks lists on JSE
On October 13, Brainworks Limited listed on the JSE. The company later offered Zimbabweans an opportunity to buy shares in the JSE-listed concern after putting its 10 680 555 treasury shares on sale.

Vingirai, allies ousted from ZB board

In May, Nicholas Vingirai and his allies were booted out of the ZB Financial Holding board at a stormy general meeting of shareholders.

Vingirai was voted out after garnering 33% alongside Michael Mahachi (33%), Zororo Muranda (33%), Obey Matizanadzo (37%), Richard Mbaiwa (33%) and John Nhavira who got 32% of the votes at the AGM which lasted four hours.

At the centre of the dispute was the payment of a $658 000 dividend to Vingirai’s Transnational Holdings Limited (THL), which other shareholders felt was irregular as it was not on the share register at the cut-off date when payment of dividend was made on June 17 2016.

Vingirai and his allies joined the ZB board last year as compensation for THL’s loss of Intermarket Holdings more than a decade ago. Intermarket was amalgamated into ZB. Processes are underway for THL to exit ZB.

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