New Perspectives: Reflection on budget blues

Minister of finance: Mthuli Ncube

Post-budget consultative meetings held by the Parliament of Zimbabwe were gloomy affairs. By and large, government Ministries, Departments and Agencies (MDA) complained that their 2023 fiscal budgets would be insufficient for them to discharge their constitutional mandates.

Some headlines carried by the afternoon update of the online publication Ignite, on Monday December 5 2022 captured well the nation's misery.

"Funding for Zimbabwe political parties insufficient" — ran one, quoting the Ministry of Justice tasked with administering the Political Parties (Finance) Act. "Zimbabwe Rights Commission says too broke to monitor 2023 general elections" — ran another .  Earlier on the ZRP had also wept bitterly in public. Budget money is not enough. An exasperated Treasury boss had to trim the 2023 budget bids by a whopping two thirds to come up with a 2023 National Budget of just under US$4 billion. This, of course, is an embarrassingly small amount for a nation of 15 million disillusioned souls. "Mwari Pindirai" (God intervene), is their daily prayer.

Attired in sackcloth, with heads shaven, is how the national leadership should appear in public. The unprecedented decay on the political, economic, social and legal landscapes is a good enough reason for a united public show of remorse, contrition, pain and shame by the national leadership.

As it sat, hopefully properly attired, so as to focus usually reluctant minds, to digest the 2023 budget, a good starting point, usually overlooked in our hurry to debate consumption, should have been an analysis of where governments get their funds from, besides from taxation.

In its Finance & Economics section, on October 20 2018, The Economist addressed the important topic.

"How to spend it", was the title of the article, with the sub-title "If public assets were managed better, government coffers would enjoy a much needed boost", giving a better hint of what was in store. "Proponents of sovereign wealth funds like to say that returns from publicly owned assets could in theory displace taxes", began the article, noting that it is easier said than done.

A few oil-rich states, such as some emirates in the UAE, have attained this ideal. And yet in pursuit of this no=taxes ideal other countries have the opportunity to sweat public assets to increase their public spending that is not funded by taxes.

Assets that most governments have at their disposal, but which politicians are usually reluctant to sweat, fall into the following categories:

Land and natural resources;

Property and infrastructure, such as ports, roads, and buildings;

Public firms such as utilities like Zesa and Zinwa, and other  state-owned enterprises such as CSC, Zisco, Air Zimbabwe and NRZ;

Financial assets like those held by public pension funds such as Nssa.

In estimates released on October 10 2018, the IMF estimated the value of these assets to be 219% of GDP on average from a sample of 31 countries. (Because of poor maintenance, inadequate repairs and renewals, and poor stewardship, the percentage is likely to be much less for Zimbabwe. A proper valuation is however, urgently needed)

Good bookkeeping

Patriots from both the left and right in the legislature would no doubt soon understand the importance of a proper valuation of public assets. Governments, both local and central, as reported in the afore-mentioned article from The Economist, are notorious poor keepers of Asset registers. Historical costs, not current commercial value, is more likely to be reflected in government Asset Registers, than the later. In a country that has suffered two severe bouts of leadership-induced world-beating hyperinflation, the value of any public asset in Zimbabwe is likely to be grossly understated.

This places the assets in jeopardy, as there are marauding vultures circling the nation's economic landscape.  There are rich pickings to be made.

Diamonds are forever

In a social media video that went viral, current Zimbabwe ambassador to Mozambique and former National Political Commissar of Zimbabwe's ruling party, Victor Matemadanda  reiterated the republic's late President Robert Mugabe’s claim, that the nation had lost USD15 billion of the Chiadzwa diamonds in a few years of ill-informed trading in its diamonds.

The ambassador called for action, and if possible recovery of the lost fortune. It is a call that the leadership has a duty to answer. Current and retrospective Public Asset Valuations should, at the moment, be constitutional obligations for any government to stay in office in Zimbabwe.

"Diamonds are forever", so famously declared Ian Fleming, reaping a small fortune out of it.

That begs the questions: where are these looted Chiadzwa diamonds now and how much are they now worth? There are other horror stories of the disposal of public assets at a loss, not only in Zimbabwe, but in other countries as well. The pending sale of South African Airways for a handshake baffles the mind. 

Air Zimbabwe may be next on the block. Noczim may have been unbundled, without proper valuation and with the criminal intent of "unlocking value" in what may later prove misguided, if not corrupt, public asset privatisation agendas. Best returns are ensured only when a public firm is sold/privatised as a well managed going concern and after proper valuation.

The city of Chicago leased to a private consortium its parking meters in 2008 at a price that its Inspector General later said was USD1 billion too low.  In 2014 a British Parliamentary Committee concluded that the Royal Mail, the state-owned postal services provider, had been sold off too cheaply the year before. Its shares rose by 38% a day after its listing.

And recently some indigenous fortune hunters off-loaded a lithium claim for around USD40 million to an Australian firm which sold it to a Chinese firm for 10 times as much.  The asset may now be sitting at over USD1 billion on the Chinese Firms Asset Register.

Paradigm shift in public sector

While the 2018 IMF study highlighted that countries on average have public asset holdings of 219% of GDP, an eyebrow raising revelation was that some rich countries have negative net worth when public sector liabilities are taken into account. The IMF further noted that "although it is rarely quantified, investors are not oblivious to such risk".

It noted that bond yields not only respond to debt and deficits, but also to the health of the public sector/government balance sheet.

This is proof that use of such "Whole-of-government accounts" is not only good housekeeping and bookkeeping, but more important good public governance.  There are rich dividends to be reaped from adopting the private sector like accounting, complete with adherence to International Financial Reporting Standards (IFRS). New Zealand has blazed a a trail worth emulating on whole-of-government-accounts. The UK may have followed suit. Zimbabwe should not be left behind.

Dag Detter, whose work inspired the article in The Economist (afore-referenced), is the co-author of two award winning books that should be compulsory reading before any public officer is sworn into high public office. These books of interest are:

  • The Public Wealth of Nations: How Management of Public Assets can Boost or Bust Economies [2015], and,
  • The Public Wealth of Cities: How to Unlock Hidden Assets to Boost Growth and Prosperity. [2017]

Dag Detter argues that "with so much assets on their books, it would take only: a small increase in yields (from the assets) to raise a lot of money". Increasing the returns by only 2% from public assets for example, "would enable governments worldwide to double the amount they spend on basic infrastructure".

Now, as you know Comrade, there is an opportunity for increasing yields/returns from public assets in Zimbabwe by at least 100%, if not much more! May the legislature and the powers that be, be guided accordingly.

  • Nyandoro is a pharmacist by profession. These weekly New Perspectives articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.

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