Finance Minister, Patrick Chinamasa.
ECONOMISTS said this week Finance and Economic Development Minister, Patrick Chinamasa, would be under pressure to unveil a raft of incentives to stimulate investment and unlock employment opportunities when he presents his 2016 National Budget.
They argued that the economy required drastic measures to stem a worsening economic crisis.
The US$3,6 billion 2015 National Budget unveiled in November last year has failed against the backdrop of dwindling revenue which resulted in failure to achieve State revenue targets, with a Zimbabwe Revenue Authority (ZIMRA) statement in July saying revenue targets had been missed by six percent during the first half of the year.
This week, economists blamed the subdued revenue inflows on the closure of companies and extensive jobs losses, which saw about 30 000 workers losing jobs in a space of two months from July 17 when a Supreme Court ruling gave employers the right to fire workers on three months notice.
These developments meant a number of tax heads, such as corporate tax, value added tax, pay as you earn and others declined, leaving government in a precarious situation in terms of funding, going mainly towards recurrent expenditure.
Zimbabwe is bracing for turbulent times as the beleaguered economy, painfully creeping into recession, battles to arrest the prolonged company closures, job losses, a crippling famine that is now threatening over one million people across 30 of the country’s 52 districts that are facing hunger.
The major challenge facing Chinamasa is that there has been very little room for funding non-recurrent expenditure, which includes road and dam projects.
Analysts said structural reforms aimed at ending and unnecessary drain on the fiscus, such as trimming a bloated civil service and privatising loss-making parastatals, were required in order to attract private capital.
Brains Muchemwa, chief executive officer of Oxlink Capital, said much of the funding going towards propping up loss-making parastatals could transform rural communities through building clinics and improving road infrastructure.
Two weeks ago, Chinamasa began his battle to deal with an economic crisis that resulted in a 50 percent gross domestic product decline in a decade, with pleas to international financial institutions for payment of US$1,8 billion in arrears through an African Development Bank facility by April 2016.
Brains Muchemwa, chief executive officer of Oxlink Capital
Zimbabwe has a US$10 billion external debt burden. This includes debt held by the private sector.
“The budget derives taxes from economic activity,” said John Robertson, an independent economist.
“But activity is depressed; more companies must start to pay taxes to the State. Government should be focusing on improving economic activity, but they are discouraging investment. They must reform policies that discourage investment and do away with the indigenisation policy. We are entering very serious times next year, with food shortages,” Robertson said.
Kingstone Kanyile, an economist and chief executive officer of Mtilikwe Financial Services, said Chinamasa’s challenge would be that of coming up with a balanced budget.
“There must be a balance between capital expenditure and recurrent expenditure,” said Kanyile.
“Capital expenditure creates employment and alleviates poverty and suffering, and stimulates consumption as people start to purchase goods and increase tax revenues through value added taxes.”
Apparently, even as Chinamasa was trying to get the international community to intervene and bailout the country, his colleagues in Cabinet were busy lambasting him for trying to sell out the country to the West, which they said was predisposed towards regime change in the country.
This is despite government clearly displaying its lack of capacity to deal with a stubborn crisis.Government has failed to bring a number of major investment proposals to life.
These include a US$3 billion deal with Russian investors, who have undertaken to open platinum mines in the Great Dyke.
An Indian firm, Essar, which took over the Zimbabwe Iron and Steel Company in 2011 through a deal that was expected to unlock close to US$1 billion in fresh investment, has backtracked after endless red tape delayed kickoff.
Last month, Nigerian billionaire, Aliko Dangote promised to pour over US$400 million towards building a 1,5 million-tonne per year cement plant in Zimbabwe.
But when he outlined his African strategy recently, Africa’s richest man did not mention the southern African country, triggering fears he could have developed cold feet after assessing a range of investment policies that Robertson said were bad for the economy. Government has since indicated that it has licenced Dangote to start his ventures, but only time will tell.
It is these developments that have left many fearing that foreign investment, which has been averaging US$400 million per annum, against over US$5 billion for other regional economies like Mozambique, would remain subdued, and leaving unemployment at current levels of nearly 90 percent.
The Zimbabwe Congress of Trade Unions says less that 700 000 people are now officially employed.
This means the majority of people of productive ages are struggling to earn a living in the informal sector.
The decline in maize production has aggravated the desperate situation as government will be forced to divert the little it has towards averting hunger and starvation. Imports of staple grain from South Africa and elsewhere will require huge cash outlays at a time the country is in the throes of a liquidity crunch.
Nigerian billionaire, Aliko Dangote
Power cuts have also paralysed industries, with 70 percent of companies’ combined installed capacity idle, according to the Confederation of Zimbabwe Industries.
Economists said there were significant opportunities for the private sector, such as building roads, dams, railways, schools and others. But government needed to create a conducive environment for investment into these areas. How government will fund its operations in the wake of declining revenues remains the biggest challenge.
In July, ZIMRA said net collections for the period were six percent below target for the first half of 2015.
The sustained plunge of tax revenues has paralysed government operations.
But not only has government been affected; many children have dropped out of school after their parents failed to pay for their fees due to increasing economic hardships.
In fact, economists and strategists have been revising downwards growth projections for 2015 because the scales have been clearly tipped against recovery in the past nine months.
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