The Sunday Mail
Christopher Takunda Mugaga
When Finance Minister Patrick Chinamasa took to the podium to announce the Mid-Term Fiscal Policy Review last Thursday, the task ahead of him was daunting.
Announcing major highlights when GDP growth was sub-1 percent — in fact averaging 0,7 percent annualised — was uninspiring.
He was expected to deliver growth beyond five percent in line with the Zim-Asset framework.
However, a number of factors weighed down such expectations. These include, but are not limited to, a stubborn fiscal deficit, cash shortages, an uncomfortable domestic debt trajectory and El Nino’s impact on the 2015/16 agriculture season.
We are told growth in the last year was mainly on account of mining, up slightly above eight percent, and the service sector which slightly breached the average trend over a decade of 1,9 percent to add one point.
Effective demand was constrained as household consumption was down by 11,8 percent.
Mining rose slightly above eight percent. The manufacturing sector was below 0,3 percent whilst the major highlight was the bullish growth expectation for agriculture. For mining, growth of 5,1 percent is expected this year, driven mainly by gold, platinum, chrome, coal and nickel.
Trend developments in revenue performance under the multi-currency regime saw revenue collections move from US$933 million when we dollarised, reaching a peak of US$3,74 billion five years back before we realised US$3,5 billion revenue output in the last fiscal period.
Budget expenditure for last year stood at US$4,9 billion. Expenditure overruns beyond US$900 million were realised, creating a major threat.
What is more threatening is not necessarily the budget deficit, but, rather, the way and means of financing the deficit.
Such a deficit, coupled with a current account deficit, remains one of the major drivers of cash shortages currently bedevilling the economy.
This, therefore, implies that a 3,7 percent GDP growth target for the year might not be easily achievable unless we find ways and means to fight such gaps.
A major threat to import management measures which the Government has put in place is smuggling which is also synonymous with corruption.
While industry has welcomed different measures with relief, such measures, which include SI 64 of 2016 and SI 18 which focused on pharmaceuticals and foreign exchange management measures by the Reserve Bank of Zimbabwe, the obtaining levels of smuggling are costing the economy well beyond US$3 billion annually.
This calls for stricter measures.
Official statistics could be pointing to a declining import bill. Total imports dropped by 15 percent from US$6,1 billion, but this might not mean a lot. It could be offset by an 18 percent increase in the value of smuggled goods, which find their way onto the domestic market.
On structural reforms, a number of policy measures were announced, which include reforms on ease of doing business, public finance management reforms and introduction of Special Economic Zones.
Given that a new SEZs board was announced recently, we expected the minister to include a particular template of the raft of measures which Government has put in place for the three identified zones.
A clear roadmap on when the authority was to start operating and the budget outlay for its functioning was supposed to have been presented to the nation in this particular annual budget review.
On Public Finance Management reforms, the lack of progress on reform of parastatals means they remain a fiscal drain to the economy.
Those institutions which require commercialisation or privatisation have to be identified and measures be taken to begin the reform process.
If funds are poured to capitalise these institutions, it is also pertinent to have audited accounts in time for tax-payers and other stakeholders to have a verdict on operations of such institutions.
International best practices have proven that it is possible to have efficiently-run parastatals as witnessed in Russia and China where the public sector constitutes almost 70 percent of the GDP on average.
The agricultural performance for last season was driven by climatic factors, with the El Nino effect undermining the interventions by both private and public sectors with almost US$1 billion having been poured.
Command Agriculture, which was introduced last year, is targeting about two million tonnes of maize against a domestic grain requirement of 1,8 million tonnes for both human and livestock consumption.
Zimbabwe’s mining sector has taken an ugly direction, with its growth now dominantly over-dependent on metal prices on the international market as opposed to domestic production.
Indeed, mining contribution to GDP increased to 8,7 percent from 7,9 percent in the previous year.
A major highlight is small-scale gold producers’ contribution which reached almost 43 percent from 36,7 percent in the previous year.
Interesting statistics from small-scale miners alone showed that last year they delivered half a tonne of gold and this year, it is about 75 percent of a tonne already. It is important to formalise the small-scale mining sector.
Remember, the country’s youth population is huge, and youths are prepared to join this sector if conditions in the industry are improved.
Government must invest in empowering miners given the weak processing efficiency obtaining in the economy, which averages 50 percent to 60 percent.
Banks in Zimbabwe continue to emphasise collateral, and this has left small-scale miners exposed.
It is quite refreshing to note that a committee at Cabinet level was set up just to deal with violence in mining.
The biggest hope is that the same committee will also look at issues such as how laws can be aligned within the mining sector. Mining is always a weather belly sector, and the current price of gold per tonne averaging US$40 million can only rise in the long run.
The capitalisation of the Zimbabwe Consolidated Diamond Company saw diamond output during the first half of this year rise to 1,1 million carats from 690 000 carats produced during the previous year.
It is vital to find ways and means to improve transparency in this particular sector whilst at the same time expediting laws to enable the sector to operate in Special Economic Zones.
With the vacillating nature of gold prices on the international market, the only reprieve for potential investors rests in allowing them to operate in SEZs.
This will smooth out price depressions in the short to medium term.
The clarion call is, therefore, to have Special Economic Zones set up in Manicaland in the shortest possible time.
Mr Takunda Mugaga is the CEO of the Zimbabwe National Chamber of Commerce. He wrote this article for The Sunday Mail
