The Sunday Mail
FINANCE Minister Mr Patrick Chinamasa is neither a magician nor a miracle worker.
He is not expected to be one.
But on Thursday the market expected something from him, in an environment where the vicious circle of company closures, rising unemployment, falling incomes, an illiquid environment and declining economic growth is threatening any prospects of economic recovery.
In a largely static US$4,1 billion 2015 National Budget, where national economic growth is expected to be flat over the next 12 months — growing from an estimated 3,1 percent this year to a forecast 3,2 percent next year — the finance minister grafted the badly hurt economy, unveiling measures meant to gather revenues from sectors that are performing relatively better than others and allocating the same to sectors that are still ailing.
Treasury noted from the outset that the measures were premised on continuing “support that has already been availed to productive sectors”, curtailing non-productive imports, enhancing revenue generation as well as providing relief to the taxpayers who are currently writhing from a challenging economic environment.
But equally, there was a conscious effort to flesh out Zim Asset by providing support to the four key pillars outlined in the economic blueprint — food and nutrition, social services and poverty reduction, infrastructure and utilities, and value addition and beneficiation.
Further cushion for struggling industries
Notwithstanding Government support to rehabilitate the local manufacturing industry, companies remain constrained.
Latest statistics from the Confederation of Zimbabwe Industries (CZI), Zimbabwe’s biggest industry representative body, indicate that average capacity utilisation in the manufacturing sector has dropped to 36,3 percent this year from 39,6 percent in 2013.
However, there has been nascent signs of recovery as a result of the support measures such as rebate on the importation of raw materials and increases in customs duty for competing foreign products .
Treasury, thus, further extended the measures especially for the clothing sector, the baking industry, the tourism sector and the furniture industry.
For example, clothing companies such as Paramount Export and Playtime Manufacturers that have since regained a solid footing from the rebate of duty on imported inputs, will continue to source fabrics, trims, sewing thread, shoulder pads and fasteners without necessarily being asked to pay the taxman.
Bulawayo-based clothing firm Archer Clothing (Private) Limited, which recently seemed to be on the brink of collapse, is now on the mend after being acquired by Paramount Garments.
A US$5 million investment is expected to be made in the business, helping to save 850 jobs that were on the line since the company was placed under judicial management last year.
The dairy industry is expected to benefit from a similar dispensation after Government extended the duty-free importation of full cream and skimmed milk powder by approved dairy processors for the next 12 months.
Companies such as Probrands, Dendairy and Alpha & Omega have been able to invest in new processing plants as a result, raising expectations that sector might further grow.
For the baking industry, wheat flour imports will continue to be levied 20 percent customs duty, while approved bakers will enjoy 5 percent customs duty for their imports until December 31 2015.
The wheat flour quota of 5 000 metric tonnes per month will continue.
Though bakers are reeling from the continued import of semi-processed and processed flour, Government did not ban the importation of these ingredients as had been advocated by bakers under the ambit of the National Bakers’ Association of Zimbabwe (NBAZ).
Instead, duties on these products were further hiked.
NBAZ had also lobbied for the restoration of the 7 500 metric tonnes of floor per month in order to improve the quality of their product.
Players in the hospitality industry who have been benefitting from the suspension on duty on motor vehicles imported for safari operators have been guaranteed of this provision for a further 12 months.
Tightening the screws on imports
It is not only the baking industry that will benefit from further restrictions on imports, but other firms as well as Treasury has ratcheted up the pressure on the import of Government is obviously spooked by the import bill that continues rising.
Products worth US$5,3 billion were shipped in in the 10 months to October, with the bulk of the goods being non-essential and sub-standard.
As a result, further charges have been slapped on items such as stuffed pasta, biscuits, corn snacks, chewing gum and other sweets.
Some of the concessions also cover the furniture industry.
Massaging the consumer
But Government, which is trying to stimulate the productive sectors of the economy, is facing a key challenge in consumers whose disposable incomes have been whittled down.
Sales volumes for local retailers have naturally been declining, with the country’s biggest company by market value Delta Corporation reporting recently that volumes had plunged 25 percent in the six months period to September 2014.
In an attempt to stimulate demand, Treasury has decided to adjust the tax free income threshold from US$300 to US$350 million in the hope of free extra incomes that could be used to drive aggregate demand for goods and services.
Tax bands were also widened.
Not only did Government seek to adjust incomes, it also made a conscious effort to try and help some of the retailers adjust their prices in order to drive volumes.
In particular, the excise duty on beer was slashed from 45 percent to 40 percent.
The earlier increase in excise duties in December 2012 has been blamed by the brewer for limiting the affordability of the products.
The beer maker has been trying to reduce prices in order to lure customers.
A 375ml pint of lager is currently sold at a recommended retail price of $0,95, while the price of a 750 ml quart has been reduced from $1,75 to $1,60.
An Eagle Lager quart, which used to retail at $1,20, is being sold at US$1.
The magnum 660ml returnable bottle for Golden Pilsener, Zambezi Lager and Bohlingers has also been reduced from $1,80 to $1,75.
New Government measures is expected to usher in another round of price reductions.
Delta Corporation is one of Government’s biggest cash cows.
In the six months to September 2014, the company paid more than US$80 million in taxes.
Government believes that improved fortunes for the firm will directly impact on Government’s purse.
But there is concern that companies will not get rich pickings from the local market in the short-term.
The Ministry of Finance is therefore trying to help local companies export.
A new tax regime where the corporate tax rate is indexed to the amount that a company exports has since been unveiled.
Cheer for miners
Conscious of the endogenous and exogenous challenges plaguing the mining sector, Minister Chinamasa has taken a measured approach towards mining houses.
Widely regarded as a destination whose mining royalties are arguably one of the highest in the world, Government couldn’t afford to put an additional burden to mining firms, especially at a time when commodity prices are dropping on the international market.
Currently, gold and diamond miners pay 7 percent and 10 percent in royalties, respectively.
Platinum mining attracts a royalty of 10 percent, while a further 15 percent charge is levied on unprocessed platinum shipments.
Government is pushing companies in the extractive sector to establish local refining capacities.
The 15 percent has since been suspended.
“Initially there was a two-year window beginning 2013. It has been extended to December 2016 the period for completion of domestic platinum refining investment projects.
Zimplats alone is bringing in US$200 million in early 2015 raised to support new investment in plant and machinery. Consequently, I am also proposing suspension of the 15 percent tax on the export of raw platinum during this window period,” said Minister Chinamasa last week.
A raft of reforms for the mining sector are on the cards, but there are dependent on amendments to the Mines and Minerals Act and Precious Stones Trade Act.
The amendments to the Mines and Minerals Act are currently being finalised with their promulgation expected in 2015.
In essence, amendments of the two pieces of legislation will help in the establishment and constitution of an exploration company.
A US$3 million facility has been set aside for the process.
Issues that deal with transparency of revenues generated by the industry are in the process of being addressed.
Treasury believes that resuscitating the Zimbabwe Mining Revenue Transparency (ZMRT) initiative launched in 2011 will help enhance transparency and accountability.
Relatedly, the Zimbabwe Mining Development Corporation (ZMDC), the state’s mining arm, will also be expected to publish periodic financial reports in line with the Companies Act.
Furthermore, the Corporation will continue to facilitate access to the US$100 million facility to provide equipment from Xuzhou Construction Machinery Group of China by small-scale miners.
for provision of small scale mining equipment on credit.
Multi-pronged approach for SMEs
Stung with company closures and rising unemployment, Government has been compelled to support small and medium scale enterprises, the majority of which are helping to drive the economy.
Various concessionary facilities have been arranged, including a US$3 million line of credit from the Arab Bank for Economic Development in Africa (BADEA) that will be administered through the Small and Medium Enterprise Development Corporation (SMEDCO).
It will be operational in the first quarter of 2015.
An additional US$1,9 million wil be injected into SMEDCO for on lending to the SME’s sector.
Perhaps the most far-reaching effort for the sector is Government’s undertaking to consider tax incentives for big corporates that foster fledgling businesses.
By so doing an intimate relationship between the two categories of business is encouraged while small businesses are nurtured to become competetive entities.
Cooperative partners are also chipping in.
An incubation centre for SMEs, which is being established in Waterfalls with help from India, will be opened next year.
Machinery for the centre will be delivered by year end.
It will train entrepreneurs in 26 different disciplines, including plastic bottle manufacturing and bottle closure, cell phone assembling, fruit juice manufacturing, honey processing, dipper manufacturing, paper manufacturing, sock knitting and brick moulding.
However, Government hopes to meet its economic target through the accelerated implementation of Zim Asset.
