The Sunday Mail
Nyasha Patience Mandeya —
The 2009 global financial and economic crisis demonstrated the futility of continued dependence on foreign aid for financing Africa’s economic growth.
Zimbabwe has not been spared as foreign aid has dried up with major bilateral donors suspending direct development support to Government since 2000.
International financial institutions (IFIs) have also not fully engaged Government due largely to debt arrears owed to them. This was compounded by the imposition of sanctions through the Zimbabwe Democracy and Economic Recovery Act, which effectively denied the country access to credit lines from major IFIs.
In isolated cases of direct support, many bi-lateral donors have during this period opted to fund activities through the United Nations and NGOs. In a bid to resuscitate relations with IFIs, Government committed to the Lima Debt Clearance Strategy. Not much has been realised from these efforts.
Evidently, the goal of sustained economic growth, development and transformation will remain elusive if we remain dependent on foreign aid. Special effort should be directed at improving domestic resource mobilisation (DRM), which refers to the generation of savings from domestic resources and their allocation to economically and socially productive investments.
Such resource allocation can come from both the public and private sectors. Countries with higher domestic savings generally enjoy a higher investment rate. The public sector does this through taxation using natural resources and formalising the informal sector.
The Monterrey Consensus on Financing for Development (2002) drew a DRM framework that comprises:
- Savings mobilisation, investment and intermediation;
- Enhancing the efficacy, coherence and consistency of macro-economic policies;
- Increasing tax revenues and widening tax bases;
- Increasing productivity;
- Reducing capital flight (and encouraging remittances);
- Encouraging the private sector, and
- Making the best possible use of international flows (including export earning, remittances, private investment and official development assistance).
The rationale for focusing on DRM is the quest to achieve sustainable growth and poverty reduction, and the need to create “policy space” to accommodate genuine domestic ownership.
This resonates with the thrust of Zim-Asset. Further to this is the essence of Zanu-PF’s ideology, which seeks to economically empower indigenous people by enabling them to fully own their country’s God-given natural resources and the means of production to unlock or create value from these resources.
Besides DRM being potentially the biggest source of long-term financing for sustainable development and the life blood of provision of goods and services, it helps strengthen fiscal institutions via long-term stable and predictable revenue.
It enables fiscal planning, which helps in ensuring resources are allocated to priority sectors and translated into desireable outcomes.
The overall effects are higher investment and economic growth, and rapid poverty reduction and reduced aid dependence (and/or dependence on FDI), thereby increasing domestic policy space and ownership.
To ensure successful DRM, Government must put in place measures to ensure an even more transparent, accountable, tangible and measurable implementation matrix.
Zimbabwe is endowed with vast mineral resources, all owned by the State.
There are over 40 different mineral occurrences, some of which have not been exploited to their full potential, including: over 13 million tonnes of gold; 2,8 billion tonnes of platinum ore; 930 million tonnes of chromite; 4,5 million tonnes of nickel; 26 billion tonnes of coal; 30 billion tonnes of iron ore; 5,2 million tonnes of copper; and Southern Africa’s largest reserves of coal bed methane.
While it is estimated that Zimbabwe can produce up to 25 percent of the world’s supply of industrial diamonds, it has not made much by way of foreign currency earnings in this area.
According to Mark voBoschel (2010), a Belgian diamond industry expert with the Antwerp World Diamond Trade Centre, Zimbabwe has the largest known diamond reserves in the world at present, estimated at US$800 billion from diamond foot-print. (A diamond footprint is a pattern deduced from the quality and quantity of diamond production allowing estimations of future production to be made.)
If Zimbabwe adopts diamond beneficiation, the country stands to earn over US$8 billion annually and create at least 200 000 jobs. Through the multiplier effect, Government earns more revenue to support provision of public goods and services.
However, the volatility of natural resource prices could disappoint high expectations linked to development from the contribution of the extractive sector.
DRM in Zimbabwe has been hampered by leakages in mining because of inadequate institutional frameworks. This undermines maximisation of Government revenue through tax evasion, transfer pricing and under-invoicing.
To boost mineral deliveries and DRM, there is need to plug illicit financial flows, tax evasion, lax borders, smuggling and non-repayment of loans through high levels of self-discipline and compliance to non-negotiable values of transparency and accountability.
For most governments, the single largest source of revenue is taxes. Tax collection is a DRM strategy that is very effective and can contribute to GDP.
Learning from El Salvador, Zimbabwe can generate more revenue without increasing a single tax via effective collection methods. The systems can combine improved taxpayer outreach, criminal investigation and other programmes.
Consecutive periods of rapid revenue growth can allow Zimbabwe to double per capita spending on health, education and social protection, and reduce extreme poverty.
A country’s domestic resources are the primary way in which the Sustainable Development Goals will be achieved. The SDGs require far more financing than is currently available, and reforming tax systems can unlock that financing.
Not only that, but this will also fund normal government operations reinforce the social contract between Government and citizens.
As Zimbabwe embraces DRM, emphasis should also be directed to the non-tax revenue source that encapsulates increasing productivity, reducing capital flight, maximising export earnings, Diaspora remittances, private investment, efficient use of official development assistance and enhancing the efficacy, coherence and consistency of macro-economic policies.
A critical component of DRM is parastatal restructuring, which is long overdue. Restructuring State-owned enterprises will mobilise financial resources vital for economic development.
A new global economic system based on state-ownership is emerging, guided by central planning as the antithesis of the world market economy based primarily on private ownership and guided by the price mechanism.
As in the case of China, economic success is underpinned by over 50 percent tax revenue and dividends attributed to State-owned institutions.
Some of Zimbabwe’s parastatals are on the right track. The National Oil Infrastructure Company recently declared a US$4 million dividend to Government for the 12 months ending December 31, 2015; success ascribed to increased throughput and stringent cost containment, which drove Noic’s profitability by 37 percent.
If this scenario could be replicated, we will see a departure from the current scenario where most parastatals record huge loses while failing to perform their mandates. Parastatals are considered havens of corruption and inefficiency, with the Comptroller and Auditor-General’s Office reporting numerous cases of graft yearly over the last decade.
As such, parastatal reform should aim to increase accountability, transparency and efficiency; while ensuring maximum returns on Government assets for effective DRM.
The need to adopt a comprehensive DRM strategy for Zimbabwe cannot be over-emphasised. Regardless, expectations of successful economic turnaround through successful implementation of Zim-Asset remain high as we gravitate towards the 2018 harmonised elections.
Historically, election periods have been characterised by an upsurge in Government expenditure. Zanu-PF is thus implored to craft effective DRM strategies that drive its economic agenda at the upcoming 16th Annual National People’s Conference.
This will also go a long way in alleviating the current liquidity problems.
Cde Nyasha Patience Mandeya is Zanu-PF Director of Economic Affairs. She wrote this article for The Sunday Mail as part of the build-up to the ruling party’s 16th Annual National People’s Conference scheduled for Masvingo this December
