Budget provides window for economic expansion

Kudzanai Gerede
Last week Finance and Economic Planning Minister, Patrick Chinamasa presented the 2016 National Budget amid high expectations by the generality of Zimbabweans to turn around the economic fortunes of the country.

But the 2016 budget, just like its predecessor, remained stuck at US$ 4 billion owing to a restrained economic environment which prevailed in the country and had earlier prompted the minister to review initial economic growth projection for 2015 of 3,7 percent down to 1,5 percent.

In his presentation, the Finance minister highlighted that most key economic sectors have remained subdued throughout the course of 2015, with agriculture and energy sectors being the worst affected by poor rains last season which resulted in poor harvests for our agro-based economy and resulted in low water levels at Kariba dam which limited normal hydro power generation.

The situation was worsened by a struggling financial sector which was crippled by the liquidity challenges and a general lack of confidence in the banking sector following closure of major banks like Afrasia’s Kingdom bank where customer lost huge amounts of money which are yet to be recovered since the bank’s liquidation.

This was compounded by high cost of borrowing which made it impossible for struggling companies to service loans and a general decline in the number of banked individuals in the country.

All these challenges put together, coupled with competition from imports, led to most local companies either closing shop or operating below capacity which would soon haunt treasury’s coffers as it realized little revenue at the end of the value chain.

In this respect, the national budget was expected to be of a pro-production nature, striking a balance between austerity measures and some sort of compromise through fiscal initiatives aimed at increasing production and minister Chinamasa did just that.

In his 2016 national budget presentation, minister Chinamasa projected the economy to grow by 2,7 percent buoyed by mining, tourism, construction and the financial sector with agriculture expected to recover by 1,8 percent.

With the massive wage bill still looming large, the budget was predestined to provide little in terms of financing developmental projects as 92 percent of the budget still went to recurrent expenditure.

As earlier noted by economist Mr Vince Museve prior to the budget presentation last week, the ideal budget in these circumstances should avoid anchoring on increasing the government’s revenue base through heavy taxation of already distressed businesses as has become the norm but attempt to create business friendly policies to allow expansion of businesses which will yield revenue for government in the mid to long term.

Having witnessed the country’s manufacturing sector slumping 22 percent down to 34 percent capacity utilization from 57 percent in 2011 as highlighted in the Confederation of Zimbabwe Industries Manufacturing Sector Survey, the budget gives an olive branch to local manufacturing firms through a host of fiscal initiatives aimed at promoting local manufacturers.

Among these initiatives are, the removal of selected motor vehicles and buses imported by government and School Development Associations from the Duty Free Certificate Facility in order to facilitate implementation of the Cabinet Circular and increased duty on imported canopies and drop side panels from 10 percent to 40 percent all targeted to empower local motor manufacturers like Quest motors in Mutare and Harare’s Willowvale Mazda.

There was also reduced royalty rate of 3 percent on incremental output of gold aimed at increasing profits for gold players against the falling global commodity prices.

The minister’s introduction of rebate of duty on capital equipment imported by mining, agriculture, manufacturing and energy sectors for equipment valued at US$ 1 million and above will boost these sectors as they are in dire need of mechanization to start operations.

“It’s time to re-tool,” National Economic Consultative Forum Economist, Mr Pepukai Chivore noted about the recently announced budget.

“The reduction of the rebate from 300 to 200 will complement the removal of most goods like blankets, fridges among others from rebate and help to curb the marginal propensity to import. The waiver of duty on capital equipment coupled with the appreciation of the United States dollar must be a welcome development to serious industrialists,” he added.

He said the 2,7 percent growth rate was realistic considering the expected rebound in agriculture after a decline last year due to drought but hastened to say the early weather outlook warning signs will guide farmers to grow early maturity varieties hence a rebound is realistic.

He also said cotton sector support was welcome as it will help revamp the whole value chain with the complementary clothing industry expected to resume operations from the capital equipment duty relief but warned of being short changed by unproductive farmers in the process.

“Continued support of agriculture is welcome but it’s high time we do targeted support. We should identify productive farmers, give them support and also give them targets unlike blanket support system, let’s focus more on productivity as a priority rather than producer prices for outputs,” said Chivore.

For the country’s banking sector which has for some time been subject to negative perception, the minister has put in place exemption from tax interest earned on deposits with tenure of more than 12 months in an attempt to lure back the massively unbanked country’s population.

Analysts have however noted with concern the investment environment which continue to deter some investors such as the multiplicity of registration processes and duplicated regulatory payments encountered to start a company.

Mr Chivore said: “One area we really need intervention is the regulatory environment. There is need to reduce or completely remove some of the regulatory payments especially EMA’s 3 percent tax which is deterring investment by Independent Power Producers in the energy sector.”

Despite the lean budget, the business sector has applauded Finance and Economic Planning minister for laying initiatives that capacitate local industry’s competitiveness through the various pro-production measures and avoiding falling into the temptation of heavily taxing companies for government’s revenue expansion.

As Reserve Bank of Zimbabwe Governor Dr John Mangudya stated: “If we follow all the dictates of what the budget has said, we are in for a better environment for business.”