Economic players’ daunting task

on one hand and huge capital requirements for public projects and other Government business.
The local economy is facing challenges in respect of liquidity, and the Minister of Finance Tendai Biti recently announced that the country had underperformed during the first six weeks of the year.
The Zimbabwe Revenue Authority collected US$156 million against a target of US$252 million for that period.
This has raised concerns that the country may fail to meet its annual revenue target for this year of US$2,7 billion, at a time when the economy requires huge funding largely for critical infrastructure development if the recovery programme is to move ahead.
The African Development Bank recently announced that Zimbabwe needs US$14,2 billion over the next ten years to rebuild infrastructure for the addition of new capacity to meet growing demand and anticipated economic growth.
The huge funding requirements for the local economy thus present significant challenges for economic planners in the upcoming period.
If, for instance, they do reach the target through either initiating spending cuts or tax increases, they risk stifling the economy.
Spending cuts are definitely out of the question due to the volatile state of the economy, which is emerging out of a decade of instability.
On the other hand, the issue of taxes remains a traditionally contentious one in this country.
Zimbabwe’s tax revenue as a percentage of Growth Domestic Product currently tops regional averages, emerging out of the underperformance of industry as the economy continued on a sluggish recovery path last year.
According to official statistics this year, Zimbabwe has one of the highest average tax revenue as a percentage of Growth Domestic Product in the region at 30 percent.
For the 2010 period, sub-Saharan African region’s average tax revenue stood at 24,8 percent.
The Confederation of Zimbabwe Industries has since called upon the authorities to develop a number of tax allowances for industry as a strategy to enhance productivity.
“There is need for tax allowances on new capital machinery to stimulate the replacement of obsolete manufacturing capacity.
“In this regard we need to at least return to a three year tax-write off for new plant and machinery purchases, which will encourage investment and assist with cash flow,” said CZI.
Statistics from the first half of last year show that companies contributed a meagre 10,8 percent to the country’s total revenues.
On the other hand, Value Added Tax contributed the majority at 37,6 percent, followed by Pay As You Earn at 18 percent, and customs duty at 14,3 percent.
Also for the half-year, excise duty added 8,2 percent to total revenues, while other taxes (both direct and indirect) contributed 5,9 percent. Non-tax revenue contributed 5,1 percent.
The country’s huge requirements for projects have been made explicit in the recently released AfDB ‘Infrastructure and Growth in Zimbabwe’ report, which provides a detailed assessment of the state of infrastructure and services in all key areas – transport, power, information technology, as well as water and sanitation.
Some of the report’s main findings in respect of Zimbabwe’s critical infrastructure are as follows:
Out of the country’s total road network of nearly 90 000 kilometres, the proportion in fair to good condition has declined from 73 percent in 1995 to only 60 percent.
An additional 12 800 kilometres was re-classified as in ‘poor condition’, requiring complete rehabilitation at a cost of about US$1,1 billion.
It was noted that by 2009, the amount of freight carried on Zimbabwe’s railways had declined to 2,7 million tonnes – barely 15 percent of the original network capacity.
The available locomotive and rolling stock capacity is now well below what is required to meet demand.
In addition the country’s service coverage for water and sanitation declined. In the eight years since 2000, access to improved sanitation fell from 68 percent to 41 percent of the population.
It was also noted that the country now has less power generation capacity than it did at any time in the last thirty years.
The country’s energy availability is around 1 000 megawatts of electricity, less than half of previous capacity.
The country was also reported to have fallen behind its regional counterparts in terms of information communication technology (ICT) service and broadband penetration.