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Harare Bureau
FINANCE and Economic Development Minister Patrick Chinamasa yesterday bravely ushered in a new economic dispensation when he gave Zimbabwe its first policy-driven National Budget in more than a decade. Set against a backdrop of a tightening liquidity situation which has manifested through a weak financial system, thinning tax base and low aggregate demand among other phenomena, Minister Chinamasa presented a fiscal plan that sets the tone for the creation of an enabling environment that will promote meaningful partnerships between Government, the private sector and international investors.
As projected by our Harare Bureau yesterday, the budget was short on money and long on policy.
In the $4,12 billion budget proposal, Minister Chinamasa said policy consistency, credibility, certainty and transparency were critical blocks for confidence building in the domestic economy, over and above the prevailing stable macro-economic environment.
Key policy areas which he said needed attention were isolated, but overall the minister recognised the importance of the agriculture and mining sectors.
In 2014, agriculture is projected to grow by nine percent, largely driven by maize production.
Minister Chinamasa gave mining a fresh look: firstly by reaffirming the 51/49 percent principle in terms of the indigenisation principle; and secondly by decriminalising artisanal miners and making available a $100 million facility that could help provide the necessary capital to boost gold production.
Minister Chinamasa said the objective was to bring artisanal miners into the mainstream economy, while Fidelity Printers – which resumed operations last Tuesday – will be the sole buyer of gold in Zimbabwe with all other dealers only acting as agents.
In order to incentivise small-scale gold producers to sell through formal channels, the Finance Minister proposed to levy a lower rate of royalty of three percent on artisanal miners whose output does not exceed 0,5 kilogrammes per month, with effect from January 1, 2014.
Minister Chinamasa also clearly spelt out the “Use it or Lose it” principle, setting a limit of three years on claim holders.
To avoid the loss of potential revenue through exports of unprocessed minerals, Government will levy an export tax on unbeneficiated platinum and diamonds.
The export of raw chrome and chrome fines is already banned.
To restore confidence in financial markets, Minister Chinamasa proposed recapitalisation of the Reserve Bank of Zimbabwe (RBZ) to the tune of between $150 million and $200 million using a loan guaranteed by the Afreximbank.
The recapitalisation is expected to be complete by March 31, 2014.
This will allow the RBZ to intervene in the market by providing liquidity support to banks after Government freed assumed the central bank’s $1,3 billion debt.
He said Treasury would proceed to issue the requisite debt instruments to local financial institutions and other players who were owed by the RBZ, and this would be done by March 31, 2014.
Similarly, $100 million will be mobilised to restart the interbank market while $20 million will be sought to demonitise Zimbabwe dollar bank balances.
2014 Budget Highlights
• Focus on confidence-building
• Economy to grow by 6,4 percent
• Multi-currency system to stay
• Revenue collection projected at $4,2 billion
• $100 million inter-bank programme on cards
• Big taxes on unprocessed diamonds, platinum
• Unrefined gold exports banned
• Indigenisation policy to proceed
• Formalisation of artisanal mining
• Inflation projected at 1,5 percent
by end of 2014
• RBZ to be recapitalised
• Banks capitalisation levels unchanged
• Trade deficit to widen
• Infrastructure bonds proposed
This should see the RBZ resume the role of Banker to Government on April 1, 2014.
“In view of the above, I propose to introduce a $100 million interbank programme supported by an international bank, the African Export-Import Bank, as a guarantor with effect from 1 April 2014,” Minister Chinamasa said.
With the Zim Asset programme recognising the centrality of re-engaging with creditors for debt relief, including new financing Minister Chinamasa said that Government remained committed to engaging the Bretton Woods Institutions and will do its best to abide by the Staff Monitored Programme.
Minister Chinamasa took bold steps to address misconceptions around indigenisation and empowerment saying the challenge Zimbabwe faced related to perceptions and issue relating to interpretations of application of the policy.
“Confusion over indigenisation and Economic Empowerment seems to be emanating from the process rather than the Law. The clarification I give is that implementation of our indigenisation and Economic Empowerment laws and regulations will be undertaken under a sector specific approach,” he said.
To promote linkages and build synergies between industries he proposed excluding locally produced capital equipment from rebate of duty under national project status.
In reference to certain media inferences that the economy was “dead” the minister said the assertion was true only to the extent it related to the old economy, pointing out that with the old economy “dead”, a new one was emerging.
To this end, Minister Chinamasa urged the banking sector to pay heed to structural changes that have taken place in the economy through financial support to a new clientele of farmers and indigenous enterprises.
Minister Chinamasa said the multi-currency regime will all anchor all national economic programmes consistent with provisions of the Zimbabwe Agenda for Socio-Economic Transformation, Governments new economic blueprint 2014/18.
He said Government had continued to reassure the market that the multi-currency regime is here to stay contrary to speculation return of local unit was imminent.
“Consistent with pronouncements in Zim Asset, let me categorically re-state that the economy will continue using the multiple currency regime,” he said.
The minister proposed, exempting tax receipts and accruals on mortgage finance by other institutions, other than building societies, from income with effect from January 1, 2013 in recognition of their role easing housing backlog.
While seeking to reduce the huge import bill, at $3,7 billion in the period January to October 2013 Minister Chinamasa proposed incentives to promote value addition of exports, at the same time exploring requisite incentives.
Import duty was either increased or reduced for various products ranging from aluminum cables, wire cables, copper wires, rubber products, edible oil raw material, dairy products and inputs, biscuits and paint depending on the situation.
The period for rebates on clothing manufacturers was extended by another 12 months, duty increased on various finished products while reviews were proposed to address challenges in sugar, blankets, cider, pharmaceuticals, banking, raw hides among other taxation and duty measures.
Minister Chinamasa also said the 1964 bilateral trade agreement between Zimbabwe and South Africa would be on a tit-for-tat basis as the latter was no longer observing the trade pact while Zimbabwe did, which brought about net economic benefits to South Africa at the expense of Zimbabwe.
He said the tight liquidity situation, retreating commodity prices, frequent power outages as well as unreliable water supply, among others, had a heavy toll on the economy although the 2013 projected growth remained favorable. Mining is expected to grow 11,4 percent, manufacturing 3,2 percent, construction 11 percent, finance and insurance 6,3 percent, transport and communication 4 percent and water and electricity 4,5 percent.
Minister Chinamasa tried and succeeded in his quest for non-resource driven measures to carry the economy in 2014 cognizant of the fact that the $4,12 billion budget, 73 percent of which is recurrent expenditure, will be too thin to drive meaningful economic growth.
This comes on the back of poor revenue performance with cumulative expenditures to November 2013 amounting to $3,526 billion against a target of $3,396 billion, resulting in expenditure overrun of $130 million.
Total revenue collections up to November amounted to $3,360 billion, against a target of $3,395 billion, resulting in a negative variance of $35 million.
With obvious resource constraints the minister turned to his wit for policy initiatives that should inspire economic confidence and drive the economy going forward while proposing a number of new taxation initiatives to widen a shrinking tax base.
Economist Mr Eddie Cross admitted Minister Chinamasa faced a daunting task in balancing limitless competing interest with a small purse, but countered limited resources to a litany of policies that would do a lot to inspire economic confidence.
Online Reporter