Eric Bloch: Recognising reality, lacking resolve

IN presenting his 2011 budget to parliament last week, the Minister of Finance Tendai Biti demonstrated that he clearly has his finger on the pulse of the Zimbabwean economy, with considerable awareness of not only the debilitated state of the economy, but also of the immense and diverse challenges confronting economic recovery. 

Without fear or favour, he enumerated 37 key challenges, saying that they fell into four main areas, being political, social, institutional and economic.

Political challenges

  • Political challenges around the Government of National Unity (GNU), and discord in the

GNU.

  • Lack of certainty on the tenure of the GNU.
  • Global Political Agreement contestation and outstanding issues.
  • Democracy and rule of law deficit.
  • The cyclical and turbulent nature of the country’s politics.
  • Lack of finality to the land reform programme.
  • Lack of definition of a clear land tenure system.
  • Zimbabwe’s isolation and lack of integration.

Social challenges

  • Poverty and unemployment.
  • Huge numbers of vulnerable, including households with chronic illnesses, and child-headed households.
  • Weak social delivery in education and health.

Challenges

 

  • Lack of competitiveness.
  • Huge bureaucracy and red tape.
  • High cost of doing business.
  • Absence of public confidence in public institutions, including parastatals and government departments.
  • High levels of leakage and arbitrage.
  • Polarised spaces, in particular in the media.
  • Huge levels of public and private mistrust.

Most of all, Biti identified 20 economic challenges:

  • Lack of fiscal space.
  • Absence of alternative instruments other than the fiscus.
  • Lack of foreign direct investment.
  • Lack of liquidity.
  • Poor infrastructure.
  • Labour market inflexibility.
  • High cost of utilities.
  • Energy shortages.
  • Skills gap.
  • Lack of absorption capacity.
  • Debt overhang.
  • Management of public resources.
  • Capacity stagnation.
  • Low aggregate demand.
  • Low wage equilibrium.
  • High unemployment.
  • Dichotomies and contradictions.
  • Greatly improved macro-economic conditions but difficult business environment.
  • Unintegrated informal sector.
  • Unintegrated rural economy.

Having demonstrated such incisive awareness of many of the greatest challenges faced by Zimbabwe, its economy, and its populace, it is incomprehensible that the minister then failed to match his recognition of realities by effective, constructive resolve to reverse (or, at the least, minimise) those challenges.  The realities of Zimbabwe’s constrained circumstances, and the minister’s resolve to address those realities, were in various respects far apart.  Foremost in his failure to match realities with resolve is that:

  • He intends to lower customs duties on clothing, textiles and footwear.  At one time Zimbabwe was a major producer of those products, employing many thousands of workers, aiding the trade balance, generating substantial revenues for the fiscus, and generally contributing markedly to the economy.  But that was in days of yore, for now much of those industries are grievously emaciated.  Most of the manufacturers have had to downsize operations very considerably, markedly contributing to Zimbabwe’s pronounced unemployment and poverty, and to economic downturn.

To a monolithic extent, the substantial devastation of those industries, and the resultant negative economic effects, has been driven by the flooding of Zimbabwe with imports.  In the main, those imports are from Far East suppliers who are beneficiaries of immense export subsidies. Moreover, much of the imports have entered Zimbabwe illicitly, with avoidance of customs duties.  Now the minister intends to facilitate even greater imports competition by reducing duties.  Instead, he should simultaneously be increasing the duties and tightening controls to contain illegal importations.

  • He has increased, from January 2011, the tax-free threshold for employees from US$175 to US$225 per month.  Admittedly, that is some minor assist to the oppressed lower-income earners, but the resolve to address the reality of intense poverty was very inadequate, for the minister will still be taxing the impoverished, the desperately poverty-stricken.  As at October 2010, the Poverty Datum Line for a family of five was approximately US$480.  Assuming such family has two income earners, one generating US$300 per month, and the other, say, US$180 per month, the minimum tax threshold should be US$300, and not US$225.  The new threshold still taxes the poor harshly, compounding their hardships (over and above that they are subject to indirect taxes such as Vat).
  • The minister soundly recognised that Zimbabwe must pursue major economic development  and growth, and that necessitates major investment.

However, he failed to match that recognition with any evident resolve to achieve it, for no investment incentives and facilitations were included in the budget statement.
Whilst the minister is deserving of great commendation for his unhesitant identification of Zimbabwe’s economic ills and their causes, he needed to match that with appropriate fiscal policies and measures, but did not sufficiently do so.

 

Eric Bloch

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