THE much-awaited mid-term fiscal policy review statement was eventually presented to parliament on Wednesday last week. Even before the presentation some facts were already clear; for instance, that our revenue inflows were falling short of target, agricultural production for the past summer season was below expectation and we had to revise our budget and economic growth figures downwards.
These, among other obvious challenges, made Finance minister Tendai Biti’s job an unenviable task. Even before the minister had finished presenting his statement, there were “analysts” already dismissing it as a non-event.
Let’s face reality here, the minister had a tough task. No one disputes that our revenue targets are not being met, while at the same time demands for support from the little resources continue to mount.
Biti tried his best on a very difficult task, but, he needs help. I am sure the minister would accept advice and good ideas. The ordinary man in the street is not interested in the unseemly bickering between supporters of different political parties. They want to see jobs created for their multitudes of children who are finishing school but have bleak employment prospects.
In his statement, the minister alluded to traditional revenue routes like PAYE, VAT, customs duty and others seeming to have reached a plateau; we cannot expect increases in these income streams. The much-anticipated boom from diamonds has not materialised — so the question is what next?
It is not a secret the wage or salary levels for the greater majority of the working class are too low. So the minister could not increase PAYE, otherwise people would have ended up taking home even less. He could not increase VAT as well, as that would have the effect of increasing the cost of the basic goods basket. It is often said the unemployment rate in Zimbabwe is currently 80%, meaning only 20% of the potential working class is actually going to work and the rest are surviving on other means and it is these “means” that we should turn to.
We should ensure all those cross-border merchants operating the mushrooming shops in the CBD pay their fair share of taxes. They seem to have easy lives. They put on the most expensive outfits and drive posh cars, suggesting they are making money, but they don’t pay tax. Biti should consider them for taxation. Maybe we should go back to the old system where every adult is expected to complete a tax return every year.
During his presentation, Biti rightly pointed out that the four sectors driving the economy are agriculture, mining, tourism and manufacturing. If the minister has any manoeuvring to do, surely it has to be in these sectors due to their multiplier effect. He seems to have a good grasp of issues affecting these sectors. Such challenges include shortage of finance in general and the inability of the central bank to play its traditional role of lender-of-last-resort.
There is also the issue of collateral security, electricity, absence of credible markets like the commodity exchange affecting the marketing of some agricultural commodities, inability of government to provide funds for the strategic grain reserve and lack of maintenance of the country’s infrastructure.
Biti’s dilemma was how to resolve all these challenges. It seems the mid-term fiscal policy review statement was merely a review statement. There wasn’t anything in terms of new innovations.
The 2013 budget will only be presented in November and by that time it would be too late to expect meaningful policy interventions. Normally, if funds are made available, it would take a few more weeks for parliament to approve the budget before the state procurement board has to do its own convoluted tendering process. So the inputs end up reaching intended beneficiaries in January next year.
Those involved in the value chain must also be given sufficient time to play their part, particularly fertiliser companies, transporters and distributors.
It is important to provide funds for the GMB to buy grain for the strategic grain reserves so that farmers do not lose confidence in it.
But government should make an effort to kick-start the economy somehow. A good example is that of Delta. At the height of the hyperinflation, the company faced stiff competition from imported beers from South Africa, but with government support (putting punitive tariffs on imported beers), the company was able to import the necessary bottling plants and increase capacity utilisation while warding off competition.
Maybe this can be done with other companies, mainly those producing cooking oils, soaps and margarine. This is necessary to deal with the ballooning import bill which dwarfs export proceeds. The record of Biti’s presentations clearly shows the footprints of who would have lobbied him to address certain issues.
In last week’s statement, the minister clearly listened to the Grain Millers Association of Zimbabwe (GMAZ) and imposed a 20% duty on flour. He has a tendency to listen to one group of lobbyists and adopting their recommendations without wider and deeper consultations. The facts as presented by GMAZ are not entirely correct as they were merely designed to serve their narrow interests. They have failed to support local production over the past three years and they are equally to blame for the chaos that characterised the marketing of wheat last year.
Biti is right though in saying local banks used to support local farming, but if the truth be told, these banks do not seem to have the resources any more. With the central bank planning to double the banks’ minimum capital requirements, our local banks will simply not have the resources to lend to the productive sector. Some of the banks had to get into bed with foreign partners at the very last minute to beat the capitalisation deadline; surely, you cannot expect such banks to have meaningful resources to on-lend to the productive sector.
The issue of recapitalising the central bank is a key aspect that he has not addressed adequately. In the absence of a lender-of-last-resort, it would remain difficult for these banks to manoeuvre.
Some of the issues are admittedly difficult for Biti to address alone. These include how to make 99-year leases bankable, re-establishing the commodity exchange market and establishing the warehouse receipt system, seeking a long-lasting relationship with the private sector by avoiding policy inconsistencies, and coming up with a lasting position on Zesa. Ministers must debate these matters frankly rather than on partisan lines.
- Gambara is an agricultural economist and agricultural consultant with AgriExpert, a consultancy firm. He writes in his personal capacity. E-mail: email@example.com.