More governmental myopia

LAST week’s instalment of this column discussed government’s intentional myopia, and highlighted critical issues it fails to acknowledge and address.

Eric Bloch

Granted, government is desirous of achieving substantial economic activity and growth. Aware that value-addition to primary products instead of exporting them in their primary state is highly beneficial to an economy, government has over recent months repeatedly stated it is going to ban the export of primary products which include minerals such as platinum, chrome and diamonds, and diverse agricultural products.

Although at first glance there appears to be merit in that declared intent, the reality is that the state is myopically oblivious to the fact that such action, if pursued prematurely, would actually be detrimental to the economy.

The hard fact is that at present Zimbabwe has virtually no resources for value addition to mined minerals and, therefore, until mineral processing enterprises are substantially established, it would have no exports of mining output.

Moreover, almost all existing mines would have to cease operations, resulting in considerably greater unemployment, no royalties and taxation revenues flowing into the fiscus.

Consequently there would be markedly less consumer spending into the distributive and retail sectors due to the mines having no need for products and services, and the mine employees dismissed having no spending resources.

Instead of contemplating an immediate ban on exports of mined minerals government must seriously consider how to motivate the creation of processing entities that can effect value addition to the minerals.

Such entities would need considerable capital for the acquisition or construction of requisite operational premises, and of plant and machinery, as well as working capital, and the training of a labour force.

There are few Zimbabweans, or Zimbabwean entities, that presently have such investment resources, and reality dictates foreign investment must be sought. Such investments can be sourced, but only if the potential investors feel their investment will be secure.

They need to get convincing assurances of such investment security from government, including requisite modification of the indigenisation legislation.

Concurrently, government should provide some substantive investment incentives, such as an initial three year tax-free period, with all assessed losses being carried forward to future years, waiver of all import duties on plant and machinery and other necessary establishment equipment, etc.

But government is oblivious to the potentially devastating harm to the economy of its declared intents and their premature implementation. Moreover, there has already been considerable withholding of much-needed investment for further growth of the mining sector.

Yet another area of government’s myopia is that Zimbabwe needs to have substantial incentivisation of exports and reduction in imports.

Very few of Zimbabwe’s industrial products are able to compete against imports from the Far East, in general, and China and India to a major extent.

Those countries supply products to the Southern African region with their governments according the exporters considerable export incentives (in one instance the incentive being as great as 180%t of the labour costs incurred).

If Zimbabwe is to be export competitive, government must accord exporters meaningful incentives. These should include the exemption of export proceeds from taxation, and credits against import duties on material imports required to service the domestic market.

In order to achieve a significant reduction in imports so as to prevent undue import competition against locally produced goods, the duty on the imports should be increased to such extent that the sale prices of imports to Zimbabwean consumers approximately equal the sale prices of domestically produced goods.

In such event, consumers would partially determine which products they wish to purchase, in view of the approximate price equality; because of national pride and loyalty, they would probably purchase the Zimbabwean products.

Zimbabwean industry would have increased production, enhancing the industries’ viability and profitability.

Concurrently, Government is unaware of the counter-productiveness of some of its taxation measures, seriously jeopardising the viability of many businesses.

A listing of all the destructive tax measures would be voluminous, but a few examples evidence the need for major revisions of taxation laws.

For example government changed the period within which registered VAT operators must remit tax to the Zimbabwe Revenue Authority, now payable within 25 days after the end of the month in which VAT had been charged or collected by the VAT operator. This is distinct from the formerly prescribed two months before payment had to be made.
Consequently numerous enterprises could no longer extend credit to their customers as they lacked the financial resources to remit the VAT prior to receipt thereof from their customers. This has markedly reduced the businesses’ sales, thereby reducing their viability.

Many of them were forced to cease operations, thereby exacerbating Zimbabwe’s high unemployment.

Since 2000, government has been allocating 99-year leases for agricultural land acquired under the land reform programme.
However, many of the new farmers have limited resources, and therefore are constrained in the extent to which they could productively use the land allocated to them.

As a result there was a marked decrease in Zimbabwean agricultural production, necessitating recourse to considerable imports of essential products such as maize, while reducing exports.

Because the new farmers have no recourse to loan funding as they lack title deeds or bankable leases, they remain unable to maximise productivity.

However, last week the Minister of Lands and Rural Resettlement, Douglas Mombeshora announced that 99-year leases were now being processed, and their content will render them bankable. This means the new farmers will be able to offer the leases to banks and financial institutions as security for operational loan funding.

This action of government is extremely belated, but the old maxim of “better late than never” applies, and it evidences that for once government has attempted to reduce its myopia.

Hopefully, government will abandon its myopic policies in order to clear issues that are economically harmful.

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