THINGS are likely to get worse before they get better for Zimbabweans as economic growth projections for 2015 point to a slowdown compared to 2014 which was a very tough year for the battered country.
Although government and the World Bank suggest the Zimbabwean economy will grow by about 3,2% in 2015, local think tank Econometer Global Capital is less optimistic, warning the economy would only grow by a mere 1,2% from about 3,2% in 2014.
The think-tank said political risk, coupled with growing non-performing loans, deflation, poor revenue performances and flat banking deposits will weigh down the economy in the current year.
This flies in the face of the Zanu PF government’s daydreaming economic projections, contained in the country latest economic blueprint ZimAsset, that annual GDP growth will average 7,3% over five years starting with the 2013-2014 financial year.
A gloomy picture of what lies ahead has been painted in the first few weeks since the beginning of the New Year year, with indications the country’s revenues continue to underperform. Government is struggling to meet its public service salary obligations and was forced to stagger bonus payments over several months beginning end of 2014 amid threats of a strike by civil servants.
To compound matters, the ruling Zanu PF party is preoccupied with a vicious succession struggle that continues to dominate the media at the expense of the non-performing economy which has been under renewed stress since Zanu PF triumph in the July 2013 general elections.
Elsewhere, diamond mining, once touted as the nation’s saviour, continues to underperform amid continued concerns about opacity, revenue leakages and the involvement of the country’s security sector.
As reported by Zimbabwe Independent last week, the country faces a tough 2015 as revenue collection, which missed the US$3,82 billion target for 2014 by 6%, is expected to decline further.
Close sources at the Zimbabwe Revenue Authority (Zimra) hinted 2015 would be an uphill struggle, with the revenue base expected to further decline due to the liquidity crunch currently gripping the country coupled with retrenchments and company closures.
A Zimra official said other major contributors to revenue collection such as corporate tax, VAT on local sales and imports and customs duty, are set to plunge in 2015.
Official Zimra figures show that net collections for 2014 were US$3,6 billion against a target of US$3,82 billion. The revenue collector said collections were particularly poor in the fourth quarter of 2014, where they missed the US$1,1 billion target by 10%.
This was despite the use of stringent measures such as garnishing accounts of non-cooperating clients to force them to the table to discuss payment plans.
In the 2014 revenue report, Zimra indicated that net corporate income tax amounted to US$372,1 million against a target of US$426 million — missing the target by 13%.
Net collections of VAT on sales were US$509,4 million against a target of US$748,8 million, a negative variance of 32%.
The revenue collector attributed the difference to a “reduction in local industrial capacity utilisation, which resulted in low levels of production of goods that attract VAT.”
“We envisage a more difficult 2015 and have come up with a number of strategies to raise revenue including taxing the informal sector,” said the Zimra official who requested anonymity.
“In addition, there is a tax amnesty which has been in place since the government published the Finance Act (No 2) of 2014 in October.”
“The amnesty is targeting individuals, companies, corporates or incorporated body of persons and trusts who can apply to regularise their affairs so as to be granted relief on penalty, interest and prosecution.”
Such efforts by the revenue collector are unlikely to yield the desired results if government does not take measures that stimulate new investment into the economy and improve capacity utilisation in order to boost revenues.
Market statistics show more than 6 000 employees were retrenched between January and November last year in Zimbabwe, while Finance minister Patrick Chinamasa revealed in his 2015 National Budget late 2014 that 4 610 companies closed shop, resulting in the loss of more than 55 400 jobs between 2011 and 2014.
Economist Brains Muchemwa said the slumping of revenues is a reflection of the slowdown in the wider economy characterised by rising corporate bankruptcies as most of the economic activities have now gravitated towards the informal sector that is operating outside the radar of the taxman.
Muchemwa said due to the dollarisation of the economy, there is a serious handicap on the fiscal and monetary policy options for the government to stimulate the economy, leaving the soft infrastructure issues relating to investment promotion and easing the cost of doing business and bureaucracy as the most effective tools to stimulate the economy.
“It is important to understand that there are no quick fixes to this stagnation even in the developed economies that have the big handy advantage of quantitative easing (increasing the money supply through the central bank by flooding financial institutions with capital in an effort to promote increased lending and liquidity),” he said.
Zimbabwe adopted a multi-currency basket in 2009 after demonetising the local currency rendered worthless by hyperinflation.
“Government has to show its commitment to undertake serious reform and as long as the issues such as labour law reforms, civil service reforms and privatisation remain a lip service, the drag on the economy will remain in the doldrums.”
Another local economist John Robertson said the slowdown in collections reflect a shrinkage in economy activity across all sectors such as agriculture, mining and manufacturing and lack of investment.
“What amazes me is that even a 10-year-old can see things more clearly than our government which has a lot of PhD holders and highly skilled individuals,” said Robertson.
“The decrease can actually be dated back to 2000 at the time of the fast-track land reform where thousands of people lost their jobs and land lost its value. Productive capacity has to increase and it can be improved by investors who are saying they are not ready to part with 51% equity as dictated by the Indigenisation Act,” Robertson said. “There are so many countries with better civil rights, property rights and policies, but Zimbabwe spends much of its time discouraging much-needed investment.”