Zimbabwe’s economy set to grow by 9,3%

By Chris Muronzi

FINANCE minister Tendai Biti yesterday said the economy will next year grow by 9,3% as the country slowly recovers from a decade-long economic meltdown. In his 2011 National Budget presentation in parliament, the minister said gross domestic product (GDP) will grow by 8,1% this year, compared with 5,7% in 2009, as a result of increased mineral earnings.

Inflation is expected to be at 4,8% by year end. The economic recovery started when President Robert Mugabe agreed to share power with Prime Minister Morgan Tsvangirai in 2009. The minister warned about the government’s high debt level. The country’s foreign debt is estimated at US$6 billion. The minister said he expected government to generate US$2,7 billion in revenue in 2011 against a projected US$2,25 billion in 2010.

Biti said mineral earnings shot up 47% in 2010, most of it from platinum, ferrochrome and gold. Diamonds made up only 9% of mineral earnings, including US$85 million from the Marange diamond fields.

“The economy is set to grow by 8,1% this year, compared to 5,7% in 2009 on the back of growth in mining by 47% and agriculture at 33%. Projections for the year 2011 are of real GDP growth of 9,3%, underpinned by further recovery in mining production with output rising by a strong 44%.”

Biti says the growth will also be “complemented” by normal rainfall in the 2010-2011 season which should see agriculture growing by 19,3% buoyed by improved viability of farmers benefiting from the multi-currency regime as well as the liberalised marketing environment. Biti projected a 5,75% manufacturing growth for 2011 underpinned by improvements in capacity utilisation.

Government says it will increase royalties on diamond sales to 15% from 10%, while gold and platinum royalties would rise 4,5% and 5%, respectively, from 4%.

“Despite the increase in international metal prices, royalties collected from precious metals amounted to a paltry US$20,7 million from sales of US$593,8 million during the period January to September 2010,” Biti said.

The minister says government would spend US$135 million to raise its power generation capacity to 1 650 MW in 2011 from current supply of around 1 000 MW.

“It is our intention to raise power generation in 2011 to 1,650 megawatts by prioritising the rehabilitation of the Kariba and Hwange stations as well as the small thermal stations in Bulawayo, Harare and Munyati,” he said

The budget comes against a background of a myriad of problems such as limited vote of credit support and low liquidity. Biti said government will introduce new exchange control regulations to replace and consolidate the existing regulations. The new regulations, he said, will put in place a legal framework within which the multi-currency system and the liberalisation of current account transactions can operate.

Treasury will also come up with exchange control regulations to compel all authorised dealers, including banks, shops, petroleum undertaking and any commercial enterprise to display the daily applicable international cross rates for all prescribed currencies in a manner that is “conspicuous” to the public.

Biti said government will provide US$9 million worth of coins on the market after talks with the US Department of the Treasury for acquisition and access to smaller denominated coins and replacement of soiled notes through the US Federal Reserve and commercial banks. The minister said bank deposits were increasing by an average US$82 million monthly, adding that money transfer agencies would next year conduct capital transfers originating from Zimbabwe.

Government, Biti said, would re-introduce an agricultural Commodities Exchange to facilitate the trade of agricultural commodities produced in the country. Biti increased the tax free threshold on salaries from US$175 to US$225 and also awarded a US$500 tax free bonus for this year. Civil servants’ salaries would in January go up by 80%.

Biti allocated a US$50 facility in conjunction with Afrexibank for industry to support the acquisition of equipment, purchase of raw materials, as well as spare parts, with interested companies applying through their banks.

“I have already written inviting Afreximbank to join us in this endeavour by considering providing additional lines of credit to complement the US$50 million the budget is providing,” the minister said.

Lovemore Matombo, Zimbabwe Congress of Trade Unions president, had a mixed view on the budget. Firstly he expressed his displeasure on the proposed tax free threshold and secondly he “praised” the minister for allocating the lion’s share of the budget to education.

“We are greatly disappointed by the proposed US$225 monthly tax free threshold announced by the minister. We expected him to announce a figure close to the current poverty datum line currently standing at US$487. We have argued that as long as workers have more disposable income, it also increases aggregate demand.”

On education he said: “For the first time in nearly 30 years, education has received the highest chunk of the budget. That is the principle we have been looking for quite some time. We praise him for the brave stance he has taken.”