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A review of Mthuli’s half yearly budget announcement: Is there a light at the end of the tunnel?

By Chenayi Mutambasere

The purpose of a State Budget Announcement should be likened to reading your child’s mid year report. You have  paid your fees you want to know is the child applying themselves fully and assess where they are likely to be by the end of the year.

Chenayi Mutambasere
Chenayi Mutambasere

So here is Mthuli Ncube’s mid year report on how well has he done vabereki? Is he achieving the standard we should expect more importantly is there any light at the end of the tunnel? I provide here a brief synopsis of some of the budget items and present an opinion of how dim/bright that light at the end of the tunnel is or indeed if Zesa has happened to that light ….

Introduction + Global Economic Development

Item 6 indicates a slower than expected global economic growth which is attributed to key global events such as Brexit etc.  What is interesting for us Zimbabweans is that for Sub Saharan Africa of which we are a part of, there has been a growth of 0.4% increase from 2018.

This would align to the thinking that as some of the key developed economies are struggling opportunities are present for the smaller economies who are happy to operate in micro-economies.

Even South Africa is seeing a sudden turn for the better in spite of its political inertia and is reported to be gaining lost ground. The point being that Zimbabwe cannot blame its economic downturn on low global economic growth because it is at these times that we should flourish and capitalise on new opportunities.

Item 7 is a special mention of China and its struggles with the USA which have in turn reduced economic growth. This is recorded as having an adverse impact on demand for commodities in Zimbabwe by China. This is the first point I should agree with in this report.

That said the report does significantly downplay the impact that this will have for Zimbabwe. Zimbabwe’s agriculture policy has driven by the incumbent government has been to service the Chinese market particularly tobacco farming and some grains.

The reduced demand from China has already started adversely impacting our small scale farmers who have invested their all in the last few years in say for instance tobacco.

This reduced demand has manifested in farmers being offered paltry prices for their hard earned produce (we will all remember the video of the elderly women crying after being told the price offered for their tobacco) –  this will continue into the foreseeable. 

The other impact of a downturn in China is how this will relate to the current free trade open border policy in place with China and the impact that this will have on the already strained labour market. Further and perhaps more worrisome will be the continued or even increased influx of cheap Chinese products that will continue to undercut the local traders.

Item 10: Gold is said to be reporting strong growth in value on a global scale. For Zimbabwe this would have been our big hooray moment.

Geologists the world over indicate that  ‘Zimbabwe has one of the highest gold productivities per square kilometre. ‘Imajeni’. Meanwhile corruption and an under explored terrain mean we don’t get to benefit from this God given blessing. The proceeds of gold remain for the few and not the many.

The report indicates an attempt to review and reform the country’s mining sector. Both the world bank and the Norwegian government have attempted to support this effort. However, the missing data in this sector has been such that a review has not been completed and reforms not put in place. 

The minister proposes some reforms none of which address the pending issue on the accurate recording of activities within the mining sector. The mining sector in Zimbabwe continues to be one of the mostly corrupt industries whose proceeds remain mostly unreported thus untraceable.

Item 11: I could hear many jaws dropping like Elliot when Zimbabweans read this. So global oil prices are declining !! Oil prices directly affect prices of goods that are made with petroleum.

So that hefty fuel price at the pump and those long queues are a direct result of ZANU PF government incompetence. While the rest of the world is enjoying abundant fuel in Zimbabwe its expensive and in short supply. The persistent stubborn denial of the incumbent government to put in place political reforms continues to cost us daily.

Item 13 suggests that for Zimbabwe we should be having abundant imports and opportunities to export goods due to stable agriculture commodity prices. Again, as stated above this only serves to show that food shortages being experienced in Zimbabwe are a direct result of micro -economic problems unique only to Zimbabwe, the world over is in a fairly comfortable place but Zimbabweans continue to live toiling for the next loaf of bread.

TSP Analysis  

I will for the purposes of this summary ignore the fact that the TSP still hasn’t been socialised to its key stakeholders it remains Mthuli’s secret child – we know it exists and that he loves it but truly no one has seen or knows where it lives!!!  Nevertheless, let’s have a look at what is happening with TSP as per the budget statement.

Item 14 alludes to Structural and Governance reforms apparently supported by bold economic announcements. Well if he means the announcements of increasing fuel prices or the overnight move from the use of USD to (Ecocash; RTGS and Bond) ZWL they are many words that can be used to describe those announcements if Mthuli chooses Bond we will leave him be for now.

I however must have somehow blinked and missed the Structural and Governance reform, the word reform is synonymous with words such as corrective, improvement, betterment etc.

As far as I can tell I am yet to see any such reform in Zimbabwe certainly nothing to note in the last 6 months. In fact the reinstatement of the Reserve Bank Governor John Mangudya after such poor performance with a reinstatement letter clearly asking him for more of the same, does make it a bit far fetched to suggest that any type of significant reform has taken place.

Item 15 speaks of relentless effort to implement TSP. If this means the implementation of harsh income tax laws then yes his effort has been relentless. Some citizens who are earning in USD claim that the income tax application means they end up with negative income on their payslips attributed to absurd income tax calculations imposed by the Revenue Authority.

Item 17,18 and 19 are nothing short of Mthuli’s rhetoric statements these items are pretty much where he openly pays homage to his bosses and unashamedly sings for his dinner. 

These statements are empty indemonstrable rhetoric. He talks about successful reforms of which we don’t know what they are so how are they measured? If he can at least point out how he has measured his own success because as we know the proof is always in the pudding or a more apt statement here would be the devil is in the detail.

Item 20 brings us back to the issue of tax, unfortunately the statement doesn’t provide a breakdown of which tax lines are contributing to the government’s revenue.

With tax being 97% of revenue it would have been ideal to get an indication of how much of this is income tax. Having high income tax is off putting on investors thus being a contractionary fiscal policy. We demand an issue of the breakdown of the tax revenue figure. 

The report itself outlines one of the most significant issues with the current income tax calculation. On page 83 the low income tax bracket is referred to as being $350 it isn’t mentioned whether this is ZWL or USD however the high income tax bracket is referred to as being US$20,000.

Currently employees are having issues whereby the income if paid in USD by external company is first converted to ZWL and the tax bracket applied which means that when reverted back to USD  the tax applied is very high leaving employees in the private sector with next to zero on their pay slip. This should be investigated. And a clear transparent position shared.

Within the statement the minister states (page 84) in relation to employees earning in foreign currency (i.e. USD) that:

  • Tax liability will be settled in foreign currency
  • A uniform conversion rate will be used for multi-currency salaries to Zimbabwean dollars

So technically if I am earning in USD and paying my tax in USD why first must my salary be converted to Zim dollar to calculate tax. What would be really easy would be to use a separate fixed tax scheme specific to USD. This uniform conversion rate business is daylight robbery in many ways and is very contractionary reducing consumer spending.

Still on the issue of tax the 2% penalty will be carried forward into the next half year (pg85) with a cosmetic review of the thresholds it applies. This is in spite of the public outcry on this daylight robbery. Minister by increasing these arbitrary tax  you are reducing consumer spending invariably reducing investment.

Without investment there is no new money into the economy. SME’s will but pass this cost on to consumer which will increase inflation. What really is the benefit of this 2% other than lazy fiscus we need innovative fiscus that increases spending thus increasing investment.

To add insult to injury a new tax on mobile money transfer agents and their recipients (page 86)– only one question why? Is the minister forgetting that this hugely inconvenient modus operandi is birthed from the financial liquidity crisis which the country is still battling with. 

Why is it that the government would rather punish its main stakeholders than introduce political reforms which would settle these issues in a week.

Item 22 alludes to the continued overspending by the GoZ.  We all remember Mthuli continuously claiming he has a surplus well a surplus doesn’t happen when you overspend- by sheer definition overspending means you have spent money you don’t have therefore you can’t be in surplus.

One of the key areas indicated as being the main area of unexpected expenditure is the Cyclone Idai. It would be prudent and justified for an audit to be carried out of what exactly the money has been spent on. We all I am sure remember the president indicating the US president Donald Trump himself saying ‘Tiudzei yamunoda isu tokupai’ , furthermore many agencies and governments partnered to support us financially for this cause. So do tell the public how $60million was spent.

The introduction of the infamous Zupco buses set us back $30.9million, can the minister please tell us the envisaged return on this investment, what is the payback period, how does it positively impact the young child who needs tertiary education access, a job and access to health?

Overall in the report its interesting to note that even the minister is also unclear as to the exact exchange rate. Given the recent change from USD to ZWL it would have been ideal for the minister to state the rate that he has used to convert the figures in the budget statement to give a more clearer picture at a point in time.   

It would have been better to view the country’s position using a more fixed currency given the volatility of ZWL. Throughout the report the rate used ranges from 1:7 (for the World Bank Loan), 1:8 elsewhere and even 1:10 in other parts.

While it gives some weird comfort to know even the Finance ministry is also getting confused, we hope common sense will prevail and an end to this put forward. Having a USD as an officially accepted tender helped us to peg our financial position and more importantly trade and transparency existed to some degree.

Within the report administrative burdens of constantly changing multi currencies into the value of a very volatile ZWL are mentioned bringing back USD seems a logical quick win for all. 

Otherwise it really is difficult to follow what from the minister’s stated actions will improve the economy and to what extent.

So I started by saying let’s read and see if there is a light at the of the tunnel – I am afraid we are now on Zesa stage 4, the light can barely be seen. As things stand we will continue to see that light only when we are asleep.  Political reforms remain an urgent must!!!

Chenayi Mutambasere (Msc Development Economics and Policy) is the MDC UK and Ireland Province Secretary for Industry and Commerce. You can follow her on Twitter: @ChenayiM