Opinion / Columnist
Sector priorities for NDS implementation
01 Dec 2020 at 04:17hrs | Views
Dependence on rain-fed agriculture has led to successive droughts
Zimbabwe launched its new 5 year economic blueprint called the National Development Strategy (NDS-1) on 16 November 2020. The new plan succeeds the Transitional Stabilization Programme (TSP) that ends this year after running a 2-year relay from 2018. NDS1 will run from 2021-2025 in line with Zimbabwe's vision 2030. The overarching goals for NDS are to strengthen macroeconomic and exchange rate stability, promote good governance, promote enterprise development and achieve equitable economic growth, strengthen social infrastructure and social safety nets, create employment and modernize the economy through digital technology.
To achieve these goals, the government aims to attain real Gross Domestic Product (GDP) growth rate of above 5% for five successive years (Lower from the 7% envisaged for Vision 2030). The government aims to achieve and maintain single-digit annual inflation (Down from the 2020 annual average of 655%). This year, treasury hopes to collect about ZW$174 billion (US$2.1 billion) from taxes. On revenue mobilization, treasury aims to collect ZW$862 billion by 2023, a figure which can only be sustained through high levels of inflation and depreciation for the local currency. The government also aims to maintain public (External plus domestic) debt to levels below 70% of GDP. Zimbabwe's public debt figures are not very clear, the NDS quotes external debt of US$8.1 billion from December 2019 before the central bank debt of US$5 billion, former commercial farmer's compensation of US$3.5 billion and domestic debt are factored in. This means that public debt is already above 100% of the GDP figure of US$13,102 stated in the economic blueprint. NDS also aims to move away from the prevailing crawling peg of between ZW$80 to 82 for 1US$ to a market determined and competitive exchange rate.
The past 2 years have seen the economy sinking into successive recessions with a 6.5% contraction in 2019. The government expects the economy to contract by 4.1% in 2020 while the International Monetary Finance (IMF) forecasts a decline of 10.4% in 2020 before the economy registers a 2.5% growth in 2021. The World Bank projects a 10% contraction in 2020, before recovering to 2.8% growth rate in 2021. However, for NDS to achieve any traction on growing the economy, the following areas need priority;
Mining Sector Reforms
Zimbabwe relies heavily on raw minerals exports for export earnings.
Zimbabwe's export commodities are biased towards raw and semi-processed commodities which account for over 90% of the export value. The country aims to turn the mining sector into a US$12 billion export industry by 2023. NDS objectives therefore center on increasing private sector investment in mining, increasing production, value addition and beneficiation, and export growth. To ramp up production and crowd in private sector capital, the government needs to curb corruption in the awarding of mining licenses, Explorative Prospecting Orders (EPOs) and marketing of special minerals such as Gold and Diamond which are stained by political interference and rampant smuggling. Millions in lost tax revenues and billions of foreign currency laundered outside Zimbabwean borders each year are critical in oiling the local economy with the much needed foreign currency. To achieve transparency in mining, the country needs to join the Extractive Industries Transparency Initiative (EITI) and implement its global standards on accessibility of mining data and transparency. Similarly, the country needs to sign the new Mines and Minerals Bill of 2015, formalize Small Scale and Artisanal mining for production transparency, and invest in minerals exploration to ascertain the value of mineral reserves. Beneficiation of strategic minerals such Lithium, Rare Earth Elements (REE), Gold and Diamonds will require tax incentives to miners who invest in smelting on mining sites.
Agriculture Reforms
Agriculture remains central to Zimbabwe' economic revival hopes even though its contribution has declined to less than 10% of GDP due to successive droughts, inflation inspired viability challenges and legacy land tenure constraints. Agriculture has strong backward and forward integration to the manufacturing sector for provision of raw materials and agricultural inputs. After the Land Reform program, it is evident that most communal and resettled farmers lack capital to make farming a viable business. The government should therefore create a legal framework that makes 99 year leases transferable for financing reasons with local banks and issue Title Deeds to farmers on a one family-one farm policy. Years of government funding to communal and resettled farmers have created a vicious circle of high level corruption in inputs distribution, dependence syndrome and speculative holding of farmland while the country imports over US$700 million of grains yearly to avert starvation.
Zimbabwe's rainfall patterns have also adversely changed in the last few years due to climate change and over 60% of the country receives rainfall levels that are not adequate for crop cultivation. The government needs to channel funding towards small scale irrigation equipment to utilize the over 2200 water bodies (dams and rivers) in the country for all year production of strategic crops. More importantly, the government needs to reform from setting fixed prices for agricultural commodities and establish a commodities exchange market where prices are determined by market forces in order to improve transparency, attract private investment and provide incentives to farmers. The current pricing structure in agriculture favors middlemen and importation of cereals at the expense of local production.
Reforms in other economic sectors
The manufacturing sector is operating at about 32% capacity utilization due to depressed consumer demand (caused by inflation and loss of income), shortage of foreign currency, obsolete machinery and lack of capital in the local market to retool, stiff competition from cheaper imports and the high cost of doing business in Zimbabwe. The high cost of doing business takes into account high taxation levels, transport and haulage costs, utilities and inflated prices of locally produced inputs and services. The high cost of doing business is also detrimental to other economic sectors such as tourism and hospitality, retailing, real estate and construction. To address this, treasury needs to streamline taxes paid to ZIMRA and various government agencies such as National Social Security Authority (NSSA), Environmental Management Authority (EMA), and Zimbabwe Energy Regulatory Authority (ZERA), Zimbabwe Investment Authority (ZIA), Zimbabwe Tourism Authority (ZTA), immigration department, Ministry of mines and local authorities among others. The taxation model should be simpler and provide incentives to tax compliant enterprises at all costs.
To crowd in private capital and global investment, the government has to implement clear reforms that facilitate repatriation of dividends and capital for all investors that invest in local securities and businesses.
Zimbabwe's import and export procedures are also loaded with lots of human interface and bureaucracy which prevents transparency and speedy movement of cargo. Ideally, firms that routinely export or import raw materials used in the manufacture of various goods should have simplified customs procedures to improve economic efficiency.
Like most the 15 plus economic blueprints launched by the government since 1980, NDS cannot be faulted on identifying production constraints and stating key action points to needed to grow the economy. It is the slow pace in the implementation of economic policies, reforms and the culture of governance in government that shows limited political will to address Zimbabwe's economic ills. NDS success therefore rests on a stable macro-economic environment characterized by growth in private sector credit and growth in consumer demand, an efficient foreign exchange market and various free market policies in industries where government control is inhibiting private investment such as mining, agriculture, media, energy and financial services. Like its predecessors, NDS cannot do without stable power and fuel supplies to sustain production, policy consistency to ensure business planning and very low levels of inflation that are critical in maintaining household and business incomes. All these action points are largely known to the government and in the same vain as past economic blueprints, it all boils down to political will on the implementation of proposed economic reforms and policies.
Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.
To achieve these goals, the government aims to attain real Gross Domestic Product (GDP) growth rate of above 5% for five successive years (Lower from the 7% envisaged for Vision 2030). The government aims to achieve and maintain single-digit annual inflation (Down from the 2020 annual average of 655%). This year, treasury hopes to collect about ZW$174 billion (US$2.1 billion) from taxes. On revenue mobilization, treasury aims to collect ZW$862 billion by 2023, a figure which can only be sustained through high levels of inflation and depreciation for the local currency. The government also aims to maintain public (External plus domestic) debt to levels below 70% of GDP. Zimbabwe's public debt figures are not very clear, the NDS quotes external debt of US$8.1 billion from December 2019 before the central bank debt of US$5 billion, former commercial farmer's compensation of US$3.5 billion and domestic debt are factored in. This means that public debt is already above 100% of the GDP figure of US$13,102 stated in the economic blueprint. NDS also aims to move away from the prevailing crawling peg of between ZW$80 to 82 for 1US$ to a market determined and competitive exchange rate.
The past 2 years have seen the economy sinking into successive recessions with a 6.5% contraction in 2019. The government expects the economy to contract by 4.1% in 2020 while the International Monetary Finance (IMF) forecasts a decline of 10.4% in 2020 before the economy registers a 2.5% growth in 2021. The World Bank projects a 10% contraction in 2020, before recovering to 2.8% growth rate in 2021. However, for NDS to achieve any traction on growing the economy, the following areas need priority;
Mining Sector Reforms
Zimbabwe relies heavily on raw minerals exports for export earnings.
Zimbabwe's export commodities are biased towards raw and semi-processed commodities which account for over 90% of the export value. The country aims to turn the mining sector into a US$12 billion export industry by 2023. NDS objectives therefore center on increasing private sector investment in mining, increasing production, value addition and beneficiation, and export growth. To ramp up production and crowd in private sector capital, the government needs to curb corruption in the awarding of mining licenses, Explorative Prospecting Orders (EPOs) and marketing of special minerals such as Gold and Diamond which are stained by political interference and rampant smuggling. Millions in lost tax revenues and billions of foreign currency laundered outside Zimbabwean borders each year are critical in oiling the local economy with the much needed foreign currency. To achieve transparency in mining, the country needs to join the Extractive Industries Transparency Initiative (EITI) and implement its global standards on accessibility of mining data and transparency. Similarly, the country needs to sign the new Mines and Minerals Bill of 2015, formalize Small Scale and Artisanal mining for production transparency, and invest in minerals exploration to ascertain the value of mineral reserves. Beneficiation of strategic minerals such Lithium, Rare Earth Elements (REE), Gold and Diamonds will require tax incentives to miners who invest in smelting on mining sites.
Agriculture remains central to Zimbabwe' economic revival hopes even though its contribution has declined to less than 10% of GDP due to successive droughts, inflation inspired viability challenges and legacy land tenure constraints. Agriculture has strong backward and forward integration to the manufacturing sector for provision of raw materials and agricultural inputs. After the Land Reform program, it is evident that most communal and resettled farmers lack capital to make farming a viable business. The government should therefore create a legal framework that makes 99 year leases transferable for financing reasons with local banks and issue Title Deeds to farmers on a one family-one farm policy. Years of government funding to communal and resettled farmers have created a vicious circle of high level corruption in inputs distribution, dependence syndrome and speculative holding of farmland while the country imports over US$700 million of grains yearly to avert starvation.
Zimbabwe's rainfall patterns have also adversely changed in the last few years due to climate change and over 60% of the country receives rainfall levels that are not adequate for crop cultivation. The government needs to channel funding towards small scale irrigation equipment to utilize the over 2200 water bodies (dams and rivers) in the country for all year production of strategic crops. More importantly, the government needs to reform from setting fixed prices for agricultural commodities and establish a commodities exchange market where prices are determined by market forces in order to improve transparency, attract private investment and provide incentives to farmers. The current pricing structure in agriculture favors middlemen and importation of cereals at the expense of local production.
Reforms in other economic sectors
The manufacturing sector is operating at about 32% capacity utilization due to depressed consumer demand (caused by inflation and loss of income), shortage of foreign currency, obsolete machinery and lack of capital in the local market to retool, stiff competition from cheaper imports and the high cost of doing business in Zimbabwe. The high cost of doing business takes into account high taxation levels, transport and haulage costs, utilities and inflated prices of locally produced inputs and services. The high cost of doing business is also detrimental to other economic sectors such as tourism and hospitality, retailing, real estate and construction. To address this, treasury needs to streamline taxes paid to ZIMRA and various government agencies such as National Social Security Authority (NSSA), Environmental Management Authority (EMA), and Zimbabwe Energy Regulatory Authority (ZERA), Zimbabwe Investment Authority (ZIA), Zimbabwe Tourism Authority (ZTA), immigration department, Ministry of mines and local authorities among others. The taxation model should be simpler and provide incentives to tax compliant enterprises at all costs.
To crowd in private capital and global investment, the government has to implement clear reforms that facilitate repatriation of dividends and capital for all investors that invest in local securities and businesses.
Zimbabwe's import and export procedures are also loaded with lots of human interface and bureaucracy which prevents transparency and speedy movement of cargo. Ideally, firms that routinely export or import raw materials used in the manufacture of various goods should have simplified customs procedures to improve economic efficiency.
Like most the 15 plus economic blueprints launched by the government since 1980, NDS cannot be faulted on identifying production constraints and stating key action points to needed to grow the economy. It is the slow pace in the implementation of economic policies, reforms and the culture of governance in government that shows limited political will to address Zimbabwe's economic ills. NDS success therefore rests on a stable macro-economic environment characterized by growth in private sector credit and growth in consumer demand, an efficient foreign exchange market and various free market policies in industries where government control is inhibiting private investment such as mining, agriculture, media, energy and financial services. Like its predecessors, NDS cannot do without stable power and fuel supplies to sustain production, policy consistency to ensure business planning and very low levels of inflation that are critical in maintaining household and business incomes. All these action points are largely known to the government and in the same vain as past economic blueprints, it all boils down to political will on the implementation of proposed economic reforms and policies.
Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.
Source - Victor Bhoroma
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