THE 2010 MID-YEAR FISCAL POLICY REVIEW – Full Report

Posted on 14/07/2010

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ZIMBABWE

THE 2010 MID-YEAR FISCAL POLICY REVIEW

Presented by the Minister of Finance

Hon. T. Biti, M.P.

14 July 2010

Table of Contents

INTRODUCTION.. 7

Recalling STERP I & II. 8

GLOBAL ECONOMIC DEVELOPMENTS. 13

Inflation. 16

Commodity Prices. 17

Metals and Minerals. 17

Crude Oil 18

Agricultural Commodities. 19

Implications for Developing Countries. 22

SECTORAL DEVELOPMENTS. 23

Agriculture. 25

Cereal Production. 26

Mining. 30

Diamonds. 36

Manufacturing. 37

Food, Beverages & Tobacco. 38

Cotton, Clothing & Textiles. 38

Chemicals & Pharmaceuticals. 39

Metal Industry. 39

Leather Industry. 40

Fertilizer. 40

Tourism.. 41

Construction. 43

Consumption & Investment 43

Inflation. 44

Financial Sector 46

Zimbabwe Stock Exchange. 49

External Sector 51

FISCAL DEVELOPMENTS. 53

Revenue. 54

Value Added Tax (VAT) 55

Customs Duty. 55

Pay As You Earn (PAYE) 56

Corporate Tax. 56

Excise Duty. 57

Mining Revenue. 57

Other Taxes. 57

Non-Tax Revenue. 58

Expenditure. 58

Recurrent Expenditures. 60

Employment Costs. 60

Civil Service Wage Bill 61

Operations and Maintenance. 63

Payments to Service Providers. 64

Foreign Travel 64

Foreign Missions. 65

Social Service Delivery. 65

Grants and Transfers. 66

Capital Expenditures. 67

Energy. 67

Transport 69

Road Dualisation. 69

Airports Infrastructure. 69

Railway Infrastructure. 70

Road Maintenance. 70

Water and Sanitation. 72

Agriculture Support 73

Telecommunications. 77

Housing. 77

Vote of Credit 78

STRUCTURAL CHALLENGES ON THE ECONOMY.. 80

Reconstruction. 80

Equitable Growth. 81

Stabilisation. 81

Lack of Capital 82

Foreign Direct Investment 83

The Liquidity Crunch and the High Cost of Money. 83

Lack of Fiscal Space. 84

Debt Overhang. 85

Management of Public Resources. 86

Lack of Project Implementation Capacity. 86

Skills Gap. 87

Energy. 87

High Cost of Utilities. 90

Other Tariffs. 90

Labour Costs. 91

Land Utilisation. 91

Infrastructure. 93

Human Development 93

Environmental Protection. 93

Hyperinflation Hangover. 94

Accountability over Public Resources. 94

Common Vision. 94

Business as Usual Mentality. 95

REVISED MACRO-ECONOMIC FRAMEWORK.. 95

POLICY INTERVENTIONS. 99

Inflation. 102

Duty on Basic Commodities. 104

Lines of Credit 104

Available Facilities in the Second Half of 2010. 106

Diaspora Bond. 106

SADC Support 107

Foreign Direct Investment 107

Leveraging Mineral Resources. 109

Mineral Policy. 109

Mining Claims. 110

Mineral Beneficiation. 110

Mineral Taxation. 110

Inter-Generational Fund. 111

Diamonds. 111

Rule of Law.. 111

Commitment to the Kimberly Process. 112

Sale of Diamonds within the Kimberly Process. 112

Amendments to the ZMDC Act 113

Diamond Act 114

Past Diamond Sales. 115

Public Utilities. 116

Debtors. 117

Wage/Revenue Ratios. 117

Capitalisation. 118

Rationalisation of State Enterprises. 118

Over-sight over Public Utilities. 119

Public-Private Partnerships. 120

Fuel Importation Transport Mode. 120

Review of Labour Laws. 121

Financial Sector Reforms. 123

Central Bank Reforms. 123

Currency Reforms. 126

Smaller Denominations. 126

Micro Finance Institutions. 127

Lender of Last Resort 127

Securities Market 128

Securities Rules & Regulations. 128

Central Securities Depository. 128

Automated Trading System.. 129

Insurance and Pensions. 130

Debt Relief Strategy & Process. 130

Debt Management Office. 131

Multi Donor Trust Fund. 132

Aid Coordination and Management 133

Data Availability. 134

Revenue Retention Funds. 135

POTRAZ Universal Service Fund. 137

Public Shareholding. 141

Reserve Fund. 142

EXPENDITURE RATIONALISATION.. 143

Recurrent Expenditure. 144

Outstanding Bills to Service Providers. 144

Social Protection. 145

Foreign Service Payments. 145

Other Recurrent Expenditures. 146

Capital Expenditure. 146

Energy. 146

Debtors. 147

Maintenance Fund. 148

Pre Payment Meters. 149

Water and Sanitation. 149

Transport 150

Aviation. 150

Rail 150

Social Service Delivery. 151

Education. 151

E-learning. 152

PUBLIC EXPENDITURE MANAGEMENT. 153

Public Finance Management Legal Framework. 153

Public Finance Management Act 153

Audit Office Act 154

Public Finance Management System.. 155

Quality Assurance. 155

Equipment Procurement 156

Training. 156

Internal Audit Training. 157

District Roll Out 157

Help Desk. 157

Curbing Accumulation of Bills. 158

Vehicle Hire. 158

Loss of Public Assets. 159

Tendering. 160

Advance Payment 161

Contract Management 162

Non Performing Contractors. 162

Electronic Funds Transfer 163

REVENUE MEASURES. 164

Redrafting of the Income Tax Act 164

VAT Fiscalised Recording of Taxable Transactions. 165

Electronic Cargo Tracking System.. 166

Revenue Enhancing Measures. 167

Tax Exemptions and Deductions. 167

Suspension of Duty on Motor Vehicles Imported by Tourist Operators. 167

Rebates of Duty which no longer reflect Policy Priorities. 168

Taxation of the Mining Sector 169

Review of Royalties on Minerals. 169

Export Tax on Unprocessed Chrome. 170

Special Initial Allowance. 171

Fees, Charges and Fines. 171

Fines on Motor Vehicles Used to Smuggle Goods. 171

Relief Measures. 172

Regional Integration. 172

Duty on Competing Products Imported under SADC.. 173

Suspension of Duty on Inputs used by the Local Industry. 174

Review of Suspension of Duty on Basic Commodities. 175

Dumping of Sub-standard Imported Products. 177

Rebate of Duty on Fiscalised Electronic Tax Registers and Fiscal Memory Devices. 178

Duty on Textiles, Clothing and Footwear. 178

Administration of Certificates of Origin. 179

Export of Scrap Metal 180

Alternative Energy Sources. 180

Excise Duty. 181

Bond Requirements for Excisable Products. 182

Pay As You Earn (PAYE) 183

Tax-Free Threshold. 183

Remittance Date. 183

Value Added Tax. 184

Remittance Period. 184

VAT Zero Rating – Day Old Chicks. 184

Withholding Taxes. 185

Non-Resident Tax on Remittances. 185

Capital Gains Tax. 186

Withholding Tax on Unlisted Securities. 186

Penalties for Late Payment of Tax. 186

Departmental Practice Notes. 186

Tax Amnesty. 187

Dispute Resolution, Objections and Appeals. 188

Customs Administration. 188

Transit Fraud. 188

Pre-Clearance of Goods. 189

Re-organising ZIMRA.. 190

ZIMRA Structure. 190

CONCLUSION.. 191

And what the land is, whether it be fat, or lean, whether there be wood therein, or not.  And be you of good courage, and bring of the fruit of the land.  Now the time was the time of the first ripe grapes. [Numbers 13:20]

INTRODUCTION

  1. Mr Speaker Sir, in Article 3 of the Global Political Agreement, the Parties to the same agreed to “give priority to the restoration of economic stabilisation and growth in Zimbabwe and committed to work together on a fully and comprehensive economic programme aimed at addressing economic production, food security, poverty and unemployment, and the challenges of inflation and high exchange rates”.

 

  1. It is exactly 668 days and 5 hours since the Global Political Agreement (GPA) was signed on 15 September 2010. The critical question that arises is whether or not the Inclusive Government has implemented what was agreed under Article 3:1 of the GPA.

 

  1. The 2010 Mid-Year Fiscal Policy Review seeks to update Honourable Members on the 2009 outturn as well as fiscal and economic developments to June 2010, that way, Mr Speaker Sir, providing an assessment of economic performance under the Inclusive Government over the past seventeen months.

 

  1. The Review also proposes the necessary policy interventions and other measures for the remaining half of 2010, critical for the economy to remain on course towards realising our set targets outlined in our Three Year Macro-economic Policy and Budget Framework for 2010 – 2012.

 

  1. Honourable Speaker Sir, I need to make it very clear that the current Mid Term Review is only but a review and not a supplementary Budget.

 

  1. I seek no additional charges to the Consolidated Revenue Fund as defined by Section 103 of the Constitution.  The 2010 Budget will remain the same, with revenue and expenditures of US$2.25 billion.

 

  1. However, adjustments and re-alignments in certain Votes will have to be made, largely as a result of the underperformance of the Vote of Credit.

 

Recalling STERP I & II

  1. Honourable Members will recall that a month after its inauguration on 16 February 2009, the Inclusive Government launched the Short Term Emergency Recovery Programme (STERP) as a critical tool in addressing the fundamental economic challenges and dis-equilibriums affecting and arresting the country.

 

  1. STERP provided an ideological campus for navigation towards the rebuilding of the Zimbabwean economy through the following fundamental matrices:

 

  • Creation of a responsive, yet efficient State that uses redistributive mechanisms, social rights, while maintaining social development;
  • Building of a strong economy, based on market principles with careful State interventions to advance social protection and justice; and
  • Establishment of a participatory political democracy through the new people driven Constitution and the rebuilding of fundamental democratic institutions in our country.

 

  1. Mr Speaker Sir, on 23 December 2009, STERP was succeeded by the Three Year Macro-Economic Policy and Budget Framework 2010 – 2012 (STERP II).

 

  1. The Vision of this Framework was to build a dynamic, stable and sustainable developmental economy whose objectives as read together with the 2010 National Budget were:

 

  • Sustaining macro-economic stabilisation and consolidating STERP;
  • Support for rapid growth and employment creation;
  • Ensuring food security;
  • Restoring basic services;
  • Encouraging public and private investment;
  • Promoting regional integration;
  • Restoring basic freedoms; and
  • Restoring international relations.

 

  1. Furthermore, it was recognised right from the onset that achieving the above objectives would require unequivocal and unmitigated commitment to a National Vision that was above narrow parochial political interests and recognised the immutability of a minimum bundle of certain invaluable rights.

 

  1. In short, the development of our own Jeffersonian Principles on agreed inalienable rights – a counter cyclical political vision that would remain intact irrespective of changes in the political landscape.

 

  1. Apart from the National Vision, it was recognised that the rule of law, restoration of basic freedoms and democracy were a necessary precondition for sustained economic recovery.

 

  1. Therefore, the implementation of agreed positions in the Global Political Agreement around issues of the rule of law, the Constitution, security of persons and prevention of violence, freedom of expression and communication, among other things was imperative.

 

  1. Over and above this, it was recognised that fiscal discipline was critical for stabilising the economy and, hence, the adopted principle of living within our means.  Therefore, the Revised 2009 Budget of 17 March 2009 made it clear that “What we Gather is what we Eat”.

 

  1. The net effect of the above was the attainment of substantial stabilisation of the economy in 2009, with huge gains particularly in the following areas:

 

  • Inflation reduction;
  • Improved capacity utilisation in productive sectors of agriculture, mining and manufacturing, from below 10% to around 30% to 50%;
  • Removal of price distortions in both foreign exchange and goods markets;
  • Resuscitation of financial sector services;
  • Some improvement in public service delivery, particularly in the areas of water and sanitation, transport, health and education sectors;
  • Improvement in social protection programmes for vulnerable groups;
  • Overall business confidence building;
  • Policy consistency and predictability on key policy fundamentals;
  • The enactment of key legislation dealing with credibility and accountability over the use and management of public resources; and
  • Re-engagement with the international community.

 

  1. Mr Speaker Sir, the above economic gains achieved in 2009 are under threat of being eroded owing to a number of challenges during the first half of 2010.

 

  1. Shortcomings in the economy have included the threat to macro-economic stabilisation through the resurgence of inflation.  Over and above this, has been the lack of capital, modest recovery in capacity utilisation, and more importantly, a general drop in hope and confidence in the economy.

 

  1. It is imperative that a new paradigm be adopted during the second half of 2010.  In our view we have to go back to basics and abandon the “business as usual” mentality.  This economy requires Regeneration, Revival and Refocusing.  These three Rs, should underpin the basis of a frontloaded growth in the second half of the year.

 

  1. In Regenerating, Reviving and Refocusing this economy we have to draw the line and adopt a “business unusual stance”.

 

  1. In drawing this line, this Review will thus:

 

  1. a. Refocus the economy back to the 2009 trajectory of discipline and stabilisation.
  2. b. Re-energise and kick-start the economy towards real growth and real delivery.
  3. c. Re-targeting Government expenditure so that pro-poor social spending targets on health, education and welfare are met.
  4. d. Relay the foundation of a common vision on the developmental State.

 

GLOBAL ECONOMIC DEVELOPMENTS

  1. The global economy is beginning to show some signs of emergence from the devastating economic crisis of 2008/2009, against the background of global financial cooperation, extra-ordinary fiscal stimulus policy interventions, capital injections into failing financial institutions, lowering of borrowing costs, as well as greater labour markets flexibility.

 

  1. However, no sooner was Africa and the rest of the world beginning to emerge from the global economic crisis was the world hit by the Euro zone debt crisis, initially centred around the Greek economy.  Concerns also remain over the performances of other economies, including Spain and Portugal.

 

  1. The responses of the Euro zone countries to the new debt crisis have been dramatic and decisive.  In Greece for instance, an Emergency Economic Protection Act was passed on 28 March 2010, generating savings of €4.8 billion that benefitted from public wage reductions.

 

  1. The slashing of expenditure was met by corresponding increases in taxes.  VAT for instance was increased to 23% and there was a 10% rise in luxury taxes.

 

  1. In the United Kingdom, the new Government unveiled an emergency austerity Budget on 22 June 2010.  Its main thrust was to address structural budget deficits through cuts in budget spending, anticipated to amount to savings of 6.3% of GDP by 2014 – 2015.  To raise revenue, VAT was also reviewed from 17.5% to 20%, while capital gains tax rose to 28%.

 

  1. Globally, against the background of the anticipated recovery, world economic growth is projected at a little over 4% in 2010 from an estimated under 1% in 2009.

 

  1. Emerging and developing economies are expected to register growth of over 6% in 2010, up from under 2.5% in 2009.  Remarkable growth is particularly expected from China and India with an over 8% growth projection.

 

  1. If sustained, global economic recovery should underpin anticipated improved growth of over 4.5% in 2010 for Sub Saharan Africa.  This would also be on the back of continued implementation of strong fiscal and monetary policies.  Last year, at the height of the global financial crisis, growth for the sub-region was an estimated 2%.

 

Inflation

  1. In the outlook, inflation which had declined in 2009 to marginal levels in developed economies and to around 5% in emerging and developing economies, is projected to rise respectively to around 1.5% and 6% in 2010.  In 2011, decline in inflation is anticipated.

 

Commodity Prices

  1. Increased world economic activity will auger well for international commodity prices, improving export revenue realisations and growth prospects for commodity exporting countries.

 

  1. However, vulnerabilities to exogenous shocks remain in emerging and developing economies.

 

Metals and Minerals 

  1. So far, however, gold prices, which averaged US$973 per ounce in 2009 have been increasing, from US$1 113 in March 2010 to US$1 200 by June.

 

  1. Similarly, platinum prices which had declined from US$1 566.5 per ounce in 2008 to US$1 153.8 in 2009 have been on a recovery path, reaching US$1 530 in June 2010.

 

  1. Nickel prices, which had slumped from US$21 000 per tonne in 2008 to US$10 471 in the first quarter of 2009, recovered remarkably to US$26 031 by the first quarter of 2010.

 

Crude Oil 

  1. On the negative, oil prices have since been rising in tandem with the recovery in the global economy to levels averaging US$78.71 per barrel by the first quarter of 2010.

 

  1. Crude oil prices had succumbed to the effects of the global economic crisis, falling sharply from US$96.99 per barrel in 2008 to US$44.11 by March 2009.

 

Agricultural Commodities

  1. On the agricultural front, cotton prices which had dropped in 2009 to US138.2 cents per kg from US157.4 cents, also recovered in 2010, averaging US198.6 cents by May.

 

  1. This compares unfavourably with an average of US60 cents and US42 cents offered to local cotton growers in 2009 and 2010, respectively.

 

  1. International average prices for tobacco improved from US$4.24 per kg in 2009 to US$4.47 in February 2010, before easing to US$4.39 in April.

 

  1. Grain commodity prices, however, remain depressed with the international price of maize falling sharply from US$223.1 per tonne in 2008 to stabilise at around US$165 in 2009 and 2010.

 

  1. Similarly, wheat prices have been in decline, reaching US$271.7 per tonne in 2010 from US$300 in 2009 and US$454.6 in 2008.

 

Implications for Developing Countries

  1. Looking ahead, the sluggish recovery in output associated with high debt and the state of distress of financial markets in most advanced economies poses major concerns for developing countries, including Zimbabwe.

 

  1. In this regard, challenges and competition among developing economies over regaining export markets and attracting critical investment for sustaining growth will intensify.

 

  1. This makes resolving all the constraints to unlocking new capital inflows unavoidable.  Critical is the finalisation of our external payment arrears clearance programme, central to increased access to new financing from potential cooperating partners and investors.

 

  1. The establishment and maintenance of a conducive investment environment, underpinned by honouring of Bilateral Investment Promotion and Protection Agreements will also be necessary.

 

  1. Among others, this will encompass further strengthening of macro-economic stability, and sustenance of the liberalised business environment ushered by STERP, free of unnecessary restrictions and distortions.

 

SECTORAL DEVELOPMENTS

  1. The positive turnaround in economic activity experienced during 2009, which saw overall economic growth for the year revised upwards from 3.7% to 5.7% continued to face challenges during the first half of 2010.

 

  1. Major challenges undermining robust growth of the productive sectors relate to the absence of medium to long term financing.  This has constrained critical investment in infrastructure rehabilitation and the maintenance and upgrading of such key enablers as sustainable supply of power generation capacity.

 

  1. Furthermore, companies have not been able to realise meaningful lines of credit to re-tool and access raw materials for the restoration and improvement of production capacity utilisation, vital for lowering unit production costs.  The available limited facilities have remained short-term and at high cost.

 

  1. Our original growth projection for 2010 was 7%.  However, fragile prospects for recovery in economic performance demand a reduction of this figure.  We have, thus, revised our growth projection for 2010 to 5.4%.

 

  1. The revised projection figure of 5.4% should not be taken for granted.  A “business as usual” mentality will certainly guarantee a further downward revision.

 

  1. Indicators of positive performance in the first half of 2010 have included growth in VAT revenue and output in agriculture (18.8%), as well as projected growth in mining (31%), manufacturing (4.5%), distribution, hotels and restaurants (3.5%) and transport and communication (3%).

 

Sectoral Growth Rates

Sector 2008 Actual Revised 2009 Est. Original 2010 Proj. 2010 (Revised

Proj.)

Agriculture -39.3% 14.9% 10% 18.8%
Manufacturing -33.4% 10.2% 10% 4.5%
Mining -17.1% 8.5% 40% 31%
Tourism 2.8 % 6.5% 10% 3.5%
Electricity Gas and Water -36.5% 1.9% 3.4% -1.8%
Construction -8.5% 2.1% 3.2% 1.5%
Finance and Insurance -27.9% 4.5% 5.5% 2.0%
Real Estate -36.4% 2.0% 2.2% 1.5%
Transport and Communication 5.4% 2.2% 4% 3%
Public Administration 0% 2.0% 3% 2.0%
Overall GDP -14.8% 5.7% 7% 5.4%

Source: CSO, Ministry of Finance & the Reserve Bank

Agriculture

  1. Agricultural growth of 18.8% in 2010 is up on last year’s 14.9%.  This is mainly driven by tobacco, up 67.3% from 55.6 million kgs in 2009 to 93 million kgs; maize, up 3% from 1.24 million tonnes to 1.33 million tonnes; and beef up 2% from 93 000 tonnes to 95 000 tonnes.

 

  1. Sustaining viable tobacco pricing in the liberalised marketing environment should offer scope for increased hectarage under tobacco production over the coming seasons.

 

  1. In the current season, some 86.5 million kgs of tobacco have been sold at an average price of US$2.98 per kg by end June 2010.  This compares with last year’s auction floor sales of 55.6 million kgs at an average price of US$3.01 per kg during the same period.

 

  1. Horticulture production in 2010 is also projected to register growth, rising to 43 000 tonnes against last year’s 35 000 tonnes.  There is still much more investment to be undertaken before production levels rise to levels above 60 000 tonnes experienced previously.

 

  1. Depressed cotton prices and financing constraints in 2009 undermined cotton production which decreased from 246 000 tonnes in 2009 to 172 000 tonnes in 2010.

 

  1. However, following interventions by Government and subsequent review by cotton merchants, the price for cotton increased to US45 cents per kg this year, up from US30 cents per kg in 2009.

 

  1. Sugar production during 2010 is also projected to decline below last year’s levels.  In 2009, sugar production was 286 000 tonnes.  This year, an estimated 250 000 tonnes of sugar is anticipated.

 

Agricultural Production, Main Products (000 tons)

  2005 2006 2007 2008 2009 2010
Tobacco 74 55 80 56 55 93
Maize 750 1,485 953 575 1,240 1,300
Beef 90 90 95 90 93 95
Cotton 198 260 235 226 247 172
Sugar 430 447 442 298 286 250
Horticulture 60 64 66 60 35 43

Source: Ministry of Agriculture

Cereal Production

  1. Recovery in cereal production, including maize, during the 2009/2010 agricultural season benefitted from improved support, timely availability of inputs through the open market as well as the liberalised marketing environment, which enhanced viability of farming and boosted overall confidence.

 

  1. The upturn in maize production when taken together with other grains resulted in an increase in cereal production from 1.51 million tonnes to 1.52 million tonnes against a national requirement of 1.95 million tonnes, giving a cereal deficit of 432 540 tonnes.

 

  1. The 3% increase in maize production over last season’s production was in spite of poor performance in the southern provinces of the country.

 

  1. Improvement in Government support extended to farmers saw a total of US$227.4 million or 25.9% of total Budget expenditure mobilised in support of cereal production and local grain purchase.  Of this, US$197.1 million was availed in support of A2 and vulnerable A1 and communal farmers.

 

Commercial Credit Scheme

  1. Of the financial support to A2 farmers, Government, in conjunction with commercial banks secured credit facilities totalling US$82.9 million for inputs through the GMB.

 

  1. Over-procurement, however, meant that out of the inputs secured, farmers only collected inputs worth US$59.5 million.  This has left a carry-over stock of inputs valued at US$23.4 million being held at GMB depots comprising 3 685 tonnes of fertilizer and 8 228 tonnes of seed.

 

Crop Input Pack Scheme

  1. With regard to A1 and communal farmers, Government financial support largely related to provision of subsidised fertilizer inputs.  Under this scheme, a 50kg bag of AN fertilizer was sold at US$7 against the market price of US$28.

 

  1. Overall, farmers accessed 32 843 tonnes of top-dressing fertilizers which Government subsidised to the tune of US$40 million.

 

  1. Government support for agriculture was complemented by resources amounting to US$74 million mobilised by cooperating partners under the coordination of the Food and Agriculture Organisation.

 

  1. These supported over 738 000 vulnerable households under the input pack scheme, where each household received two 50kg bags of fertilizer, one AN and one compound D, as well as 10kg of maize seed.

 

  1. The combined impact of Government and cooperating partner support for small holder farmers boosted communal farmers’ maize output to 966 755 tonnes in 2009/2010.  In the previous season, their output amounted to 902 158 tonnes.

 

Winter Wheat

  1. Notwithstanding Government’s US$20 million seeds and fertilizer inputs support for preparations for the winter wheat crop, uncertainty in the supply of electricity throughout the crop cycle has seen an increasing number of farmers reluctant to invest in wheat production.

 

  1. By the end of the planting season on 31 May 2010, only 10 000 ha had been put under wheat, against the targeted 30 000 ha.

 

  1. Consequently the uptake on the inputs secured by Government stood at 84 tonnes for seed and 2 015 tonnes of compound D.  This was against available stocks of 720 tonnes for seed and 14 415 tonnes for compound D as at 11 June 2010.

 

Mining

  1. In mining, productivity in the sector continues to be hamstrung by erratic power supply.  This has meant that mining houses have not been able to sustain increased production even in cases where they have had limited access to lines of credit in support of recapitalisation.

 

  1. As a result, realised output during the first half of 2010 has prompted downwards revision to overall mining sector growth from 40% to 31% in 2010.  Most of this growth is underpinned by continued bullish mineral and metal prices.

 

Mineral Production

  2005 2006 2007 2008 2009 2010
Jan Feb Mar Apr
Gold (t) 13.45 10.80 6.80 3.07 4.97 0.61 0.57 0.76 0.52
Nickel (t) 9.47 9.20 9.25 6.35 4.86 0.55 0.48 0.53
Coal (t) 3,468.94 2,200.00 2,600.00 1,701.60 1,606.32 193.01 194.18 158.16 140.00
Asbestos () 123.15 110.00 115.00 11.49 5.50 0.86 0.63 0.36 0.10
Chrome (t) 831.88 690.00 693.45 442.58 201.00 0.04 0.04 0.04 0.04
Platinum (t) 4.56 5.19 5.30 5.50 6.86 0.79 0.68 0.75

Source: Ministry of Mines, Chamber of Mines

Gold Production

Chrome Production

Nickel Production

Platinum Production

Coal Production

Asbestos Production

Gold and Platinum Production: 2005 – 2009

Nickel Production: 2005 – 2009

Chrome Production: 2005 – 2009

Coal Production: 2005 – 2009

Asbestos Production: 2005 – 2009

Shipments Contribution by Minerals for the first half of 2010

Diamonds

  1. A total of over 4.4 million carats were produced since the beginning of the year to May 2010 from the country’s four diamond mines, which includes Mbada, Canadile, Murowa and River Ranch.

 

  1. Currently, there is no marketing of the country’s diamonds as a result of issues related to the Kimberly Process Certification Scheme, a situation which has also affected traditional producers – Murowa and River Ranch mines, respectively.

 

Manufacturing

  1. The momentum of recovery in the manufacturing sector has not been sustained during the first half of 2010 as reflected by sluggish gains in average capacity utilisation levels still hovering around 35-40%.

 

  1. Notable exceptions have, however, been noted in the food and beverages sub-sector where major gains in capacity utilisation have left some firms operating at about 70%.

 

  1. In line with the experiences of the other production sectors, manufacturing continues to face major power outages, over and above absence of meaningful lines of credit in support of improved capacity utilisation.

 

  1. This has sustained production costs at relatively high levels, with negative implications on the general competitiveness of domestic manufactured goods against imports from the region and beyond.

 

Food, Beverages & Tobacco

  1. The food and beverages sub-sector has witnessed notable growth following liberalisation and the introduction of multiple currencies in 2009.  This allowed increased investment in new plant and equipment, particularly in the beverages sector where capacity utilisation increased beyond the initial STERP targets.

 

  1. In line with the other sectors, challenges relate to erratic power and water supplies, coupled with shortages of working capital resources.

 

Cotton, Clothing & Textiles

  1. Capacity utilisation in the cotton, clothing and textiles sector during the first half of 2010 remains below potential production levels of 700 000 tonnes.

 

  1. During this period, the ginning industry managed to produce only 240 000 tonnes of lint, also against cotton farmer viability challenges.

 

  1. Other challenges facing clothing and garment manufacturing include lack of investment, which is constraining industry efforts to modernise plant and adopt newer and more efficient technologies.  In the absence of this, competition over the domestic as well as export markets will intensify.

 

Chemicals & Pharmaceuticals

  1. The local pharmaceutical manufacturing industry has the capacity to supply more than 122 products, which translates to 47% of the country’s essential drugs requirements.

 

  1. However, primarily owing to lack of working capital and skills shortages, the industry operated at average capacity of below 25% during the first half of 2010.

 

Metal Industry

  1. The metals sub-sector provides strong backward and forward linkages to sectors such as mining, construction, agriculture, machinery, and transport. The sub-sector is operating at an average capacity of below 40%.

 

  1. Challenges associated with Zisco Steel, previously the country’s major steel producer, have further exacerbated the domestic metals sub-sector.  Zisco accounted for 80% of raw materials required in the production of steel and other related products.

 

Leather Industry

  1. The leather and leather products industry has capacity to produce a wide range of products such as semi-produced leathers, finished leathers, leather clothing, travel bags and cases, footwear and accessories.

 

  1. Realising this potential, and raise capacity utilisation above 40%, will require major investments to overcome shortage of working capital and antiquated machinery.

 

Fertilizer

  1. The fertilizer and chemical industry has a strong impact on both agriculture and manufacturing sector performance.  Currently, about 32% of fertilizer supplies are produced locally, while the balance are imports.

 

  1. Capacity utilisation currently stands at 40% against the 19% recorded in 2009.  This is expected to increase to around 45% by the end of 2010, mainly driven by refurbishment of plant at Sable Chemicals, which will help boost fertilizer output from 40 000 tonnes produced in 2009 to 100 000 tonnes by the end of 2010.

 

Tourism

  1. In the first half of 2010 the distribution, hotels and restaurants sector which grew by an estimated 6.5% in 2009 showed further positive signs of growth, recording increased tourist arrivals, average room occupancy (37%) and overall earnings.

 

  1. Arrivals to March 2010 were up 0.7% to 319 788 over the first quarter of 2009.  To year end, tourist arrivals are projected to remain upward against the background of sustained macro-economic and social stability.

 

  1. The market share for the overseas market stood at 12% in first quarter of 2010.  Europe remains the major contributor to the overseas market arrivals in first quarter of 2010 having contributed 42% of the overseas market despite a 43% decrease in tourist arrivals from the region. America has the second largest overseas market share (22%) after Europe.

 

  1. Africa which is the country’s traditional main contributor to overall tourist arrivals, recorded an 11% increase in tourist arrivals from 254 911 in the first quarter of 2009 to 282 528 in the first quarter of 2010, with South Africa alone accounting for 76%.

 

2006-2010 First Quarter Tourist Arrivals

  1. Overally, the tourism sector is expected to grow by 3.5% during the year 2010.

 

Construction

  1. The construction industry, also a barometer for underlying business developments, has also been showing signs of resuscitation during the first half of 2010.  In this regard, increased demand for such building materials as cement and bricks is being experienced.

 

  1. Cement production is, therefore, projected to soar up by 140% to about 555 000 tonnes in 2010.  Similarly, suppliers of bricks and other building materials have also been experiencing gains in production, notwithstanding production challenges related to erratic power supplies and unavailable lines of credit.

 

Consumption & Investment

  1. The adverse effects of accelerating inflation on real incomes and tighter liquidity conditions slowed down both Government and private consumption during the first half of the year.  Reflecting this, aggregate consumption during 2010 is projected to register decline of 2.4%, following a growth of 4.3% in 2009.

 

  1. Similarly, aggregate investment growth is forecast to also decelerate to 26.8% in 2010.  The slow down in investment is attributed to inadequate efforts to mobilise domestic savings, exacerbated by the “wait and see attitude” of investors linked to the perceived uncertainties related to the Indigenisation and Empowerment Regulations.

 

GDP by Expenditure current prices

GDP Expenditure

(Current Prices)

2009 (est) 2010 (proj)
Nominal GDP (US$ mil) 5,220 5,517
% Change 5.7 5.4
     
  (% Change)
Final Consumption 4.3 -2.4
Private Consumption -4.4 -5.5
Government Consumption 618.9 26.8
Total Investment 748.1 25.1
Government 216.3 298.2
Exports -7.2 23.7
Imports 23.2 5.3

Source: CSO, Ministry of Finance

Inflation

  1. Inflationary pressures picked up during the first half of 2010 with year-on-year inflation recording 0.7% in January, 1% in February, 3.5% in March, 4.8% in April 2010 and 6.1% in May 2010.

 

  1. The upward movement in prices of the above items partly reflects wage increases awarded in the first quarter of the year, which in turn increased unit costs of domestic production.  Tariff adjustments for public utilities, as well as the strengthening of the South African rand against the US dollar also contributed to the price increases.

 

  1. However, during the second quarter of 2010, the exchange rate between the rand and the US dollar had stabilised.

 

  1. Failure to put a tight lid on the resurgence of domestic inflation would only serve to reduce the competitiveness of local goods in both the domestic and export markets.  The impact on our already income constrained consumers would be further resort to lower priced imported products, with adverse consequences for local production and employment.

 

Price Indexes Tradable and Non-Tradable Good and services

Financial Sector

  1. With regards to the financial sector, the challenges remain the limited domestic deposit base to gradually improve the capacity of banks to provide meaningful credit to the private sector.

 

Banking Sector Deposits and Loans

  1. This has meant that although there has been some increase in bank lending throughout the first half of 2010, most loans remain short term (90 days or less) with longer-term loans accounting for less than 3% of the overall deposits.  This has created serious challenges for the provision of longer-term debt capital thereby, limiting the intermediary role of the financial sector.

 

  1. Credit costs of as much as above 30% and bank spreads of around 30% remain high, reflecting high credit risks and the liquidity crunch in the economy.

 

Banking Interest rates on loans and deposits

  1. In terms of loans distribution, agriculture, transport and distribution followed by manufacturing were the biggest beneficiaries while construction got the least.

 

Sectoral Distribution of Loans

Zimbabwe Stock Exchange

  1. Trading on the Zimbabwe Stock Exchange has largely been low, mainly due to market illiquidity in the first half of the year.

 

  1. Foreign participation has remained subdued with investments mainly confined to portfolio restructurings.  Corporate results have also failed to uplift the equity market as most corporates are still undercapitalised and also suffering from subdued demand.

 

  1. Of the companies that sought recapitalisation mainly through rights issues, shareholder support averaged 50% with the balance being taken over by the underwriters.

 

  1. The Tables below illustrate trading at the Zimbabwe Stock Exchange:

 

  Jan Feb March April May June
Industrials 156.52 158.07 142.37 139.01 129.40 127.46
Minings 209.81 215.03 216.85 167.90 159.28 143.08

Source: Zimbabwe Stock Exchange

  1. The industrial index which started the year at a high of 156.52 had dropped to 127.46 by June 2010, whilst the mining index fell from an opening of 209.8 to 143.08.

 

  1. Similarly, market capitalisation fell from US$3.97 billion in January 2010 to US$3.19 billion by end of June 2010.

 

Jan

US$ bn

Feb

US$ bn

Mar

US$ bn

Apr

US$ bn

May

US$ bn

Jun

US$ bn

3.97 3.55 3.67 3.49 3.25 3.19

Source: Zimbabwe Stock Exchange

  1. The poor performance is as a result of investors pulling out their investments reflecting depressed investors’ sentiment over perceived financial risks, especially following gazetting of the Indigenisation Regulations on March 1.

 

  1. In particular, foreign investors’ contribution to market turnover fell from between 40-50% to an average 20% per month.

 

Zimbabwe Stock Exchange Indices

External Sector

  1. The overall highlights in the external sector are that developments in the first half of the year point to further deterioration in the balance of payments to the end of the year 2010.  This is against the background of slower recovery of exports, absence of external financial inflows, and growing reliance on imports.

 

  1. Total exports for the first four months of 2010 were US$870 million against imports of US$1 544.5 million, resulting in a trade deficit of US$675 million.

 

  1. Notwithstanding some commodity price gains, notably gold and platinum, overall deterioration in the terms of trade during the first half of 2010 will make it more difficult to finance the trade and current account deficits.

 

  1. The current account gap is projected to widen further in 2010 to US$1.3 billion as imports rise to a projected US$3.6 billion for the rest of the year.  This is against exports of US$1.9 billion and net private transfers of US$0.6 billion.

 

  1. The current account deficit was largely financed by SDR allocations and reduction in banks’ foreign assets.

 

2009-2010 Monthly Exports and Imports (millions US$)                                         Source: CSO/ZIMSTAT

Note: Imports exclude imports of electricity

Balance of Payments. Trade Account and Financing

Balance of Payments 2005 2006 2007 2008 2009 Est. 2010 Proj.
  (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil)
Current Account  (excl.official transfers) -549 -365 -243 -779 -928 -1326
% GDP -9.7 -6.7 -4.6 -15.7 -17.8 -24
Trade Balance -406 -475 -294 -972 -1622 -1706
Exports fob 1588 1721 1819 1657 1591 1930
% GDP 3.6 3.8 4.4 4.6 5.8 7.2
Imports fob 1994 2196 2113 2630 3213 3636
% GDP 35.2 40.3 40.1 53 61.6 65.9
Non factor services (net) -109 -121 -143 -207 -32 -55
Income (net) -197 -209 -245 -224 -200 -203
Private transfers (net) 163 439 440 625 926 638
             
Capital Account (Incl. Official Transfers) 3 88 166 273 -70 729
Overall balance -208 -286 -323 -725 -1908 -597
Memorandum items:            
Gross Official Reserves 61 74 153 76 366 156
Months of imports cover 0.3 0.3 0.7 0.3 1.2 0.5

Source: RBZ

FISCAL DEVELOPMENTS

  1. Cumulative tax revenue collections significantly improved in the first half of the year as a result of an increase in tax revenue and a slowdown in the growth of current expenditures.

 

  1. Revenues for the year are projected to increase to US$1.75 billion, mostly stemming from increased VAT and PAYE collections, which in turn reflect improved economic activity as well as increased collection efforts at ZIMRA.

 

  1. Notwithstanding increased tax revenue collections, the fiscal position remains fragile. The projected growth of revenue of US$300 million falls far short of the projected shortfalls in the Vote of Credit US$810 million financing of the original 2010 Budget expenditures of US$2.25 billion.

 

  1. Developments during the first half of 2010 confirm that the Vote of Credit has not performed at all.  If not reversed, this threatens to leave the 2010 Budget as originally outlined in an unsustainable position.

 

  1. This will simply mean that the Government will not be able to fulfil on some of those programmes it set out to undertake.  Sadly, the bulk of the affected areas are in the key Public Sector Investment Projects, provision of social services including health and education.

 

  1. This is precisely why a new paradigm is required.  Indeed it is precisely why Refocusing, Regeneration and Revival is essential. It cannot be business as usual.

 

Revenue

  1. Whereas Customs Duty and VAT collections on imports accounted for two thirds of revenue during the first four months of 2009, taxes on income and profits have rebounded as economic recovery began to take root.  Hence, domestic tax resources now account for two thirds of total revenue.

 

  1. Cumulative tax revenue collections for the period January-June 2010 amounted to US$930.7 million, against a revised target of US$830.5 million.  VAT, Pay As You Earn (PAYE) and Customs Duty contributed significantly to total revenue.

 

Value Added Tax (VAT)

  1. VAT contributed US$349.7 million or 37.6% of total revenue against a target of US$320.9 million.  VAT on domestic and imported goods and services accounted for US$196.7 million and US$153.1 million, respectively.

 

Customs Duty

  1. Cumulative revenue collections from customs duty for the period under review amounted to US$132.8 million or 14.3% of total revenue, against a target of US$128.6 million.  Revenue collections from customs duty for the same period in 2009 amounted to 31.5% of total revenue.  Significant progress towards less reliance on trade taxes in preparation for harmonisation under the regional integration programme has, thus, been achieved.

 

Pay As You Earn (PAYE)

  1. PAYE collections for the period January-June 2010 amounted to US$168.8 million or 18.1% of total revenue against a revised target of US$139.1 million.  PAYE contributions for the same period in 2009 amounted to US$47.9 million.

 

  1. The significant improvement in performance of this revenue head is attributed to the re-engagement of employees as capacity utilisation in industry improves and improved remuneration is realised in both the public and private sectors.

 

Corporate Tax

  1. Corporate tax contributed US$100.5 million or 10.8% to total revenue, against a revised target of US$65.1 million.  The positive performance is mainly on account of increased estimated profit margins emanating from improved capacity utilisation.

 

Excise Duty

  1. Excise duty collections amounted to US$76.3 million against a revised target of US$100.6 million.  The bulk of excise duty was collected from fuel and beer, which contributed US$40.8 million and US$16.7 million, respectively.

 

Mining Revenue

  1. Mr Speaker Sir, the contribution of mining to Budget revenue during the first half of the year remained low.  This is indicative of key structural deficiencies in our taxation of mining sector activity.

 

  1. Hence, while it is fact that Zimbabwe has a diverse spread of exploitable mineral resources, it is fact that the contribution of this sector to the fiscus has been minimal.

 

Other Taxes

  1. Revenue collections from other taxes for the period under review amounted to US$54.9 million or 5.9% of total revenue.  Collections from domestic dividends and interest, other indirect taxes and carbon tax contributed the bulk of revenue amounting to US$16.1 million, US$14.5 million and US$13.3 million, respectively.

 

Non-Tax Revenue

  1. Non-tax revenue is comprised of royalties, fees, charges and fines, pension contribution and revenue from investment and property.  Collections from non-tax revenue during the period January-June 2010 amounted to US$47.6 million or 5.1% of total revenue against a target of US$44.5 million.

 

  1. Although the revenue head performed below target, there was a significant increase in collections from fees and charges, benefiting from the review at the beginning of 2010.

 

Expenditure

  1. Expenditure developments during the first half of 2010 continued to be guided by cash budgeting adopted by Government since February 2009.

 

  1. Total expenditures during the first half to June 2010 amounted to US$813.4 million.  Of this, US$720.5 million(89%) went towards current expenditures, whilst US$123.7 million was for capital development projects.  The balance of US$32.4 million was spent under the ZIMRA grant.

 

  1. The amount attributed to capital expenditure falls far short of the requirements, if we are to address the infrastructure challenges facing this economy.

 

  1. First half expenditure performance is shown on the pie chart below.

 

  1. The current expenditure structure of the Budget where 82% of expenditure is recurrent underpins a complete absence of fiscal space and is unsustainable.  This is precisely why this Review proposes a Refocus for the second half of the year.

 

Recurrent Expenditures

  1. The bulk of the current expenditures of US$720.5 million for the six months January-June 2010 were on employment costs inclusive of pension, goods and services and transfers to grant aided institutions as detailed below.

 

  1. The positive revenue performance during the past six months should ordinarily have allowed us more flexibility in addressing other critical expenditure issues affecting the country, particularly infrastructure.  However, this was not possible as some budget items, particularly the wage bill continued to crowd out social and development expenditures.

 

Employment Costs

  1. Employment costs comprised the civil service wage bill, pensions and remuneration to grant aided institutions.  These amounted to US$493.2 million against total Government revenue collections of US$930.7 million.

 

  1. As a result of the wage bill absorbing a disproportionate share of revenue, fiscal space for non-wage operational expenditures as well as critical capital expenditures urgently needed for rehabilitation and infrastructure development was reduced.

 

Civil Service Wage Bill

  1. The graph below illustrates developments and fluctuations on the payroll and wage bill for the civil service.

 

  1. The wage bill has been steadily growing over the last six months, from an average of US$50 million over the first two months, rising to US$55.1 million by June.

 

  1. This outturn is mainly because of a net growth in employment levels of 19 170, for which the Ministry of Education, Sport, Arts and Culture is accounting for 15 197 (79%) as illustrated in the graph below:

 

  1. The current wage bill levels of around 60% of the total Budget and 15% of GDP compromises both non-wage operational and critical capital expenditures.  Regional best practices indicate levels of 30% of the total Budget and 10% of GDP.

 

Operations and Maintenance

  1. To date, expenditure on Operations and Maintenance stands at US$126.1 million against a target of US$120 million.  The expenditures are comprised as follows: rentals and vehicles and other hire services (US$31.6 million), foreign travel (US$13.1 million), Ministries’ programme expenses (US$35.2 million), maintenance of buildings and equipment (US$14.3 million), domestic travel (US$4.6 million) and other operational expenses (US$27.3 million) as indicated in the graph below.

 

Payments to Service Providers

  1. The 2010 Budget Statement to Parliament reaffirmed Government’s commitment to clear all outstanding payments to service providers in such areas as telecommunication, vehicle hire, office accommodation, water and other utilities.  These arrears stood at US$46 million as at January 2010.  We have managed to pay US$18 million so far. Notwithstanding this payment, our arrear position as at June 2010 stands at US$58 million.

 

Foreign Travel

  1. Expenditure on foreign travel declined significantly to 10% of operational expenditure in the period up to June 2010.  This is comparable to a share of 24% for the same period in 2009.

 

  1. It remains essential that we tighten control on travel expenses given the need to free resources for other critical service delivery oriented expenditures.

 

Foreign Missions

  1. Support to Foreign missions in the first half of 2010 amounted to US$12 million.  Notwithstanding this expenditure level, Government has not made any progress in halting the accumulation of arrears.

 

Social Service Delivery

  1. Whilst resources at the disposal of Government remain limited, notable investments have been made in the health sector to reverse decline suffered over a number of years.

 

  1. To date, nine hospitals, namely Harare, Mpilo, Ngomahuru, Mutare, Ingutsheni, Gweru, Karoi, Masvingo and Gwanda are already benefiting under the targeted approach.  The intervention by Government has resulted in an improvement in the availability of drugs, medical equipment, other medical supplies, food, linen and improvement in the general ambiance of the hospitals.

 

  1. As resources become available more hospitals will be targeted.

 

  1. In the education sector, support amounting to US$8 million has been received targeting the BEAM programme and procurement of textbooks.

 

  1. The achievements attained in the social sectors would not have been possible without the much appreciated support from our cooperating partners.

 

Grants and Transfers

  1. A total amount of US$29.7 million was expended with respect to the non-wage operational expenses of grant-aided institutions as well as payments of contributions to regional and international organisations.

 

  1. From the US$28.1 million disbursed as operational support to granted-aided institutions, US$1.9 million supported the operations of State Universities, local and foreign based students (US$5.7 million) and the processing and marking of national examinations by ZIMSEC (US$1.3 million).  Health institutions, including Mission Hospitals and Parirenyatwa Group of Hospitals received US$4.3 million.

 

  1. The Central Statistical Office received US$0.5 million to finance the conduct of the field mapping exercise critical for the holding of the 2012 Population Census.

 

Capital Expenditures

  1. Capital expenditures amounted to US$123.7 million as at end of June, inclusive of US$20.9 million under the Vote of Credit.

 

  1. The total resources spent on total capital expenditure to date is 14% which is a marked improvement from the 4.5% spent in 2009.  The fact of the matter is that there has to be a Refocus of expenditures to achieve sustainable levels of capital expenditure given the state of infrastructure in Zimbabwe.  It cannot be Business as Usual.

 

Energy

  1. The focus of Budget intervention in the power sector during the first half of 2010 has been to reverse decline in domestic generation capacity particularly at Hwange Power Station.

 

Hwange Power Station

  1. Government has availed US$10 million for the procurement of critical spares and plant items.  This intervention will also enable the ZPC to maintain the safety of the Ash Dam.

 

  1. The above amount falls short of the US$125 million required at Hwange Power Station in order to increase production from the current 300 MW to 780 MW as well as achieve reliability of the plant.

 

  1. Most of the plant equipment is unreliable resulting in irregular generation and supply of electricity to the economy.  Whilst the plant requires regular maintenance, it has not been possible over the years to maintain the plant as per the prescribed frequencies largely due to lack of resources.

 

  1. Major areas such as coal handling facilities, boilers, water pumps, auxiliary plant, etc all require major rehabilitation to improve the performance of the plant.

 

Kariba Power Station

  1. Kariba Power Station, which currently produces 750 megawatts of power, remains the only reliable source of power to the country.  To ensure continued production and reliability of the plant, an amount of US$14 million is required for refurbishment and rehabilitation of plant and equipment.

 

  1. Equally there are challenges with regards to the transmission and distribution networks that have to be addressed with urgency.

 

Transport

  1. An amount of US$33.4 million was disbursed for road dualisation and bridge construction (US$10.3 million) as well as the railway track infrastructure (US$5 million) and upgrading of airports (US$18.1 million).

 

Road Dualisation

  1. Work is already underway to complete the dualisation of Harare-Masvingo and Harare-Gweru road including construction of Manyame and Mukuvisi bridges.

 

Airports Infrastructure

  1. Resources amounting to US$18.1 million have also been provided for the rehabilitation of taxiway at Harare International Airport and completion of J.M Nkomo Airport which is due to be opened before the end of the year.  I am aware that CAAZ had requested resources for the construction of the car park at J.M Nkomo Airport.  Such a project is ideal for public private partnership arrangement, CAAZ, therefore, should start engaging the private sector in this regard.

 

Railway Infrastructure

  1. With regards to railway infrastructure, focus has been on the rehabilitation of track infrastructure as well as signaling, to improve communication and reduce accidents along the line.

 

Road Maintenance

  1. Large requirements in support of road maintenance have necessitated the introduction of toll gate fees to complement the limited available Budget resources, for which an amount of US$1.1 million was availed from the fiscus towards re-grading of 23 roads of 1 121 km during the first half of the year.

 

  1. The introduction of toll fees has provided additional resources for the maintenance and rehabilitation of our road network which spans about 90 000 kilometres.

 

  1. For the first five months of this year, ZINARA has raised US$23.2 million from toll and road access fees.  Of this amount, US$15 million has already been disbursed to the road authorities for the maintenance of our road network as follows:

 

ROAD AUTHORITY DISBURSEMENTS TO JUNE 2010
Urban Councils 200,571
Department of Roads 4,984,251
DDF 1,193,000
Rural District Councils

ow

8,330,139
Beitbridge 32,534
Bikita 26,179
Bindura 2,590,000
Chamunika 510,000
Chimanimani 54,869
Chipinge 46,147
Chivi 50,321
Gokwe North 28,293
Guruve 10,000
Gwanda 52,079
Hwange 65,659
Karoi 24,267
Kusile 37,983
Makonde 46,049
Matopo 38,575
Mazowe 190,000
Mberengwa 42,248
Mhondoro-Ngezi 1,830,000
Mudzi 25,754
Mutare 65,568
Mutoko 56,569
Muzarabani 27,319
Mwenezi 59,841
Nkayi 53,000
Nyaminyami 30,315
Nyanga 46,362
Pfura 137,655
UMP 23,632
Zaka 24,112
Zibagwe 34,000
Zvimba 2,070,809
GRAND TOTAL 14,707,961

 

Water and Sanitation

  1. Budget interventions in the water and sanitation sector during the first half of 2010 remained focused at supporting the restoration of minimum adequate services.  This is against the background of the cholera outbreak of 2008 which brought to the fore the problems afflicting the sector.

 

  1. In this regard, Government has called upon local authorities to play a more meaningful role in the restoration of the water and sanitation infrastructure by dedicating a percentage of the revenue collected from water and sewerage charges for re-investment.

 

  1. Government has already availed US$7 million for the construction of the Mtshabezi pipeline.  Furthermore, resources for the rehabilitation of water and sewage infrastructure have been provided to Bulawayo City Council (US$6.4 million), Marondera Town Council (US$2.9 million), and Mutoko Rural District Council (US$180 000).  Work is also currently underway to quantify the requirements for Mutare and Gweru City Councils.

 

  1. Interventions have also been made during the first half of the year to accelerate efforts targeted at providing potable water and promoting sanitation within our rural communities.  This includes addressing non-functional boreholes, central to adequate rural water supply and sanitation.

 

Agriculture Support

  1. In my presentation on the sectoral developments, I have already alluded to Budget support for the agricultural sector which has received the largest share of fiscus resources during the first half of the year.

 

  1. Agriculture financing for the year was US$252.4 million broken down as follows:

 

  Government Funding Cooperating Partners
Type of Product US$210 million Facility US$66 million Facility US$1.6 million Facility US$40 million Facility Total Vulnerable Input Facility EU Large Scale Farmers Support
 

Seeds

Fertilizers

Working Capital

US$ US$ US$ US$ US$ US$ US$
5,776,030

11,574,342

_

30,058,569

29,721,902

4,300,000

_

1,695,000

_

_

40,000,000

_

35,834,599

82,991,244

4,300,000

14,593,400

28,500,000

30,906,600

 

25,000,000

Total 17,350,372 64,080,471 1,695,000 40,000,000 123,125,843 74,000,000 25,000,000

 

Summary US$
Cereal Production

Grain Procurement

222,125,843

30,280,000

o/w Total Government Funding

GMB loan

EU Support

Other Donors Funding

143,405,843

10,000,000

25,000,000

74,000,000

Total Support 252,405,843

 

  1. Of the resources managed through commercial banks, with a subsidy element that allowed farmers to acquire US$59 million worth of inputs at affordable prices, the end of June had been targeted for the collection of substantial repayments.

 

  1. Mr Speaker Sir, participating banks are, therefore, expected to follow up on their clients as they market their produce and start loan recoveries from 1 August 2010.

 

  1. Government is, however, aware of the fact that some farmers still have crops in the field and are not ready for marketing due to high moisture content, some have not yet received their money from buyers with others having been adversely affected by the uneven rainfall pattern.

 

  1. It has also been observed that some farmers got more inputs than required to hoard for the up-coming season and, therefore, are failing to meet loan repayments from the past cropping season.

 

  1. It is against this reality that banks have to categorise their clients and firm up on binding repayment arrangements.  The collections should allow for the revolving of funds for input support.  This is critical for sustaining access to financial sector facilities for bigger support in coming agricultural seasons.

 

Strategic Grain Reserve Purchase

  1. During 2010, Budget support for agriculture will have to extend to provision of resources in support of grain procurement from farmers for the Strategic Grain Reserve through the GMB.

 

  1. The procurement of grain will also facilitate movement of maize to the deficit southern parts of the country.

 

  1. Last year, Government similarly capacitated the GMB with the support of financial institutions to the tune of US$10 million to procure 26 041 tonnes of grain for Strategic Reserves.

 

  1. An additional US$20.2 million was availed in 2009 directly from the fiscus, procuring for the Strategic Grain Reserve held through the GMB 54 055 tonnes of grain of which 34 714 tonnes was maize whilst 19 342 tonnes was wheat.

 

  1. In 2010, Government is targeting to procure 80 000 tonnes from local farmers at a price of US$275 per tonne through the GMB.  Resources amounting to US$26 million are required to secure this tonnage.

 

Grain Procurement & Importation

  1. The involvement of the State in grain procurement for the Strategic Grain Reserve will be alongside grain purchases by private players who last year, following the deregulation and liberalisation of the marketing of agriculture commodities, played a critical role in the importation and local purchase of grain to meet the national grain deficit.

 

  1. Grain millers and cooperating partners imported in 2009 a combined tonnage of 530 000 tonnes of grain, whilst other private importers imported 150 000 tonnes of mealie meal, with Government playing a facilitative role.

 

  1. Given last year’s demonstration by private importers to import 680 000 tonnes using own resources, it is still relevant for Government to continue playing the facilitative role in grain importation.

 

  1. This reduces pressure on the fiscus, allowing Government to concentrate on mobilising resources for local maize purchasing and movement to deficit areas.

 

Telecommunications

  1. Budget efforts in the first half of 2010 to facilitate investment in broadband telecommunications saw Government avail resources amounting to US$6.2 million to Tel One for the fibre optic link from Harare to Mutare and US$1 million for the installation of 5 new radio transmitters.

 

Housing

  1. In housing, the Budget disbursed an amount of US$10 million as seed money for housing development, including off site infrastructure.

 

  1. This will require complementary support by Local Authorities through provision of land for housing, with the private sector also playing its part in addressing the housing problem.

 

Institutional Accommodation

  1. Institutional accommodation for Government Ministries remains a major challenge.

 

  1. It is, therefore, critical that on-going projects like Central and District Registries, Lupane Composite be completed on time.

 

  1. I am, however, concerned with the slow pace of implementation at the Central Registry building where, despite availing resources in March no meaningful work has been recorded on the ground.

 

  1. Given the lack of will power and urgency, being exhibited by the implementing agencies for this particular project, Treasury is, therefore, serving notice to redirect these resources towards performing projects.

 

Vote of Credit

  1. The 2010 Budget targeted provision of US$810 million through the Vote of Credit in support of mostly infrastructure and social protection programmes in health, education and rural development.

 

  1. Unfortunately, limited cooperating partner support has meant that as of 30 June 2010 only US$207 million had been made available in support of various programmes budgeted under the Vote of Credit.

 

  1. Some of the key projects are as follows:

 

SECTOR PROJECTS / PROGRAMMES SOURCE OF FUNDING TOTAL DISBURSED BY 30 JUNE 2010
Agriculture Procurement of seed and fertilizers. DFID / GRM US$9.3 million
Health Medical supplies, HIV/AIDS, TB & Malaria programmes. UN Agencies, Global Fund & others US$127.3 million
Education Procurement of text books for primary schools. UNICEF US$12.7 million
Local Authorities Water & Sanitation programmes. UNICEF US$17.4 million
Social Protection BEAM, Child protection. UNICEF, IMO, WFP US$17.5 million
New Constitution New Constitution Making Process. UNICEF / ICRC US$5.7 million

 

  1. Of the total disbursed amount, health got the largest share of about US$127 million for programmes related to the purchase of drugs and combating of Malaria, Tuberculosis and HIV/AIDS.

 

  1. Water and sanitation programmes also received over US$16 million for the drilling of over 500 boreholes in urban and rural areas.

 

  1. The education sector also received an amount of US$12.7 million in support for the procurement of textbooks and stationery under the Education Transitional Fund.  So far 5 300 schools have received stationery purchased under this Fund. In addition, about 527 000 children benefited from the Basic Education Assistance Module through payment of school fees amounting to about US$2 million.

 

  1. Lastly, social protection programmes were also funded to the tune of US$17.5 million by UNICEF, IMO, WFP for child protection, food aid, orphans and vulnerable children, while US$9.2 million from DFID / GRM financed procurement of seed and fertilizers for vulnerable farming groups.

 

  1. Government is most grateful for the support received from respective cooperating partners in the identified areas.

 

STRUCTURAL CHALLENGES ON THE ECONOMY

  1. As indicated above, huge gains were made particularly in the area of macro-economic stabilisation among other areas.  On the back of this, the focus of the 2010 Budget was that of transformation and growth with the following:

 

Reconstruction

  • Infrastructure rehabilitation and development in the areas of power, roads, rail, aviation, water and sanitation, and Information Communication Technology (ICT).  This is to ensure that these utilities underpin overall economic performance across the entirety of the productive sectors.

 

Equitable Growth

  • Improving delivery of public services in sectors of water and sanitation, transport, health and education;
  • Enhancing social protection programmes to cushion vulnerable groups;
  • Ensuring that women are an equal and legitimate player and shareholder in the development processes of the country and, therefore, providing a framework for gender affirmative programmes as permitted by Section 23 of the Constitution of Zimbabwe.

 

Stabilisation

  • Consolidating macro-economic stability, focusing on containing inflation within single digit levels consistent with the SADC macro-economic convergence criteria achieved under STERP;
  • Intensive and extensive investment promotion drive, necessary for supporting productive sectors, particularly in agriculture, mining and manufacturing as well as infrastructure development;

 

  1. To a large extent, a large part of the above objectives have not been fulfilled. It is important to identify the challenges faced by the economy to date.

 

Lack of Capital

  1. The challenges in forward thrusting the economy on a sustained rapid growth and development path include severe lack of inflows of investment capital resources, estimated in the Three Year Macro-economic Policy and Budget Framework at US$10 billion annually.  This translates into over US$30 billion for the period 2010 – 2012.

 

  1. The bulk of these resources can only come from external sources in the form of both foreign direct investment and lines of credit, given the current domestic resource constraints.

 

  1. Foreign direct investment and indeed domestic investment are essential in expanding the production base, thereby, creating headline employment, aggregate demand and surplus rent which is the basis of savings and more investment.

 

  1. On the other hand, lines of credit are simply essential in ensuring the recapitalisation and rebuilding of wasted capacity, fresh working capital and of course new internal investment.

 

  1. However, the country has not been able to attract meaningful external support in the form of lines of credit, foreign direct investment and donor support.

 

  1. In 2009, disbursed lines of credit amounted to US$656 million and were US$192 million in 2010 against commitments of about US$737 million.

 

Foreign Direct Investment

  1. Zimbabwe has also not been able to attract meaningful foreign direct investment in the past 18 months.  Only US$852 million was attracted in 2009 and, so far US$105 million has been invested.

 

  1. Mr Speaker Sir, a large part of the problem related to the investment deficit has been the political discord in the country.  This contributes towards entrenching negative perceptions over the competitiveness of our economy.  A mitigated political environment should see Zimbabwe dramatically rise on the rankings.

 

The Liquidity Crunch and the High Cost of Money

  1. The domestic financial market continues to face liquidity challenges, constraining lending which remains limited and short-term at high rates of interest.

 

  1. Inadequate efforts by banks to mobilise domestic savings, coupled with huge demand for money in the economy and elements of over-borrowings by some banks to meet capital requirements have all added high premiums on borrowed money.

 

Lack of Fiscal Space

  1. Owing to the fragility of the economy, revenue collections estimated at US$1.75 billion are consumed largely by current expenditures dominated by a high wage bill constituting over 60% of the Budget.

 

  1. This situation leaves little room for high resource requirements for the accelerated reconstruction agenda.

 

  1. It is critical to bring the issue of the wage bill level in its proper context against a background of a still fragile economy characterised by low GDP and low domestic fiscal revenues.

 

  1. Therefore, it is paramount that Government takes immediate steps to put the wage bill back on a sustainable path, so as to help create fiscal space for other essential programmes in the social sectors of health and education as well as capital development expenditure, which are included in the Vote of Credit, in the face of uncertainty about donor financing of 2010 Budget priorities.

 

Debt Overhang

  1. The debt overhang estimated at US$6.7 billion remains an impediment to efforts on unlocking new external financing requirements for the country’s huge developmental programmes.

 

  1. This debt has become a major developmental roadblock.  Without its liquidation and in particular the liquidation of arrears to International Financial Institutions, Zimbabwe cannot access the huge current stocks of development assistance domiciled in both Washington DC and Tunis.  The implementation of a debt strategy is, thus, imperative and long overdue.

 

  1. Resolution of the debt overhang, therefore, remains a priority, which calls for urgent re-engagement with creditors and the international community at large for the future development of the country.

 

Management of Public Resources

  1. Given the low fiscal revenues available for various public expenditure programmes, mechanisms that ensure effective utilisation become essential through enforcing accountability using appropriate legal and institutional frameworks, in order to derive maximum mileage.

 

Lack of Project Implementation Capacity

  1. In the past, implementing agencies have cited lack of resources as an impediment to project implementation.  We have since discovered that this is not the case as demonstrated by the lack of implementation on projects where disbursed resources remain largely unutilised.

 

  1. Notably, the Central Registry Building is still sitting on availed US$3.5 million.  Similarly, the City of Bulawayo and that of Marondera have not been able to utilise the US$6.5 million and US$2.9 million availed, respectively, by Government for their water and sanitation projects.

 

  1. In the same vein, the Civil Aviation Authority has not been able to utilise the US$14 million earmarked for the rehabilitation of taxiways at Harare Airport.

 

  1. This also applies to projects under the Ministry of Health and Child Welfare where from the R100 million availed for revitalization of hospitals; only R20 million has been drawn down, resulting in slow progress on the ground.

 

  1. The low uptake of resources is on account of capacity constraints with regard to project planning and management.  In addition most service providers of inputs do not have capacity to supply critical construction materials on time, thereby delaying project completion.

 

Skills Gap

  1. The brain drain experienced during the last decade continues to affect implementation of various projects and programmes as well as operations of productive sectors.

 

  1. Strategies for training, retaining and attraction of skilled personnel will be essential in capacitating both the public and the private sectors.

 

Energy

  1. The issue of electricity remains the elephant in the house as far as this economy is concerned. The operational credibility of this Government remains mulcited by its incapacity to deal with this issue.

 

  1. It is important that Government deals urgently with the key issues of power generation, the refurbishment and upgrading of power transmission lines, and the design, installation, operation and maintenance of a smart metering project.

 

  1. Further, issues connected with refurbishment and upgrading of Power Stations must be dealt with the involvement of Independent Power Producers.  In this regard, the decision taken by Cabinet in its meeting of 6 July 2010 with regards to power generation in Hwange, Sinamatella and other areas is commendable. No doubt, the new Minister of energy will devote his abundant energy to the gestation of some of these projects.

 

  1. Attracting Independent Power Producers will depend on Zimbabwe’s capacity to collect revenue from electricity consumers.  Sadly, this is where the Zimbabwe Power Company is failing.

 

  1. It is, therefore, critical that Government embarks on the installation, operation and maintenance of a smart metering project.

 

  1. This will entail:

 

  1. The installation of prepayment and smart metering system to domestic consumers;

 

  1. The installation of automatic meter reading and smart metering system for large power (industrial and commercial) users.

 

  1. Over and above this, Government will prioritise the refurbishment and upgrading of power transmission lines.  This will have the effect of relieving congestion on the ZESA central corridor.

 

  1. Some of the transmission lines requiring urgent works include the Triangle to Orange Groove line, Alaska to Sherwood, and the Hwange to Victoria Falls line.

 

  1. Other projects include Hwange/Insukamini, and Bindura/Mutorashamga, the latter line which will facilitate integration in the Southern African Power Pool Region.

 

  1. In addition, the energy sector clearly requires one unified Regulator. In this regard, Government has agreed on a new Energy Regulation Bill which will shortly be tabled before Parliament.

 

High Cost of Utilities

  1. Despite achievements made in economic stabilisation, the cost of electricity tariffs, water bills and communication charges, which are a cross-cutting production and consumption variable, have remained on the high side.

 

  1. This is compounded by supply interruptions and inefficient delivery of such public utilities as power and water, resulting in added costs and losses of production.

 

  1. Hence, addressing high cost of utilities complemented by investment on utilities remain central to overcoming constraints on productive sectors.

 

Other Tariffs

  1. Challenges related to high tariff charges are not restricted to the public sector.  The private sector also has an array of tariffs, some validated by Statute, that are levied as a percentage for such services as provision of security services, real estate, freight forwarding, auctioneering, the 4% conveyancing fees charged by lawyers in the transfer of properties, legal and medical services.

 

  1. Recently, the State Procurement Board lost a case in Court for awarding a tender to suppliers whose charges, though lower, departed from minimum chargeable rates by security companies.

 

  1. Hence, a holistic review of all tariffs in both the public and private sectors will be necessary.

 

Labour Costs

  1. Furthermore, by comparative regional standards, Zimbabwe’s labour costs are high, making some of our industries relatively uncompetitive, and that way having the effect of pricing the country out of regional and global markets.

 

  1. In the shoe industry for instance, Zimbabwe produces less than one tenth of China’s total output at three times the cost.

 

  1. Recently, the 60% NEC wage increase awarded for the poultry industry was immediately translated into higher wholesale and retail prices.  Similar experiences are widespread across the various NECs, with nominated arbitrators awarding wage adjustments that have no bearing on maintaining regional price competitiveness, industrial productivity and capacity to pay.

 

Land Utilisation

  1. Agriculture remains a key sector to the economy, given its share of GDP of 16.1% and as a main source of inputs for the rest of other sectors of the economy.

 

  1. The challenge of restoring the role of agriculture in contributing to GDP goes beyond provision of financial resources by Government.  Self evidently, no State can comprehensively finance agriculture.  This obligation throughout the world lies on private capital, the same which requires collateral.

 

  1. Beneficiaries of our Land Reform Programme would also have to be challenged to fully play their part with regards to effective land utilisation.

 

  1. Government, on its part will also need to expedite interventions to overcome the challenges related to absence of a land tenure system guaranteeing entitlement to land, that way unlocking land value and facilitating investment on farms.  The current arrangement has so far only been able to process very few 99 year leases, with only 122 having been issued.  This year so far, only 2 leases are being presented as having been issued.

 

  1. Without title deeds or securitised 99 year leases recognised in a Constitution and in an Act of Parliament, land in Zimbabwe will remain as dead capital. As long as this economy continues to be agriculture dependent but without security of tenure, then all significant growth ambitions will remain unrealised.

 

Infrastructure

  1. Since the 1970s, this country has seen a serious marginal decline in Public Sector Investment Projects (PSIP).

 

  1. The net effect of this disinvestment has been a collapse of road and railway infrastructure, an erratic power sector that is not able to provide more than 50% of the national demand.  Our outdated ICT places Zimbabwe behind regional standards in the area of fibre optic network and new generation ICTs.

 

Human Development

  1. The fundamental asset of any country is its people.  Hence, the matrix of our human development and social security strategy needs to deal with access to primary health care, universal primary education, provision of social safety nets and the main-streaming of gender across all sectors.

 

Environmental Protection

  1. In addition, we have a duty of securing the protection of our environment against pollution, waste production, environmental degradation and dangerous mining practices.  The payment of lip service to the above module has corrosive effect on the quality and quantity of the economy’s capacity to reproduce and regenerate itself.

 

Hyperinflation Hangover

  1. The tragedy of the Zimbabwean economy is that many of our corporates are finding it hard to live with normal legitimate returns of a stabilised economy. They are refusing to wean themselves from the hyperinflation drug, a state of intoxication with drunken consequences.

 

Accountability over Public Resources

  1. A major threat to the effective implementation of our Budget programmes is the remnants of a culture lack of accountability and a culture of entitlement, impunity and indifference over public resources.  Individuals take risk and are not afraid of the consequences of their actions.

 

Common Vision

  1. Mr Speaker Sir, for our economy to move, the stitching together of a binding National Vision is simply imperative.  That common vision must be based on common national interests, national values, national opportunities and national threats.

 

  1. The net result of absence of the necessary synergies and chemistry that are essential to create a national vision would be a motley of unperformed mandates and unmet promises.

 

Business as Usual Mentality

  1. This economy is suffering the consequences of a business as usual mentality.  No economy has the luxury of inaction.

 

  1. It is imperative and obligatory for everyone in the economy to adopt a business unusual mentality.  Without this business unusual mentality it would be so easy to slide back to the pre 2009 days of attrition and abrasion.

 

  1. Honourable Speaker, it is self evident why the three Rs are an imperator. The Regeneration, Revival and Refocusing of this economy is an essential paradigm in retrenching the business as usual mentality.

 

REVISED MACRO-ECONOMIC FRAMEWORK

  1. The 2010 original Macro-economic and Budget framework was premised on a GDP growth of 7% underpinned by projected positive performance in agriculture (10%), mining (40%), manufacturing (10%) and tourism (10%). Consistent with this GDP, an annual average inflation of 5.1% was, therefore, anticipated.

 

  1. Consequently, revenues were projected at 26% of GDP translating into US$1.440 billion. In line with the cash budgeting principle, the 2010 Budget, therefore, provided for total expenditures of US$2.250 billion inclusive of US$810 million anticipated from international cooperating partners under the Vote of Credit.

 

  1. However, economic developments during the first half of 2010 necessitated the revision of the above macro-economic framework. Agriculture, which was originally projected to grow by 10% has now been revised upwards to 18.8% on account of improved output growth of maize and tobacco by 3% and 71%, respectively.

 

  1. However, the positive performance in agriculture was outweighed by underperformance in manufacturing and tourism, which are now projected to grow by 4.5% and 3.5% respectively from the original 10% each. Similarly, the mining sector was also not spared by challenges such as shortages of working capital and erratic power and water supply and therefore is now projected to grow by 31% from the original 40%.

 

  1. As a result, GDP for 2010 is now projected at a moderate growth of 5.4%, whilst average annual inflation has been revised to 4.5%.

 

  1. Revenue performance is however projected to improve from 26% to 29.2% of GDP (US$1.440 billion to US$1.75 billion) owing to improved tax administration and collection efforts.

 

  1. However, owing to the envisaged underperformance of inflows from donors (Vote of Credit), the overall budget will be contained within the original resource envelope of US$2.25 billion, necessitating budget rationalisation to meet the gap arising from VOC underperformance as well as other pressure areas.

 

The 2010 Revised Macro-economic and Budget Framework

  2009 Outturn 2010 Orig. Proj. 2010 Rev. Proj.
Real GDP 5.7% 7.0% 5.4%
Annual Average Inflation -7.7% 5.1% 4.5%
Nominal GDP US$5.220 billion US$5.561 billion US$5.517 billion
Revenues US$0.973 billion US$1.440 billion US$1.750 billion
% of GDP 18.6% 26% 31.7%
Total Expenditures US$ 1.013 billion US$2.250 billion US$2.250 billion
% of GPD 19.4% 40.50% 40.78%
Overall Balance (U$93 million) (US$810 million) (US$500 million)
Vote of Credit US$93 million US$810 million US$500 million
% of GDP 1.8% 14.60% 9.1%
External Sector      
Exports of Goods and Services US$1.591 billion US$2.018 billion US$1.929 billion
% of GDP 30.4% 36.30% 37.50%
Import of Goods and Services US$3.213 billion US$3.498 billion US$3.635 billion
% of GDP 61.5% 62.9% 65.90%

 

  1. The above Macro-economic Framework is consistent with most of the SADC macro-economic convergence targets.  In a number of areas, including inflation, budget deficit, and growth prospects, Zimbabwe’s economic performance is slowly beginning to catch up with other members of SADC.

 

  1. Key challenges, however, remain with regards to savings and investment, import cover, public debt and the current account, which remain some of the areas we need to address.

 

Economic Indicators for SADC Member Countries: 2009

  GDP Growth GDP

(US$bill)

GDP per capita Revenue US$ bill Expenditure US$ bill Investment % of GDP Population below PDL Inflation Rates Public Debt as % of GDP
Zimbabwe 5.7% 5.561 432 0.973 0.980 14%   -7.7% 150%
Angola -0.6% 70.53 8,900 30.82 27.91 15.6% 40.5% 13.1% 16.8%
Botswana -5.2% 10.94 13,100 2.675 3.868 26.7% 30.3% 7.3% 17.9%
DRC 2.7% 11.23 300 0.700 2.000     16.7%  
Lesotho -2% 1.643 1,700 0.563 0.675 39.6% 49% 8.5%  
Malawi 5.9% 4.967 900 1.215 1.325 11.6% 53% 8.5% 58%
Mauritius 2.1% 9.264 12,400 1.857 2.190 23.3% 8% 3.4% 58.3%
Mozambique 4.3% 9.767 900 2.434 3.171 23% 70% 3.5%  
Namibia 0.7% 9.145 6,400 2.759 2.913 22.7% 55.8% 8.8% 15.1%
Swaziland -0.4% 2.963 4,400 0.592 0.695 21.8% 69% 8.5%  
Tanzania 4.9% 22.420 1,400 3.780 4.693 18.1% 36% 11.6% 24.8%
Zambia 4.5% 12.440 1,500 2.514 2.860 19.5% 86% 13.5% 31.5%
South Africa -1.8% 280.600 10,100 74.920 86.260 20.6% 50% 7.2% 35.7%

 

POLICY INTERVENTIONS

  1. In the aftermath of a decade long economic crisis and the subsequent introduction of a multiple currency system supported by the cash budgeting principle, the country is principally relying on one instrument – “Fiscal Policy” in the management of the economy.  This is unlike most other economies, managed through complementing monetary and fiscal policies and supported by external inflows including donor support among others.

 

  1. Furthermore, owing to the narrow fiscal space with estimated annual revenues of US$1.75 billion of which more than 85% is consumed by current expenditures, the effectiveness of this single fiscal policy instrument is compromised. This is moreso given the underperformance of the expected VOC of US$810 million of which only about US$207 million had been received by end of June 2010.

 

  1. Under such circumstances, Zimbabwe is virtually on its own, and requires “embracing a business-unusual approach” in addressing current development challenges by leveraging its own potential and available resources.

 

  1. In Regenerating, Reviving and Refocusing it is critical that Government sets up a stimulus package in support of productive sectors to jump-start the economy.  Such a package should fundamentally be anchored on potential financing from the vast mineral resources at the country’s disposal as well as potential proceeds from privatisation and other sources.  The challenge in the second half of the year is to ensure that sufficient groundwork is laid out to prepare the launch of this stimulus package.  In the meanwhile, the economy has to contend with mobilised lines of credit.

 

  1. The above roadmap will be augmented by a focused export strategy which prioritises value added exports in which the country has comparative advantage.  Therefore, value addition and beneficiation of our mineral and agricultural commodities such as platinum, gold, diamonds, tobacco and cotton becomes an integral part of the recovery and growth strategy.

 

  1. In addition, reorienting the little available domestic resources and, therefore, enhancing fiscal space for development purposes will require refocusing, reprioritising and enhancing the efficiency of expenditures.  The ring fencing of a substantial part of generated revenues for critical capital development projects will facilitate quick economic recovery.

 

  1. In support of the above efforts, the concurrent reengagement with the international community will be pursued to accelerate the development process.

 

  1. Furthermore, it will also be vital to adopt a holistic approach to development, integrating economic and social objectives which include pro-poor, inclusive growth and human centred development.

 

  1. Such a pro-poor and inclusive growth strategy will be achieved and enhanced by ensuring adequate support to agriculture being the source of livelihood for the majority of the poor, living in rural areas. The focus will also be on strategically supporting and investing in the informal economy which makes intensive use of labour and generates both employment and incomes for the poor.

 

  1. Lastly, ensuring a pro-poor and inclusive growth requires upholding human rights in development.  This implies prioritising access to basic human needs such as food security, health care, education, housing, transport and access to public utilities.

 

  1. In short, no stone should be left unturned in our quest to Regenerate, Revive and Refocus this economy.  As indicated above, the thrust of this 2010 Mid-Term Fiscal Policy Review is, therefore, to:

 

  • place the economy back on track by consolidating macro-economic stabilisation;
  • redirect Government expenditures towards critical neglected social and development areas;
  • reorient the economy towards a pro-poor and equitable developmental state; and
  • prepare the economy for a faster and sustainable growth path.

 

  1. This will, above all, require consistency and predictability of our policies and embracing a business-unusual approach.

 

Inflation

  1. I have alluded to the challenge posed by inflation as prices are once again on the rise, threatening the disinflation gains of last year when we had managed to contain mostly within negative levels averaging –7.7% by end of December 2009.

 

  1. Containing inflation will also require removal of supply side bottlenecks that constrain higher capacity utilisation levels in our industries.  These relate to mobilising working capital and investment for productive sectors, removing inefficiencies with public enterprises, particularly power and water and exercising wage restraint across all the sectors.

 

  1. In the public sector, this will require that we maintain the Cabinet commitment to contain the public service wage bill at current levels with any future reviews guided by economic performance and improved revenue inflows.  This stance will be broadened to embrace public enterprises and local authorities.

 

  1. Similarly, the private sector will be required to play its part within the spirit of the Social Contract, which acknowledges the necessity of relating salaries and wages to productivity.

 

  1. Also central to containing inflation will be ensuring sufficient supply of goods and services in the market.

 

Duty on Basic Commodities

  1. In this regard, submissions from industry have been that we maintain some of the prevailing duty dispensation on basic commodities to facilitate adequate supplies of goods and services at affordable levels.  This is in light of the current low capacity utilisation of the domestic industry of between 30% and 50%.

 

Lines of Credit

  1. Undoubtedly the key question affecting industry apart from the high cost of utilities is clearly the absence of lines of credit and indeed the high cost of money.  In this regard, one of the key functions of this Statement is the outlining of details on available lines of credit that should help stimulate the economy in the second half of the year.

 

  1. In 2009, arrangements with Afreximbank, PTA Bank, as well as other shareholder loans from parent companies translated into disbursements of about US$656 million against the STERP target of US$1 billion.  The bulk of these resources benefited mostly the mining followed by agriculture, financial, manufacturing and the rest of the other sectors.

 

  1. However, during the first five months of 2010, external support has not been performing to expectations with only US$195.92 million having been disbursed, against commitments of US$605 million.

 

  1. The major financier remained Afreximbank whose facilities for the first half of 2010 amounted to US$268.5 million.

 

  1. The current prevailing macro-economic stability has also slightly improved the country’s credit rating resulting in better terms and conditions for the new facilities.  Tenors have improved from as low as 90 days to as much as ten years, with interest rates of around Libor plus 5%.

 

  1. In terms of resource distribution, the agricultural sector got the largest share of US$145 million followed by the financial (US$19 million), manufacturing (US$13 million), mining (US$10 million) and distribution sectors (US$5million).

 

  1. Below is a table showing the distribution and disbursements of the facilities:-

 

Sector Facilities approved

(US$ millions)

Disbursements

(US$ millions)

Agriculture 297.50 148.92
Manufacturing 115.00 13.00
Financial 76.00 19.00
Telecommunications 67.50
Mining 33.50 10.00
Tourism 11.10
Distribution 5.00 5.00
Total 605.63 195.92

 

Available Facilities in the Second Half of 2010

  1. Consistent with the commitment of ensuring that the productive sectors improve their capacity utilisation to over 80%, Government is pursuing negotiations with a number of countries and financiers.  This includes those within the SADC region, as well as those in other parts of the world.

 

  1. Furthermore, the processes to establish the Zimbabwe Economic and Trade Revival Fund (ZETRF) will be finalised during the last half of the year with an initial start-up capital of US$50 million already identified.

 

  1. The money will then be on-lent to Zimbabwean companies through commercial banks on rates of interests that are Libor plus 5% and for periods that are in excess of six months.

 

Diaspora Bond

  1. Over and above these lines of credit, Government in conjunction with local commercial banks and Afreximbank is arranging a “diaspora bond” amounting to US$50 million, which should also benefit our productive sectors.

 

SADC Support

  1. Mr Speaker Sir, Government acknowledges the support of the SADC Member States with regards to securing additional lines of credit.

 

  1. In this regard, discussions with various SADC countries are taking place over facilities to finance Zimbabwe business entities on the basis of win-win arrangements.

 

  1. The provision of fresh lines of credit in this economy will provide the necessary Regeneration and Revival that this economy requires.  The next few months will, therefore, see major energy being expended in operationalising such facilities.

 

Foreign Direct Investment

  1. Most of the challenges including under performance of public utilities relate to lack of capital, which cannot all be raised from domestic sources.  Sustained economic recovery and development, therefore, hinges upon the ability to attract foreign direct investment.

 

  1. However, the success in attracting quality foreign investment requires putting in place a competitive conducive investment environment. Key factors are security of investment, property rights and macro-economic stability as well as competitive returns.

 

  1. In addition, our rating levels on key essential issues such as the ease to start a business, tax legislation, credit availability, property registration, the ease of obtaining employment permits, trading across borders and judicial enforcement of rights must simply improve.

 

  1. This will require that we remain ready to deal with all the concerns raised by friendly investors surrounding lack of clarity and any lingering misconceptions over our amended Indigenisation and Empowerment Regulations.

 

  1. Quite clearly a new investment law is required that talks to the many issues raised herein. Over and above this it is important that a one stop shop for all investment is established in Zimbabwe. The new Minister of Economic Planning and Investment Promotion certainly has his work cut out for him.

 

Leveraging Mineral Resources

  1. Mr Speaker Sir, in the extractive industries, Zimbabwe has got a goose which continues to lay eggs but with, unfortunately, a very limited share of these eggs complementing the revenues of the fiscus.

 

  1. Similarly, communities have not been able to see anything developmental out of the resources extracted from their habitats.

 

  1. Hence, a “business unusual” approach is required in mining if we are to leverage our mineral resources in support of the country’s development programmes.

 

  1. It will, therefore, be necessary that more openness and transparency over the exploitation of the country’s natural resource endowments be instituted.

 

Mineral Policy

  1. Firstly, Government must address all issues related to exploration and the crafting of an Exploration Registration and Extraction Mining Policy.

 

  1. It is essential that a database and Register of all known minerals in Zimbabwe is established.  The obligation and imperator of the creation of this Exploration, Registration and Extraction Mining Register must be codified in the proposed amendments to the Mining Act.

 

Mining Claims

  1. Secondly, the economy continues to suffer from a culture of hoarding of Claims and continuous renewal of unmined mining Claims.

 

  1. Mr Speaker Sir, the principle of “use it or lose it” has to be incorporated into the new Law.  The amendments to the Mining Act are, therefore, long overdue.

 

Mineral Beneficiation

  1. Thirdly, the absence of value addition and beneficiation of our minerals continues to perpetuate a false accumulation model.  Real value and transformation is possible only through value addition.

 

  1. A sectoral approach needs to be adopted in respect of every mineral that is intended to establish avenues of beneficiation.  Without this, there will continue to be a net outflow of mining rents from the country.

 

Mineral Taxation

  1. Fourthly, the current legal structure codified in our Mining law that the State can only look to corporate tax and royalties from the mining sector is unsustainable.

 

  1. The current debate the world over, more recently in Australia, is an attempt by Governments to find a more equitable mining taxation model that is not offensive to rational market principles.

 

Inter-Generational Fund

  1. Finally, to the extent that minerals are an ephemeral national resource, there must be a formula to benefit future generations.

 

  1. The setting up of some Inter-Generational Fund to deposit some proceeds from the mining sector for future generations is, therefore, imperative.

 

Diamonds

  1. Mr Speaker Sir, the issue of diamonds in Zimbabwe, in particular the alluvial diamonds at Chiadzwa has become critical and overblown.  Hence, a common understanding needs to be found on the matter.

 

Rule of Law

  1. Firstly, it is important that whatever Zimbabwe does must respect the rule of law and constitutionalism.  This, therefore, means that, the litigation with ACR must be concluded preferably through a win-win solution.

 

Commitment to the Kimberly Process

  1. In addition, Zimbabwe reaffirms its firm commitment to the Kimberly Process Certification Scheme (KPCS) and its principles.  In this regard, Government remains ready to address all the issues raised by the KPCS in their first and second Close-out Reports of June and September 2009, respectively.

 

Sale of Diamonds within the Kimberly Process

  1. In addressing the above issues, the KPCS and the Government of Zimbabwe agreed on a Joint Work Plan, which was adopted by Parties in the Swakopmund Plenary held in November 2009.

 

  1. The Monitor, Mr A. Chikane, was then appointed by the KPCS, to ensure that Zimbabwe complied with its Joint Work Plan and a fortiori, with the minimum standards of the KPCS.

 

  1. On 28 May 2010, the Monitor produced his report, the net effect of which was to state that Zimbabwe had complied with the minimum standards of KP certification scheme.

 

  1. On page 22 of his report, the KPCS Monitor stated as follows:

 

“Based on the evidence provided by the Government of Zimbabwe and private investors, and on his firsthand assessment of the situation, Zimbabwe has satisfied minimum requirements of the KPCS for the trade in rough diamonds. In terms of the Administrative Decision adopted by the Swakopmund Plenary of the KPCS, the KP Monitor is ready to supervise exports arrangements, in close collaboration with the relevant Zimbabwean Authorities and other relevant parties. The KP Monitor is available to visit Zimbabwe to conduct certification under the Supervised Export Mechanism at the invitation of the Zimbabwean Ministry of Mines and mining Development. He awaits a notification via electronic mail or fax.”

  1. Mr Speaker Sir, if Zimbabwe has complied with the KPCS minimum standards, then Zimbabwe should be allowed to sell its diamonds under the supervision of the KPCS Monitor.  Any contradiction is not based on due process and is contrary to the interests of ordinary Zimbabweans.

 

Amendments to the ZMDC Act

  1. Mr Speaker Sir, the Zimbabwe Mining Development Company (ZMDC) is in Joint ventures with two companies namely Grandwell Investments and Core Investments through a subsidiary known as Marange Investments.

 

  1. In terms of Section 32 of the ZMDC Act [Cap 21:08], Government of Zimbabwe returns on its shareholding in ZMDC’s operations in Marange is restricted to revenues accruing by way of a dividend.

 

  1. Government, therefore, proposes to amend the ZMDC Act to require that all net income be transferred immediately to Treasury and not be treated as normal revenue as currently provided for under Section 32.

 

  1. Furthermore, amendments will be proposed to require immediate disbursements to Treasury following any diamond sales.

 

Diamond Act

  1. Mr Speaker Sir, there is broad consensus in Government that there should be a new Diamond Act that requires that all alluvial diamond mining be conducted by and through the State.

 

  1. This will be in recognition that it will not be “business as usual” at Marange and that the State will not allow issuance of multiple mining licences that facilitate proliferation of small diamond mining operations.

 

  1. The proposed Diamond Act will also deal with the issue of compensation and relocation of displaced communities in Marange, including provision of the necessary social infrastructure.

 

  1. Furthermore, this Act will provide for the establishment of a Diamond Fund, which will be part of the overall National Mining Fund.

 

Past Diamond Sales

  1. Mr Speaker Sir, it is important that any revenue from Marange is accounted for transparently in terms of the law, with the Consolidated Revenue Fund receiving its dues in full under Parliamentary oversight in terms of the Constitution.

 

  1. This will avoid the current opaqueness and suspicions over the quality and actual value of resources being generated from the current diamond mining operations in Marange.

 

  1. According to the KPCS Monitor, Zimbabwe has sold at least US$30 million worth of diamonds from Marange, which Treasury and ZIMRA have no record or knowledge of.  In his report, the Monitor gives the following details of the sales:

 

PERIOD OCTOBER 2006 – MAY 2010
    SALES VOLUME  
SOURCE CARATS PRODUCED CARATS VALUE STOCK
MMCZ MOP UP 531,222.01 525,167.76 5,513,134.49 6,054.25
MARANGE 1,367,416.42 1,212,218.40 25,329,683.31 155,198.02
MBADA 3,707,806.01 _ _ 3,707,806.01
CANADILE 714,928.87 _ _ 714,928.87
ACR 129,031.87 _ _ 129,031.87
POLICE/MMMD 31,707.74 35,460.01 209,593.92 (3,752.27)
TOTALS 6,482,112.92 1,772,846.17 31,052,411.72 4,709,266.75
Minus ACR       129,031.87

 

  1. In the short to medium term, the “revival and regeneration” can be underpinned by income generated from the extractive industries.

 

  1. To date, our approach has been lackadaisical and indifferent.  Clearly, if we see through the framework advocated in this Review, we will be somewhere towards attaining the Developmental State called for in STERP.

 

Public Utilities

  1. Public utilities still face a number of challenges, notwithstanding the opportunities brought in by the new economic environment.

 

  1. It will, therefore, be critical that we move with speed to deal with those that can be addressed in the short term.  Central will be improved generation of working capital from internal operations.

 

Debtors

  1. An obvious source will be greater effort at reducing the current high sums of money tied in debtors, a result of inefficient billing and revenue collection mechanisms exacerbated by Ministerial interferences on administrative issues.

 

  1. Boards and management of public entities will, therefore, have to be directed to implement effective debt recoveries, with specific set targets and timeframes guided by debtor age analysis.  This will require enforcing settlement of outstanding debts through disconnections of services by ZESA for electricity, ZINWA and local authorities for water.

 

  1. In the case of ZESA, improving revenue collection ratio will also involve completing the upgrading of the billing system.

 

Wage/Revenue Ratios

  1. In a worrying number of public entities, employment costs consume a disproportionate chunk of revenue realisations, with some reports of as high as 70%.

 

  1. In line with Cabinet guidelines over the deployment of adequate revenue collections towards service delivery and development, public entities including local authorities will be required to observe the 30:70 ratio.

 

  1. Under this requirement, particularly with regards to ZESA, local authorities and ZINWA, at least 25% of the revenue collected should be earmarked for infrastructure maintenance and rehabilitation programmes.

 

Capitalisation

  1. The efficiency, competitiveness and effectiveness of most public utilities is being compromised mainly by under-capitalisation.

 

  1. Given resource constraints by Government to recapitalise its parastatals, the focus will be on attracting private capital through speeding up privatisation as well as public private partnership models.

 

Rationalisation of State Enterprises

  1. Government has categorised Public entities into three broad categories namely those to be commercialised, those to be privatised and those to be restructured.

 

  1. The Ministry of State Enterprises and Parastatals will be required to produce, working with line Ministries, case-by-case time-framed implementation strategies for commercialisation and privatisation during the last half of the year.

 

Over-sight over Public Utilities

  1. The biggest lacunae in our law governing both Local Authorities and Public Utilities is that there is no oversight over their recurrent budgets.

 

  1. Thus, in the majority of cases, the recurrent budgets of these institutions have been bloated with serious distortions.  Many of these institutions exist to serve top management and not the national good.

 

  1. The Public Finance Management Act provides a serious oversight function in respect of the operations of Central Government.  Unfortunately, this law does not cover Local Authorities and has limited application to Public Utilities.

 

  1. To depart from a business as usual approach and to Refocus on a trajectory of discipline, legal provisions are required to have the same oversight protection of the Public Finance Management Act to apply to Public Utilities and Local Authorities. Government will, thus, work on the relevant legislation.

 

Public-Private Partnerships

  1. Cabinet has already acknowledged the potential of private sector participation in infrastructure development under PPP Guidelines.

 

  1. To facilitate and expedite implementation on identified projects, Government is establishing in the Ministry of Finance a dedicated and specialised PPP Unit.

 

  1. This will be required to provide assistance in identifying and securing strategic partners, assisting parastatals in raising finance from the local and external capital markets.

 

Fuel Importation Transport Mode

  1. Importation of fuel by road remains high, notwithstanding Government investment through CPMZ in the Beira–Harare pipeline to reduce fuel transportation costs.

 

  1. In 2009, a total of 194,289,701 litres of fuel were transported by road from Beira, rendering unviable the pipeline which requires a minimum throughput of 67 million litres to sustain the US$2.2 million monthly pipeline fee under the take-or-pay arrangement.

 

  1. Measures in support of improved utilisation of the pipeline by oil companies will include overcoming the challenges related to handling of disputes with NOCZIM over volumes of fuel imported through the pipeline.

 

  1. In support, Government has embarked on the restructuring of NOCZIM to create two separate companies – one for fuel importation and the other one dedicated to management of infrastructure.  The new infrastructure entity is expected to overcome the administrative challenges associated with handling of fuel at depots.

 

  1. Once the administrative bottlenecks are removed and the necessary confidence restored, Government will institute through ZIMRA the necessary financial disincentives for road importation.

 

Review of Labour Laws

  1. There are concerns being raised on inflexibility of current labour laws in light of high and unsustainable wage demands in both the public and private sectors.  As a result, some companies, public enterprises and local authorities are failing to meet salary and wage obligations some of which are awarded by arbitrators.

 

  1. The high wage demands are also being exacerbated by misunderstandings between employees and employers emanating from lack of transparency and information deficiencies necessary for facilitating negotiations.

 

  1. Of further concern as well, is the top-down structure of many corporate wage bills.  In many companies and Parastatals, a disproportionate chunk of the wage bill is consumed by top management.

 

  1. The resuscitation and operationalisation of agreed protocols under the Social Contract is critical. In this regard, the Kadoma Declaration remains an important instrument.

 

  1. Equally, a review of labour and other related laws consistent with provisions of the Social Contract with a view of reducing labour disputes and the related negative impact on the economy becomes imperative. Such reviews will also seek to enforce information disclosure vital for facilitating informed wage negotiations and trust.

 

  1. It should be pointed out that any review of the labour laws should be done in consultation with social partners and within the context of the Social Contract. The Ministry of Labour and Social Services is currently engaged in these consultations.

 

Financial Sector Reforms

Central Bank Reforms

  1. Mr. Speaker Sir, a strengthened governance and accountability framework for the Reserve Bank provides a basis for restoring the Bank’s credibility and integrity.  Indeed, Mr Speaker Sir, there can be no Regeneration, Revival and Refocusing of this economy without a stable, functional, debt free Central Bank.

 

  1. With the amendment of the Reserve Bank Act [Chapter 24:15] and the subsequent appointment of the Reserve Bank Board, the focus is now on implementing the requisite governance reforms through restructuring, and downsizing of the Bank to align it to core functions under the multi-currency regime.

 

  1. Central to these reforms, is also the issue of addressing the indebtedness of the Reserve Bank estimated at about US$1.5 billion.

 

Reserve Bank Debt Restructuring

  1. Government has started working on the restructuring of the Reserve Bank debt.  The strategy entails hiving off the debt from the Bank through a Special Purpose Vehicle with a view of appropriately settling proven claims from sale of assets, investment returns or allocated resources.

 

  1. The disposal of non-core assets shall employ a transparent process aimed at obtaining full market value of any such assets.

 

  1. Government will, therefore, be presenting the respective Bill on restructuring of the Reserve Bank debt before this August House once we have gone through all the Government internal processes.

 

Banks Supervision and Surveillance

  1. The rapid credit growth since the introduction of multi-currencies and the resultant high balance of payments deficit has increased vulnerabilities of banks and has the potential of causing a reduction in Banks’ foreign assets.

 

  1. This development necessitates Central Bank to step up supervisory efforts in order to ensure that the banking system, withstand the deterioration in the balance of payments position and the systemic risks stemming from inter-bank trading exposures.

 

  1. The Reserve Bank will be giving a detailed outline of challenges facing the banking sector together with respective measures in the forthcoming Monetary Policy Statement.

 

Statutory Reserves & Liquidity Ratios

  1. As part of the measures to release more resources for lending by the banking sector whilst at the same time reducing bank vulnerabilities and systemic risks, Government, through the Central Bank will be reviewing the Statutory Reserve and Liquidity Ratio Requirements, whose details will be contained in the upcoming Monetary Policy Review Statement.

 

Interest Rates Spreads

  1. High lending rates of as high as 30% attributed by banks to the liquidity constraints in the economy, short term nature of deposits and high risks, against low deposits rates of as low as 2% attributed also to the short term nature of deposits (more than 90%) penalise borrowers and discourage savings deposits, respectively.

 

  1. Government will, through the Reserve Bank, continue dialoging with Bankers’ Association of Zimbabwe with a view of narrowing interest rates spreads.

 

  1. If the situation does not change, Government will have to take corrective measures through the necessary Statutory Instruments.

 

Currency Reforms

  1. Mr Speaker Sir, Government has already stated that the current multiple currency regime will prevail until 2012, and I wish to re-confirm this policy position.  Thereafter, currency reforms will be guided by developments in macro-economic fundamentals.

 

  1. Meanwhile, Government is receiving and compiling various submissions on the appropriate currency regime, and will produce a “white paper” that will facilitate public debate at an opportune time.

 

Smaller Denominations

  1. Under the current multi currency regime, the inadequacy of smaller denominations has posed a number of challenges in transactions.

 

  1. Treasury will, therefore, be facilitating in the last half of 2010 the importation of foreign smaller denominations and coins.

 

Micro Finance Institutions

  1. Government recognises the role of micro-finance institutions in providing access to working capital for Small-to-Medium Enterprises (SMEs), as well as financial services to low income groups including the self employed and women, who traditionally lack access to banking and related services.

 

  1. To facilitate the development of the micro-finance sector, a comprehensive and holistic Micro-Finance Act will be developed in consultation with stakeholders.  This will consolidate the various fragmented pieces of legislation currently governing the regulation and supervision of micro-finance institutions.

 

Lender of Last Resort

  1. Resuscitating the lender of last resort function of the Reserve Bank will facilitate the revival of the interbank market, re-establishing the overnight lending rate as the benchmark for market rates.

 

  1. In this regard, Treasury will ring fence resources to on-lend to the Reserve Bank to enable the Bank to resume its lender of last resort function.

 

Securities Market

Securities Rules & Regulations

  1. Operationalisation of the Securities Act [Chapter 24:25] is underway following the gazetting of Securities Rules & Regulations (S.I 100 of 2010). The regulations will strengthen the Securities Commission’s supervisory capacity to protect the interest of investors, ensuring transparency and market integrity.

 

  1. Pursuant to the operationalisation of the Securities Act, the regulation and supervision of Collective Investment Schemes (CIS) and Asset Managers will be transferred from the Reserve Bank to the Securities Commission.  This arrangement is consistent with the provisions of the Securities Act [Chapter 24:25] and, thus, eliminating the fragmentation of capital markets regulation in the country.

 

Central Securities Depository

  1. The Securities Act mandates the Securities Commission of Zimbabwe (SECZ) to provide for the development of free, fair and orderly capital and securities markets in Zimbabwe.

 

  1. In order to achieve this objective, SECZ is currently facilitating a stakeholder driven process of establishing a Central Securities Depository (CSD), whose principal function is to immobilise or dematerialise securities.

 

  1. This will ensure that the bulk of securities transactions are processed in an electronic book entry form, thus, expediting the settlement of equity transactions and ensuring adherence to the International Organisation of Securities Commissions (IOSCO)’s guidelines on securities settlements. This will improve transparency, market integrity and combat money laundering through improved regulatory oversight.

 

  1. The CSD is targeted to be in place by December 2010. The establishment of a Central Securities Depository and the switch to electronic trading on the Zimbabwe Stock Exchange should also harmonise the settlement cycles for all securities, equities as well as bonds.

 

Automated Trading System

  1. The current ZSE “open cry” manual trading system represents risk of human error, settlement delays and undermine market confidence. In this regard, the Zimbabwe Stock Exchange will establish an automated trading platform by end of the year.

 

Insurance and Pensions

  1. The 2010 Budget Statement announced the minimum capital requirements for all types of insurance businesses, to ensure that insurers have adequate capital to underwrite meaningful business and ensure investor protection.

 

  1. The status of compliance as of the end of June 2010 is as follows:

 

Type of business Number of companies No. of complying companies Percentage compliance
Life Assurance companies 9 8 89
Life re-assurers 3 2 67
Short term insurance 31 23 74
Short term re-insurers 10 8 80
Funeral Assurers 14 6 43

 

  1. The Commissioner of Insurance will proceed to invoke Section 22 of the Insurance Act [Chapter 24:07] in all cases of non compliance with the minimum capital requirements.

 

Debt Relief Strategy & Process

  1. With regard to resolving the country’s debt overhang now estimated at over US$6.7 billion, Government has already adopted a Sustainable and Holistic Debt Strategy which entails a homegrown holistic hybrid arrears clearance and debt management model.

 

  1. This combines traditional debt resolution initiatives and the creative leveraging of the country’s natural resources for economic development, also taking cognisance of Zimbabwe’s specific situation and the need for the removal of sanctions.

 

  1. In the execution of the strategy for debt relief, it is paramount that we move with speed with regards to the implementation of Government’s Arrears Clearance and Debt Relief Programme.

 

Debt Management Office

  1. Effective management of public debt has become paramount if the economic recovery and growth are to be sustained in future.  This is moreso given the current challenges associated with the unsustainable debt overhang.

 

  1. Guided by international best practices, it is important that debt management functions be consolidated to ensure effective debt management arrangements.

 

  1. Such an enhanced institutional framework for public debt management will be able to manage the national debt effectively and plan for a level and rate of growth in the public debt that is sustainable and consistent with a continued improvement in the country’s growth and capacity.

 

  1. In this regard, Treasury is now in the process of setting up a Debt Management Office (DMO) with the assistance of the African Development Bank, which is planned to be operational during the last quarter of 2010.

 

  1. Specifically the DMO will implement the country’s arrears clearance and debt relief strategy, review and strengthen current statutes and regulations where necessary, and give advice to Government on public debt issues.

 

Multi Donor Trust Fund

  1. Government’s Aid Coordination Policy of May 2009 recognises the necessity of establishing the Multi Donor Trust Fund (MDTF) as a Government-Donor conduit for mobilising and channeling support for Zimbabwe’s economic recovery.

 

  1. Consequently, the MDTF was established initially under the coordination and administration of the Word Bank but could not take off early owing to delays in developing the general framework and guidelines for operationalising the Fund.

 

  1. A further review of the above challenges culminated in the transfer of the co-ordination and administration role to the African Development Bank (ADB), given its strategic role in spearheading developmental programmes in Africa.

 

  1. Initially, about US$40 million is required to operationalise the Fund.  In this regard, Denmark has announced its contribution of US$3.5 million, while other donors indicated early commitment in support of the Fund once declared operational.

 

  1. Treasury is, therefore, following up with various donors on firming up their commitments as per their pledges in order to expedite the launch of the MDTF by the targeted date of end July 2010.

 

Aid Coordination and Management

  1. Development assistance has largely been channeled outside the national Budget, thereby exacerbating fragmentation of aid delivery systems into the country.

 

  1. Treasury is, therefore, finalising an Aid Coordination and Management Procedures Manual, which seeks to foster a harmonised and coordinated approach towards development assistance to Zimbabwe.

 

  1. The Manual provides a set of guiding principles and procedures for use by key stakeholders and also clarifies the mandates, relationships and information flows between Government Departments and Development Partners, in order to ensure optimal use of external development assistance.

 

Data Availability

  1. The weakening of the Central Statistical Office has created room for production and dissemination of distorted and unreliable statistical data by various other entities.

 

  1. Government has, thus, undertaken to reform the National Statistical System in the country through the promulgation of the new Census and Statistics Act of 2007, which established the Zimbabwe National Statistical Agency (ZIMSTAT) as a semi-autonomous Government agency responsible for coordinating, supervising, harmonising and monitoring the National Statistical System (NSS).

 

  1. The CSO will in the last half of 2010, pursue to complete various programmes which will culminate in the production of the following surveys:

 

  • Census of Industrial Production covering manufacturing, mining, electricity supply, water and construction;
  • Quarterly Employment Inquiry covering all sectors of the economy;
  • Business Tendency Survey covering manufacturing and mining;
  • Volume of Manufacturing Index;
  • Agriculture and Livestock Survey; and
  • Household Income and Expenditure Survey.

 

Revenue Retention Funds

  1. The Public Finance Management Act [Chapter 22:19] mandates Treasury to establish Funds whenever money is appropriated by an Act of Parliament for the establishment of such Funds for specific purposes, or where Treasury deems it necessary or desirable for the purpose of facilitating the accounting for public resources that separate Funds be established.

 

  1. A number of retention Funds were established and are operating under similar provisions of repealed legislation to incentivise Ministries and Departments to follow-up on and collect revenue due to the fiscus on a timely basis.

 

  1. The Funds so established retain a predetermined percentage of qualifying revenue collections for use by the Ministry or Department to augment the resources availed through annual Budget Appropriations.

 

  1. Virtually all such Funds were retaining amounts received at source, making it is difficult for Treasury to keep track of revenue collections due to non-compliance with set operating and reporting arrangements.

 

  1. Recent inspections by the Treasury to review the operations of such Funds came across instances of, among other areas of concern:-

 

  • poor record keeping in respect of transactions involving Fund resources.
  • failure to comply with Statutory and other financial reporting requirements.
  • non-remittance of revenue due to the Consolidated Revenue Fund and retention of amounts in excess of the thresholds set in the Fund Constitutions.
  • non-compliance with provisions of the Constitutions that regulate Fund management arrangements and operations.

 

  1. To address these concerns and ensure proper accountability for all revenue collections, Treasury directed that, with effect from 1 June 2010 Ministries and Departments with Funds whose Constitutions entitle them to a share of qualifying revenue receipts remit the full amounts collected to the Consolidated Revenue Fund.

 

  1. Each Fund’s share of the amount collected will then be disbursed in line with the entitlements stipulated in the respective Constitutions after the submission to Treasury of appropriate reports and verification of amounts collected and deposited into the Consolidated Revenue Fund.

 

POTRAZ Universal Service Fund

  1. The Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) was established in terms of the Postal and Telecommunications Act [Chapter 12:05] to “ensure the provision of sufficient domestic and international telecommunication and postal services throughout Zimbabwe on such terms and conditions as the Authority may fix”.

 

  1. The funds of the Authority consist mainly of fees, charges and other income accruing to the Authority from licences issued.

 

  1. The Act provides that “any surplus of income over expenditure at the end of the Authority’s financial year shall be appropriated to the Universal Service Fund” established in terms of the same Act.

 

  1. According to the audited Statement of Comprehensive Income for the financial year 2009, POTRAZ had a surplus of US$9 970 234, whilst the Universal Service Fund had income of US$6 994 816.  An amount of US$4 506 177.91 has been collected during the period January–May 2010, bringing the total available for the Universal Service Fund to US$21 021 228.

 

  1. Mr Speaker Sir, POTRAZ has not provided any concrete plan for the utilisation of the funds except to indicate that US$6 994 816.52 is committed to specific projects as approved by the Minister.

 

  1. The Authority has only incurred expenditure of US$45 335.80 for the period January 2009 to May 2010 against the Universal Service Fund of US$11 500 994.43.

 

  1. Mr Speaker Sir, following discussions over the resource challenges in the telecommunication and postal sector with the Minister responsible for POTRAZ, I propose that these resources be utilised in line with the objects of the Universal Service Fund.

 

  1. Requirements for the national fibre optic backbone amount to a total of US$39 million worth of cable to cover Harare – Bulawayo, Gwanda and Beitbridge, as well as Harare – Kariba.  However, the project is being done in phases.

 

  1. Already, Treasury has availed US$6.2 million for Harare – Mutare under the 2010 Budget.

 

  1. The next phase worth US$10 million is targeted at laying new fibre optic cable between Harare and Bulawayo, and an upgrade of cable between Harare and Kariba.  The cable between Harare and Bulawayo will, therefore, be able to benefit from the under-sea cable coming from Maputo to Harare.

 

  1. The fibre optic cable for Harare – Kariba will be upgraded from the current STM16 to STM64, which will result in a four-fold increase in capacity.

 

  1. Furthermore, notwithstanding significant investments being undertaken by the three mobile network operators, there is still much more to be done in both the rural and urban areas.

 

  1. Cognisant of these requirements, I propose that we utilise resources available to the Universal Fund as follows:

 

  • US$10 million towards supporting the country’s fibre optic backbone, critical for the maintenance of high standards of quality in the provision of telecommunication services.  This will be complemented by an allocation of another US$3 million through IDBZ.

 

  • US$1 million in support of E-Governance.

 

  • US$2 million towards improving access to ICT in such under-serviced areas and communities as schools in both rural and urban areas.

 

  • US$5 million towards extension of cellular telecommunication services in under-serviced rural areas.

 

POTRAZ Annual Implementation Plan

  1. Mr Speaker Sir, it will be necessary that our legislation recognises the role of the State in determining the investment priorities in postal and telecommunication services through POTRAZ’s Annual Implementation Plan.

 

  1. Since the Fund’s resources are targeted at supporting national programmes in postal and telecommunication services, it will be necessary that both Treasury and the Ministry responsible for POTRAZ are involved in the formulation of POTRAZ’s Annual Plans.

 

  1. This will require that Parliament re-visits Section 74 of the Act which currently states that POTRAZ, in consultation with players in the telecommunications and postal industry, is tasked to come up with the Annual Plan for the use of Universal Fund resources.

 

  1. Mr Speaker Sir, I am, therefore, making proposals for the amendment of Section 74 of the Act to make Government, through the Ministry responsible for POTRAZ and Treasury, have oversight on the formulation of the Annual Implementation Plan.

 

Public Shareholding

  1. Mr Speaker Sir, the challenges I have outlined above also prevail across a wider spectrum of Government investment and shareholding.  In most cases, Government’s ownership is in name only, with Government being called upon only to assume debts and liabilities.

 

  1. I will, therefore, be proposing review of the various legislation with regards to Government oversight over investment and utilisation of surpluses generated across the various entities Government owns.

 

  1. This will include governance legislation over assets and resources of such entities as ZMDC, ZINARA, IDC, MMCZ, etc.

 

  1. In the case of NSSA, the interest of Government will relate to strengthening the management of their investment portfolio in line with the public interest.

 

Reserve Fund

  1. Mr Speaker Sir, the challenges we have been experiencing with regards to the non-performance of the Vote of Credit for the Budget have necessitated that we make savings which we have deposited into a Reserve Fund.

 

  1. Amounts standing to the credit of the Consolidated Revenue Fund can be set aside as provided for in the Public Finance Management Act to specifically cater for accumulation of adequate reserve funds for such items as bonus payments, capital projects and other anticipated contingent expenditures.

 

  1. Furthermore, to the extent that revenues perform above budgeted levels, Treasury will undertake to deposit the additional revenues towards the build-up of Reserve Funds.

 

  1. This will allow for greater scope to also embark on some of the infrastructural projects whose resource requirements are larger than anticipated revenue flows.

 

EXPENDITURE RATIONALISATION

  1. Mr Speaker Sir, the review of the 2010 Budget performance during the first half of the year clearly indicates some weaknesses particularly related to three major aspects, namely lack of fiscal space to support programmes and projects, underperforming Vote of Credit and lack of project implementation capacity.

 

  1. Therefore, I am proposing to re-align the 2010 Budget provisions to also cater for priority areas in an effort to still meet the original Budget objectives.

 

  1. The rationalisation of the 2010 Budget will entail the following:-

 

  1. Allocating an additional revenue towards already incurred shortfalls and commitments, including arrears to service providers.

 

  1. Transferring and recognising expenditures incurred through the SDR Facility to the respective Votes.

 

  1. Financing critical selected programmes and projects where donors have withheld funding initially earmarked to come through the Vote of Credit.

 

  1. This rationalisation will be achieved within the original 2010 Budget framework threshold of total expenditure estimates of US$2.250 billion, taking into account the projected improved revenue collections of US$1.611 billion.

 

  1. The overriding objective of the 2010 Budget rationalisation outlined above is to ensure the Budget remains tailored to the theme “Reconstruction, with Equitable Growth and Stability” as well as our resource capacity as per the     Revised 2010 Budget Framework.

 

Recurrent Expenditure

Outstanding Bills to Service Providers

  1. Notwithstanding payment of US$18 million, Ministries and Departments have continued to accumulate arrears on services provided.  Arrears to June 2010 stand at US$58 million.

 

  1. I propose to set aside US$10 million for clearing outstanding bills.  Ministries that accumulate new arrears will have their Vote allocations reduced by the amount of arrears, which amount will be directed towards payment of service providers.

 

  1. It will be critical that Ministries institute measures that contain utilisation, thereby reducing accumulation of bills.

 

Social Protection

  1. Acute food deficits have been identified in eleven districts, with Chivi, Mangwe and Mberengwa having an immediate requirement to support an estimated 17 340 households.  The remaining eight districts have a total of 63 304 households who require food assistance from October 2010.

 

  1. I, therefore, propose to allocate resources towards the implementation of the public works programme. This will be complimented by resources from cooperating partners to be mobilised through the Consolidated Appeals Programme.

 

Foreign Service Payments

  1. The effort made to ensure Foreign Services receive up to US$4 million per month during the first half of the year leaves the 2010 Budget provision for this item short by an estimated US$10 million.

 

  1. This does not take account of the arrears that have accumulated over the years which stand at US$27 million, comprised of staff salaries (US$18 million) and running expenses (US$9 million).

 

  1. Given our lack of fiscal space, the Ministry of Foreign Affairs, together with Treasury and those Ministries and Departments with representation at Missions, are finalising proposals to rationalise Foreign Service expenditures.

 

Other Recurrent Expenditures

  1. Additional provisions are also required on other recurrent expenditures such as sub-contracting, foreign travel, cadetship programme, operations for the security Ministries and some of the grant aided institutions.

 

Capital Expenditure

  1. The targeted approach to the implementation of projects and programmes that Government adopted last year has seen marked improvement in service delivery.

 

  1. Success has hinged on our ability to concentrate resources on fewer projects.  Prioritisation of projects remains necessary even as we scale up implementation.

 

Energy

  1. Maintenance works at Hwange and Kariba Power Stations need US$125 million and US$14 million, respectively, to ensure increased output and reliability in the generation of electricity.

 

  1. The performance of all the power generating plants is as indicated on the Table below:-

 

Power Station Installed Capacity Current Output Cost of Production

USc/KWH

Kariba South 750 MW 735 MW 2.39
Hwange Thermal 920 MW 574 MW 6.04
Harare Thermal 80 MW 0 13.04
Munyati Thermal 80 MW 0 13.04
Bulawayo Thermal 90 MW 0 13.04
Total 1 920 MW 1 309 MW  

 

  1. The transmission and distribution networks will also need to be rehabilitated in order to improve systems performance.

 

  1. However, from the Budget I will only be able to re-allocate an amount of US$15 million to address some of the energy challenges.

 

  1. Given the limited capacity of the Budget there is, therefore, need to mobilise additional resources from ring fencing part of the ZESA monthly earnings and enforcement of debt collections.

 

Debtors

  1. ZESA is owed a total amount of US$376 million, with the Table below showing the distribution of the outstanding debt by category of customer:-

 

Distribution of Outstanding Debt (US$ million)

Tariff Current 30 Days 60 Days 90 Days 120 Days Total %
Domestic 16 17 20 68 18 139 37
Public Lighting 1 1 1 2 1 5 1
Mining 5 3 6 6 6 26 7
Industry 12 8 7 5 16 48 13
Institutions 2 1 2 2 1 11 3
Commercial 10 11 14 51 16 101 27
Farming 7 5 6 7 22 47 12
TOTAL 53 47 55 141 80 376 100
% 14 13 15 38 21 100  

 

  1. At 37% and 27% respectively, domestic and commercial consumers, account for the largest proportion of both consumption and debt.

 

  1. To ensure that users of electricity pay for the use of the service, ZESA is being empowered to take steps to recover all outstanding amounts from its debtors with effect from 1 August 2010.  Where customers fail to present payment plans, such steps should include disconnections as necessary.

 

Maintenance Fund

  1. The increase in revenue arising from payment by the utility’s debtors should be deposited into a Fund to be jointly managed by Government and ZESA.  This Fund would be dedicated towards the upgrading, refurbishment and maintenance of infrastructure.

 

  1. Furthermore, I propose that ZESA ring fence part of their monthly revenue collection of US$25 million towards such a Fund.

 

Pre Payment Meters

  1. To avoid further development of payment arrears, ZESA is working on a programme to install 100 000 prepayment meters.  This will enable customers to pay cash upfront and allow better management of electricity consumption.

 

Water and Sanitation

  1. In all Local Authorities, demand for water and sanitation services is outstripping supply leading to water rationing, exacerbated by leakages and burst pipes.

 

  1. Government has already intervened in some local authorities and for the remainder of the year, focus will be on sewer and water infrastructure rehabilitation for Gweru and Mutare.

 

  1. To this effect, I also propose to allocate a limited amount of resources to deal with the water and sewer rehabilitation problems in these towns.

 

Transport

  1. The sector has lost significant capacity due to lack of maintenance and investment in equipment and infrastructure.

 

Aviation

  1. Whilst the rehabilitation of taxiways at Harare Airport as well as completion of J.M Nkomo Airport have already benefited from the US$18.1 million disbursed this year, there is a requirement for a new instrument landing system at J. M Nkomo Airport.

 

  1. I am proposing to allocate an amount of US$3.6 million for this requirement.

 

Rail

  1. Ageing equipment, depreciation of track infrastructure, compounded by vandalism and theft of cables and signaling equipment has undermined the performance of NRZ.  Already, 415 km of the track is operating under cautions/speed restrictions.

 

  1. In order to facilitate NRZ to speed up the rehabilitation programme, I also propose to provide US$2 million towards this purpose.

 

Social Service Delivery

  1. Support to the social sectors particularly, health and education, remains one of the top priorities for Government.

 

  1. In the health sector, the targeted approach to the implementation of projects will continue.  The 2010 Budget identified 10 institutions of which 7 are already under implementation, including Harare and Mpilo central hospitals.

 

  1. The remaining three institutions, namely United Bulawayo Hospitals, Masvingo and Gwanda will be attended to during the remainder of the year through re-direction of allocations within the Health Vote.

 

  1. In addition, Government will also be procuring 40 ambulances as well as other medical equipment.

 

Education

  1. In order to improve quality of education in our schools, Government will be procuring about 40 supervision vehicles to be used by education inspectors.

 

  1. Students at most State universities face an acute shortage of accommodation.  To alleviate this challenge, it is critical that Government targets the construction and rehabilitation of halls of residence at these institutions.

 

  1. I, therefore, propose to allocate US$5 million for rehabilitation of existing infrastructure as well as designs for the construction of one hall of residence per each of our State universities.

 

E-learning

  1. Utilisation of ICT is a function of ICT literacy.  In this regard, ICT should become an integral component of every school curriculum through provision of computers.  Some schools through the initiatives of parents and Schools Development Associations (SDAs) have already procured computers to promote e-learning.

 

  1. Therefore, to augment efforts already being made by parents, Government is allocating US$2 million for procurement of computers under the first phase of this programme which will benefit a number of schools countrywide.

 

PUBLIC EXPENDITURE MANAGEMENT

Public Finance Management Legal Framework

Public Finance Management Act

  1. Consistent with Government’s objective to strengthen governance and accountability in the management of public resources enunciated in STERP, the Public Finance Management Act [Chapter 22:19] was enacted on April 2, 2010.

 

  1. This repealed and replaced the Audit and Exchequer Act [Chapter 22:03] that provided for the management and control of public monies and State property and the State Loans and Guarantees Act [Chapter 22:13] that regulated the borrowing and administration of State loans and the issuance of guarantees by Government.

 

  1. The new Act consolidates and strengthens the provisions of the repealed statutes by, among other provisions, clarifying the roles and responsibilities of various players in the resource management chain, enhancing the corporate governance arrangements and putting in place more rigorous reporting requirements to facilitate effective oversight over financial and other operations.

 

  1. In addition to central Government operations, the Act’s coverage extends to public enterprises, local authorities, companies in which the State has a controlling interest and partnerships and joint ventures between the State and other parties, to address resource management and corporate governance concerns in those institutions, and incorporates penalty provisions for cases of non-compliance

 

  1. Treasury is now working on crafting the regulations necessary to operationalise the provisions of the Public Finance Management Act, and will be inviting relevant stakeholders for input into that process.

 

Audit Office Act

  1. The provisions of the Audit and Exchequer Act that dealt with the Office of the Comptroller and Auditor-General and audits by that office have been hived off and enhanced in a separate Audit Office Act.

 

  1. This seeks to capacitate the Office to more effectively discharge its mandate and facilitate Parliamentary oversight over the management of public resources.

 

Public Finance Management System

  1. To complement the legislative reforms, Government is working on restoring the Public Finance Management System (PFMS); – the computer based accounting and financial management system that has been rolled out to all the 36 Ministries, to full functionality.

 

  1. The system that was initially implemented in 1999 on a pilot basis and thereafter progressively rolled out to all Ministries up to the provincial offices, had its operation adversely affected by unsustainably high inflation levels, equipment obsolescence and loss of skills.

 

Quality Assurance

  1. Following the upgrade and reconfiguration of the system by Government personnel in 2009, cooperating partners have availed experts on the SAP software, the platform on which the PFMS system runs, to review and provide quality assurance on the work done.

 

  1. This situation had resulted in Government Ministries having to incur additional costs as officials commute to centres outside their work stations to process transactions at points where the system is available.

 

Equipment Procurement

  1. Furthermore, Government has, with assistance from cooperating partners, embarked on a computer and network equipment procurement programme to facilitate online transacting.  To date more than 1 400 computers have been procured under the programme, while the acquisition of network gadgets is under way.

 

  1. The non-availability of the system during the upgrade process resulted in the bulk of the 2009 transactions being processed outside the PFMS.  The relevant data has been uploaded onto the system and work to validate the transactions is underway, with Ministries required to process all current year transactions through the PFMS as soon as the system challenges alluded to earlier have been rectified.

 

Training

  1. To rebuild the skills base decimated by the brain drain during the period of sustained economic challenges, and ensure Government derives maximum benefit from the investment, training of officers on the new system is already under way.

 

  1. To date, over 240 officials ranging from Directors of Finance and their deputies, Audit Office personnel and other end users have undergone some training in areas relevant to their functions.  The weekly exercises will continue until all system users have received the training necessary for Government to fully benefit from the system functionalities.

 

Internal Audit Training

  1. To complement the above activities, internal audit personnel are being trained to use tools that facilitate extraction and analysis of computer based data and transactions.  This initiative will create capacity for effective monitoring of PFMS system transactions and financial administration in Government Ministries in line with the mandate conferred on the internal audit function by the Public Finance Management Act.

 

District Roll Out

  1. Once the system operations have been fully restored, it will be rolled out to the districts to facilitate on line transacting and improved monitoring and management of Government finances.

 

Help Desk

  1. In line with international practice, a PFMS Help Desk is also being set up to provide support to system users on a day-to-day basis.

 

Curbing Accumulation of Bills

  1. The cash budgeting system that Government introduced in 2009 has so far succeeded in controlling over expenditure.  However, we have noted incidences where Ministries are procuring goods and services without the requisite cash.

 

  1. In order to realise the full benefits of the cash budgeting system, any Ministry official who knowingly procures a service without the requisite cash resources will be charged with an act of misconduct in terms of the new Public Finance Management Act (Section 85).  In addition any service provider who knowingly provides a service to a Government Department without a purchase order will do so at their own peril as disbursement of resources will not be guaranteed.

 

  1. Government is still committed to clearing the arrears as they have become an impediment to the achievement of operational efficiency for the service providers.

 

Vehicle Hire

  1. In my 2010 Budget Statement, I introduced a new billing system aimed at minimising the use of vehicles and, hence, unnecessary demand for fuel through a prepayment system to CMED.

 

  1. However, I note that Ministries continue to hold on to vehicles even after expiry of the agreed hire period and in the absence of adequate funding.  I propose that, henceforth, CMED be authorised to withhold releasing vehicles to any Ministry after expiry of the agreed hire period.

 

  1. Furthermore, I also note the rampant abuse of Government vehicles by officials.  In this regard, I recommend that the Ministry of Transport, and Infrastructure Development, working with line Ministries and CMED put in place a system of identifying Government vehicles by Ministry in order to enable members of the public to report on abuse of vehicles to the relevant authorities.  The responsible Ministry should also put a hotline for the reporting of such incidents.

 

Loss of Public Assets

  1. Increasingly we have noted that Ministries are quick to conclude cases of loss or damage of state property such as repair of accident damaged vehicles without going through the laid down process and procedures necessary to determine liability.

 

  1. It will be an act of misconduct in terms of the new Public Finance Management Act (Section 85) for any Government official who do not follow laid down process and procedures.

 

Tendering

  1. The adoption by Government of multicurrency necessitated the need to review all running contracts denominated in Zimbabwe dollars.  I am aware that the State Procurement Board issued instructions to Line Ministries highlighting the need to revalidate or re-tender depending on progress on the project.

 

  1. I am concerned, therefore, that the majority of Ministries have not approached SPB for the revalidation of contracts on most capital projects.  I propose that Accounting Officers be directed not to process payment to any service provider whose contract would not have been revalidated by the State Procurement Board.

 

  1. Some service providers deliberately leave out some critical components of the projects from their bids so that their prices are lower thereby ensuring that they win the tenders.

 

  1. During implementation, however, additional components are brought on board leading to budget overruns.  Such malpractice disadvantages genuine bidders whose contracts would have been rejected on the basis of high prices.

 

  1. I propose that any contractor found undertaking such practices be barred from participating in any Government contracts for a period of 5 years.

 

Advance Payment

  1. The hyper-inflationary situation created an environment for suppliers to demand up front payment for goods and services.  In order to secure the required goods that were usually in short supply as well as manage the daily and at times hourly price escalations, authority was granted for Government Ministries and Departments to pay in advance of delivery.

 

  1. The current stable multicurrency environment calls for the urgent review of this arrangement.

 

  1. Furthermore, Government has lost resources from poor or shoddy performance after full payment has been made, and in some cases suppliers have disappeared before delivery after receiving full payment.

 

  1. Hence, with immediate effect, Government will not make full advance payment to goods and services providers.  Payments will only be made basing on submission of invoices or certificates and verification of work done.

 

Contract Management

  1. Contracts cleared by the Attorney General’s office should be signed for any advance part payment to be made in advance of delivery or performance.

 

  1. Furthermore, Ministries are required to ensure that availability of funds is confirmed with Treasury before major contracts are signed.

 

  1. Suppliers are encouraged to get Treasury endorsement for contracts above $500 000 and should approach Treasury in the event of any breach in the agreed payment arrangements.

 

  1. A Ministry or Department is considered in default if the amount due as per the signed contract has been outstanding for more than fourteen days.

 

Non Performing Contractors

  1. There are some contractors who continue to win tenders despite their lack of performance.  This has resulted in such contractors spreading their resources so thinly as to make no impact on the project.

 

  1. To safeguard public resources and ensure that Ministries and institutions procure goods and services at best advantage to Government, it will be necessary to appoint only contractors with proven high performance track record.

 

  1. As implementing agencies re-tender, care must be taken to avoid multiple awards of tenders.

 

Electronic Funds Transfer

  1. Government with effect from 01 August, 2010 will be introducing the Electronic Funds Transfer System for the payment of creditors.

 

  1. Payments will be made by the Bank directly into the designated accounts of the creditors.  Instructions will originate from the Line Ministries and electronically transmitted to the Bank.

 

  1. Introduction of electronic funds transfer is meant to reduce cash transactions that have limited audit trail, enhance security as well as expedite payment of creditors.

 

REVENUE MEASURES

  1. Mr. Speaker Sir, the proposed revenue measures focus on support to industry for improved capacity utilisation.

 

  1. However, some of the measures are also aimed at enhancing revenue collection.

 

  1. I also provide a review of our progress with the implementation of some of the policies I announced in the 2010 National Budget.

 

Redrafting of the Income Tax Act

  1. Honourable Members would recall that I announced during the 2010 Budget the intention to redraft the Income Tax Act, simplifying the language for ease of understanding and administration on the part of taxpayers and revenue authorities.

 

  1. Furthermore, the new Income Tax Act will also uphold the tax principles of equity, fairness and neutrality as well as increase the revenue base.

 

  1. The proposed draft Income Tax Act has since been produced and circulated to stakeholders for input, which should be submitted for analysis and incorporation into the new Income Tax Act by the end of October 2010.

 

  1. The draft Income Tax Act will incorporate the following concepts:

 

  • Residence based taxation system;
  • Accounting principles;
  • Taxation of net gains from the disposal of business and other assets;
  • Enhancement of anti-avoidance measures in line with international best practices; and
  • Restriction of deductions to expenses incurred in the production of income by excluding deductions incurred for purposes of trade.

 

  1. The proposed draft Income Tax Act will be tabled before Parliament for approval as part of the 2011 Budget.

 

VAT Fiscalised Recording of Taxable Transactions

  1. Mr Speaker Sir, in order to reduce revenue leakages through fraud, I proposed in the 2010 Budget the introduction of Fiscalised Electronic Registers and Fiscal Memory Devices with enhanced security features that minimise fraud.

 

  1. Legislation to implement fiscalised recording of taxable transactions has since been gazetted.  Furthermore, suppliers of the fiscalised devices have been identified.

 

  1. I, therefore, propose to implement the VAT Fiscalised recording of taxable transactions on 1 October, 2010.

 

Electronic Cargo Tracking System

  1. Honourable Members will recall that during the 2010 National Budget I proposed the introduction of Electronic Cargo Tracking System, in view of the high risk to revenue that is posed by transit cargo.

 

  1. The implementation of the Electronic Cargo Tracking System has, however, been delayed due to challenges in rolling out the necessary infrastructure that links ports of entry and exit.

 

  1. I, therefore, propose to shift the implementation of the Electronic Cargo Tracking System to the second quarter of 2011.

 

Revenue Enhancing Measures

Tax Exemptions and Deductions

  1. Mr. Speaker Sir, during the 2010 Budget a number of tax exemptions and deductions were reviewed with the ultimate goal of broadening the tax base.

 

  1. I further propose to repeal some of the remaining tax exemptions and deductions as follows:

 

  • Interest earned on Foreign Currency Accounts is exempt from tax. This measure was necessary in order to attract foreign currency savings during the Zimbabwe Dollar era, hence is no longer necessary, since all accounts are denominated in foreign currency. This measure takes effect from 1 August 2010; and

 

  • Special Initial Allowance of 150% on the cost of plant and machinery on small to medium scale enterprises. The depreciation allowance will, thus, be restricted to 100% with effect from 1 January 2011.

 

Suspension of Duty on Motor Vehicles Imported by Tourist Operators

  1. Mr. Speaker Sir, customs duty on motor vehicles imported by tourist operators was suspended in order to assist operators to recapitalise aged fleets.

 

  1. Whereas the facility has assisted the tourism industry, it however has been abused, to the extent whereby some operators imported vehicles for personal use or for purposes other than tourism, thereby prejudicing the fiscus of potential revenue.

 

  1. I, therefore, propose to withdraw the suspension of duty on motor vehicles imported by Tourist Operators, with effect from 1 September 2010.

 

Rebates of Duty which no longer reflect Policy Priorities

  1. Honourable Members will recall that in the 2009 Mid-Term Fiscal Policy Review Statement, I alluded to the fact that the dynamics of the economic environment and changes in investment patterns necessitate a review of some of the customs duty rebates which no longer reflect policy priorities.

 

  1. I, therefore, propose to repeal the following rebates of duty with effect from 1 August 2010:

 

  • Rebate of duty on imports covered by a duty free certificate issued under the export incentive scheme.  The facility no longer exists;
  • Rebate of duty on newspapers, magazines, periodicals, pamphlets, brochures and similar publications.  Duty has been removed on these items; and
  • Bicycle assembly rebate.  In the absence of assemblers of bicycles, this is being fraudulently utilised.

 

Taxation of the Mining Sector

  1. Mr. Speaker Sir, I announced in the 2010 Budget Statement that the contribution of the mining sector to the fiscus is minimal, compared to other countries in the region.  Whereas turnover of the mining sector was close to US$1 billion in 2009, a paltry US$44.8 million which includes corporate tax, VAT, PAYE and royalties was contributed to the fiscus.

 

  1. In order to enhance the contribution of the mining sector to the fiscus, I propose the following measures:

 

Review of Royalties on Minerals

  1. I announced in the 2009 Mid-Term Fiscal Policy Review that I will be making proposals in the 2010 Budget to review the mining sector fiscal regime, in order for the Nation to benefit from the exploitation of its non-renewable natural resources.

 

  1. I, therefore, propose to review upwards the royalty rate on precious metals from 3.5% to 4% of the gross market value with effect from 1 October 2010.

 

Export Tax on Unprocessed Chrome

  1. In order to encourage value addition on chrome ore and fines, which are currently exported in raw form, an export tax of 15% on the value of gross exports proceeds on chrome ore and fines was introduced.

 

  1. However, since the introduction of the export tax on chrome ore and fines, exporters have resorted to exporting crushed chrome ore with no value addition, so as to avoid the export tax.

 

  1. In order to encourage meaningful value addition to chrome ore and fines, I propose to amend the definition of unbeneficiated chrome ore and fines to include semi-processed chrome concentrates.

 

  1. I further propose to raise the export tax on chrome ore and fines from 15% to 20%.

 

  1. The above measures take effect from 1 August 2010.

 

Special Initial Allowance

  1. Despite improvements in the price of precious metals on the international market, tax revenue contribution of the mining sector to the fiscus remains insignificant.  This is largely attributed to tax deferral arising from the current treatment of capital allowances which are claimed wholly in the year expenditure is incurred, resulting in losses which are perpetually carried forward.

 

  1. Minerals are an irreplaceable wasting resource, hence, there is need to maximise tax revenue from mineral extraction and also encourage investment.

 

  1. A proportionate spread of the special initial allowance of the cost of the specified assets will, thus, be considered in the 2011 Budget.

 

Fees, Charges and Fines

Fines on Motor Vehicles Used to Smuggle Goods

  1. Currently, any person who leases a motor vehicle which is used to carry smuggled goods is liable to a fine not exceeding level 7 (US$400) on the standard scale of fines or imprisonment for a period not less than one year.

 

  1. However, this level of penalty has not been an effective deterrent as evidenced by an increase in the number of cases whereby leased motor vehicles continue to carry smuggled goods.

 

  1. I, therefore, propose to review the fine from level 7 to 14 (US$5 000) on the standard scale of fines.

 

Relief Measures

Regional Integration

  1. Mr. Speaker Sir, one of the milestones that has been achieved under the regional integration agenda is attainment of the COMESA and SADC Free Trade Areas.  The Free Trade Area Protocols provide for duty free importation of goods from COMESA and SADC Member States, provided such goods meet the set criteria on the rules of origin.

 

  1. Whilst the benefits of regional integration are appreciated, the local industry, however, faces major challenges that include the use of antiquated equipment, erratic power supply, high utility costs and limited access to long term finance, among others.

 

  1. The local industry is, thus, unable to compete on a level playing field with companies in the region which have access to cheaper finance, advanced technology and operate at optimal capacity levels.

 

  1. It is, thus, important to levy duty that levels the playing field, allowing industry to also re-build capacity.

 

  1. I, therefore, propose the following measures:

 

Duty on Competing Products Imported under SADC

  1. The bulk of products that are being traded through the local retail outlets originate from SADC, as a consequence of preferential rates of duty.  There is, however, potential for the local industry to supply some of the products, thereby boosting employment and raising aggregate demand for goods.

 

  1. In order to avail an opportunity for the local industry to produce, I propose to levy duty on selected finished products from the SADC region with effect from 1 August 2010 as follows:

 

Tariff code Description MFN rates  of duty SADC rates of duty Proposed rates of duty under SADC
2106.9090 Other food preparations 5 0 10
3917.3110 Piping 15 0 15
3923.1000 Plastic Packaging 15 0 15
6305.3200 Solid and woven 15 0 15
7210.4100 Galvanised Steel Sheets-corrugated 20 0 20
7210.4990 Galvanised Steel Sheets – fluted profile 20 0 20

 

Suspension of Duty on Inputs used by the Local Industry

  1. Customs duty on raw materials and intermediate goods was progressively reduced in response to submissions made by the industry.

 

  1. I propose to suspend customs duty on raw materials, intermediate and capital goods to take into account input from stakeholders as follows:

 

Tariff Code Product Current MFN rates of duty (%) Proposed MFN rates of duty (%)
1511.9090 Palm Oil 10 5
2713.2010 Bleaching earth 15 10
3215.1900 Other printing ink, whether or not concentrated or solid excl black 15 10
3917.3290 Other shrink tube 15 10
3919.9090 Other adhesive labels 15 10
3920.2010 Plates, of polymers of ethylene not reinforced 15 10
3920.2090 Other, polymers of ethylene 20 10
3920.5900 Acrylic polymers 15 10
3921.1200 PVC Packaging 15 10
4016.9910 Parts of industry, agriculture and mining machinery of vulcanised rubber 15 10
4821.1000 Printed metalised battery labels 15 10
5909.0000 Textile tubing with or without lining, cotton damper covers 15 10
7216.1000 Steel U Section 15 10
7216.2200 Steel T Section 15 10
7301.2000 Angles, shapes and section bolts 15 10
7318.2300 Rivets 20 15
7320.1000 Leaf spring 20 15
7320.2000 Helical 20 15
7320.9000 Coil spring 20 15
7326.9097 File grips and paper binders, nail plate basin buckets of cast iron, clips for tobacco curing. 20 15
8474.8000 Egg grading and processing equipment 5 0
9406.0090 Other- advanced poultry houses 10 0

 

  1. The above measure takes effect from 1 August 2010.

 

Review of Suspension of Duty on Basic Commodities

  1. In order to address food shortages and stabilise prices whilst also availing industry ample time to increase capacity utilisation, a suspension of duty on basic commodities was extended to 31 July 2010. Revenue foregone as a result of implementing this relief measure amounted to US$36 million, during the period January to April 2010.

 

  1. Whilst the suspension of duty on basic commodities has resulted in improved supply of goods and stabilisation of prices, there is, however, need to enhance capacity utilisation of companies that manufacture basic commodities and also address consumer welfare.

 

  1. In view of increased capacity utilisation of some basic commodities, I propose to introduce the suspended duty rates on selected commodities with effect from 1 August 2010 as follows:

 

Product Description MFN rates  of duty SADC rates of duty Proposed rates of duty
Margarine 40 15 15
Washing powder 40 10 10
Petroleum Jelly 40 10 10
Bath soap 40 10 10
Beauty or make up preparations for the care of the skin 40 15 15

 

  1. I further propose to extend suspension of duty on the remaining basic commodities to 31 December 2010.

 

  1. A review of the suspension of duty on these commodities will be undertaken during the 2011 National Budget.

 

Dumping of Sub-standard Imported Products

  1. The suspension of duty on imported basic commodities has resulted in improved supply of goods and stabilisation of prices.  However, there has been an influx of sub-standard, counterfeit and, in some instances, expired products on the local market, thereby, exposing consumers to health hazards and also depriving them of value for money.

 

  1. The quality of products is a key determinant to the welfare of consumers, hence, there is need to safeguard against dumping of sub-standard products, whether they be food stuffs, drugs, etc.

 

  1. In order to protect vulnerable consumers and also level the playing field between locally produced and imported products, Government will strengthen enforcement capacity of the structures which administer standards and also invoke anti-dumping measures and countervailing duties where necessary.

 

Rebate of Duty on Fiscalised Electronic Tax Registers and Fiscal Memory Devices

  1. I have already proposed that implementation of VAT Fiscalised recording of taxable transactions commence on 1 October 2010.

 

  1. In order to minimise the cost of acquiring Fiscalised Electronic Tax Registers and Fiscal Memory Devices, I propose that a rebate of duty be granted on machines imported by approved suppliers.

 

  1. This measure takes effect from 1 August 2010.

 

  1. I further propose that 50% of the cost of acquiring the machines be claimed as input VAT.

 

Duty on Textiles, Clothing and Footwear

  1. Clothing and textiles, and footwear currently attract duty of 40% plus US$10 per kg and 40% plus US$5 per pair, respectively. However, these goods retail at prices below the duty level, reflecting the large extent of smuggling.

 

  1. Furthermore, some of the goods are imported duty free using travellers’ rebate, notwithstanding that they are commercial and should be dutiable.

 

  1. In order to discourage rent seeking activities and abuse of travellers’ rebate, I propose to reduce duty on clothing and textiles, and footwear as follows:

 

Item Current rate of duty Proposed rate of duty
Blankets 40%+ US$10/kg 40%+US$2.50/kg
Clothing 40%+ US$10/kg 40%+US$2.50/kg
Footwear 40%+US$5 per pair 40%+US$2.50 per pair

 

  1. This measure takes effect from 1 August 2010.

 

Administration of Certificates of Origin

  1. Goods that originate from the COMESA and SADC Member States are imported duty free. There, however, has been a surge of duty free importation of goods purported to originate from the countries covered by preferential arrangements, hence prejudicing the fiscus of potential revenue.

 

  1. In order to minimise leakages of revenue through the duty free importation of goods, ZIMRA will establish a fully fledged Post Clearance Audit Unit to strengthen the verification of the origin of goods.

 

Export of Scrap Metal

  1. In an effort to encourage value addition of locally available raw materials, all scrap metal exports were banned with effect from 1 August 2004.  However, the local market has no capacity to absorb output of scrap metal due to the liquidity challenges.

 

  1. Furthermore, local merchants pay low prices on scrap metal due to subdued demand arising from the closure of large foundries during the past few years. Manufacturers of steel products have, thus, accumulated scrap metal which they are not able to offload on the local market.

 

  1. I, therefore, propose that scrap metal generated as a by-product of the production process be exempted from the export ban of scrap metal.  Export licences of scrap metal will, thus, be issued by the relevant Ministry on a case by case basis with effect from 1 August 2010.

 

Alternative Energy Sources

  1. Government announced in STERP II that efforts will be directed towards fostering and supporting investment in abundant but underutilised domestic renewable alternative energy sources, focusing on solar, wind energy and bio-fuels, among others.

 

  1. In support of investment in solar energy, I propose to remove customs duty on solar panels, inverters, batteries, regulators, geysers, lanterns, water pumps & heaters and energy saving bulbs with effect from 1 August 2010.

 

Excise Duty

  1. Excise duty on locally produced wines and spirits is currently levied on the retail price, whilst on imported products it is charged on landed cost at the port of entry.

 

  1. The differences in the base for levying excise duty on imported and locally produced wines and spirits has disadvantaged local producers, since the landed cost of imported products excludes retail mark-up. Excise duty on locally produced wines and spirits is thus higher compared to imported products.

 

  1. As a result, capacity utilisation of local manufacturers of wines and spirits has significantly declined to levels below 20%, due to unfair competition from imported finished products.

 

  1. In order to level the playing field between imported and locally produced products, I propose to levy specific excise duty based on the level of absolute alcohol content as follows:

 

Category Current rate of Excise Duty Proposed rate of Excise Duty (per litre of Absolute Alcohol)
All spirits 40% US$ 2.00
Fortified wines 15% US$ 0.50
Unfortified (still wines) 15% US$ 0.40

 

  1. The above measure takes effect from 1 August 2010.

 

Bond Requirements for Excisable Products

  1. The current Customs and Excise legislation provides that a licence entitling a person to manufacture goods subject to excise duty shall not be issued until the applicant has obtained a bond guarantee drawn on either a bank or insurance company. The guarantees attract fees and interest charges, hence, impact negatively on financial positions of companies.

 

  1. In order to provide relief to companies that are required to obtain bond guarantees, I propose to grant the Commissioner General discretional powers to waive bond requirements on selected compliant taxpayers.

 

  1. This measure takes effect from 1 September 2010.

 

Pay As You Earn (PAYE)

Tax-Free Threshold

  1. PAYE collection for the period January to May 2009 amounted to US$30.5 million compared to US$126.3 million for the same period in 2010. This revenue trend indicates increase in remuneration and employment levels.

 

  1. I, therefore, propose to increase the tax free threshold from US$160 to US$175 in order to enhance disposable income in the hands of taxpayers, thereby stimulating aggregate demand for goods and services.

 

  1. This measure takes effect from 1 September 2010.

 

Remittance Date

  1. Employers are required to remit PAYE withheld from employees’ salaries to ZIMRA by the 3rd of the following month.  However, due to liquidity constraints, employers prioritise payment of net wages and salaries and thereafter honour PAYE obligations.

 

  1. In view of liquidity challenges faced by employers, I propose to extend the PAYE remittance date from the 3rd to the 10th of the following month, in line with payment dates for other taxes with effect from 1 September 2010.

 

Value Added Tax

Remittance Period

  1. Under the VAT Act, a supply of goods or services is deemed to take place at the time an invoice is issued by the supplier or the time payment is received by the supplier, whichever time is earlier. VAT is, thus, due and payable upon issuance of an invoice, regardless of whether sales are on credit or cash basis.

 

  1. In order to facilitate credit creation in the economy, thereby, stimulating economic activity, I propose to extend the VAT payment date from the 10th to the 15th of the following month with effect from 1 September 2010.

 

VAT Zero Rating – Day Old Chicks

  1. Currently, day old chicks are standard rated for VAT purposes.  Breeding of day old chicks is mainly carried out by small-holder farmers and ordinary households, who are not registered operators for VAT purposes, hence, are not able to claim input VAT.

 

  1. In order to reduce the cost of breeding chicken, I propose to zero rate day old chicks with effect from 1 September 2010.

 

Withholding Taxes

Non-Resident Tax on Remittances

  1. Withholding taxes are levied directly on income accruing to resident and non-resident individuals and companies, before the income is paid over to the recipient.  These taxes guarantee taxpayer compliance and minimise administrative costs by the Revenue Authority.

 

  1. Rates of withholding taxes on technical fees, royalties, interest and dividends were reduced from 20% to 15% and 15% to 10% in the case of dividends distributed by companies listed on the Zimbabwe Stock Exchange. Withholding tax on non-resident tax on remittances, however, remains at 20%.

 

  1. I propose to review withholding tax on non-residents tax on remittances from 20% to 15%, in line with other withholding taxes with effect from 1 September 2010.

 

Capital Gains Tax

Withholding Tax on Unlisted Securities

  1. In recognition of the role played by capital markets in spurring productivity which is critical for economic transformation and also to reduce transaction costs related to the Zimbabwe Stock Exchange, Capital Gains Withholding Tax on listed securities was reduced from 5% to 1%.

 

  1. In line with the reduction of capital gains tax on listed securities, I propose to reduce capital gains tax on unlisted securities from the current 10% to 5% with effect from 1 September 2010.

 

Penalties for Late Payment of Tax

Departmental Practice Notes

  1. The current income tax legislation provides that where a taxpayer delays payment of tax, omits or submits incorrect information, or fails to disclose facts which should be disclosed, the taxpayer is liable to a fine of up to 100%.

 

  1. Whereas the Revenue Authority uses a penalty loading model to determine the level of fines, there are, however, incidences whereby similar offences attract different penalties.

 

  1. I, therefore, propose that Departmental Practice Notes on the administration of penalties be published for purposes of transparency with effect from 1 January 2011.

 

Tax Amnesty

  1. Mr. Speaker Sir, the economic meltdown during the past decade resulted in a significant number of corporates informalising their operations in order to be competitive, under the then prevailing macro-economic environment.  Most of these businesses no longer file tax returns, whilst new entrants into business remain outside the tax net.

 

  1. It is, thus, important to regularise the tax affairs of those corporates that had gone informal, in order to expand the tax base as well as provide a window of opportunity for these taxpayers to benefit from Government business which requires up-to-date tax returns.

 

  1. I, therefore, propose that a moratorium be granted to specified taxpayers who wish to normalise their tax obligations for the period prior to 31 December 2008.

 

  1. Appropriate regulations outlining the details of the amnesty such as the category of taxpayers that qualify will be published in due course.

 

Dispute Resolution, Objections and Appeals

  1. An effective dispute resolution process is critical to the integrity of a tax system. The mechanism for resolving disputes should thus be simple, transparent and expedient.

 

  1. The current appeal process is, however, dysfunctional due to the long time-frames that elapse before the disputes are resolved. Cases have been cited whereby an average time period of three to four years has elapsed before finalisation of court proceedings.

 

  1. In order to facilitate expeditious dispute resolution, foster transparency, efficiency and effectiveness of the Appeals Court, Treasury will be exploring the possibility of amalgamating the Fiscal Appeals Court and the Special Court for Income Tax Appeals into a Fiscal  Appeals Court akin to the Labour Court.

 

Customs Administration

Transit Fraud

  1. Mr. Speaker Sir, transit goods, especially motor vehicles, pose high risk to revenue, as some of the consignments are diverted and offloaded onto the local market without payment of import duty and other taxes due. Although efforts to track cargo in transit are underway, the progress has, however, been hampered by the delay in the roll out of the necessary infrastructure to link ports of entry and exit.

 

  1. I propose that transit motor vehicles be ferried by carriers, in order to reduce transit fraud on motor vehicles with effect from 1 November 2010.

 

Pre-Clearance of Goods

  1. The current legislation provides for pre-clearance of goods before arrival at a port of entry or clearance on arrival. Under the pre-clearance facility, importers deposit estimated amounts of duty and tax due in advance in order to facilitate timeous release of consignments on arrival, thereby reducing congestion at the border post.

 

  1. ZIMRA will, thus, simplify the current documentation requirements in order to take advantage of the pre-clearance facility.

 

Re-organising ZIMRA

ZIMRA Structure

  1. Mr. Speaker Sir, the Zimbabwe Revenue Authority was established in 2001 in order to improve efficiency in revenue administration, thereby, enhancing revenue collection and trade facilitation.

 

  1. This policy thrust requires a continuous review of ZIMRA’s operations so that it conforms to regional and international standards.

 

  1. The review process involves implementation of reforms such as taxpayers’ segmentation, setting up comprehensive valuation, origin and harmonised system tariff management, establishment of a risk based post clearance audit, streamlining cargo clearance procedures, upgrading information technology systems and enforcement of the management function through development of a national anti-smuggling strategy, among others.

 

  1. ZIMRA, thus, requires skills specialisation for efficient delivery of its core business of trade facilitation and revenue collection through separation of tax collection and trade facilitation functions, in order to enhance expertise.

 

CONCLUSION

  1. Mr Speaker Sir, the Nation has travelled a difficult path as we implement STERP.  We have sought to remove distortions in the economy and the structural low equilibrium associated with lack of capacity and zero supply movement.  Through this Statement, Government seeks to drive this economy towards high equilibrium, towards full employment, towards growth, and towards development.

 

  1. Put simply, Mr Speaker Sir, Regeneration, Revival and Refocus is our thrust in the next six months.

 

  1. Government is mindful, Mr Speaker Sir, that our efforts should be inextricably connected to the national challenges.  It is also aware that economic equilibrium alone without corresponding movement on democracy, the rule of law and constitutionalism is not sufficient to move this country forward.
  2. Furthermore, Government is also mindful of the debilitating effect of a culture of indifference and lackadaisicness, a culture of excuses and low standards, a culture of impunity and entitlement.
  3. Mr. Speaker Sir, it was Albeit Einstein who stated many years ago that “problems cannot be solved by the same level of thinking that created them”. We make a case for a new beginning, and it cannot be business as usual.
  4. Without much ado, I commend this Mid Term Fiscal Review Statement and also lay on the Table the amended Estimates of Expenditure for the year ending 31 December 2010 before this August House.

Hon. T. Biti (MP)

MINISTER OF FINANCE

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