Finance Minister Mthuli Ncube has announced a plan to cut Government spending and to raise revenue, as part of a new policy, the Transitional Stabilisation Programme (TSP), which will run until 2020.
In the policy, a 388-page document, Ncube proposes cuts on public spending, including foreign travel, wages, car costs and the number of foreign missions. There is also a drive to broaden revenue.
Below are key highlights of the policy.
The 2% stays
Under pressure to drop the unpopular 2 percent tax on transactions, Ncube refused to buckle. Industry says the tax, in its current form, will wipe out profits, while small business owners and the public fear a spike in prices. But Ncube insists: “We need to be pragmatic. We need to stop the bleeding. We need to take the pain”.
But to soften the blow, Ncube says he is ready to “fine tune” the tax in the budget, which he is currently preparing. There is also a proposal to cap the tax to limit the damage. He also said he could ring-fence part of the proceeds of the tax to fund social services, including healthcare and infrastructure for the vendors currently being evicted from urban centres.
While raising taxes, Ncube is also cracking the whip on the revenue authority Zimra to widen the net. Ncube says there are more than 4000 big companies who are not paying tax. He laid out plans to “bring in all those who are outside the tax net to also begin contributing to the fiscus”.
Wage bill cuts
In 2017, Zimbabwe’s wage bill accounted for 70 percent of total revenue. Ncube plans to cut this to 50 percent by 2020. To do this, he has proposed cutting the size of the civil service. His TSP does not give detail on how many civil servants Government would let go, but he proposes that the process starts with the shedding of those that have reached retirement age and elimination of “ghost workers”.
“The Civil Service is too large and costly, and it operates at sub-optimal levels of productivity,” the policy document says. Line Ministries, and their Departments and Agencies are manned by many people–in some instances going under the moniker of ghost workers – in excess of their requirements to deliver goods and services.”
The plan is to shave the wage bill outlay by around US$200 million in the 2019 budget and a further $130 million in 2020
Government officials’ love for big luxury cars has been a drain on Treasury. Ncube plans to change this, saying: “Refocusing expenditures towards developmental projects and programmes has made it imperative that Government further reviews the unsustainable Budget outlays on vehicle procurement and usage.”
At the press conference to announce the economic policy, Finance Permanent Secretary George Guvamatanga said Treasury has proposed that the “top brass” downgrade to fewer and cheaper cars. It remains to be seen how that will be accepted.
However, the policy document says the “extent of the obligations of the State with regards to acquisition and provision of vehicles will be further curtailed from October 2018.” As part of the changes, officials will only get a car replacement once a vehicle reaches five years or 150 000km on the clock. No new car will be issued when a Minister or any official moves to another portfolio, as has been the case in the past. They will have to use the same car until it hits 150 000km or five years.
The car scheme for MPs currently costs the taxpayer $15 million. Allowances for the 335 total MPs in both houses are also come at a major price. Ncube says allowances will be reviewed, but gave no detail.
“In tandem with the progressive weakening of Zimbabwe’s public finances over the last couple of years and consequent accumulation of payment arrears to the 8th Parliament of Zimbabwe, sitting allowances will be reviewed from January 2019. The above position also takes into account the other overheads associated with the Legislature, related to attendance of sittings by Members, namely, on fuel and accommodation.”
Ncube says elections cost too much. He proposes legislation that would harmonise by-elections by having them held bi-annually. He makes an even more radical proposal; political parties could just nominate a replacement and do away with by-elections altogether.
On the list for privatisation are 11 State Owned Enterprises, six IDC subsidiaries, and 17 ZMDC mines. Two parastatals, namely Kingstons and Chitungwiza Garment Factory, and three IDC subsidiaries – National Glass Industries, Motira, Zimglass – must be liquidated. Eleven other entities must be merged. ZESA must dissolve its multiple boards to allow ZPC to engage strategic partners for its power generation projects.
The Grain Marketing Board will be demerged into a Commercial Business Unit and the Strategic Grain Reserve (SGR). The Civil Aviation Amendment Bill splits the Civil Aviation Authority of Zimbabwe into two entities; a regulator and an airports authority.
Many of these measures are not new, as they were announced by Mthuli’s predecessor, Patrick Chinamasa. However, Ncube says the reform is to be speeded up.
Parastatals have always been weighed down by politics. The new policy makes a bold pledge to to end this long relationship. There would be a “de-politicisation of Government and entities’ governance relationships”, it says.
There will also be “introduction of more private sector experts in overseeing management of public enterprises”. State enterprises will also have more autonomy and will have greater responsibility to determine prices.
The policy purposes this: “To reconfigure the National Budget towards a spatially decentralised budgetary support, in order to underpin Provincial and Local Authority Investment and Development Master Plans, coordinated by an inter-Ministerial team chaired by Treasury and also comprising of the Ministry of Local Government and other Ministries. What this does is to make every Province and Local Authority attractive for both local and foreign investment by ensuring Ease of Doing Business and also lowering the costs of establishing business.”
There is no detail on how this will work, but the 2019 budget might provide more clarity on that.
One of the biggest criticisms of Emmerson Mnangagwa’s government is how he has not dealt more decisively with high level graft.
Ncube’s statement admits as much, saying: “Enforcement of the law on corruption, both in terms of investigation and prosecution, has been most unsatisfactory, with disproportionately low convictions recorded. The Penalty regime will be reviewed so that persons guilty of corruption are subject to effective, proportionate and dissuasive penalties.”
The policy pledges more financial support to the new special anti-corruption courts. A new proposal is that the courts be given the power, on the application of the Prosecutor General, to grant Civil Forfeiture Orders on property from proceeds of corruption.
Not so easy business
Zimbabwe ranks very low on the ease-of-doing business scale, and years of rhetoric on the need to fix this have not been followed up by any real action. Ncube himself told a story showing how bad it is; an investor had a choice on whether to invest in Zimbabwe or in another neighbouring country. In Zimbabwe, they needed 23 difference licences. In the other country, they needed only one. They chose the latter.
However, there is a raft of legislation that has either been introduced, or is proposed over the next twelve months, to slash through the red tape.
One such law is the Investment and Business Facilitation Bill, an omnibus investment law that seeks to cut down on all the licensing that has frustrated businesses. An outcome of this would be the new Zimbabwe Investment and Development Agency, which will integrate the Zimbabwe Investment Authority, the Special Economic Zones Authority and the Joint Venture Unit. It will also include elements from economic ministries and Departments key to investment, such as Environmental Management Authority, central bank, Zimra, the Deeds Office, Immigration and the competition commission.
The period for an investor to register and get an operational licence will be cut to within a day. Construction permits will be out in 60 days, down from the current 120 days. There will also be cuts on the waiting periods for import and export licences.
Investors, both local and foreign, often complain about the number of licences they need to start businesses. According to the policy document, a hotel group, for example, needs bar licences per outlet, a variety of municipal licence fees varying across local authorities, Zimbabwe Music Rights licences, radio licences, and TV licences among other permits.
Ncube proposes that all these licences be collapsed into a single “sub-sectoral omnibus licence” by January. Once a company gets such a licence, “all other licences become subsidiary and deemed already approved”.
Zimbabwe’s failure to clear its debt arrears has left the country unable to access new credit offshore. According to the policy: “The resolution to Zimbabwe’s debt arrears of US$5.6 billion will require the country clearing first, and simultaneously, its arrears to the AfDB, US$680 million, and the World Bank’s more than US$1.4 billion; and then the European Investment Bank’s US$308 million. Zimbabwe cleared its overdue obligations to the International Monetary Fund in October 2016.”
Ncube says access to the World Bank Group’s International Finance Corporation (IFC), the private sector window of the African Development Bank (AfDB), the European Investment Bank (EIB) as well as other international and regional financial institutions, would help local businesses retool.
Interestingly, among the possible financing sources that Government is targeting under this policy is the Overseas Private Investment Corporation (OPIC), a $60 billion development finance institution set up just this week by the United States to fund private enterprises in emerging markets. With ZIDERA in place, funding for private companies from OPIC remains unlikely.
However, the good news for private companies is that AfDB has set aside a US$50 million loan facility to support local industries that are struggling due to lack of access to affordable capital.
Bridging the infrastructure gap
AfDB estimates that Zimbabwe will require, between 2011 and 2020, around US$1.7 billion annually towards rehabilitation of its decaying infrastructure. The TSP targets to bridge this gap by increasing the share of capital expenditures to total Government outlays from the current 16 percent to above 25 percent for the 2019 fiscal Budget. Ncube lists a rash of infrastructure projects, from roads to bridges and dams, that are in the queue. He says the projects are expected to generate a 1.6 percent increase in employment and economic activity.
Economic recovery is unlikely to happen without the concrete democratic reforms demanded by potential development partners. The Government is therefore pledging to amend or at least reform laws such as Public Order and Security Act (POSA), the Citizens Act, and Access to Information and Protection of Privacy Act (AIPPA) within the coming 12 months.
Heard it all before?
Zimbabwe has never been short of good sounding economic blue prints, but there has never been any political will to actually implement them. In fact, many of Ncube’s proposals were made by Chinamasa in his 2018 budget, presented last December.
Aware of the scepticism this latest policy document will get, Ncube tries to go to great lengths to stress that this is the “New Dispensation”, different from the old one.
It says in the new policy: “Indeed, the First Republic saw the Old Dispensation craft and launch ZIMCORD, Transitional National Development Plans, ESAP, ZIMPREST, the Millennium Economic Recovery Programme, NEDPP, Short Term Economic Stabilisation Programme, STERP, MTP, and ZIM ASSET, among others. Regrettably, Government under the Old Dispensation lacked the ultimate discipline to see through implementation of most of the above blueprints. Indeed, the focus of the Old Dispensation remained rooted in a mentality that focussed more on parcelling out a declining cake at the expense of growing the cake in sync with the aspirations of a growing population.”
To ensure implementation, the Ncube document has specific targets – it’s called the Comprehensive Matrix of Policies, Projects and Programmes – which will be monitored by a Technical Committee headed by Treasury, with oversight from the Office of the President and Cabinet.
Even though still short on detail in some critical areas, Ncube’s TSP is comprehensive in what he hopes to achieve. However, this is an economy that has seen more acronyms than actual action. The “Old Dispensation” comes in for a lot of blame in the TSP. This latest blueprint is a test not only for Ncube, but for Mngangagwa himself; how far is he is willing to go to take the “pain” that Ncube has prescribed for Zimbabweans?