Budget incentives to drive 3pc growth in 2020

Source: Budget incentives to drive 3pc growth in 2020 | The Herald November 15, 2019

Budget incentives to drive 3pc growth in 2020

Golden Sibanda Senior Business Reporter
An array of incentives and investments to jump-start the economy were announced in the 2020 National Budget yesterday to support growth in mining, agriculture, industry, tourism and other strategic productive sectors and push Zimbabwe back into growth.

The projected 3 percent growth will reverse the projected 6,5 percent economic contraction this year, largely weighed by devastating effects of drought and Cyclone Idai.

Presenting the $63,6 billion 2020 National Budget themed, “Gearing for Higher Productivity, Growth and Job Creation”, Minister of Finance and Economic Development Professor Mthuli Ncube said while Government had already given a myriad of tax incentives to productive sectors, a battery of additional incentives would be extended to spur production, competitiveness and job creation.

Treasury anticipates total tax revenues to come in at $58 billion anchored by a litany of revenue-enhancing measures.

Zimbabwe has one of the highest formal employment levels in the world, with large portions of the economy (60 percent), which employ the majority in mostly low-income activities.

The fiscal incentives Government has already extended have seen it foregoing US$1,5 billion in potential taxes, but this created new value of a staggering US$15 billion for the business world.

Prof Ncube said reforms under Transitional Stabilisation Programme (TSP) had laid the foundation for sustainable inclusive growth.

Growth for next year is, however, premised on the assumption of better rainfall, improved macro-economic stability from tighter fiscal and monetary policies, improved power supply and supportive tax and non-tax incentives to stimulate production.

The minister also expects the economy to rebound on further implementation of ongoing reforms to make doing business easier and increased investment by Government and the private sector. Key priorities of the 2020 National Budget entail enhanced productivity and growth, job creation, competitiveness, promotion of sustainable and inclusive development, export diversification as well as import substitution support by global re-engagement.

As the economy rebounds, inflation is expected to gradually decline, with the monthly rate projected at single digits from March 2020.

It is forecast to decline further to 2 percent by 2020 year-end on tighter control of reserve money.

The anchor sector of agriculture is projected to grow by at least 5 percent, with irrigation development receiving top priority to guarantee national food security regardless of the seasonal rainfall.

About 200 hectares are targeted for each district to produce a total of 1,8 million tonnes of maize. For the total irrigation programme, the budget has provided $422,8 million.

However, a cumulative $1,9 billion has been set aside for prioritised agriculture programmes, as the sector accounts for 18 percent of the economy. A $165 million buffer for droughts has also been set aside.

A battery of incentives has been lined up under the 2020 National Budget with a view to drive production in industry, whose capacity utilisation averaged 40 percent this year.

“Implementation of the Zimbabwe National Industrial Development Policy (ZIDP) and the Local Content Strategy (LCS) will increase capacity utilisation, strengthen industrial value chains, job creation and export-led industrialisation,” Prof Ncube said.

As such, advancing industrialisation through actualising value chains and implementing the local content strategy will initially target support to sub-sectors of pharmaceuticals, tyre production, hides and leather processing, and steel production.

Treasury will also capitalise the Industrial Development Corporation (IDC) with $240 million to enable it to effectively undertake its mandate as a development finance institution.

“Treasury will also provide a guarantee scheme for companies to access capital from (Zimbabwean) financial institutions for retooling purposes.”

Efforts to enhance industrial productivity will see duty on semi-knocked down kits continue to be exempted from the specified list of goods liable for duty in foreign currency.

This has been extended for a further 3 years, beginning December 1, 2019.

To incentivise exporters, Prof Ncube said Government is setting up an export revolving fund with US$20 million seed capital with effect from January 1, 2020.

And since the youths are making an important contribution as workers, entrepreneurs, consumers and citizens, a fiscal incentive has been introduced under the budget to support employers who create jobs for young people.

“Any additional job created will attract a percentage tax rebate to the employer, linked to the employee’s salary,” Prof Ncube said, adding this “will reduce the employers cost of hiring young people.”

Prof Ncube also cut corporate tax, by a modest 1 percent to 24 percent. Similarly, he trimmed Value Added Tax (VAT), from 15 to 14,5 percent. On tourism, Treasury already had duty dispensations for tourist sector equipment such as luxury buses, which have assisted by providing an investment window to its recovery.

But further rebates have been extended for imports of capital equipment and safari vehicles, suspended on car hire, tour operators and extended on luxury coach imports.

The Treasury has committed $500 million to capitalise the Venture Capital Fund (NVF), with its mandate including supporting start-ups for youths in the context of the local content strategy. Cognisant that job opportunities will be created through investments in roads, water, energy, construction, ICT and social sector infrastructure, Treasury has allocated $2,6 billion for infrastructure development under the 2020 National Budget.

Additionally, dualisation and upgrading of the Harare-Beitbridge Highway has been allocated $1 billion, while ongoing upgrading works on trunk roads will receive $1,2 billion.

The budget seeks to power supply constraints through rehabilitation and expansion of Hwange Thermal Power Station, which has been allocated $8,4 billion.

And alternative sources of energy such as solar will be supported through fiscal incentives relating to the importation of equipment and the respective accessories.

Government has also embarked on the second round of ease of doing business reforms, targeting 16 areas like paying taxes, obtaining construction permits, starting a business, ease of doing transport business, clearance of imports and exports among other areas.