Chinamasa’s brave face

via Chinamasa’s brave face | The Financial Gazette Phillimon Mhlanga 28 Nov 2013

SINCE Patrick Chinamasa took over the finance portfolio three months ago, he has been putting a brave face while desperation screamed from the shadows.He has been whistling a lonely tune amid a clamour from his ZANU-PF party to keep the people believing that better days are coming.

However, as he prepares to set the parameters for economic management, one could not help but feel Chinamasa is increasingly getting nervy.

And when he finally steps in to deliver his delayed 2014 National Budget, now expected in December or January next year, the nation hopes the former justice minister will not be bluffing.

The presentation of the 2014 National Budget has been delayed because the Finance Minister wanted ample time to consult all stakeholders.

He, however, said he would fulfill the constitutional requirement of presenting the national budget by January 2014.

Obert Gutu, the MDC-T Harare provincial spokesperson who worked with Chinamasa in the Ministry of Justice, Legal and Parliamentary Affairs as deputy minister, described the Finance Minister as hard working and intelligent.

“Today is the 20th of November but there is no budget,” Gutu told a Zimbabwe Coalition on Debt and Development (ZIMCORD) forum in Harare this month.

“It’s not that he is a lazy man. He is one of the most hardworking and intelligent ministers l have known. I worked with him for four years as his deputy minister in the inclusive government (2009-2013). The issue is there is no money. Right now he is in Kuwait begging for money but it’s not going to come…. It will be interesting to see what will happen to Zimbabwe in the next 90 days,” said Gutu.

The odds were heavily staked against Chinamasa, said Gutu.

The Reserve Bank of Zimbabwe (RBZ) is unable to pump liquidity into the economy because it lost its ability to print money when the economy was dollarised in 2009.
At the moment, savings are negligible.
Therefore, Zimbabwe is dependent on foreign capital.
Foreign lines of credit have been expensive due to Zimbabwe’s perceived high risk.
Prominent economist, Tony Hawkins, summed it up in his address at a recent Institute of Chartered Accountants of Zimbabwe (ICAZ) forum for chief finance officers (CFO) held in the capital, saying liquidity had tightened significantly in the last three years.

“Liquidity crisis (since 2011) is not so much a liquidity issue as balance of payments problem exacerbated by the foreign debt overhang and a high political risk premium, which makes offshore funding problematic as well as costly,” said Hawkins.
The government’s “Look East” policy has not translated into significant cash volumes to support the economy, with China said to be unwilling to bankroll its African ally.
The key issue facing Chinamasa is the sluggish growth and the gap between what the government spends and the revenue it collects.
Hard decisions have to be made particularly on the expenditure side.

Only three years ago, Zambia and Zimbabwe’s economies had almost the same Gross Domestic Product (GDP) size but Zambia’s economy has grown bigger and is attracting investment.
Zambia’s GDP currently stands at US$20 billion and Zimbabwe’s has shrunk and now stands at US$10 billion.
Zambia, because of its attractiveness, now has the ability to sell bonds internationally, which Zimbabwe cannot do at the moment. Recently, Zambia’s US$750 million infrastructure bond was oversubscribed in international markets, while Zimbabwe’s US$30 million Treasury Bills in 2012 received a lukewarm response.
This comes at a time when the country is a high cost location for doing business.
Zimbabwe has been on the negative watch from rating agencies.

According to the 2014 World Bank’s Doing Business report released three weeks ago, Zimbabwe is ranked 170 out of 183 countries, meaning it is one of the countries where doing business is very difficult and expensive.
The same report indicates that neighbouring Zambia and South Africa are doing well with the former ranked 83 while the latter is ranked 41.
A depressed economy over the years has had a negative impact on the collection of revenue by the Zimbabwe Revenue Authority (Zimra).
The gap between tax revenues and public spending has been widening over the past three years.

According to figures released by Zimra, the country narrowly missed third quarter budget revenue targets as economic growth slowed, underlining the tough task government faces to lift the economy.
Zimra collected US$897 million between July and September against a target of US$905 million, representing a negative variance of 0,84 percent.
This is the second consecutive negative variance after the six percent miss recorded in the second quarter).
The tax collector said many companies were scaling down operations or had totally shut down.

According to the Confederation of Zimbabwe Industries’ Manufacturing Sector Survey for 2013, the country’s manufacturing sector lost steam in 2013 due to a number of constraints, registering 39,6 percent average capacity utilisation, 5,3 percentage points down from 44,9 percent recorded last year.
Tax evasion, which is illegal, is widespread, even with indirect taxes such as the value added tax (VAT), which should be easier to collect. VAT should be collected on every cent spent for consumption purposes on items that attract VAT.

The economic blueprint dubbed Zimbabwe Agenda for Sustainable Socio-Economic Transor-mation (Zim Asset), which borrows from the ruling party ZANU-PF’s election manifesto and previous national development programmes, is targeting to grow the economy by 7,3 percent annually.
The International Monetary Fund (IMF) puts Zimbabwe’s medium-term growth rate at four percent to 4,5 percent while the World Bank’s long term scenario for all developing countries is 4,8 percent.
Hawkins said that for Zimbabwe to achieve its targeted growth levels, the country will need to fresh investment amounting to 33 percent of GDP each year.
“Zim Asset target the economy to grow at 7,3 percent annually and for this to happen, Zimbabwe will need to invest  33 percent or so of GDP each year.
“However, since 2009, the investment to GDP ratio has averaged 15 percent, less than half of the amount needed. Going forward, growth would be limited by a number of binding constraints such as electricity supply, balance of payments, debt overhang and doing business conditions. This will make it extremely difficult to reach the Zim-Asset target,” said Hawkins.
The projections suggest that Zimbabwe needs to invest US$2 billion annually for the next 20 years in infrastructure alone.
The Finance Minister has control over one critical aspect — government spending. It is within his power to send the message that colleagues in government appreciate the problem and address it.
He has to make some fairly bold and meaningful interventions such as cutting expenditures.

If Chinamasa could extract three to five percent savings by cutting the frills, that would be a meaningful position for a Finance Minister to take in such tough times.
The fiscal deficit in Zimbabwe is certainly a matter of concern and if government is committed to spending, then the difference will have to be made up on the revenue side.
But how would that be possible as industrial productivity continue to be bogged down by obsolete machinery and liquidity problems.
The 2013 revenue target of US$3,91 billion seems unachievable but there is need for government to increase transparency on how mining revenues are accounted for.
Will Chinamasa rise to the challenge? We wait to see.