via Investment, export incentives only way out – NewsDay Zimbabwe February 5, 2014 by Tapiwa Nyandoro
Zimbabwe’s 2014 National Budget was dubbed by sympathisers “long on policy, but challenged on resources”.
At $4 billion, it is about equivalent to yearly gross sales for a medium-sized enterprise elsewhere in the world.
If it was a car manufacturing company, it would be too small to survive.
An American company with a turnover of $4 billion would employ around forty to fifty thousand employees on average.
In short $4 billion is no budget for 13 million people. At best it should be a wake-up call.
Heeding the call, the bold and courageous policies Finance and Economic Development minister Patrick Chinamasa should have promulgated needed to boost Zimbabwe’s dismal exports through encouraging and attracting significant investment, while cutting to the bone government structures and cost centres.
“Busting sanctions” as suggested by the Zimbabwe Agenda for Sustainable Socio-economic Transformation, is not a viable agenda for driving economic growth or wooing investors.
Mostly crooks and vulture investors, as the nation may have seen in the Marange Diamond fields, are attracted by such a high risk and potentially high return environment.
In the process, the State and its institutions risk being heavily criminalised.
Ordinarily, only rogue regimes such as apartheid South Africa and racist Rhodesia had motives for busting sanctions.
Even then in the end they succumbed after great loss of opportunities and cost to their economies. Legitimate governments cannot fail to get sanctions removed.
“The low rating of sovereign risk is blocking the flow of capital into the economy as potential financiers remain skeptical of providing long-term financing for the economy”, wrote the business editor of the Herald on January 10, 2014, in a refreshingly honest and candid article.
He went on to cite economic analysts as saying, if the country would be a reliable guarantor of property rights, foreign direct investment (FDI) would flood the country.
He noted too, the threats weak exports pose to the economy, and that the weakness is “symptomatic of much more serious competitive problems for the country”.
His analysts correctly lambasted a National Budget Policy statement calling for protectionism as a tool for supporting local industry. ZimnatAsset Management, in an excellent article that complemented the one by the business editor on the same day, noted that “FDI remains the key to resolving the Balance of Payments crisis”.
Zimnat further noted that Zimbabwe has most of the attributes of an attractive investment destination, but lacks clarity in national governance and in the management of international relations, citing the indigenisation law as perhaps the biggest deterrent to FDI.
Treasury’s policies, therefore, needed to mitigate country risk to make Zimbabwe attractive to external investors.
Once this is done, the resources that flow into the country as investment will address the shortcomings of the economy, of which poor productivity, due to inadequate working capital, capital investment, minerals exploration and research and development, is one major one.
Thus Chinamasa’s policies should have striven to attract investment through incentives few of which are given below as examples.
lGet rid of the sanctions, in the process completing the land reform exercise, inclusive of legacy issues, transparently with the whole nation, and the global audience, engaged.
Concurrently, design a framework to urgently address concerns raised by the Catholic Commission for Justice and Peace on the fairness of the most recent general elections, in an inclusive manner.
Suspend or scrap the indigenisation law as it currently stands and shift the emphasis to collective ownership (State capitalism) by raising the market value of State-owned or controlled enterprises, through re-capitalisation, which will dilute State shareholding through initial public offerings, but increase asset values, employment, dividend payments and the tax base.
Introducing land titling through selling of the land to eligible sitting tenants.
The introduction of a land tax, as recently reported in the Press, is a step in the right direction.
lbandon divisive racism in the battle against poverty.
The colour of a farm manager or business partner in farming, once titling is in place should never be government’s concern.
What’s important is that a commensurate land tax, other local authority taxes and utility bills are paid.
Defer payment for rates and land for up to five years and ten years respectively for companies investing over $20 million within three consecutive years.
Give new enterprises the option of using contract labour only, should they so wish, in the first five years of their operations.
Reduce corporate tax on revenues from exports of agricultural products, manufactured goods, and fully beneficiated mineral products to ten percent.
Introduce the “Thin Capitalisation Rule” across all sectors in particular mining and infrastructure projects.
Strengthen the rule of law by replace ministerial or executive “discretion,” with clear rules and guidelines, in all investment related decisions.
That is the best way to fight administrative corruption.
Adequately strengthen and fund the State Procurement Board and use relevant tender procedures instead of “deals”.
The belief in small to medium enterprises in the minister’s policy statement supporting his budget is totally misguided as productivity improvement, which is essential for rapid economic growth, is compromised.
Small scale miners do not invest in exploration. Informal industry as we know it hardly has budgets for research and development.
The minister’s forced hand, although he may not admit it, is a road to further economic decay. The nation has to change course.
[“Taps…go back to school or find another job. A shoddy effort.” Comment check]