The 2021 National Budget has been dismissed as not addressing the challenges facing the economy with critics dismissing Ministry of Finance as out of touch with reality.
Finance minister Mthuli Ncube (MN) tells Business Times reporter Mona-Lisa Dube (MD) that he is on the ball and is ticking the right boxes.
Find excerpts below
MD: So, you were appointed a minister of finance on the 7th of September in 2018. So basically, you have been in office for about two years now. How would you rate your performance so far as a finance minister? Say from a scale of one to 10?
MN: Let me answer in two parts. How do I feel then? How do I rate myself?
MD: How do you feel then?
MN: I love it. I love being minister of finance. It’s a challenge. Yes. Yeah. I’m basically trained for this kind of thing in terms of my experience. So, for me, the subject matter is exactly up my alley. Um, if there are times when I feel it’s not even stretching me far enough because I would add loads of other skills. So, I would give myself an 8 .
MD: You need to justify the 8.
MN: I look at how we’ve performed under the transitional stabilisation programme. I think it has been good going, um, I’ll tell you
where the, why I’m saying eight and the remaining two, which I think we could have done better, the TSP we’ve done very well. If you look at, for instance, what we’ve done in terms of just stabilising the economy, introducing a new currency, in terms of the fiscal discipline that we’ve, put in place.
Then if you go into the sectoral projects where they’re looking at infrastructure development at the roads, the Dams, the schools it’s been remarkable. A lot has happened because it’s all in the TSP, by the way, is all part of the TSP package. So it’s been fun.
MD: When I am walking through the corridors to your office.
I think there are about 11 portraits of former finance ministers since Zimbabwe attained independence in 1980, what sort of economy would you say you inherited before you got into office?
MN: Basically, I inherited an economy that is abnormal. What’s abnormal about it is that it didn’t have its own domestic currency. You cannot run an economy without your own domestic currency. So that had to be resolved. So that was a major issue, but also, it’s an economy that has arrears in terms of debt and that’s one area where we need to progress.
That’s why I still feel that we need to do more and we will be doing more going forward in terms of arrears clearance. And I come from that environment. I used to run index funds, global index funds for Europe in the US. So, it has been a little bit frustrating in the sense that we can do so much, but then we have a legacy to clear.
MD: You highlighted how you inherited an abnormal economy.
And there have been arguments from critics that maybe based on your academic background, you have a “bookish” approach when it comes to running the economy and you’re not in touch with what exactly is on the ground. How would you respond to that?
MN: That’s misleading. I’m firmly on the ground. First of all, I own two businesses. I’ve just never spoken about them. One of the businesses actually is in the plastic sector. I understand a lot about that sector.
But secondly, I’ve been all over Africa, you know, as a chief economist of the African Development Bank and vice president, without talking about Mali, without talking about Ivory Coast, Rwanda, and so forth, I understand those economies as well.
MD: And you also ran a bank that collapsed?
MN: You know it’s all part of my experience. That’s me; you know I’m the whole package. So I’m firmly on the ground and I know a lot about businesses, I’m still trying to learn farming. So that’s one area where I’m still learning, but in the industrial sector, in the financial services sector,
I have the experience, I have the skills to understand what’s going on the ground. So I think the issue is like this when you are undertaking reforms, painful reforms and those are hurting people, people think that maybe you are insensitive, or you don’t understand where they are coming from. Then they think that you are out of touch, I am not out of touch.
MD: So let’s talk about the 2021 national budget, ZWL$421bn and the anchor of your revenue is taxes Minister Ncube. We are just coming off the Covid-19 lockdown and you are taxing people that are still
counting their losses. Isn’t that a bit much?
MN: No, it’s not. If you look at our tax ratio it’s about 17% of the gross domestic product. That’s about average. So we are not overtaxed at all, In fact we have the opposite problem, which is text avoidance.
That’s why we are trying to close all the loopholes, when do we introduce the 2% tax.
MD: Which people are very angry at?
MN: Oh, people do get angry when you tax them, but there are taxes that are owed to the government. The private sector owed US$3bn back then it was US$ in 2018. So it’s not only the ordinary citizen citizens in the informal sector. It was also organised business, so we have managed to close that hole.
MD: Have you really “closed the hole” though minister, because you speak about tax avoidance and you have just introduced presumptive tax of about US$30 from a vendor.
And where are they going to get that money? Are we not opening doors to corruption?
MN: No, no it’s not a vendor. I was really clear on that. What we have is actually an organised ecosystem. All what we are saying is that the landlord should become an agent for ZIMRA to collect taxes.
Zimbabwe’s economy has largely become informal.
MD: But it’s becoming informal because there are issues in the formal sector. Isn’t it? Reports by the Transparency International have shown that one of the major factors enabling corruption in Zimbabwe is high cost of doing business.
Isn’t this presumptive tax going to enable that same corruption we are fighting?
MN: I don’t know what they’re going to do. All we have done is they must pay a presumptive tax. And let’s see how that works. If we need to fine tune it, of course, we’ll fine tune it, but we have to start somewhere.
What would you have done?
MD: But I’m not the minister of Finance.
MN: Well you sound so knowledgeable when you ask questions.
MD: Alright let’s move on. Let’s talk about the 7.4% GDP growth that you have predicted in the 2021 budget. The World Bank on the other hand, is looking at a 2.4% growth which would make yours
quite ambitious. What are you basing this on?
MN: There’s so many growth focus. Mona Lisa, someone sent me a report the other day which was at 3% rate of growth others at 5%.
Everyone is fumbling around. And you make the best assumptions when it comes to growth and when we’ve done that, so we’ve said 7.4% and other institutions even have less, but the story is one of recovery. That’s what is most important.
MD: So what is our recovery plan?
MN: So, we’ve produced the best scenario under the best assumptions in terms of what we expect to happen. We did that a year ago, right? Look what happened, COVID came along. So stuff happens and then…
MD So are you ready for “stuff” this time?
MN: We do have a back pocket. We call it the undisputed reserves. We keep something in the back pocket to allow us to shock absorb.
Some of these shocks are normal. Of course, the impact is it can be nasty.
So I’m not worried the best case scenario or worst case scenario.
MD: And you speak about best case scenario and your, okay, let me not say your budget. Maybe let me take ownership of it and say the National Budget. Maybe that actually speaks to having the buy in of the nation. Do you think you have the nation’s buy-in?
MN: Of course you’re being provocative when you say “your” budget. This is our budget. We all have to pay taxes; thank you very much there’s incredible buy in. First of all, we started with our journey around the digital development strategy, which was hugely consultative, you know,
within government itself, across the country, civil society, business—
MD: So if there was consultation, how much of that did you actually incorporate into the budget to get the bite? Through your presentation to the parliament and not too long ago and the questions that were coming in, wouldn’t suggest to me that there was buy-in Minister Ncube?
MN: No, but that was the buy-in process. That’s exactly it. Well, they ask questions and you respond, they ask more questions, and then you respond. Then they understand, but the most important, they might also disagree. That’s okay. It doesn’t mean that they have to agree, as long as we get about 80% of veggies. That’s good enough. Right. And I would say that we have taken into account about easily 80% of what we’ve heard out there for parliamentarians from the public. It, then we learn from it. It’s
a very important process, but for us, we cannot construct a budget without that kind of consultation.
MD: You have been accused of policy inconsistences by constantly tweaking policies which has resulted in lack of confidence in you. How do you respond to that?
MN: There’s no inconsistency. When you’re doing reforms, you reform, you change. That’s not inconsistency. Inconsistency arises when you will have said that, okay, the reforms are over. This is the chosen policy path and then you change. So we were in a reform phase in the last two years, that huge reform phase we are done with that.
So you won’t have any major policy changes going forward.
MD: So let’s address the currency issue. In July, 2019, there was a Statutory Instrument put in place banning the multicurrency system and made the local currency as the sole legal currency. Then earlier this year it was like, oh actually you can return to using United States dollars. Isn’t that inconsistency?
MN: No that was not inconsistency .That is part of the reform agenda. But number two, it’s the impact of COVID. We’re very clear when we allowed citizens to again, begin using other currencies, other than our Zimbabwean dollar we want to introduce flexibility as we all go through this tough COVID episode.
MD: But what does that say about confidence in our local currency?
MN: Confidence in the Zimbabwean dollar is very high right now. In fact, it is a well sought after currency. It is tight liquidity in the market and companies have been approaching us, parastatals have
been approaching us because it is stable.
MD: Some argue that the stability is not as stable as you want it to put across and that the auction system is actually manipulated?
MN: The auction system is not manipulated. It’s a very democratic system. Let me explain, if you want to buy US$, at one to 1000 to the Zim dollar, you are free to do so and try it out, but you’d be foolish to do that because someone else will get the same us dollar with 81, right? So it’s a very democratic system. And all we’re doing is to publish the outcome in terms of weighted average. That’s, what you see every Tuesday, but there’s a range of exchange rate from the highest to the lowest. At the moment I checked the last auction, the highest rate was about 87, I think, eight to seven, maybe 90, but that’s the ballpark. And then the lowest somewhere around sort of 70. So there’s a range, so surely when you have a range, it means then there is no rigging. It’s actually the opposite of rigging, you have a choice.
MD: Any plans to revise the 2% tax anytime soon?
MN: But, but really the 2% tax is nothing, 2 cents in a dollar is nothing. MD: But in terms of business, it becomes bulk, right?
MN:I’m going there. For individuals, this is nothing. And look at what we’ve done with it, build roads. We couldn’t have responded the way we have done to the COVID pandemic. Without these kinds of taxes, 2% tax it’s an efficient tax to collect it is actually a fantastic tax. And I thank all Zimbabweans for their patience and for their contribution it’s a small amount of money. Let’s take businesses. As I said earlier that they were businesses that were not even paying their taxes in the first place so this ensures that they pay their taxes. In future we’ll be able to make other adjustments to the taxes but for now it stays.
MD: One of the contentious issues on the 2021 national budget is the banning of the importation of vehicles that are over 10 years old.
What was the reasoning behind the vehicle issue?
MN: Two things. One is 10 years is a long time. We have spent something like US$1.3bn in the last few years, importing these old cars; they pollute the road. They don’t even allow these cars on the South African roads. So other countries are refusing them, but I also think that 10 years is very generous. It has to be five years.
MD: So was this an attempt to promote the motor industry in Zimbabwe?
MN: No, that’s a different matter. The 10 years is just to deal with the aging fleet of vehicles on our roads, polluted roads and so forth. It’s difficult to maintain even for the owners. Now for the motor
industry, it’s a different story. The motor industry is about job creation. Domestically it is about using the capacity that we have to make buses, to make cars. We have the skills locally; we have the capacity to do
so. There was a time when Quest Motors used to employ 4,500 people in Mutare. That’s a lot. A lot of families were being supported.
MD: So that is where we’re heading, what are you planning to do now?
MN: No, no, it just shows you the potential. I’m not saying that they should employ 4,000 people tomorrow. It is a good thing that we should revive them, our own manufacturing capacity. At the moment we are supporting other people’s manufacturing industries when you’ve got yours.
MD: Capacity utilisation in terms of manufacturing has gone down, isn’t it?
MN: Oh, but we’ll revive it by making sure that there’s adequate demand to make those companies viable. That’s what domestication of value chains means. And if you speak to industry, that’s what they desire to do. They do not want to import.
MD: Running an economy is a huge task. Do you think the Zimbabwean economy is in good hands?
MN: It is in good hands. Indeed. If you look at what we have tried to do basically trying to allow the private sector to lead the way in driving growth and we as government are creating the right environment for that to happen.
That is part of my responsibility and being able to allocate public resources properly. And that is what economic management is about.
MD: Former Finance Minister Tendai Biti doesn’t seem to think the economy is in good hands. He argues that the country is headed for a recession under your watch.
MN: Oh the Former Minister of Finance Honourable Biti is completely lost. He is completely misinformed. He is out of touch.
Well he is not on the job. Is he now? Let’s check the numbers. Right now in the banking sector we have US$1.1bn in the banks during the government of Unity when he was finance Minister, do you know how much we had? US$40m. MD: He would argue that he inherited that from the prior administration?
MN: No he created that. If you remove your domestic currency that’s what you create. Your private sector
cannot compete, you deindustrialise and I have done the exact opposite.
Just check the number of new goods in the shelf, all locally-produced.
The current account is in surplus for goodness sake, two years in a row. And that has never happened in years.
MD: So there’s a letter that did the rounds on social media of you requesting for financial aid from the International Monetary Fund, practically admitting that you have failed as an administration. Did
you write that letter?
MN: I never answer that question regardless of who asks because when we communicate with these institutions these are confidential.
MD: So how do they get into the public domain, it’s leaking within your system then?
MN: I don’t know but I’ll never answer whether it’s mine or not.
MD: Still on rumours there is a rumour that you receive your salary in US dollars in a Swiss account in Switzerland. How true is this?
MN: That’s complete tosh
MD: So your salary is in RTGS?
MN: Yes. I earn a normal ministerial salary
MD: How much is normal ministerial salary?
MN: Oh I cannot reveal salaries. I just can’t do that. But it’s a normal Ministerial salary. All ministers receive the same salary, period.