Ongoing foreign currency shortages, tax reforms and security of tenure for farmers resettled under the land reform programme became major talking points in a closed-door meeting held between new Finance minister Mthuli Ncube and business executives as the economy continues to underperform.
Former Finance minister, Patrick Chinamasa, who has been retired as a Cabinet minister by President Emmerson Mnangagwa and deployed to work full time at the governing party ZANU-PF headquarters, projected a 4,5 percent growth with a possibility of breaching six percent growth, driven by agriculture and mining.
But industry bodies contend that Zimbabwe could record marginal growth due to structural bottlenecks affecting the economy. The World Bank projected that the economy would slip to 0,9 percent this year after expanding by 2,8 percent in 2017, significantly lower than Chinamasa’s projection.
In its recent Global outlook report, the World Bank, projected that the gross domestic growth would remain tepid in the coming two years, noting that growth in 2019 and 2020 would continue to expand, but at less than one percent.
In yesterday’s meeting with captains of industries, Ncube revealed that critical issues raised by Zimbabwe’s leading chief executive officers included prohibitive cost of finance, shortage of foreign currency, high import duties, uncompetitive business environment and bureaucracy.
The other hurdle is the high cost of doing business. The country is also battling a deepening foreign currency crisis, which has ravaged the economy, leaving companies in a precarious position.
The foreign currency shortage, especially the greenback, has made it difficult for companies to import critical raw materials. This has negatively impacted on companies, which are procuring the United States dollar from the black market at higher premiums in order to settle on time their external payments for critical raw materials, a situation which has pushed their costs up.
“The Minister of Finance and Development and the captains of industry discussed possible solutions to the challenges the business leaders are operating in Zimbabwe. The Minister promised to take into account the issues raised and proposed solutions as he kicks off his mandate to make Zimbabwe a middle-income country by 2030,” the ministry said in a statement on Wednesday.
Ncube took over from Chinamasa at a time the economy is also grappling with low business activity and rising inflation.
The country’s perennial trade imbalance has piled pressure on treasury as many companies demand forex to sustain operations.
Exporters like mining firms and other manufacturing companies are also struggling to access foreign currency from the Reserve Bank of Zimbabwe which set up a priority list for forex allocation.
While foreign currency continues to be a major challenge for the economy, prices have over the last few months risen almost wiping out incomes.
Addressing journalists after a swearing-in ceremony of cabinet ministers on Monday this week, Ncube said his ministry has so many mountains to climb before the economy can tick again.
“It’s enormous. It’s Herculean. I am very energetic and I am definitely up to the task,” Ncube said.
He said: “Ultimately we would like to have a Zimbabwean dollar that is stable, that we will have confidence in and we will start working towards that. You will hear in the monetary policy statement the first steps towards that. Building reserves, if we are to have a domestic currency, we need to build reserves and also support output; production in the gold sector: that is part of reserves.”
The country’s manufacturing sector sees capacity utilisation steadily rising to just over 50 percent in 2018 as government undertakes to embark on a raft of reforms to improve the investment climate.
United Refineries chief executive Busisa Moyo said issues of security of tenure for farmers are critical in supplying throughput for edible oil manufacturers.
“We have told the Minister that there is need for funding of soya bean farmers in the country and we highlighted that the 99 year leases have not been bankable and that has been a challenge for most famers to secure the required funding for their agriculture operations,” Moyo told Business Times.
“We highlighted to him that there is need for Government to provide a guarantee and surety to farmers in the short term so that they are able to secure funding for their operations. Only government can provide that guarantee since most financial institutions are refusing 99 year leases,” Moyo said.
“The cooking oil sector is currently hit by raw material shortages where companies are importing almost 100 percent of the required feed stock for their operations. In other words the country is importing raw materials in excess of $300 million annually and this has been bleeding the country of foreign exchange. There is need to fund the farmer and such initiatives will cascade down the value chain.”
The insurance industry expressed disquiet saying the insurance companies were playing a peripheral role in the issuance of infrastructure bonds, which of late have been issued by banks only.
“We told the minister that the risk must be shared between banks and insurance companies not the scenario where the bonds are just being issued by banks. It must be a shared risk and we hope the new minister will look into that,” said insurance industry player who requested anonymity.
Chamber of Mines of Zimbabwe chief executive officer Isaac Kwesu said the issue of double taxation of mines has for a long time affected the viability of mines and has been an elephant in the room in terms of attracting investors.
The Chamber has since submitted proposals on the amendments to the fiscal law which prevents mining companies from claiming royalties for tax purposes.
Kwesu said following the submissions nothing tangible came out and the issue remains topical and should be addressed with immediate effect.
“We will continue to engage on the issues around double taxation of mining companies because this has in a long way affected the viability of mining operations. This has also affected investors willing to invest in the country,” said Kwesu.
The issue of double taxation has been topical with former Mines and Mining Development Minister Walter Chidhakwa having been on record stressing that double taxation of the miner is becoming an impediment to investment in the mining sector.
Mining royalties are charged in terms of the Mines and Minerals Act (Chapter 21:05). The royalties are collectable from all minerals or mineral bearing products obtained from any mining location and disposed by a miner or on his behalf.
The royalties are chargeable whether the disposal is made within or outside Zimbabwe. However, after paying royalties to Government, miners are then taxed by the Treasury through the Zimbabwe Revenue Authority thereby meaning non-deductibility of royalties as a tax expense.