Parliament on what Chinamasa should attend to to turn around Zimbabwe’s economy

Parliament’s Portfolio Committee on Finance and Economic Development, which reviewed Finance Minister Patrick Chinamasa’s mid-term fiscal policy review announced last week, says the government should seriously consider how to unlock value of the country’s natural resources to finance development programmes.

The chairman of the committee David Chapfika told the House yesterday that the committee was strongly against the imposition of 25 percent duty on fertliser imports because this was too late for the coming farming season.

Chapfika said the government was not giving agricultural the priority it deserves because while the minister had said the sector needed $1.7 billion, the government would allocate a paltry $91.33 million.

The committee said the mining output projections for chrome, diamonds and coal given by the minister were too optimistic.

Chinamasa’s statement was devoid of bold strategies to retool the manufacturing industry to make it competitive

It also lamented the high cost of borrowing which it felt was extortionist in nature and was not serving the intended objective of advancing national growth.

The committee expressed concern about how the government was going to reduce the civil service wage bill from about 83 percent to 40 percent of total expenditure.

It said the government had two options, either to reduce the size of the civil service or salary levels.  

“The challenge is that government does not have the resources for retrenchment packages should it lay off  some of its employees nor can it effect a salary cut as this would be in violation of our labour statute. The Committee requests the Hon. Minister to explain how he intends to deal with this matter,” Chapfika said.

Full statement:

MOTION

FINANCE BILL: 2015 MID-TERM FISCAL POLICY REVIEW STATEMENT

MR. CHAPFIKA:

INTRODUCTION

Following the presentation of the 2015 Mid-Year Fiscal Policy Statement by the Hon. Minister of Finance and Economic Development, your Committee on Finance and Economic Development met to review the measures proposed to take the country to the end of this year. Your Committee in welcoming the Minister’s statement, wishes to bring to the attention of this august House issues that the Hon. Minister should attend to. The current economic environment requires a total paradigm shift in respect of Government policy intervention to turnaround the economy.

AREAS OF CONCERN

ECONOMIC GROWTH

Your Committee noted with concern the lack of adequate measures put in place by the Hon. Minister to address the decline in the growth of the economy, which has been revised downwards to 1.5% from the initial projection 3.2%. The fiscal space has contracted and the key to progress is to grow the national economy so as to be able to achieve our national objectives, consistent with ZIM ASSET. Your Committee proposes that the Hon. Minister needs to seriously consider effective deployment of the country’s natural resources to unlock value to finance development programmes.

AGRICULTURE

The Hon. Minister admitted in his report that the poor performance of the agricultural sector, by and large, attributed the downward revision of the country’s economic growth. It is therefore, imperative that our policies should promote the growth of this sector. Whilst the Committee welcomes the measure proposed by the Hon. Minister aimed at protecting the local fertilizer companies. Your Committee is however concerned that the Hon. Minister acknowledges that this is a critical  sector and is proposing to impose duty at 25%, thereby making an agricultural input very expensive and would negatively impact this sector.

Your Committee feels that the overall objective to boost production of fertilizer will not be achieved given that the manufacturing companies have a host of other challenges such as lack of working capital, obsolete equipment and high cost of production among others.

Further, this introduction is coming well into the preparation of the agricultural season where farmers have already taken positions Further, the introduction of this tax will increase the cost of agriculture, which will have a ripple effect on the rest of the economy, given that Zimbabwean economy is, by and large agro-based. The Committee therefore strongly recommends that the import duty should not be introduced.

Your Committee notes with concern, development in the seed manufacturing sector, where for example seed houses purchase seed maize from growers, at about US$ 700 per tonne and resell same after processing at US$ 2400 per tonne. Your Committee calls for the justification of the huge variance between the two, conscious of the fact that the seed manufacturers only grade, treat and package the maize seed. All businesses in general, should desist from the practice of profiteering which characterised the pricing models during the hyperinflationary period.

Your Committee also noted with concern the lack of prioritization by the Hon. Minister to adequately fund the 2015/2016 agricultural season. The Hon. Minister stated that a total of US$1.7 billion is required for the season and that Government shall only finance a paltry US$91.33 million (5.37%). The lack of adequate mechanisms put in place by Treasury to address food security in the country is a direct contravention of the constitutional provisions as outlined under Chapter 4, Section 77(b).

Your Committee strongly recommends that the Hon. Minister provides for the payment of the farmers who delivered grain to the GMB to enable them to finance their input. Your Committee therefore commends the Hon Minister’s initiative to develop the irrigation  infrastructure to avoid farmers’ reliance on normal rainfall, thereby mitigating the effects of droughts.

MINING

Chrome

The Hon. Minister projects a 3.5% growth in the sector against the initial projection of 3.1%. Your Committee has reservations concerning the 500 000 tonnes projection of chrome output given that only 96 000 tonnes was produced during the first half of 2015. This exponential trajectory seems inconstant with the first half performance, even when one factors in the lifting of the ban on the export of raw chrome.

Diamonds

In respect to diamond production, the first half projection at 1.44 million carat is more or less the same as that in 2014. Your Committee noted with concern the apparent contradiction with reported reduced activity in that sector given the pending consolidation of the sector. In addition to this, the shift from mining of alluvial diamonds to kimberlite, which requires more investment.

Coal

Your Committee has also observed with reservations the projected coal output of 2.8 million in 2015 against an annual projection of 7.8 tonnes. The two fold increase of the first half performance appears unrealistic even after taking into account improved production capacity at Hwange Colliery, which is projected at 300 000 tonnes per month. At this rate, Hwange Colliery will only be able to produce about 1.8 million tonnes during the second half of the year. Further, not much is expected from the other coal mining houses such Makomo Resources, who have scaled down operations.

MANUFACTURING

The Hon. Minister’s statement is devoid of bold strategies to retool the manufacturing industry to make them competitive. Your Committee welcomes the Hon. Minister’s initiatives taken by the Minister to protect the local industry.

To enable the manufacturing sector to be competitive, your Committee recommends that duty on raw materials in the manufacturing sector be scraped. To further protect the local manufacturing industry, Government should also impose stiff penalties on any imported finished  products which are manufactured locally, e.g. building and packaging material. Your Committee also recommends that Government should also monitor the importation of manufactured goods in violation of the SADC rules of origin and also impose stiff penalties on offenders. Your Committee also noted with concern the high cost of utilities in Zimbabwe, water, electricity and other inputs and urged the Minister to continue revising these issues to ensure that businesses are revised.

FINANCIAL SECTOR

Banking Sector

Your Committee noted with concern the high cost of borrowing which your Committee felt is extortionist in nature and not serving the intended objective of advancing national growth. It is the Committee’s hope that the issue of high interest rates and the repeated charging of arrangements fees and other charges on rolling over of loans to avoid the in duplum rule should be addressed by the Governor of the Reserve Bank of Zimbabwe’ Monetary Policy Statement expected soon.

Micro Finance Institutions

Your Committee also noted with concern the high interest rates charged by the micro-finance institutions and urges Government to monitor the sector.

Revenue Collection

In an effort to enhance revenue collection by the Ministry of Finance, your Committee recommends that a simplified tax formula be adopted.

Whilst your Committee acknowledges the significant role played by the various Government agencies in collecting revenue, it is prudent that all the revenue collected is channeled to Consolidated Revenue Fund.

Austerity Measures

The Hon. Minister proposes to reduce employment cost from about 83% to 40% of total expenditure, without stating how he intends to achieve this. It is your Committee’s view that to achieve this; the Hon. Minister will either reduce the size of the Civil Service or reduce the salary levels of the current workforce. The challenge is that Government does not have the resources for retrenchment packages should it lay off  some of its employees nor can it effect a salary cut as this would be in violation of our labour statute. The Committee requests the Hon. Minister to explain how he intends to deal with this matter.

CONCLUSION

Your Committee submits this report to the House for consideration and hope that the Hon. Minister will take on board the Committee’s recommendations.

(907 VIEWS)