‘Zim local authorities budgets not in touch with reality’
LOCAL authorities the world over are a critical pillar in building a conducive environment that attracts investment in their areas in line with economic goals of central governments. It is in this regard that the crafting of council budgets and implementation of by-laws should be guided by broader macro-economic fundamentals in a country.
Pertaining investment, tariff levels by councils can impact positively or negatively on business competitiveness and profitability of key economic sectors. The fragile economic situation in Zimbabwe, for instance, points to urgent need for reform at both central and local government levels so as to stabilise and restore local and external investor confidence.
Finance and Economic Development Minister Patrick Chinamasa and central bank Governor Dr John Mangudya, have both admitted that Zimbabwe needs urgent investment climate reforms so as to change the country’s economic narrative to production and productivity, which is very vital in developing the country.
The Government has shown alertness, as indicated in the recent mid-term fiscal and monetary policy review statements, on the need to contain production costs and possibly cutting on unnecessary expenditure to allow growth. This comes on the back of concerns over the public sector wage and salary bill being one of the highest in the world at more than 90 percent as a share of fiscal revenue.
On the contrary real wages and salaries have over the years increased, crowding out capital and social expenditure — thus undermining the economy’s capacity to enhance employment and be competitive. The same scenario is prevailing in local authorities. Indeed so much expectation is directed at central government but the general view is that local authorities should play their part as well, by being pro-active in supporting business development, especially with their levies.
A study on the business regulatory reform in Zimbabwe, produced by Nathan Associates Inc for review by USAID in July, 2016 stresses the need to reform the operating model of local authorities in Zimbabwe.
“The prevailing paradigm of executives and supervising councillors who have been seen increasing council budgets each year despite calls to reduce costs across the economy cannot be expected to re- organise councils so that they operate efficiently in a dollarised economy,” reads part of the report.
The private sector has been forced to reduce both prices and costs by stiff competition. Prices have also been reduced to induce consumption. Companies have cut salaries and wages and many are going through rationalisation and restructuring programmes. Edgars Limited and many other listed companies have reported in their reports of rationalisation programmes, which include retrenchments. The listed companies have reported a decline in their sales due to reduced aggregate demand. As such local authorities and other regulatory bodies need to learn from other economic players and reduce their costs and charges.
The setting of charges above affordability level of consumers is mischievous as it is construed as delinquency leading to legal action when consumers fail to settle arrears. Put bluntly, the actions of the quasigovernment bodies leaves a lot to be desired as it is blamed for accelerating economic decline. Consumers cannot be expected to service arrears and pay current charges given the circumstance of not just stagnation of the economy but spiralling decline.
Local authorities in Zimbabwe seem to be not in touch with this macro-economic reality and this is revealed in their recent budget proposals for 2017. It is surprising that in this difficult economic environment some councils like Victoria Falls and Beitbridge have proposed to increase tariffs for next year while some such as Bulawayo and Masvingo have proposed standstill budgets with rates and tariffs remaining unchanged.
Analysts feel the existing charges are still high and should be reduced because the consumer is already burdened. The explanation is that such councils continue to suffer poor revenue collection as most residents and businesses are already struggling to pay their dues. A latest council report for Bulawayo, for example, indicates that the council is owed a combined $136 million by different consumers with the domestic debtors owing the highest at $78,5 million followed by industry and commerce at $53,2 million and Government departments at $4,8 million. Judging by the city’s capital expenditure to June 2016 of $3 million out of a capital budget of $45 million, there is no justification for council to maintain the same budget and costs, which it cannot fulfil or sustain.
Industry and commerce experts have urged councils to rationalise their salaries and allowances, which were gobbling more than half of revenue collected, far beyond the 30/70 percent expenditure ratio requirement. The charges by local authorities have also been noted as being high by various studies that have been carried out by different economic researchers.
In 2014 a study on Cost Drivers by Zeparu noted that the charges by Zimbabwean local authorities were relatively too high in the region and should be reduced. Survey indications are that property taxes should be reduced by 40 to 50 percent for Harare and Bulawayo. This is also reflected in the discounts the two councils have been offering firms as they attempt to incentivise them to clear their arrears. Both cities have offered discounts ranging from 30 to 50 percent, which have, however, been of limited effect as firms are not making excess cash due to the prevailing liquidity crises.
The two studies strongly recommended that councils should reduce their rates to an affordable level such that it would not be difficult to clear arrears should firms fall into arrears. Nathan Associates’ findings suggest that manufacturing licences charged by councils should be scrapped since firms are already paying rates to local authorities and the licence is an unnecessary burden.
Concerning storage fees, the study further recommends that council storage levies for fuel storage should be repealed as this is duplication given that storage fees are also charged by the Environmental Management Agency (EMA).
“The fees should be reviewed as part of business case in redefining the business model that councils should adopt after a detailed study. Currently councils charge the same amount to start a new shop as at the renewal of the licence yet the administrative cost at renewal is lower than at the beginning where there are inspections involved,” reads the report.
Local authority regulations actually spell out some of the crucial roles of councils pertaining to investment. The Council Act [Chapter 29:15], requires that new firms should have their premises inspected by council officials and be issued with an inspection/ health certificate in line with the Public Health Act [Chapter 15:09] which seeks to safeguard public health and safety. Section 29 (3) of the Councils Act prohibits the use of any building in a manner other than that indicated on the plans submitted to and approved by the council in connection with the construction, except with the consent of the council.
The Regional, Town and Country Planning Act [Chapter 29:12], also support the Councils Act and stipulates that the activity to be carried in the factory or the sitting of the factory should not be in contravention of any approved scheme, operative regional plan, operative master plan or operative local plan as defined in the Act.
Local authorities also regulate approval of plans for new buildings and their charges are based on the cost of construction. The level of fees charged is staggered up to six percent.
Companies are also mandated to comply with different regulations from the city council by paying some fees. This includes a factory licence, a permit to discharge, trading permit, industrial clinic, and an industrial canteen. In view of the above, the significance of local authorities in attracting investment cannot be over emphasised. Their role essentially places them on the driving seat of economic development hence the need for prudence in the pegging of levies and tariffs.
Local authorities, thus, cannot expect to push consumers when they are displaying lack of creativity in conducting the business of the organisation they superintend.