Next national budget should prioritise economic reforms
THE Covid-19 pandemic has left many African economies, including Zimbabwe, shrinking (World Bank, 2020). Rebooting the economy in Zimbabwe will depend on sustainable and strategic resource mobilisation and distribution. With many countries setting for green economic recovery post-Covid-19, it is vital that the upcoming national budget finance economic sustainability reforms to convince sustainable foreign direct investment (S-FDI) towards Zimbabwe.
This article outlines potential priorities for the upcoming national budget towards achieving economic sustainability and governance.
Post the pandemic, Zimbabwe needs a raft of economic reforms and an economic model, to which the upcoming national budget should allocate resources. In this regard, the national budgeting process needs to change from the usual “forecasting” to “fiscal backcasting” budgeting. Backcasting budgeting entails budgeting for priorities of today in line with a designed economic model and this has been instrumental in Singapore, South Korea, China and other progressive economies.
The following are potential priorities for economic sustainability in Zimbabwe post the pandemic in the upcoming national budget:
Economic governance reforms
Reforming economic governance in Zimbabwe is more urgent than before. Stabilising the currency could be shortlived if no robust economic overhaul is undertaken. As such, there is a strong case for allocating resources towards economic reforms.
The Ministry of Finance and Economic Development should develop a Zimbabwe Economic Model (ZEM) to guide any future strategy after the Transitional Stabilisation Programme (TSP). It is evident that Zimbabwe needs a raft of economic reforms (ILO, 2017), which includes reforming the Reserve Bank of Zimbabwe (RBZ) and the financial sector to build economic confidence and public trust. Further, the ministry has to develop a Government Investments Management Framework (GIMF), which should lead to the setting up of the Zimbabwe Investment Corporation (ZIC) to independently manage all government investments and ensure returns without fail. In South Africa, government investments are managed on its behalf by the Public Investment Corporation (PIC).
Relying on taxes alone is now a traditional fiscal system in economics of today’s world (Tucker, 2008). As such, developed economies’ fiscal revenue mixes now includes dividends and returns from government investments, which is a strategy for competitive taxation.
If President Emmerson Mnangagwa’s vision of a “middle-income state by 2030” is to be achieved, then the upcoming national budget needs to speak to that. Tanzania reached its middle-income state goal in 2020 through the reforms of President John Magufuli within the few years he has been in office.
While government has been at pains with parastatals, resources should be allocated for privatising and listing some parastatals and state-owned entities on the stock exchange. The Zimbabwe Stock Exchange (ZSE) could take up listing of POSB, Agribank, NetOne, TelOne, Zesa, Air Zimbabwe, Arda and others, while the upcoming Victoria Falls Stock Exchange (VFEX) could list natural resource-driven entities like the Zimbabwe Consolidated Diamond Company (ZCDC) and Zimbabwe Mining Development Corporation (ZMDC) to raise much-needed foreign currency.
Strengthening institutions
The biggest enemy to Zimbabwe’s economy is policy inconsistency and weak institutions. In 2018, an article titled Zimbabwe must build strong institutions, called for strengthening institutional governmentality to mitigate unprecedented corruption, speculative tendencies, poor corporate governance, economic paralysis, weak regulatory frameworks, high inflationary tendencies, policy inconsistence, lack of public accountability, inefficiencies and poor economic competitiveness.
Progressive economies thrive on strong institutions, which uphold policies, laws and regulations. Countries like Rwanda, South Korea, Japan, South Africa, Botswana, Namibia, the United Kingdom, United States, Australia, Canada and New Zealand, provide good examples.
The national budget should finance rigorous reforms and transformation of policy and governance institutions to build economic confidence (Hove and Wynne, 2010). Countries with weak institutions attract unscrupulous and poor quality investors. A number of local regulatory bodies need reforms to meet international standards and practices. As such, funding their capacity development and reforms will be crucial for economic competitiveness.
Fiscal systems reforms
The fiscal system in Zimbabwe remains traditional hence requiring reform to finance the Sustainable Development Goals (SDG). Zimbabwe was ranked 126 out of 166 countries on SDG performance ( Sustainable Development Report 2020).
The economics of taxation in Zimbabwe requires reforms to progressive and developmental taxation (James and Nobes, 1983; CSR Europe and PWC, 2016, Tucker, 2008). As such, it is incumbent of Zimbabwe Revenue Authority (Zimra) and Ministry of Finance to start pushing for tax transparency using the newly launched international tax standards by the Global Reporting Initiatives (GRI) to drive responsible and transparent tax behaviours to enhance domestic resource mobilisation.
Further, taxation of small to medium enterprises (SMEs) needs relooking since the majority of economic activities are now in the informal sector.
Zimbabwe has vast mineral resources, which cannot be matched with the level of economic development and quality of life of its people. An analysis of Zimra reports shows that labour is the highest tax contributor, which defeats the economics of contemporary taxation (James and Nobes, 1983; CSR Europe, 2019).
Value-based taxation is becoming an emerging practice in developed countries (Daniel et al, 2010). Taxes are being applied to value extracted in natural resources. Despite the impressive mineral production figures, there is no evidence to match the level of sustainable development in the country. In this regard, the national budget needs to fund fiscal reforms and capacity development on taxation system for economic development.
In mining countries, like Australia and Canada, they have tax officers stationed at all major mining companies to record all mineral extraction and calculate appropriate taxes at the extraction point. This is not the case for Zimra due to capacity constraints.
Public infrastructure development
Zimbabwe suffers from infrastructure deficit. Its industrial and economic hubs like Harare and Bulawayo are fast becoming uninvestable due to lack of clean water, electricity, dilapidated infrastructure and poor service delivery. The ability to consistently supply electricity, petrol and diesel continues to make the business environment difficult hence high cost structure, which makes local products uncompetitive in regional and international markets.
Covid-19 proved that our health sector had long been fragile. Consequently, no economy can thrive with an unhealthy society.
In addition, the road and rail network remains in dire need of maintenance. While it is important to acknowledge work being done by government on the Beitbridge–Harare Road, the upcoming national budget should reserve funds for serious investor engagement for infrastructure development through implementation of public-private partnerships (PPPs) targeting infrastructure projects, which can be funded through green bonds to support dam construction, roads, rail network, public health and service delivery (Kerste et al, 2011). Achieving this will require the Finance ministry dedicating and hiring experts teams to lead investor engagements.
Private sector development
The private sector in Zimbabwe has opportunity for creating new markets in global supply chains disrupted by Covid-19. However, there is need for a government lead private sector development programme to drive and promote export and value-addition oriented companies to boost foreign currency earnings.
High-value and competitive global supply chains have high sustainability or Environmental, Social and Governance (ESG) standards (Spence and Rinaldi (2010) which government needs to budget for the formulation of sustainability driven policies that build competitive private companies.
While Zimbabwe enacted the Companies and Other Entities Act (24:31) in 2019, the budget need to allocate resources for the Registrar of Companies to conduct strong enforcement and monitoring exercises. Poor corporate governance is becoming a barrier for many companies, which leaves some investors preferring to start fresh companies than investing in existing ones.
In conclusion, the 2021 national budget needs to be an “Economy Sustainability Reforms Budget” to drive sustainable economic recovery model in Zimbabwe. Without tangible and a raft of economic reforms, the economy may struggle to competitively recover post-Covid-19.
Ndamba is the CE and founder of the Institute for Sustainability Africa (INŚAF), an independent think tank and research institute “advancing sustainability initiatives for Africa”. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, an independent consultant and immediate past president of the Zimbabwe Economics Society. — kadenge.zes@gmail.com or mobile +263 772 382 852.