Presented to the Parliament of Zimbabwe on Thursday, December 7, 2017 by Hon. Patrick A. Chinamasa, Minister of Finance and Economic Development

Foreword

The 2018 National Budget presents an opportunity to contribute to a Comprehensive and Coherent Phased Strategy for addressing the widening macro-economic imbalances, guided by the policy direction given by

His Excellency, President E. D. Mnangagwa, during his widely acclaimed Inaugural Address on 24 November 2017. His Excellency, the President, made it clear that Government’s economic policy will be predicated on creating conditions for an increased production led economic recovery, targeting attracting Foreign Direct Investment, as a way of tackling the prevailing high levels of unemployment.

Furthermore, the new system of economic organisation and management will incorporate elements of market economy in which enterprise is encouraged, while industrialising our economy.

As we focus on recovery of our economy, we must shed mis-behaviours and acts of indiscipline which have characterised the past, while we address and reduce the high country risk perception among existing and prospective investors.

Above all, the President pledged that all foreign investment will be safe in the country, and that Government will fully abide by the terms of Bilateral Investment Protection and Promotion Agreements Zimbabwe has already acceded to.

The President also underscored that Government will, henceforth, ensure that servicing and re-scheduling of domestic and external public debt obligations is consistent with agreements with lenders and creditors, under the auspices of definitive steps towards re-engagement and strengthening of cooperation with the international community.

The above commitments by His Excellency, the President mark a paradigm shift that represents movement towards a ‘New Economic Order’.

This is consistent with advancing the objectives of the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset), as well as the Interim Poverty Reduction Strategy Paper (I-PRSP) for 2016-2018.

Our development aspirations are also aligned with Agenda 2063, which is Africa’s strategic framework for the socio-economic transformation of the Continent.

Drawing from the paradigm shift, the 2018 Budget contains Expenditure management measures to re-orient the Budget towards support for developmental programmes and projects, as well as those centred on poverty alleviation.

Furthermore, drawing from the macro-economic framework, the 2018 Budget also calls for adherence to fiscal anchors for the containment of the Budget deficit to sustainable levels.

Complementary measures aimed at transforming the business environment and stimulating production, as well as curbing corruption, and addressing rampant rent-seeking behaviours, and market indiscipline, are also part of the Budget.

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Towards a New Economic Order

The challenges facing the economy demand well thought-out, and focused, Government interventions for a much more rapid and sustained recovery path that delivers on jobs as envisaged and outlined in His Excellency President E.D. Mnangagwa’s Inaugural Address.

New Economic Order

The Recovery Measures towards a ‘New Economic Order’ usher a break away from policy inconsistencies, reversals and hesitations of the past, and signal a strong Business Unusual Approach.

Over the years, corrective measures to address the apparent fiscal indiscipline have constantly been proffered and, in a number of cases, Cabinet has embraced recommendations made, only for these to be arbitrarily reversed or ignored, reflective of lack of political will.

Restoration of confidence in the economy, promotive of investment, production, employment creation and sustainable growth, development and poverty reduction will not be realised in such an environment.

The ‘New Economic Order’, therefore, gears towards restoring discipline, fostering a stronger culture of implementation, supported by political will in dealing with the following:

• Correcting the Fiscal Imbalances and Financial Sector Vulnerabilities;

• Public Enterprises and Local Authorities Reform;

• Improving the unconducive Investment Environment;

• Dealing with Corruption in the Economy;

• Re-engagement with the International Community;

• Stimulating Production, and Exporting; as well as

• Creation of Jobs.

The overriding aspiration is upliftment of social-economic conditions of the populace, through making short-term sacrifices that allow the Budget to play its rightful role in addressing production, job creation, and poverty reduction.

Central is addressing the high prevalence of unemployment, against the background of vulnerabilities adversely affecting the sustainability of production, with the major one being the mounting demand pressures for foreign exchange.

We must be bold to set annual targets for creation of decent jobs and strive to spread these across the various sectors of the economy.

This requires that Government collectively acknowledges the risks and costs brought about by directing a dis-proportionate share of Budget expenditures towards salaries, allowances and other consumptive expenditures, such as condition of service vehicles and travel, among others.

Accordingly, the Budget theme “Towards a New Economic Order” is drawn from this recognition and acknowledgement.

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Supportive measures

The economy’s challenges are being compounded by the prevailing low foreign and domestic investor confidence, at a time when arrears on external debts continue to impact on foreign capital inflows into the economy.

Budget measures to restore fiscal balance and enhance the developmental impact of budgets will require complementary measures that focus on stimulating production and exporting, underpinned by recognition of the reality that Zimbabwe competes for global capital flows with many other countries.

In line with this, and consistent with the undertaking by His Excellency, President E.D. Mnangagwa, Zimbabwe is now open for business, and is putting in place supportive measures that seek to rebuild confidence and compete for investment, and enhance the economy’s competitiveness.

These measures focus on the following areas:

• Removal of policy uncertainty, and inconsistency, guaranteeing safety of investments;

• Amendment of the Indigenisation policy;

• Lowering cost of doing business;

• Re-engaging with the international community;

• Security of land tenure, and introduction of bankable land leases;

• Enhancing foreign exchange generation, including tapping into the diaspora;

• Concrete, and time-framed public enterprises reforms; and

• Dealing with corruption, rent-seeking, and other business malpractices.

Investment & Business Environment

The investment drive under the ‘New Economic Order’ will be anchored by adoption of consistent and transparent policies that make our economy a conducive and competitive investment destination, cognisant of the need for the participation of foreign private investment in the domestic economy.

Zimbabwe’s readiness to compete for investment, under the new economic dispensation, is underscored by assurances by His Excellency, the President, guaranteeing security of investments coming into the country.

Policy consistency and credibility is also essential for mitigating against risk, underpinning investment and business planning.

Ease of Doing Business Reforms

Zimbabwe’s ranking with regards to the ease of doing business remains unacceptably poor, with its ranking only moving from 161 out of 190 countries in 2016 to 159 in 2017.

Government is, therefore, seized with the need to implement a much broader array of Ease of Doing Business Reforms. 238. His Excellency, the President, has also pronounced himself over measures to address the ease and cost of doing business.

Hence, the thrust of Government will be to make Ease of Doing Business reforms more practical and administratively accessible for actual day to day transaction processes to the ordinary Zimbabwean and foreigner intending to undertake business or investment.

Achievements to date, however, include:

• Reduction in the number of days for getting construction Permits, from 448 days to 120 days;

• Reduction in the period for property registration, from the previous 36 days to 14 days, and decentralisation to Local Authorities; and

• Investment in such enabling infrastructure as ICT, utilities, and roads rehabilitation.

A number of Bills that seek to address some of the ease of doing business concerns that are before Parliament, will therefore, be fast tracked. These include:

• Insolvency Bill;
• Estate Administrators Bill;
• Deeds Amendment Bill;
• Public Procurement and Disposal of Assets Bill;
• Shop Licensing Amendment Bill; and
• Public Sector Governance Bill.

Border Delays

As part of measures to improve the doing business conditions, Government is expediting the establishment of a Ports Authority that will immediately address the challenges faced by businesses, with regards to red tape and delays at border posts.

The creation of the Ports Authority is also critical as the country embarks on setting up Special Economic Zones which require efficient clearance of imported raw materials, machinery and equipment for their operations.

Given that our borders are porous, and hence susceptible to leakages through entry of smuggled goods, a range of measures to address this are being instituted to mitigate impact on competitiveness of local industry.

Business Cost Structures

Over and above challenges businesses experience over the ease of doing business environment, businesses also contend with a high domestic cost structure.

In the SADC region, Zimbabwe’s business cost structures are ranked high, with some of the cost lines well in excess of 20% above regional comparatives.

This is contributing to the lack of competitiveness of Zimbabwe’s exports in the region and beyond.

The sources of Zimbabwe’s high costs of business are many, including but not limited to:

• High utility tariffs, for power, water, municipal charges, etc;

• Multiplicity of other fees and charges by such agencies as EMA, other Government departments, and Local Authorities;

• High wage structure, relative to productivity, when compared to such other countries as Ethiopia;

• High interest rates and bank charges, given the US dollar environment and experiences of other countries during the global financial crisis; and

• High transport costs, given heavy reliance on road haulage, in the absence of reliable cheaper railway transport.

To enhance business competitiveness, Government will unpack the underlying causes of the above costs, with a view to aligning them to regional standards.

One Stop Shop Investment Centre

Other countries have successfully introduced one stop shops, wherein all foreign direct investments are approved under one roof, with the objective of expediting the processing time.

In pursuit of this and in view of intense competition for foreign direct investment, implementing of a functional one stop shop is paramount.

In line with technological developments, Zimbabwe’s One Stop Shop Investment Centre is also being required to take advantage of online services, that way removing the requirement for seconding staff by various Ministries and Departments, which has been delaying the operationalisation of this initiative.

Local Content Policy

Zimbabwe should create an environment for accelerated economic growth anchored on the agricultural, extractive and industrial sectors, while remaining competitive in international markets.

This will ensure the rapid creation of employment, and the broadening and deepening of forward and backward linkages for the local procurement and supply of goods and services, leading to the development of new industries and increased capacity utilisation in existing industries, and resultantly spurring increased consumption of local goods and services, and a reduction in imports and increased exports.

To achieve this, a local content policy framework is currently under preparation with the broad participation of Government, industry and consumers.

The local content policy is expected to stimulate the use of local factors of production, such as labour, capital, supplies of goods and services, technology, and research and development, to create value in the domestic economy.

In doing so, legislative, regulatory, institutional and reporting, monitoring and evaluation mechanisms will be established, while being cognisant of the internal systemic and political realities, as well as exogenous contextual factors, such as the cyclical behaviour of commodity prices, demand and supply dynamics and technological changes and world trade rules.

Promoting Domestic Goods

Government, through the Ministry of Industry, Commerce and Enterprise Development, is drafting a Local Content Requirements Framework to buttress the Import Management Programme.

Promotion of locally produced goods should offer transitional stimulation and development of opportunities for domestic local industry value and supply chains, already beginning to benefit from investment into new production and product lines.

Government is working on an incentive framework that strengthens the backward and forward linkages between manufacturing and other sectors, such as agriculture.

These business linkages include contract farming for soya beans, cotton, and maize.

The production of raw materials locally will help alleviate shortages of inputs being experienced industry wide, and also exerting pressure on the import bill.

Foreign Exchange Generation & Management

Ease of Exporting

Under the dollarised economic environment, exports remain a major source of liquidity for overall economic activity.

It is necessary that exporters be supported through creation of a conducive and competitive exporting environment.

This entails removing a number of impediments which compromise exporters’ competitiveness. These include a plethora of regulations, different and fragmented export documentation agencies, and long periods for document and permits processing and approvals.

These interventions, among others, include reduction in the number of road blocks, creation of a similar one stop shop for the processing of export and import documentation, as well as reduction of documentation processing period.

Special Economic Zones

Notwithstanding the investment incentives that Government has already put in place, a critical factor to the attraction of investors to the designated Special Economic Zones, would be the development of the necessary basic infrastructure such as water, power, road, and rail transportation, amongst others.

Already Treasury, has received requests for funding the development of such infrastructure at Sunway City and Victoria Falls amounting to US$16.7 million, and is considering submissions on the Diamond Cutting and Polishing Special Economic Zone in Mutare.

Budget resources alone will, however, not be adequate to provide the full requirement for such infrastructure due to limited fiscal space.

In this regard, Government is calling on all critical stakeholders, such as financial institutions, pension funds, institutional investors, as well as the private sector, to complement Government efforts in mobilising resources for the development of this essential infrastructure in the designated zones to enhance their attractiveness to potential investors.

This would benefit from the on-going initiatives that are being done under the 100 Day Rapid Results Initiative, spearheaded by the Office of the President and Cabinet, in creating a conducive environment under the ‘Ease of Doing Business’ reforms.

Consistent with the commitment by His Excellency, the President, to speedily operationalise Special Economic Zones, Government will, therefore, be engaging experts both local and international, with requisite expertise in the planning, design and implementation of Special Economic Zones.

Already, Special Economic Zones have been identified with pilot projects, in Bulawayo, Sunway City in Harare and the Victoria Falls, as well as diamond cutting and polishing in Mutare.

In addition, as well as to operationalise the SEZs, the Board has been constituted, however, on a part-time basis with modest remuneration allowances to avoid becoming an additional burden on the Budget.

Beneficiation and Value Addition

The country is exporting mainly raw commodities, which yields low earnings, prone to international commodity price shocks and ceates lower numbers of workers.

In our quest for deriving more value from our mineral and agricultural resources, as well as addressing the perennial challenge of unemployment, Government is intensifying efforts on value addition and beneficiation of primary products.