22 June 2012

Zimbabwe: Zim Govt in State of Paralysis

opinion

ALTHOUGH no formal statement has been issued, state and independent media carried extensive reports last week of an emergency cabinet meeting -- chaired by President Robert Mugabe -- convened to deliberate on the parlous circumstances of the Zimbabwean fiscus.

The reports stated that the poor fiscal circumstances are primarily due to the current, exceptionally weak state of the economy, notwithstanding some marginal recovery in the years 2009 to 2011, and the excessive levels of government spending. The meeting apparently also included strong contentions, wholly justified, that many of the arms of government repeatedly incur unauthorised and unnecessary expenditures such as the recent engagement of more than 4 000 additional troops into Zimbabwe's already bloated armed forces.

Tragically, however, despite some of the ministers (especially the Minister of Finance, Tendai Biti) authoritatively attributing the bankruptcy to the debilitated state of the economy and the expenditure control mismanagement by many ministries, none of the reports on the meeting's deliberations indicate any substantive policies or actions to address the economic morass. Minister Biti intimated the possible imposition of a freeze on public service salaries (this has already provoked the ire of the public service, notwithstanding the justification of such a freeze particularly in light of current minimal levels of inflation). Instead of deliberating on constructive, urgent policies and actions, within hours of the conclusion of the meeting, diverse elements of government again made statements and pursued actions certain to prevent the upturn of the economy. One of such statements was made by Mugabe the day after the emergency cabinet meeting, when he publicly stated that no further mining licences will be granted to non-Zimbabweans.

Currently, the greatest contributor to the emaciated economy is the mining sector, but despite the significance the extent of mining operations remains minuscule compared to that which it could be. Zimbabwe has an enormous wealth of diverse mineral resources, ranging from gold and platinum to diamonds, lithium, coal, nickel, tin, methane gas and much more, and yet those resources are greatly unexploited, or insufficiently so.

Zimbabweans do not have the capital resources necessary to maximise the exploitation of the huge potential wealth that can emanate from a pronounced expansion of the mining sector, and there is also insufficient technological resources to fully realise the economic opportunities of the minerals available. Similarly, Zimbabwe's present ability to effect value addition to its minerals and other primary products is massively constrained by capital and technological insufficiency, and this can only be remedied by intensive interaction with foreign investors. However, the majority in the political hierarchy is so myopically fixated on economic indigenisation and empowerment that they continuously alienate access to required capital and technological inputs. It is long overdue for politicians to recognise that the necessary enhancement of indigenous involvement in the economy can only be achieved in pursuing opportunities in tandem with foreign investors.

Realism must also set in with regards to the economic and fiscal benefits of the diamond resources Zimbabwe has. It cannot be denied that the potential of the resources is great, but realisation of massive fiscal inflows from the exploitation of the resources cannot achieve a miraculous turnaround in inflows to the fiscus.

On the one hand, the majority of legitimate operators in the diamond fields, whilst paying mining licence fees and paying royalties on diamonds mined and sold, cannot in the short term be expected to be the sources of vast revenues to fund government expenditure. The operators incur considerable initial expenditures on the development of their diamond mining operations, including the acquisition and installation of the necessary mining infrastructure, machinery and equipment, and on the training of their labour force.

Moreover, Zimbabwe has only held Kimberley Process Certification (KPC) for about a year, and time elapses before maximised market access within the bounds of KPC is achieved. In addition, the world diamond market demand, and hence prices, have weakened considerably as a consequence of the 2008 financial recession in the US, and the recent similar recession and decline in most of Europe, negatively affecting the revenue that can currently be generated from the diamond fields. The importance of diamond fields to Zimbabwe's future economy is very great, but only realisable over a period of time, and in the meantime they cannot be the fiscus' spectacular cure-all for its revenue shortfalls.

The problems of the fiscus being effectively addressed, and the restoration of a strong, virile economy, are not only contingent upon the constructive progression and development of the mining sector, but upon doing so similarly for other key economic sectors. Agriculture was, for many decades, the foundation of the economy, but has shrivelled to a small portion of what it used to be. Admittedly, that is in part a consequence of adverse climatic conditions but, to a far greater extent, its contraction has been caused by the ill-considered pursuit of the politically-driven land reform programme, and the failure to timeously pursue necessary reforms to the programme.

After years of private sector representations that new farmers could not access their working needs in the absence of appropriate collateral security, about nine months ago Mugabe, when addressing the opening of a session of parliament, intimated that the so-called 99-year leases would be modified to accord them collateral value. Despite that statement, nothing has happened over the prolonged period that has since elapsed. Not only, according to ministerial information, have only 122 leases been issued up to now although there are over 4 000 new farmers, but nothing has been done to those leases to accord them transferability which would give them collateral value. Meanwhile, most of the agricultural sector continues to wither, yielding very limited benefits to the economy as compared to its former economic contribution.

The circumstances of the manufacturing sector are as abysmal. It was in September 2009 that the Minister of Industry and Trade, Welshman Ncube, said a Distressed Industries and Marginalised Areas Fund would be created. One month later Biti formally launched the fund, but almost three-quarters of a year later, government has put no resources into the fund which has only received a paltry input of US$20 million from Old Mutual, and to date the fund has reportedly only assisted two industrial concerns. If industries are to be rescued and revived they need expeditious funding, with attendant funding conditions that are realistic in relation to the circumstances of the industries.

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