What sort of year is 2014 going to be? We cannot deny the positives, as much as there are also negatives. As we explore these, we are going to see that 2014 is certainly going to be challenging year if the ruling party does not change its economic ideology.
The very first day of the year is going to be marked by the coming into force of the new income tax act (Chapter 23:13). The key factor in this new tax law is that it has migrated from source-based taxation to residence-based taxation. I believe that the overlooked flaws in this new law will actually result in many taxpayers evading their tax obligations.
The law will tax the public for just about anything they receive, including gifts, awards, lunch for employees and company vehicles for executives. The government is expecting the tax law to foster a rebound in revenue inflows, which have been falling, since the tax net has been widened to Zimbabweans worldwide and to foreigners in the country.
Economic growth for 2014, in my view, will bring no joy as some may anticipate. While the government is anticipating a GDP growth of 6.2 per cent, with the IMF expecting a modest 3.6 per cent, I think it will be even much lower, to levels of about 2.5 per cent.
Mining is envisaged to anchor our growth for the ensuing year, but that is subject to the prices of commodities. The futures market is suggesting that commodity prices are expected to fall or remain flat during the next 12 months.
Government will inherit a huge budget deficit in 2014, which will eat up real expenditure, equally competing with the civil service wage bill (which is going to be further put under pressure by the civil servants’ aggressive demands for promised wage increases to levels above poverty lines).
Capacity utilisation in the manufacturing sector will continue its steady fall, which will not be good news for our job creation prospects, in the face of the current high unemployment. This year, capacity utilisation fell from 44 per cent to 39 per cent.
The government will, of course, bring in import substitution measures, by increasing import tariffs for finished products, in its attempt to support local competitiveness. But that will work only for companies with concrete plans to become competitive. So this protection won’t be a silver bullet in the absence of other strategies, such as curbing corruption at the ports of entry, and improving the environment for doing business.
Coming to trade flow, I foresee imports falling significantly in response to the protective stance that will be taken by government. Exports may rise moderately, resulting in the trade deficit reducing a bit. The increased import tariffs will, however, militate against the country’s progress towards complying with the common external tariffs of the COMESA Customs Union, which is supposed to be operational in 2014.
The removal of sanctions on ZMDC, in my view, is going to improve the diamond revenue for 2014. Since Zimbabwe can now trade its diamonds in
Antwerp, the biggest diamond world trade centre, the prices for our rocks is certainly going to be competitive. The lifting of sanctions is also going to see a paradigm shift from the sale of diamonds through tendering to the auction system.
In banking, I foresee a slight increase in bank charges, following the cancellation and non-renewal of the MoU between the banks and the central bank. The MoU was basically freezing prices of financial products and its removal will now subject the price of financial products to market forces.
The coming of the new governor, to be appointed next year, is also likely to bring new thinking at the central bank and this might also improve confidence in banking. Whether it’s John Mangundya, John Mushayavanhu, or any banker, I believe that the new central bank chief will learn a lot from Dr Gono’s mistakes. We want the central bank to take an enhanced surveillance role, as opposed to, say, just busting Trust Bank, as was the recent case, for abuse of depositors’ money. That abuse could have been avoided with enhanced surveillance.
2014 will also see the country engaging the E20 fuel blending gear, thereby slightly reducing the price of fuel by several cents. This will stabilise the general price level, although other forces will put it under pressure. Import substitution will particularly force prices of local goods up.
Bringing into operation the commodity exchange market is a positive I can also pinpoint. There are other positives from bills such as the Mines and Minerals Bill, the Consumer Protection Bill, and the Zimbabwe Quality Standards Regulatory Authority Bill.