Biti’s presentation today – state of the Economy

tendai_biti_speaksTABLE OF CONTENTS MOTION........................................................ 5

INTRODUCTION ........................................5

THE GLOBAL FINANCIAL CRISIS ........10

Tobacco ……………………………………………………………………………………………………………… 20

Cotton ……………………………………………………………………………………………………………….. 21

Wheat ………………………………………………………………………………………………………………… 21

Livestock ……………………………………………………………………………………………………………. 22

Land …………………………………………………………………………………………………………………….. 22

Mining ………………………………………………………………………………………………………………….. 24

Gold ……………………………………………………………………………………………………………………. 25

Platinum ………………………………………………………………………………………………………………. 27

Coal ……………………………………………………………………………………………………………………. 29

Base Metals ……………………………………………………………………………………………………….. 30

Diamonds …………………………………………………………………………………………………………… 30

Other Minerals ……………………………………………………………………………………………………. 31

Manufacturing……………………………………………………………………………………………………… 31

Outlook ……………………………………………………………………………………………………………….. 32

Energy Supplies………………………………………………………………………………………………….. 33

Tourism………………………………………………………………………………………………………………… 34

Construction………………………………………………………………………………………………………… 36

Transport……………………………………………………………………………………………………………… 37

Inflation………………………………………………………………………………………………………………… 38

Financial Sector …………………………………………………………………………………………………. 40

Savings and Investment…………………………………………………………………………………….. 41

Recent Developments in the Banking Sector ……………………………………………………….. 43

Capitalisation of Banks……………………………………………………………………………………….. 45

National Payments System…………………………………………………………………………………. 46

Real Time Gross Settlement System (RTGS) ……………………………………………………….. 46

Plastic Money ……………………………………………………………………………………………………… 46

The Zimbabwe Stock Exchange…………………………………………………………………………. 47

Demutualisation of the ZSE …………………………………………………………………………………. 50

External Sector …………………………………………………………………………………………………… 50

Funding for STERP……………………………………………………………………………………………… 52

Grant Pledges………………………………………………………………………………………………………. 53

Private Sector Lines of Credit…………………………………………………………………………….. 55

FISCAL DEVELOPMENTS …………………………………………………………………………………. 55

Revenue ……………………………………………………………………………………………………………… 56

Value Added Tax (VAT) ………………………………………………………………………………………. 57

Customs Duty……………………………………………………………………………………………………… 58

Pay As You Earn (PAYE)……………………………………………………………………………………… 58

Corporate Tax……………………………………………………………………………………………………… 58

Excise Duty………………………………………………………………………………………………………….. 59

Non-Tax Revenue……………………………………………………………………………………………….. 59

Expenditure ……………………………………………………………………………………………………….. 59

Employment Costs …………………………………………………………………………………………….. 61

Operations and Maintenance……………………………………………………………………………… 63

Rentals and Vehicle and Other Hire Services……………………………………………………. 63

Foreign Travel……………………………………………………………………………………………………… 64

Foreign Missions ………………………………………………………………………………………………… 65

Maintenance………………………………………………………………………………………………………… 65

Health………………………………………………………………………………………………………………….. 65

Grants and Transfers …………………………………………………………………………………………. 67

Capital Expenditures ………………………………………………………………………………………….. 68

Vehicles………………………………………………………………………………………………………………. 68

Roads Rehabilitation…………………………………………………………………………………………… 69

Water…………………………………………………………………………………………………………………….. 70

Agribank and IDBZ………………………………………………………………………………………………. 70

Service Delivery…………………………………………………………………………………………………… 71

Education…………………………………………………………………………………………………………….. 71

Domestic Debt …………………………………………………………………………………………………….. 73

Public Enterprises and Local Authorities………………………………………………………….. 74

BUDGET CHALLENGES ……………………………………………………………………………………. 75

MACRO-ECONOMIC AND BUDGET FRAMEWORK ………………………………………… 76

BUDGET EXPENDITURE REALLOCATION ……………………………………………………… 78

Employment Costs …………………………………………………………………………………………….. 79

Civil Service Audit………………………………………………………………………………………………. 82

Foreign Missions ………………………………………………………………………………………………… 83

Goods and Services …………………………………………………………………………………………. 83

Reserve Bank……………………………………………………………………………………………………… 84

Interest on Debt…………………………………………………………………………………………………… 84

Vote of Credit……………………………………………………………………………………………………….. 84

Financing…………………………………………………………………………………………………………….. 87

PUBLIC RESOURCES MANAGEMENT …………………………………………………………….. 88

Results Based Budgeting (RBB)………………………………………………………………………. 88

Payment of Arrears……………………………………………………………………………………………… 89

Telecommunication Services ………………………………………………………………………………. 89

Vehicle Hire ………………………………………………………………………………………………………… 90

Fuel Allocation ……………………………………………………………………………………………………. 91

Foreign Travel …………………………………………………………………………………………………….. 91

Legal Framework ………………………………………………………………………………………………… 92

Financial Reporting ……………………………………………………………………………………………. 93

Public Finance Management System (PFMS) …………………………………………………… 94

Outstanding Bills …………………………………………………………………………………………………. 95

SUPPORTIVE POLICY MEASURES ………………………………………………………………….. 95

Confidence Building ………………………………………………………………………………………….. 96

Demonetisation of the Zimbabwe Dollar …………………………………………………………… 98

Currency Reforms………………………………………………………………………………………………100

Enhancing the Integrity of the Financial Sector ………………………………………………102

Central Bank Institutional Reforms ……………………………………………………………………… 102

Reserve Bank Capitalisation ……………………………………………………………………………… 104

Banking Sector ……………………………………………………………………………………………….. .. 105

Re-capitalisation of Banks …………………………………………………………………………………. 106

Levy on Super Profits…………………………………………………………………………………………106

Insurance and Pensions…………………………………………………………………………………….106

Taxation ……………………………………………………………………………………………………………. 107

Bank Charges …………………………………………………………………………………………………… 107

Occupational Pension Schemes and NSSA ……………………………………………………… 108

Prescribed Assets Requirements ……………………………………………………………………… 108

Stock Market …………………………………………………………………………………………………….. 109

Agriculture…………………………………………………………………………………………………………..109

The 2009/10 Summer Cropping Season ……………………………………………………………. 111

Land Utilisation ………………………………………………………………………………………………… 112

Irrigation and Water Development …………………………………………………………………….. 113

Manufacturing…………………………………………………………………………………………………….114

BIPPAs…………………………………………………………………………………………………………………115

Investment by Non-Residents ……………………………………………………………………………. 115

Trade Promotion ………………………………………………………………………………………………. 116

Mining …………………………………………………………………………………………………………………117

Investment ………………………………………………………………………………………………………… 117

Legislative Framework ……………………………………………………………………………………… 118

Marketing of Minerals ……………………………………………………………………………………….. 119

Mining Royalties ……………………………………………………………………………………………….. 120

Mining Licencing ………………………………………………………………………………………………. 121

Skills ………………………………………………………………………………………………………………… 122

Suppliers ………………………………………………………………………………………………………….. 122

Energy…………………………………………………………………………………………………………………122

Tourism………………………………………………………………………………………………………………..124

Information and Communication Technology (ICT) ……………………………………… 125

Public Private Partnerships ……………………………………………………………………………… 127

Utility and Local Authority Tariffs ……………………………………………………………………. 128

Local Authorities Service Delivery …………………………………………………………………. 129

Environmental Management …………………………………………………………………………… 130

External Support ………………………………………………………………………………………………. 130

Aid Coordination…………………………………………………………………………………………………133

External Debt Relief…………………………………………………………………………………………..135

REVENUE MEASURES ……………………………………………………………………………………. 136

Accounting Issues ……………………………………………………………………………………………. 137

Accounting Procedures ……………………………………………………………………………………138

Balances Carried Forward ………………………………………………………………………………… 138

Capital Gains………………………………………………………………………………………………………139

Immovable Property …………………………………………………………………………………………… 139

Marketable Securities………………………………………………………………………………………….140

Employee Share Option Schemes…………………………………………………………………….140

Conversion of Amounts Denominated in Zimbabwe Dollar Values………………..141

Income Tax ………………………………………………………………………………………………………. 141

Corporate Tax Rate……………………………………………………………………………………………141

Non-Residents Tax on Interest…………………………………………………………………………143

Value Added Tax ……………………………………………………………………………………………… 143

Accounting for VAT…………………………………………………………………………………………….143

Accelerated VAT Remittances…………………………………………………………………………..144

Rationalisation of Zero Rated Products …………………………………………………………..144

Valuation Base for Import VAT…………………………………………………………………………..145

Registration for VAT…………………………………………………………………………………………..146

Customs Duty ………………………………………………………………………………………………….. 146

Information and Communication Technology…………………………………………………146

Capital Goods, Raw Materials and Intermediate Goods …………………………………147

Finished Goods Used as Raw Materials…………………………………………………………..148

Suspension of Customs Duty on Basic Commodities……………………………………149

Rationalisation of Customs Duty Rebates ………………………………………………………150

Commuter Omnibuses ………………………………………………………………………………………150

Single Cab Trucks……………………………………………………………………………………………..151

Smuggling …………………………………………………………………………………………………………..152

Forfeiture of Motor Vehicles Used in Smuggling………………………………………………153

Excise Duty ……………………………………………………………………………………………………….. 153

Cigarettes and Tobacco……………………………………………………………………………………..153

Wines and Spirits………………………………………………………………………………………………..154

Fuel …………………………………………………………………………………………………………………….154

Excise Duty…………………………………………………………………………………………………………154

Royalty on Precious Metals ……………………………………………………………………………… 155

Fees and Charges on Registration and Renewal of Mining Claims ……………… 156

Toll Gates ………………………………………………………………………………………………………….. 157

CONCLUSION ………………………………………………………………………………………………….. 158

Annex 1 : Conversion of Specified Amounts into Foreign Currency …………………….. 160

Annex 2 : Deemed Loan Benefits ………………………………………………………………………. 163

MOTION

1. Mr Speaker Sir, I move that leave be granted to bring in a Bill to make Provisions in connections with Revenues and Expenditures of the Government of Zimbabwe for the period ending 31 December 2009 and to make Provisions for matters ancillary and incidental to this purpose.

INTRODUCTION

  1. 2. Mr. Speaker Sir, it is exactly 150 days since the Inclusive Government began work on Monday, 16 February 2009.
  2. 3. This Mid-Year Fiscal Policy Review updates Honourable Members and the Nation on the State of the Economy, focussing on both fiscal and overall economic developments as we implemented our Short Term Emergency Recovery Programme during the first half of the year.
  3. 4. Mr Speaker Sir, given the reality of our situation, and the fact that we are basically starting afresh, this Review will devote itself to economic developments before 2009. An approach that looks at the past creates the necessary platform to correctly inform and excavate the necessary policy adjustments and measures for the future.
  4. 5. Most importantly, it is history and our collective understanding of the past which must stand against the temptation to go back to omissions and commissions of the past.
  5. 6. The Review also aims to consolidate the framework of openness and economic freedom enunciated in the Short Term Emergency Recovery Programme (STERP). Put simply, it is intended to further rehabilitate the economy from a past of controls and dirigisme, whilst at the same time ensuring the enhancement of safety nets and social protection programmes of STERP.
  6. 7. This Review will also realign the 2009 Budget expenditure priorities to expected revenue inflows, consistent with the Cash Budgeting policy thrust we adopted in February 2009. In short, we will continue eating only that which we have hunted.
  7. 8. Mr Speaker Sir, before turning to the State of the Economy, Honourable Members will acknowledge the inter-linkage between the prevailing political dispensation and developments on the economic front since the formation of the Inclusive Government following last years signing of the Global Political Agreement.

?.9. Mr Speaker Sir, it is common cause that the principal political parties executed a political agreement on 15 September 2008.

?.That agreement represented a voluntary getting together of political actors that were involuntarily brought together by the harsh reality of economic and political factors that forced the same to board the same bus of compromise.

  1. 10. The Global Political Agreement represented on both sides the absence of a viable or alternative option to the attrition, stalemate, conflict, violence, debilitating and disempowering effect of a decade long political crisis.
  2. 11. That crisis had seen a massive de-industrialisation of the economy, deep seated poverty, sustained periods of negative GDP growth rates, the collapse of social services, food shortages, and massive despondency in the country.
  3. 12. The fundamental reality that brought all the actors into an unhappy compromise has not gone away. However, it seems that a few of us either have amnesia or short memories, and that a few were never convinced about the inevitability of the project at the first instance. Whatever the case may be, it is an unacceptable reality that five months down the line there are still critical foundational, qualitative and quantitative issues in respect of this relationship.
  4. 13. Furthermore, that there are various breaches of the Global Political Agreement still outstanding and, more fundamentally, that there is little delivery and execution of agreed positions taken in the Global Political Agreement, particularly on matters around human rights and the rule of law is as regrettable as it is unwelcome.
  5. 14. The reality of the matter is that political factors need to be liquidated as a matter of urgency so that the country does not continue to be held hostage to the past. Getting politics out of the way requires one thing and one thing alone, the full, proper, unequivocal and unambiguous implementation of the Global Political Agreement in its letter and spirit.
  6. 15. Notwithstanding the above, Mr Speaker Sir, this ship has left the dock and is in motion. The reality of the matter is that the Inclusive Government is in a net surplus position, performance wise. What is critical, therefore, is to consolidate the gains of the past few months, whilst at the same time ensuring full compliance, implementation, execution and delivery on the outstanding issues.

?.16. Mr. Speaker Sir, our country had sunk to unacceptably high levels of fragility that bordered on total State failure. Thus, the work of

?.the Inclusive Government involves rehabilitating and rebuilding this country. Put in simple terms, the Inclusive Governments fundamental function is to re-lay the foundation of a normal functional vibrant African democracy.

?.17. The foundation stones and the relevant concrete mixes which we laid out in the Short Term Emergency Recovery Programme (STERP) are:

. The establishment of peace and stability in the country;

. The pursuit of a programme of national healing;

. The Constitutional making process and the democratisation agenda;

. Provision of adequate and quality basic social services, social safety nets in the rural and urban areas and, indeed, the execution of a comprehensive social protection programme;

. Macro-economic stabilisation in our country; and

. The socio-economic transformation of Zimbabwe through capital and institutional development that places at the centre, information communication technology.

18. Furthermore, as stated in STERP, our Vision of the house we are constructing is an inclusive, sustainable developmental Zimbabwe that is based on participatory democracy.

?.19. In this regard, the operational objectives of the Inclusive Government as clearly enunciated in STERP are:

. The creation of a responsive, yet efficient State that uses redistributive mechanisms, social rights, while maintaining social development;

. Building of a strong economy, using market principles with careful State interventions to advance social protection and justice;

. Establishment of a participatory political democracy through the new people driven Constitution and the rebuilding of fundamental democratic institutions in our country.

20. Indeed, it is in the best interest of every Zimbabwean that the above Vision becomes a shared one. We do not have a right to abuse future generations by kidnapping the future to the present order of political uncertainty, hypocrisy, opportunism, prevarication and political fornication. We have a duty to be decisive, consistent, reliable, honest and true to our agreements.

THE GLOBAL FINANCIAL CRISIS

  1. 21. There is now evidence that the global financial crisis is having a devastating impact on African economies. For Africa, it is

translating into a development crisis that is wiping out industries, mines, jobs, revenues and livelihoods.

  1. 22. Sub-Saharan Africas GDP growth is forecast at 1.7% for 2009 compared to the average of 6.9% in 2007 and 5.5% in 2008, which was when the crisis began. For the first time in more than a decade, growth in per capita income for Africa is being reversed given an average population growth of 2.3% per annum in sub-Saharan Africa.
  2. 23. Major drivers of growth such as trade flows, capital inflows, diaspora remittances, Government revenues and donor funds are significantly declining across the continent.
  3. 24. Zimbabwe has not been spared by the global financial crisis despite having already been in recession for the past decade. Notable sectors affected include manufacturing, tourism, mining, and finance through difficulties in accessing lines of credit, low tourist arrivals, depressed mineral prices, low investment and depressed remittances from non resident Zimbabweans.
  4. 25. From the second half of 2008, mineral prices particularly for platinum and nickel at the international markets began to fall as a result of the Global Financial crisis.
  5. 26. Platinum prices dropped from US$2 048 per ounce in May to US$834 per ounce by December 2008.
  6. 27. Gold prices also fell but with a smaller margin with March prices averaging US$968 per ounce and recording an average price of US$816 per ounce by December 2008.
  7. 28. In the first half of 2009 mineral prices, however, started stabilising as a result of interventions through fiscal stimulus packages introduced by most developed countries.

STATE OF THE ECONOMY

  1. 29. Honourable Members will recall the severe socio-economic challenges experienced since 2000, as the economy performed well below its potential, registering consecutive declines in gross domestic product.
  2. 30. During the same period, inflation was steadily on the increase, eroding real incomes, savings and investments, thereby impacting negatively on the productivity and capacity of virtually all productive sectors of the economy and having a disastrous effect on the lives of the overwhelming majority of Zimbabweans.
  3. 31. The above challenges were a result of a combination of both endogenous and exogenous factors. These were further fuelled by the domestic political conflict which prevailed in the country since 2000.
  4. 32. The devastating impact of the economic collapse was reflected in de-industrialisation of the economy and declining per capita GDP from an average of US$720 during 19972002 to about US$265 by 2008. Furthermore, formal unemployment rose to over 60%, leading to sharp contraction of wages as a share of GDP and overall increase in poverty levels, among others.
  5. 33. Human poverty in the country as measured by the Total Consumption Poverty Line and the Human Poverty Index is estimated to have risen above the 63% and 51% recorded in 2003 and 2006, respectively.

Gross Domestic Product

  1. 34. As already noted, Zimbabwes real GDP, which recorded remarkable positive growth rates averaging 3.9% per annum in

the 1980s and 1990s, shrunk by more than 40% during the period 20002007 and 48% by the end of 2008.

  1. 35. Ironically, this GDP decline was experienced when the rest of SADC and Sub-Saharan Africa recorded positive growth rates averaging over 3% per annum over the period 20002008.
  2. 36. Zimbabwes consistent GDP declines were the result of negative growth rates in the productive sectors of the economy.
  3. 37. Agriculture, which is the main pillar of the Zimbabwean economy with strong linkages to the rest of the sectors, contracted by an annual average of -7.1% between 2000 and 2008. Cumulatively, agricultural output contracted by -79.4% during 2002 2008.
  4. 38. Similarly, the mining and manufacturing sectors recorded average annual declines of -9% and -9.5%, respectively, during the same period.
  5. 39. Sector performances during 20002008 are indicated in the graph below:
  6. 40. Reflecting economic gains recorded during the first half of 2009 and prospects for economic recovery to the end of the year, the countrys real gross domestic product is poised to grow by an estimated 3.7% in 2009, breaking the decline trend posted over the past decade.
  7. 41. The recovery in our agricultural production, estimated at 24.3% in 2009 is playing a significant role in contributing to this years anticipated overall positive economic growth.
  8. 42. This is being complemented by the various initiatives under STERP to restart mining activity, also benefiting from the buoyant mineral commodity prices in the international markets.
  9. 43. Manufacturing is also projected to play a positive role in contributing to the overall recovery of the economy, benefiting from improved capacity utilisation across the various sub-sectors.

Agriculture

  1. 44. Mr Speaker Sir, given the central role of agriculture in the economy, Government has since our Independence in 1980 continued to prioritise support to this sector. The various forms of support have ranged from direct inputs assistance to farmers, research and training, pricing and marketing policies in support of communal land development programmes.
  2. 45. Government direct support primarily targeted small holder farmers in the production of maize and cotton, while commercial farmers financed themselves through credit facilities provided by the financial sector.
  3. 46. Support for the communal farmers was also availed through expansion of maize and cotton collection depots throughout the

country and concessional loans provided by the Agricultural Finance Corporation.

  1. 47. As a result, the combination of both commercial and communal farmers output growth averaged 4% between 1980 and 1986 and kept ahead of population growth of 3.1% per annum. This remarkable growth rate was sustained between 1986 and 2000, except for the drought years.
  2. 48. With regards to the production of maize and cotton, small-holder farmers made a notable contribution, achieving record production levels which surpassed those of commercial farmers as indicated below:

Maize and Cotton Production Statistics

  1. 49. However, from 2002, performance of the agricultural sector took a downturn with consecutive declines which averaged -7.1% between 2002 and 2008 as also indicated below.
  2. 50. This decline in agricultural performance was notwithstanding massive direct Government and Central Bank support through free and concessional facilities, mainly to commercial A2 farmers.
  3. 51. This support was primarily aimed at capacitating our new farmers following the land reform programme.
  4. 52. As part of the Government support, various farm equipment and implements were distributed to farmers under Phases 1 and 2 of the Farm Mechanisation Programme as a way of enhancing productivity in the sector. These included the following:

Farm Mechanisation Programme

  1. 53. Over and above the support to agriculture through the Central Bank, the sector received prioritised incremental direct annual budgetary allocations. These allocations, however, did not match the sector performance as indicated below.
  2. 54. In 2009, agriculture is anticipated to grow by 24.3%, anchored by this years 115% growth in maize output, estimated to reach

1.2 million tonnes.

  1. 55. Increased proceeds from agricultural commodities have also benefited from positive demand.

Tobacco

  1. 56. In the case of tobacco, auction floor prices have averaged US$3 per kg for the period to June 2009, a development which should spur future recovery as farmers future plans are incentivised by the realisation of positive rates of return. The liberalisation of

retention, whereby tobacco farmers are now retaining 100% of their tobacco sales proceeds without any prejudice arising from the exchange rate or surrender requirements has further acted as an incentive for increased production.

  1. 57. Hence, expectations for the coming season are of a significantly higher expected tobacco crop of 80 million kgs, well above the 42 million kgs estimate for 2009. As at end of June 2009, tobacco farmers had realised US$77.4 million from sales of 26.9 million kgs.
  2. 58. Furthermore, viable prices have contributed to increased aggregate demand, thereby stimulating other sectors of the economy.

Cotton

59. Similarly, this years agricultural production also benefited from improved cotton production, anticipated to reach 246 757 tons in 2009, from the 337 671 hectares planted.

Wheat

  1. 60. The positive recovery in agriculture has unfortunately been weighed down by the unfolding low level of production in wheat under the 2009 winter programme.
  2. 61. This is as a result of lack of credit for wheat farmers in view of the financial and liquidity challenges currently being experienced in the banking sector. Wheat production is, therefore, likely to be well below the initially targeted 60 000 tons.

Livestock

  1. 62. In the case of livestock, the shortage of stock feed and dipping chemicals had led to a significant reduction in beef production.
  2. 63. For the coming 2009/2010 agricultural summer season, it is the intention that Government plays a proactive role in the facilitation of early mobilisation of resources from the private sector, including the necessary lines of credit.
  3. 64. Other challenges relate to the economys capacity to guarantee uninterrupted energy supplies in support of farm irrigation programmes.

Land

  1. 65. As Treasury, we recognise fundamentally that the long term sustainability of our agriculture demands and requires that we deal decisively with outstanding political issues connected to our land. In particular, it is critical and imperative that the land

audit agreed in the GPA and well articulated in paragraphs 108 and 109 of STERP is implemented.

  1. 66. Furthermore, there has to be security on farms and anyone farming should be guaranteed of the right to harvest his/her crop. This is precisely why in STERP the Inclusive Government undertook to uphold the rule of law as well as to enforce law and order on farms including arresting any further farm invasions which disrupt farming activities.
  2. 67. More importantly, the long term solution in agriculture lies in restoring security of tenure and strengthening property rights in the form of long leases, title deeds and certificates of occupation, all of which can be securitised and hypothecated.
  3. 68. As clearly articulated in paragraph 107 of STERP, the salvation of our agriculture lies in clarity of land rights, as well as the strengthening of all critical arteries and enablers in the agriculture production value chain, including the revival of Hwange Colliery coal supply, restoration of ZESA power supply, rehabilitation and expansion of irrigation infrastructure and National Railways freight services.

Mining

  1. 69. Mining accounts for about 4% of the GDP and 16% of total annual foreign currency to the country.
  2. 70. Major minerals are gold, platinum, asbestos, chrome, iron, platinum group of minerals, nickel, copper, and coal. With the exception of chrome and nickel, production output of all other minerals declined between 1998 and 2008, as mining houses either scaled down operations or closed shop altogether as a result of the harsh economic environment.
  3. 71. The liberalisation measures introduced in 2009 and the 100% retention of foreign earnings, as well as increased dialogue on investment and shareholding, is restoring confidence in the mining sector. This has allowed closed mines to reopen and resume operations, particularly in gold mining.
  4. 72. Notwithstanding the above concessions, production in the mining sector will remain subdued as some mining houses such as in nickel and asbestos production will remain closed for the better part of the year owing to viability challenges associated with the Global Financial crisis.
  5. 73. As a result, mining output is expected to record a decline of -11.2% in 2009.

Gold

  1. 74. Mr Speaker Sir, the countrys gold annual output potential, given an environment conducive to accelerated investment and exploration, is estimated in excess of 50 tons.
  2. 75. However, over the years, output which rose to 27 tons in 1999 as Zimbabwe became the third largest producer on the continent has been declining, reaching a record low of 3.5 tons by 2008. This was largely a result of limited exploration and other challenges experienced since 2000, which included high inflation, inconsistent policies, financing constraints, unviable exchange rates and skills flight.
  3. 76. Furthermore, unrealistic prices offered to producers and non payments for gold deliveries by the Central Bank made the operating environment unviable, notwithstanding the firming up in gold prices in international markets.
  4. 77. As of 30 June 2009, gold mining companies were owed about US$30 million for gold delivered in 2008, a situation which compromised operations of the gold mining houses and reduced confidence in the sector.
  5. 78. During the first quarter of 2009, there were no gold deliveries that took place as most mining companies remained closed owing to viability challenges in 2008.
  6. 79. However, the liberalisation measures introduced in 2009 on gold marketing, allowed gold mines which had either closed or were put under care and maintenance to start operating. As a result, deliveries in April and May stood at 700kg.
  7. 80. The issuance of gold dealership licences to gold producers has resulted in mining houses securing lines of credit, critical to increased production. To date, gold dealership licences have been issued to Blanket Mine, Forbes and Thompson, DTZOZEGIO of Russia, the Zimbabwe Gold Miners and Millers Association, the Chamber of Mines and Ashanti Gold Fields.
  8. 81. Zimbabwes largest gold mine, Metallon Gold, which contributes more than 50% of total gold output has re-opened two of its mines, How and Shamva after getting a loan of US$15 million

from Afreximbank (US$10 million) and local financiers (US$5 million) for working capital and refurbishment of plant and equipment.

  1. 82. The other three remaining mines will resume production by the end of the year. The company is targeting to raise gold output to 650 000 ounces annually in the next five years depending on power availability.
  2. 83. Other mining houses such as Blanket Mine and Forbes and Thompson, have also started operating and about 4 500 kgs is expected during 2009.

Platinum

  1. 84. Notwithstanding the adverse macro-economic environment in the country, platinum production has been steadily on the increase from 500 kgs in 2001 to above 5 000 kgs in 2007.
  2. 85. This growth primarily reflected dispensations which allowed the then countrys two existing platinum producers to sustain investment in plant and machinery on the back of operations in foreign currency through offshore accounts, that way surviving the turmoil undermining the other mining sub-sectors.
  3. 86. Currently there are two operating mines at ZimPlats Ngezi Mine in Mhondoro and Mimosa Mine in Zvishavane, with mine development taking place at the Anglo-Americans Unki project in Shurugwi and many other projects under exploration. Production is likely to reach over 50 000 kgs per year in the next 15 years from 4 000 kgs in 2008 due to increased investment by new companies Unki and Mimosa.
  4. 87. In 2009, platinum output is projected at 6 000 kgs following the expansion programme by ZimPlats, anticipated firming up of international prices and general improvement in the macroeconomic environment.
  5. 88. There is considerable potential for expansion of the existing platinum mining operations to production levels that would warrant the setting up of a local refinery.

Coal

  1. 89. Capacity utilisation for coal production has steadily declined over the years to the current 20% of installed production capacity as a result of ageing equipment and sub-economic prices experienced over the years.
  2. 90. Non payment for coal, particularly by ZESA, has also compromised the working capital requirements of the countrys major coal producer, Hwange Colliery.
  3. 91. As a result of the above, output declined from 4 million tons in 2001 to 2 million tons in 2008. This is, however, expected to marginally increase to 2.2 million tons in 2009, following ongoing refurbishment of some of the mining equipment and machinery.
  4. 92. Significant capitalisation in the coal sector is required to improve capacity utilisation and invest in new production facilities.

Base Metals

  1. 93. Chrome and nickel production has been heavily affected by the world recession. With prices at 33% of the levels achieved in early 2008, most operations have been put on hold and the equipment has been placed under care and maintenance.
  2. 94. Therefore, nickel production in 2009 is expected to be 2 100 tons compared to the 5 900 tons of 2008, following resumption of production set for the last quarter of the year in line with the anticipated recovery of the world economy and base metal prices, presenting opportunities for nickel and chrome mines.
  3. 95. Similarly chrome production is expected to be 279 000 tons in 2009.

Diamonds

  1. 96. Last year, diamonds output stood at about 400 000 carats, of which Murowa in Zvishavane accounted for 237 000 carats, whilst River Ranch in Beitbridge accounted for 75 000 carats.
  2. 97. Investment in production expansion should increase diamond output up to over 2 million carats over a three year period, complemented by the formalisation of ZMDC operations at the alluvial Chiadzwa diamond fields.

Other Minerals

98. Opportunities for further investment exist with regards to such other minerals as iron ore, limestone, phosphates, pyrites, asbestos, black granite, vermiculate, among others. The potential for positive contribution to the countrys economic recovery is significant.

Manufacturing

99. The Zimbabwean manufacturing industry was at its peak in the 1990s well known for its diversity of products and as an important contributor to the countrys GDP (16%), exports and foreign exchange earnings (37%) and formal employment (15%).

100. Given that the Zimbabwean economy is dominated by agriculture and mining, the manufacturing sector is predominantly into agro-processing (54%), and mineral processing (25%).

101. Major manufacturing potential exists in foodstuffs, beverages, textiles, timber, paper and packaging, steel and other metal products, fertilisers, agricultural equipment and chemicals.

102. Since 2000, the manufacturing industry has significantly contracted as a result of some major problems which included a hyperinflationary environment, foreign exchange controls, depressed aggregate demand, shortage of foreign currency, working capital constraints and a regime of price controls, which compromised viability.

103. The sector also suffered from skills flight, power outages, and erratic supply of fuel as the economy sank deeper into recession.

104. As a result of the above issues, capacity utilisation gradually declined, reaching 35.8% in 2005, 33.8% in 2006, 18.9% in 2007, and dropping sharply to between 410% by the end of 2008.

105. Consequently, output contracted by 18% in 2006, 21.1% in 2007 and an estimated 29.6% in 2008.

Outlook

106. Following the liberalisation measures introduced at the beginning of 2009, confidence has started building up, critical for the normalisation of day to day operations.

107. As a result, capacity utilisation in some industries has increased rapidly to between 25-50% in the first half of 2009 and businesses are generally optimistic that this will significantly improve further by end of the year.

108. However, the manufacturing sector continues to face challenges related to unreliable delivery of essential public utilities such as power, coal, water, transport and telecommunications. Other challenges relate to working capital, ageing equipment, low effective domestic demand as well as pressure for higher wages.

109. Central to addressing the above is securing lines of credit to allow improved capacity utilisation. Government will, therefore, pursue pledged support from the various countries and financial institutions.

110. Immediate requirements for the manufacturing sector amount to US$1 billion. To date, US$562 million has been identified as potential lines of credit.

Energy Supplies

111. Despite our huge energy resource base, the country is currently facing enormous shortages of electrical energy due to generation shortfalls which have forced importation of at least 35% of power requirements from the region.

112. Out of a total installed capacity of 1960MW, only 820MW is currently available. Besides Kariba, Hwange is operating below capacity and the small thermal power stations are not operational due to high operational costs and coal shortages.

113. Depressed internal generation capacity is also a result of old generation, transmission and distribution infrastructure.

Tourism

114. World tourism, among the faster growing industries globally, is expected to register positive growth in 2009, notwithstanding the global financial crisis.

115. Domestically however, tourism which contributed an estimated 9% directly and indirectly to GDP in 1999, has been on a downward trend, negatively affecting the whole economy given its linkages with the other sectors.

116. This was despite the countrys strength associated with its natural endowments such as the Victoria Falls and other enviable natural resources and attractions.

117. Major factors such as the perceived image of the country, the previous rigid exchange rate regime, unreliable fuel supplies,high inflation levels as well as deteriorating quality of infrastructure all compromised the competitiveness of tourism.

118. However, against the background of positive developments on both the political and economic front during the first half of the year, tourism is expected to record growth of 2% in 2009 from a decline of -9% in 2008.

119. This increase is largely underpinned by the prevailing peace and stability brought about by the Global Political Agreement and the aggressive marketing campaign for Zimbabwe as a safe tourist destination.

120. The introduction of multiple currencies also removed price distortions, which previously made tourism services in Zimbabwe highly uncompetitive relative to other destinations.

121. A much more robust recovery of tourism should be experienced as growth prospects for the world economy overcome the prevailing adverse effects of the global financial crisis.

Construction

122. The construction industry is a barometer of economic activity. The industry has strong forward and backward demand linkages with the rest of the economy and promotes strong multiplier effect in the economy.

123. The strong demand for inputs such as cement and other building materials, steel and electrical products, roofing material, among others, stimulates production and creates jobs in other related sectors. The construction sector is also important in meeting other critical social obligations such as housing delivery.

124. Viability challenges in a highly unstable macro-economic environment were at the centre of the downfall of construction.

125. As a result, between 2000 and 2008, the sector persistently declined by a cumulative -125% forcing most construction companies to either relocate to neighbouring countries or shut down altogether.

Transport

126. Stable developments in the economy during the first half of the year are also having positive effects on the transport sector.

127. This has seen improved provision of public transport, including in the rural areas where more bus operators are resuming operations, thereby enabling transport accessibility throughout the country.

128. Full recovery will, however, take time as operators still need capital to replace and re-equip their fleets.

129. Furthermore, our roads infrastructure is in a deteriorated state due to lack of sustained maintenance, a bottleneck to full economic recovery.

Inflation

130. The most devastating problem which faced the economy since 2000 was inflation. During 1997 2002, inflation averaged 61.7%, after rising from 18.8% in 1997 to 135.1% in 2002.

131. From 2003, inflation spiralled out of control and reached recorded hyper-inflationary levels of 231 million percent by July 2008. This marked the death of the Zimbabwe dollar, which subsequently went out of circulation, resulting in the market pricing of goods and services in foreign currencies from October 2008.

132. High inflation was primarily driven by high money supply growth on account of expansionary quasi-fiscal activities by the Central Bank. This pro-inflationary macro-economic policy was compounded by speculative activities in financial markets and the underlying severe supply constraints in the economy.

133. The adoption of STERP has resulted in the country recording consecutive negative inflation levels, with the month on month rate experiencing deflation since January 2009.

134. Prices fell by 2.3% in January, 3.1% during February, and a further 3% in March. Developments in April and May saw prices decline by lower margins of 1.1% and 1%, respectively, reflecting cost pressures emanating from monopolistic tariff levels of public enterprises and local authorities, among other factors.

135. Sustained stability in prices also restores the real value of savings, and allows for longer term planning by both business and households.

136. It is,

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