What we basically need, without even thinking twice, is an expansionary and mercantilistic fiscal policy that can vigorously checkmate the current economic problems. We have already seen that exports are staggering behind surging imports, and the trade deficit for January to April alone stood at $1.9 billion. Estimates are actually saying that trade deficit will close the year at more than $3 billion.
Company closures and downsizings have become the order of the day. Of late we have read about Reckit Benckiser shutting down the its Harare plant, CAPS pharmaceuticals going under the hammer; Dairibord venturing into toll manufacturing, with Steelnet, Muga Foods and Cairns going under judicial management.
These are just few examples. Latest figures from the Retrenchment Board are saying that there has been a 15 percent rise in retrenchments, between January and April, compared to the same period last year. Based on reported cases only, at least 863 workers were retrenched between January and April, compared to 746 for the same period last year.
A budget deficit is also looming, as the country is going to need $132 million, that was not budgeted for, to conduct elections. Whether the solution is going to be cutting expenditure in the 2013 budget or raise supplementary resources, that should be quickly addressed in August. What the government has done to raise the election money is to freeze itself, by not paying ministries and service providers – and gathering that money in the elections basket. Defaulting payments to service providers, however, comes at a cost; as interest charges would be accumulating. So, the government will have to pay morethan $132 million in the end, and there is nothing concessionary about that.
Supplementary funds are going to be needed to import maize and wheat. Zimbabwe experienced lower maize yield this year and there are indications of a food deficit situation. Zimbabwe will therefore need to import maize to mitigate against food shortages. Wheat production for the current winter season would be also very low, as only 3,000 hactares has been planted, against the targeted 60,000 hactares. The planted wheat hectarage will give us about 12,000 tonnes only, meaning that we will have to import the additional requirement of 400 thousand tonnes. That means we are going to need additional $134 million to import wheat; money which was not budgeted for.
To show that manufacturing sector has been shrinking, its contribution to exports has fallen down to 11 percent between January and April. In 2011, manufacturing contributed 26 percent to total exports. That can only point to the fact that companies are closing down and jobs are being lost; further implying that government will have to pay more in social services.
Against the above background, the next finance minister is therefore faced with a mamoth task of having to address the above and other challenges, in his fiscal policy review next month. The best policy theme should be mercantilism and aggressive import substitution, as well as enhancing revenue collection measures in order to tap in the informal sector.
The policy makers should sit down and analyse the import trade profile for the past half year and identify all the substitutable products that are driving our import bill. Import duty should be applied to all such products, whilst at the same time reviving the local industry to sustain local demand. Import duty can also be jointly applied with tariff rate quotas for other products. Imports should only be left for essentials products that we cannot locally produce or that drives the economy; such as fuel, raw materials and capital goods.
The coming finance minister should also scrap duties on raw materials and capital goods. Manufacturers can then take advantage of the weak Rand to import many raw materials and capital goods from South Africa, our main trading partner. This will help in the revival of local industries.
For meaningful industrial production to take place, the industrial policy has to be fully implemented by the new minister of industry and commerce, while aggressive foreign investment sourcing is also being conducted by the investment promotion minister. The business environment will also have to be addressed, with issues like labour laws, tax policy and other issues being finetuned. That will increase local capacity and competitiveness, which will drive exports up and help in wiping away the trade deficit.
Inorder to finance the looming budget deficit, the finance minister should introduce effective measures that tap into the informal sector operators that are not currently paying taxes, as well as rationalise expenditure.
Post published in: Business