___________________________________________________________________
BRIEF ANALYSIS OF THE ZIMBABWE 2014 NATIONAL BUDGET
___________________________________________________________________
1. Introduction
1.1.
On 19 December, 2013 the Minister of Finance and Economic
Development Honourable P. Chinamasa, presented the 2014 National
Budget to Parliament. The national budget seeks to facilitate the
implementation of the Zimbabwe Agenda for Sustainable Socio-economic
Transformation (ZIM-ASSET), the Government economic blue print whose
tenure spans the period 2013 – 2018.
1.2.
The US$4.12 billion budget has been presented against a backdrop of a
depressed domestic business operating environment characterised by a
persistent liquidity crunch that has accounted for a sluggish growth in
domestic demand to 5% in 2013, from 13% in 2012. Economic growth has
therefore remained weak,declining significantly from a peak of 10.1%
during 2012 to a projected 3.4% in 2013.
1.3.
Industry capacity utilisation has remained subdued, with manufacturing
sector performance projected to recover marginally from 1.5% growth in
2013, to 3.2% in 2014. The Global economy is expected to grow by 2.9%
in 2014 from 3.2% in 2013, as emerging market growth prospects remain
sluggish, in particular China, Russia, India, and Mexico.
1.4.
GDP growth is expected to rebound significantly by nearly 50%, from 3.4%
in 2013 to 6.1% in 2014 driven by the Zim Asset programme, anchored on
strong agriculture, mining, and construction performance that are projected
to register growth rates of 9%, 11.4%, and 11% respectively.
2. Key Highlights of the 2014 Budget
The Minister has however, introduced several incentives to kick start the
manufacturing sector that provide some measure of protection, to level the domestic
playing field, as well as employment creation. The following are the major highlights
from the Budget:
1|Page
KEY HIGHLIGHTS OF THE 2014 BUDGET








Economic growth to register strong rebound from 3.4% in 2013 to 6.1% in 2014, and 6.4% in
2015.
Fiscal envelope of US$4.12 billion for 2014, against projected revenue of US$4.12 billion,
implying a balancing budget.
A modest 10.1% growth in public expenditure and revenues is projected for 2014, from
US$3.722 billion in 2013 to US$4.12 billion. Expenditure remains skewed in favour of
consumption, with 73% (US$3 billion) of the recurrent budget of US$3.63 being chewed by
employment costs. Capital expenditure will be US$492 million that is 3.5% of GDP.
Inflation projected at 1.5% in 2014, from 1.7% in 2013.
Balance of payments deficit to improve marginally US$2.55 billion in 2013, to US$2.47 in
2014 as exports are projected to rebound by 13.4% in 2014 to US$5 billion from US$4.4
billion in 2013. Imports projected to increase by 8% from US$7.7 billion in 2013 to US$8.32
billion in 2014.
Economy to continue using multi-currency regime. Government to set aside resources to de –
monetise Z$ to a maximum of US$20 million.
RBZ to be capitalised to the tune of US$150 - 200 million, and regain Lender of last Resort
role.
Indigenisation and Economic Empowerment to be delivered on a sector specific framework.
3. 2014 Budget Proposals
-
Anti – Dumping
3.1.
-
Cluster Value Chains
3.2.
-
Government has pledged to strengthen anti – dumping legislation to level
the playing field with external competitors. This will curb the influx imported
of goods, and help shield the fragile industrial capacity in the medium to
long term. Government will also enact the National Quality Standards
Authority Bill during the year 2014 to curb importation of substandard
goods.
Government will prioritise the cluster value addition and beneficiation
strategy to drive productivity in line with the ZimAsset, and the Industrial
Development Policy (IDP). This will trigger economies of scale in industrial
production, enhance value addition and anchor global competitiveness.
Special Economic Zones (SEZ)
3.3.
Government will establish Special Economic Zones (SEZ) offering special
trade incentives to stimulate local and foreign investment. These will be
located in sites where the potential for increasing manufactured exports,
and employment creation is high. Priority sub sectors will be:
Agro-processing
Diamond beneficiation
2|Page
Gold value addition
Low carbon manufacturing
Healthcare
Medical technologies
Renewable energy
Waste management and logistics, and
Port of entry corridors
Bulawayo has already been cited as a priority location for the SEZ policy, with the
Textiles sector being prioritised as well.
-
Demonetisation of the Z$
3.4.
-
Government has set aside US$20 million to unlock the Z$ bank balances
that were sitting on banks’ balance sheets in January 2009 when the multicurrency system was introduced. The deadline for this will be March 2014.
Tariff Regime measures to support Manufacturing Sector
3.5.
Government has introduced measures to insulate domestic producers
from foreign competition for certain products. This is meant to curb the
influx of cheap imports that has eroded domestic market share, as well as
competitiveness of the local industry.
3.6.
The move will, in the short term, cushion employment and avert possible
company closures. Currently industry is producing at 37% capacity, and
the measures should thus help restore some capacity in industry. Annex 1
depicts the tariff adjustments:
3.7.
In an attempt to level the playing field between imported and locally
produced goods, the minister has reviewed duty upwards for products in
the steel and plastic manufactures, dairy and processing industry,
biscuit manufacturers, paint manufactures, metal and electrical, rubber, oil
expressing, clothing, beverages (aluminium cans), sugar, blanket
manufactures, pharmaceuticals, and baking industry, leather and tanning.
3.8.
Annex 1 summarises the new duty structure, where mostly duty on
finished goods has risen from 0% for some products, to a high threshold
range of 30-40%, with some items now attracting specific duty.
3.9.
The clothing manufactures rebate which was due to expire on 31
December, 2013 has also been extended to 31 December, 2014. On the
3|Page
sugar industry, government has increased duty from 10% to 10% plus
US$100 per tonne to protect local sugar refineries.
3.10. In order to encourage value addition in the leather industry, government
has also levied an export tax of US$0.75/ kg on raw hides, in order to
encourage value addition. The sector, which is currently running at
capacity levels of 25-40% will benefit significantly from these measures.
Customs duty on soya bean crude oil imports has also been suspended
to boost local manufacturing of cooking oil.
3.11. Suspension of Duty on Capital equipment – in order to support re–
tooling in industry, government has suspended duty on imported capital
goods.
3.12. In order to encourage local beneficiation of minerals, government has
imposed a 15% export tax on the exportation of platinum, diamonds and
gold.
3.13. VAT Exemption on Imported Electricity: Government has suspended
Vat on electricity imports, to reduce the cost of energy.
3.14. Taxation of high income earners: Government has introduced a flat
income tax rate of 50% on incomes of US$20 000 per month with effect
from 1 January 2014.
Lapse of the Zimbabwe – South Africa Bilateral Trade Agreement
3.15. The Zimbabwe – SA Bilateral Trade Agreement has been in place since
December, 1964, and the country has benefitted from it until the inception
of the SADC Trade Protocol. Of late, South Africa has not been according
Zimbabwean goods preferential treatment, yet there has not been any
matching reciprocation from the other party.
3.16. In this regard, the Minister has suspended the customs preferences on the
agreement, implying that imports from SA now attract duty, unless covered
by the SADC Trade protocol.
4. Critical Analysis of the Measures
4.1.
Macro-economy and Real sector
4.2.
The 2014 National Budget is premised on major rebound in agriculture and
mining. It also assumes that Zim Asset will be implemented fully, and that
the political economy and, macroeconomic environment remains
conducive. Preliminary findings from the ZimTrade Local Manufacturing
Export Capacity Survey have revealed that, though industry is keen to
export, the business operating environment remains unconducive, and
4|Page
cost of production, on account of high utility costs and, erratic supply of
energy, has rendered them uncompetitive.
4.3.
The Budget projects a 50% rebound in GDP from 3.4% to 6.1% in 2014,
premised on a recovery in mining and agriculture. These sectors are also
grappling with the weak economic fundamentals characterising our
business operating regime. We are, therefore, being overly optimistic
to expect a quick turnaround, more so given that the economy
remains fragile. Zim Asset has serious funding challenges and these
have not been fully addressed in the budget.
4.4.
The 2014 budget remains largely consumptive, with 77% of the current
budget chewed by employment costs. A paltry US$400 million has been
reserved for capital expenditure yet the economy requires a major
investment in infrastructure. Unless we boldly address this, the budget will
not support any meaningful supply response.
4.5.
Capacity utilisation is currently at 37.6%, and may not improve significantly
unless liquidity and capitalisation is addressed. The budget has not fully
addressed the attendant challenges of the manufacturing sector,
particularly those currently constraining exports. Of concern to industry are
the plethora of regulatory provisions that raise the business transactions
costs for exporters, as well as erratic supply of energy among other
factors.
4.6.
The country has experienced a major de–industrialisation phase since
1998 and, addressing this would have required a funding strategy that
allows companies to access medium to long term funding, to fund capital
goods acquisitions and other technology platforms. Only then can we be
assured of some measure of competitiveness in our production systems.
4.7.
Though the budget has suspended duty on capital goods imports, this
alone will not help in absence of a concessionary funding framework.
There is a need for Government to come up with an Industrial
Rehabilitation Fund to kick start the recapitalisation process.
4.8.
We welcome the adjustment of duty on finished goods, for the target
sectors, and the introduction of some export taxes for minerals and raw
hides. This will, no doubt, go a long way towards cushioning local
producers, and hence save jobs. However, this is only one part of the
solution; in the absence of an enabling environment and with capacity
running at 37%, the target sectors have no incentive to immediately
expand output.
4.9.
Instead this is likely to result in huge inefficiencies, and possibly a spike in
the price of some of those products, unless government provides a
performance framework to monitor these sectors.
4.10. The suspension of the Bilateral Trade Agreement with SA is a welcome
development, more so given that the later has not been reciprocating.
5|Page
5. Economic Outlook
5.1.
The budget assumptions are pitching a bullish recovery of the economy,
yet the global economy is slowing to 2.9% in 2014, from 3.2% in 2013, on
account of depressed emerging markets, notably China, Russia, India
among others. This will translate into depressed global demand, which
may put a check on export demand.
5.2.
That aside, the supply side measures proposed in the budget are by and
large, sterile given that no corresponding policies have been employed to
address liquidity constraints. It is however, good that the multi-currency
regime has been retained, as this will improve business planning and
hence ensure predictability in business decision making.
5.3.
We therefore have reservations, on the GDP growth forecasts, given
the above scenario. We therefore, cast a bearish scenario, where
GDP growth should remain within a band of 3.4 – 4.5% at the best.
……………………………
ZimTrade
20 December, 2013
6|Page
Annex 1: Tariff Adjustments
Table 1: Tariff adjustments to cushion domestic industry
Item
MFN Rate (%)
SADC Rate
(%)
Proposed Rate
(MFN/COMESA/ SADC)
%
Steel and Plastic Manufacturers
Printed Polymers of propylene
10
0
40/30
Plastics bags of polymers
15
20
40/30
Plastic basins, buckets, plates & mugs
40
15
40/30
Plastic basins, buckets, plates & mugs
40
15
40/30
PVC Pipes
15
0
15
PVC Pipes
5
0
5
HDPE pipes
15
0
15
HDPE pipes
15
0
15
HDPE fittings
15
0
15
PVC fittings
15
0
15
40+$2.50/kg
5
Woven polypropylene bulk bags
15
15
Woven polypropylene bags
15
15
40/30
Woven polypropylene cloth
10
0
40/30
Paraffin Burners
40
0
25/20
Galvanised steel sheets
15
20
25/20
Cast Iron Pots
40
0
20
Aluminium pots, e.t.c
40
0
20
Articles of iron, e.t.c.
40
0
20
Galvanised steel sheets
15
0
25/20
Wheelbarrows
25
15
40/30
Wheelbarrow Parts
5
0
40/30
Trolley Case/Back Packs
40+$2.50/kg/25
+$2.50/kg
40/30
Dairy and Processing industry
Milk and Cream
40
10
20
UHT Fresh Milk
40
10
US$0.25/litre
Skimmed Milk Powder
0
10
US$2.50/kg
Full Cream Milk Powder
10
10
US$2.50/kg
Raw materials for Dairy industry
Ice cream coating
7|Page
40
10
5
MFN
MFNRate
Rate(%)
(%)
SADC
SADCRate
Rate
(%)
(%)
Aluminium Foil
15
0
Proposed
ProposedRate
Rate
(MFN/COMESA/
(MFN/COMESA/SADC)
SADC)
%%
5
Backed Aluminium Foil
15
0
5
Stabiliser
10
10
5
Ice Cream Sticks
25
5
5
Strawberry Pulp
25
0
5
Pineapple Pulp
25
0
5
Peach Pulp
25
0
5
Item
Biscuit Manufacturers
Raw materials for Biscuit Manufacturing
Ginger Powder
10
0
5
Desiccated Coconut
10
0
5
Paint Manufacturers
Paints Based on Polyester
15
0
20
Paints Based on Acrylic
15
0
20
Other Paints
15
0
20
Pigmented Water Thinned
15
0
20
Other Pigmented
15
0
20
Other Paints
15
0
20
Pigmented Water Thinned
15
0
20
Other Pigmented Paints
15
0
20
Other Pigmented Paints
15
0
20
Other Paints
15
0
20
Pigmented Water Paints
15
0
20
Non-Pigmented Water Paints
20
0
20
Pigmented distempers
20
0
20
Other Non-pigmented
15
0
20
Metal and Electrical Manufactures
Aluminium Cables
10
0
20/30
Aluminium Cables
20
0
20/30
Wire Cables
20
0
20/30
Copper Cables
20
0
20/30
Copper wires
10
0
20/30
8|Page
Item
MFN Rate (%)
SADC Rate
(%)
Proposed Rate
(MFN/COMESA/ SADC)
%
Rubber Industry
Mining Hoses
15
10
25
Mining Hoses reinforced
15
0
25
Conveyer belt with metal
15
0
25
Conveyer belt with textile
15
0
25
Other Retreaded Tyres
5
0
US$2.50/kg
Floor covering
15
0
25
Oil Expressers
Raw materials for Oil Expressing
Emulsifiers
10
0
5
Wrappers for Margarine
10
0
5
Palm Fatty Acid
15
0
5
Spices
40
0
10
Starch
15
0
10
Oil Expressers Finished Goods
Vegetable oil
10
0
40
Margarine
15
15
40
Soap Tablets
10
10
40
Soap Bars
10
10
40
Washing powder (not for
retail)
5
0
40
Blanket Manufacturers
Batting
10
0
40%+US$2.50/kg
Knitted Lingerie
10
0
40%+US$2.50/kg
Knitted Fabric
10
0
40%+US$2.50/kg
Mattress Ticking
5
0
40%+US$2.50/kg
0
40%+US$2.50/kg
Blankets
40%+US$1.5
0/kg
Source: Ministry of Finance and Economic Development
9|Page