DRM –ALTERNATIVE FINANCING STRATEGY FOR ZIMASSET

Innocent Bayai

Zimbabwe’s Economic StatusThe country is characterized with:• faltering health sector• poor infrastructure (road and rail)• power outages• high unemployment• poverty• subsistence agriculture• corruption and depressed economic growth

(Pickbourn and Ndikumana, 2013)– Zimbabwe’s top agenda is to pursue development and

institute economic reforms.

IMAGES OF GDP GROWTH, HEALTH HAZARDS, STATE OF TRANSPORT & POWER INFRASTRUCTURE, SUBSISTENCE FARMING AND HOUSING PROBLEMS

ACTION TAKEN• In 2013, the government en-acted a new Economic turn-

around blueprint titled ZIMASSET (Zimbabwe Agenda for Sustainable Socio-Economic Transformation)

• Meant to address social in-equality and effect maximum exploitation of both human and natural resources (Government Gazzette, July 2013).

• Though noble a policy it is, nothing tangible has been realized owing to lack of resources to implement the policy which amount to a staggering $27 billion in a country whose gazetted 2016 National Budget is just $4 billion!

• The policy was largely premised on external funding which has failed to materialize given an external debt overhang of $8.2 billion (Mundi Index, 2015).

ODA & FUNDING PROBLEMS• ODA is a known panacea to economic woes, however:– Total ODA in 2015 is $651.02m (World Bank, 2015) falls short

of the development needs. – Latest statistics show that, health and social services guzzle

more than 50% of the total ODA availed to Zimbabwe. – Only 2.4% is directed to economic infrastructure and 0.4% to

program assistance with manufacturing getting 9.4% with education and agriculture getting 0.6% and 2.8% respectively.

– The gist is, given these sectoral allocations, infrastructure and public sector investment spending is rock bottom, hence ODA only cannot finance economic growth.

USES OF ODA IN ZIMBABWE

Allocation

HEALTH & POPULATIONOTHER SOCIAL SERVICESHUMANITARIAN AIDPRODUCTION SECTORSEDUCATIONMULTISECTOR/CROSS-CUTTING

SOURCE: OECD/DAC

NEW FUNDING PARADIGM FOR DEVELOPMENT

DOMESTIC RESOURCE MOBILIZATION

NEW FUNDING PARADIGM• Given ZIMASSET funding limitations, Domestic

Resource Mobilization (DRM) is the way to go – especially considering a nation with vast deposits of

gold, platinum and diamonds and a largely literate population.

• This presentation notes the relevant DRM strategies for funding ZIMASSET.

• World Bank (2013) notes that DRM has great potential in Sub-Saharan African given that it has outgrown ODA during the period 2000 – 2013.

PROPOSED DRM STRATEGIES• Tax Administration– Tax administration has great potential of improving revenue generation given

that tax to GDP is currently around 15% whilst the developed states are standing at 35%.

– Though the Zimbabwe Revenue Authority (ZIMRA) has improved revenue collection by digitalizing VAT collection, the tax base continues to shrink given the massive closure of corporates on the back of a sick economy.

– Tax administration thus has to increase the tax base by making efforts to tax difficult to tax sectors such as SMEs.

– Though a lot of revenue is lost through illicit means in the collection of revenue, no action has been taken to clamp down on Revenue Officers crossing the line.

– Corruption has seen the inclusion of revenue officers in smuggling of imports. In a bid to improve revenue collection, porous borders have to be sealed as well as involving the public in voicing the corruption concern since corruption occurs in public circles and business.

– Tax also need to be aligned to the degree of environment degradation caused by comapanies exploiting natural resources.

Efficient Government Expenditure

• This is meant to reduce resources spent thus create fiscal space for investment in infrastructure.– Of worry has been the ‘Salary gate’ where CEOs of state

corporations paid themselves hefty salaries ($500 000) per month as well as ghost workers on government payroll - gobbling 83% of government revenue.

– Taking an employees’ audit and reduction of subsidies allocated to ministries ease aid-dependency and improves credit worthiness hence allow further resources to be accessed.

– Transparency has to be promoted by embracing good governance in state enterprises (World Bank, 2013).

TAX TO GDP 2004-2009Source: World Bank Classification and World Development Indicators

Private Sector Friendly Policies

• The ugly side of Zimbabwean policies has been the mis-alignment of policies since most policies contradict each other. – Indigenization upholds de-tooling foreign owned

corporates whilst competition policies uphold the presence of foreign-owned corporate to promote efficiency.

– Such confusion affects the role of the private sector in the economy.

– Removal of red-tape and hurdles for new investments can enable public-private partnerships hence policy coordination has to take centre stage.

Harnessing Revenue from Natural Resources

• The former Finance Minister Tendai Biti used to point out that revenue from diamond sales was not being availed to the Treasury hence the lack of resources to pay government expenses. – Transparency has to be implemented as well as making

effort to add value to platinum and other minerals (beneficiation) which are being exported raw.

– In the same realm, Multinational Companies doing mining have to pay taxes hence reduce tax avoidance.

Procurement

• Though the Government of Zimbabwe en-acted the Anti-Corruption Commission, the commission hasn’t done much since offenders are still walking the street. – The commission lacks prosecution powers hence

government has to empower this commission. – Non-partisan membership has to be considered in the

commission too.

Establishing a Sovereign Wealth Fund

• Whilst the trend has been the formulation of Wealth Funds by developing countries which can fund long term development projects, Zimbabwe has lagged behind in this realm. – The realization is that, the government has not been

able to save anything owing to a cash budget it has been running hence a long-term focus to sustainable development has to start by embracing the notion of saving for future investment.