CONSTRAINED capacity in productive sectors is bleeding the economy, which is now likely to further decline after the central bank cut the country’s economic growth projection for this year.
Finance Minister Patrick Chinamasa projected the economy to grow by 6.1% in 2014, but this has now been revised downwards to 3.1% by the central bank in line with the World Bank’s projection.
“This year (economic growth) is projected at 3.1%. At this rate we might see it sliding into the negative territory next year,” Deputy Reserve Bank of Zimbabwe governor Kupukile Mlambo told mining executives gathered for a conference in Victoria Falls on Friday.
Zimbabwe’s industry and manufacturing companies are battling to shrug off a tight liquidity crisis that has resulted in capital shortages and expensive short term borrowings in limited instances.
The mining sector, which is fragile owing to excessive government demands for increased revenue, is also facing limited growth this year, said experts, further compounded by weak mineral prices.
The subdued productivity has led to an uncompetitive export sector, said Mlambo.
He said Zimbabwe’s trade deficit, emanating from its high import bill, was set to close the year at $4bn. Exports are expected to top $3.5bn, while imports are expected to notch up a massive $7.5bn by the end of the year.
“This means $4bn is being siphoned out of the economy and this is one of the contributors to our liquidity challenges,” Mlambo said.
Industry capacity utilisation has slumped to below 40%.
Mlambo said the poor performance of the productive and export sectors was likely to lead to a subdued economic growth for the current year.
In 2012, Zimbabwe – emerging from a prolonged period of economic slowdown that culminated in hyper-inflation and empty shop shelves – managed 10.6% economic growth, but this growth momentum slowed down markedly in 2013 to only 3.4%.
The government has shifted its attention to the mining and informal sectors to boost its revenue coffers.
The state revenue collector, the Zimbabwe Revenue Authority (Zimra) has outstanding court cases against companies such as Zimplats regarding revised tax bills and interest accruing from the backdated tax bills.
Monica Gotora, a partner at Deloitte in Zimbabwe said the government tax company should “implement a persuasive approach” rather than a penalising approach aimed at getting money out of the business sector instead of encouraging compliance with tax payments.Advertisement
Sidwell Hove of the World Bank office in Zimbabwe also told delegates to the Zimbabwe mining indaba on Friday that efforts to boost contributions from the mining sector to state revenues needed to be supported by attractive policies and restoring certainty.
“Our fiscal regime has to be supportive and our exploration and development levels are still very low,” he said.
The Fraser Institute released a report earlier this year saying investors feared Zimbabwe because of the uncertainty regarding its “environmental regulations, the legal system and taxation regime”, as well as trade barriers and the poor quality of its geological survey.