ZIMBABWE

THE 2010 MID-YEAR FISCAL POLICY REVIEW

Presented by the Minister of Finance

Hon. T. Biti, M.P.

14 July 2010

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 Table of Contents

INTRODUCTION .............................................................................................................. 7
Recalling STERP I & II .................................................................................................. 8
GLOBAL ECONOMIC DEVELOPMENTS ................................................................... 13
Inflation ......................................................................................................................... 16
Commodity Prices ......................................................................................................... 17
Metals and Minerals ................................................................................................. 17
Crude Oil .................................................................................................................. 18
Agricultural Commodities ......................................................................................... 19
Implications for Developing Countries ......................................................................... 22
SECTORAL DEVELOPMENTS ..................................................................................... 23
Agriculture .................................................................................................................... 25
Cereal Production .................................................................................................... 26
Mining ........................................................................................................................... 30
Diamonds .................................................................................................................. 36
Manufacturing ............................................................................................................... 37
Food, Beverages & Tobacco..................................................................................... 38
Cotton, Clothing & Textiles ...................................................................................... 38
Chemicals & Pharmaceuticals ................................................................................. 39
Metal Industry ........................................................................................................... 39
Leather Industry ........................................................................................................ 40
Fertilizer ................................................................................................................... 40
Tourism ......................................................................................................................... 41
Construction .................................................................................................................. 43
Consumption & Investment .......................................................................................... 43
Inflation ......................................................................................................................... 44
Financial Sector ............................................................................................................ 46
Zimbabwe Stock Exchange ....................................................................................... 49
External Sector .............................................................................................................. 51
FISCAL DEVELOPMENTS ............................................................................................ 53
Revenue......................................................................................................................... 54
Value Added Tax (VAT) ............................................................................................ 55
Customs Duty ............................................................................................................ 55
Pay As You Earn (PAYE) .......................................................................................... 56
Corporate Tax ........................................................................................................... 56
Excise Duty ............................................................................................................... 57
Mining Revenue ........................................................................................................ 57
Other Taxes ............................................................................................................... 57
Non-Tax Revenue ...................................................................................................... 58
Expenditure ................................................................................................................... 58
Recurrent Expenditures ........................................................................................... 60
Employment Costs ..................................................................................................... 60
Civil Service Wage Bill ............................................................................................. 61
Operations and Maintenance .................................................................................... 63
Payments to Service Providers ................................................................................. 64

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 Foreign Travel .......................................................................................................... 64
Foreign Missions ...................................................................................................... 65
Social Service Delivery ............................................................................................. 65
Grants and Transfers ................................................................................................ 66
Capital Expenditures ..................................................................................................... 67
Energy....................................................................................................................... 67
Transport .................................................................................................................. 69
Road Dualisation ...................................................................................................... 69
Airports Infrastructure .............................................................................................. 69
Railway Infrastructure .............................................................................................. 70
Road Maintenance .................................................................................................... 70
Water and Sanitation ................................................................................................ 72
Agriculture Support .................................................................................................. 73
Telecommunications ................................................................................................. 77
Housing ..................................................................................................................... 77
Vote of Credit ............................................................................................................... 78
STRUCTURAL CHALLENGES ON THE ECONOMY ................................................ 80
Reconstruction .......................................................................................................... 80
Equitable Growth ...................................................................................................... 81
Stabilisation .............................................................................................................. 81
Lack of Capital.......................................................................................................... 82
Foreign Direct Investment ........................................................................................ 83
The Liquidity Crunch and the High Cost of Money .................................................. 83
Lack of Fiscal Space ................................................................................................. 84
Debt Overhang .......................................................................................................... 85
Management of Public Resources ............................................................................. 86
Lack of Project Implementation Capacity ................................................................ 86
Skills Gap .................................................................................................................. 87
Energy ....................................................................................................................... 87
High Cost of Utilities ................................................................................................ 90
Other Tariffs.............................................................................................................. 90
Labour Costs ............................................................................................................. 91
Land Utilisation ........................................................................................................ 91
Infrastructure ............................................................................................................ 93
Human Development ................................................................................................. 93
Environmental Protection ......................................................................................... 93
Hyperinflation Hangover .......................................................................................... 94
Accountability over Public Resources ...................................................................... 94
Common Vision ......................................................................................................... 94
Business as Usual Mentality ..................................................................................... 95
REVISED MACRO-ECONOMIC FRAMEWORK ........................................................ 95
POLICY INTERVENTIONS ........................................................................................... 99
Inflation ....................................................................................................................... 102
Duty on Basic Commodities .................................................................................... 104
Lines of Credit ............................................................................................................ 104
Available Facilities in the Second Half of 2010 ..................................................... 106

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 Diaspora Bond ........................................................................................................ 106
SADC Support ......................................................................................................... 107
Foreign Direct Investment .......................................................................................... 107
Leveraging Mineral Resources ................................................................................... 109
Mineral Policy ........................................................................................................ 109
Mining Claims......................................................................................................... 110
Mineral Beneficiation ............................................................................................. 110
Mineral Taxation .................................................................................................... 110
Inter-Generational Fund ......................................................................................... 111
Diamonds................................................................................................................ 111
Rule of Law ............................................................................................................. 111
Commitment to the Kimberly Process..................................................................... 112
Sale of Diamonds within the Kimberly Process ...................................................... 112
Amendments to the ZMDC Act ................................................................................ 113
Diamond Act ........................................................................................................... 114
Past Diamond Sales ................................................................................................ 115
Public Utilities ............................................................................................................ 116
Debtors .................................................................................................................... 117
Wage/Revenue Ratios.............................................................................................. 117
Capitalisation.......................................................................................................... 118
Rationalisation of State Enterprises ....................................................................... 118
Over-sight over Public Utilities .............................................................................. 119
Public-Private Partnerships ......................................................................................... 120
Fuel Importation Transport Mode .......................................................................... 120
Review of Labour Laws........................................................................................... 121
Financial Sector Reforms ............................................................................................ 123
Central Bank Reforms ............................................................................................. 123
Currency Reforms ................................................................................................... 126
Smaller Denominations ........................................................................................... 126
Micro Finance Institutions ...................................................................................... 127
Lender of Last Resort .............................................................................................. 127
Securities Market ........................................................................................................ 128
Securities Rules & Regulations............................................................................... 128
Central Securities Depository ................................................................................. 128
Automated Trading System ..................................................................................... 129
Insurance and Pensions ............................................................................................... 130
Debt Relief Strategy & Process .................................................................................. 130
Debt Management Office ........................................................................................ 131
Multi Donor Trust Fund .............................................................................................. 132
Aid Coordination and Management........................................................................ 133
Data Availability ......................................................................................................... 134
Revenue Retention Funds ........................................................................................... 135
POTRAZ Universal Service Fund ........................................................................... 137
Public Shareholding................................................................................................ 141
Reserve Fund .......................................................................................................... 142
EXPENDITURE RATIONALISATION........................................................................ 143

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 Recurrent Expenditure ................................................................................................ 144
Outstanding Bills to Service Providers ................................................................... 144
Social Protection..................................................................................................... 145
Foreign Service Payments ...................................................................................... 145
Other Recurrent Expenditures ................................................................................ 146
Capital Expenditure .................................................................................................... 146
Energy ..................................................................................................................... 146
Debtors .................................................................................................................... 147
Maintenance Fund .................................................................................................. 148
Pre Payment Meters ................................................................................................ 149
Water and Sanitation .............................................................................................. 149
Transport ................................................................................................................ 150
Aviation ................................................................................................................... 150
Rail .......................................................................................................................... 150
Social Service Delivery ........................................................................................... 151
Education ................................................................................................................ 151
E-learning ............................................................................................................... 152
PUBLIC EXPENDITURE MANAGEMENT ................................................................ 153
Public Finance Management Legal Framework ......................................................... 153
Public Finance Management Act ............................................................................ 153
Audit Office Act ....................................................................................................... 154
Public Finance Management System .......................................................................... 155
Quality Assurance ................................................................................................... 155
Equipment Procurement ......................................................................................... 156
Training................................................................................................................... 156
Internal Audit Training ........................................................................................... 157
District Roll Out...................................................................................................... 157
Help Desk ................................................................................................................ 157
Curbing Accumulation of Bills................................................................................ 158
Vehicle Hire ............................................................................................................ 158
Loss of Public Assets............................................................................................... 159
Tendering ................................................................................................................ 160
Advance Payment .................................................................................................... 161
Contract Management ................................................................................................. 162
Non Performing Contractors .................................................................................. 162
Electronic Funds Transfer ........................................................................................... 163
REVENUE MEASURES ............................................................................................... 164
Redrafting of the Income Tax Act ........................................................................... 164
VAT Fiscalised Recording of Taxable Transactions .............................................. 165
Electronic Cargo Tracking System ......................................................................... 166
Revenue Enhancing Measures .................................................................................... 167
Tax Exemptions and Deductions ............................................................................. 167
Suspension of Duty on Motor Vehicles Imported by Tourist Operators................. 167
Rebates of Duty which no longer reflect Policy Priorities ..................................... 168
Taxation of the Mining Sector .................................................................................... 169
Review of Royalties on Minerals............................................................................. 169

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 Export Tax on Unprocessed Chrome ...................................................................... 170
Special Initial Allowance ........................................................................................ 171
Fees, Charges and Fines .............................................................................................. 171
Fines on Motor Vehicles Used to Smuggle Goods.................................................. 171
Relief Measures .......................................................................................................... 172
Regional Integration ............................................................................................... 172
Duty on Competing Products Imported under SADC ............................................. 173
Suspension of Duty on Inputs used by the Local Industry ...................................... 174
Review of Suspension of Duty on Basic Commodities ............................................ 175
Dumping of Sub-standard Imported Products ........................................................ 177
Rebate of Duty on Fiscalised Electronic Tax Registers and Fiscal Memory Devices
................................................................................................................................. 178
Duty on Textiles, Clothing and Footwear ............................................................... 178
Administration of Certificates of Origin ................................................................. 179
Export of Scrap Metal ............................................................................................. 180
Alternative Energy Sources ........................................................................................ 180
Excise Duty ................................................................................................................. 181
Bond Requirements for Excisable Products ........................................................... 182
Pay As You Earn (PAYE)........................................................................................... 183
Tax-Free Threshold ................................................................................................ 183
Remittance Date ...................................................................................................... 183
Value Added Tax ........................................................................................................ 184
Remittance Period ................................................................................................... 184
VAT Zero Rating - Day Old Chicks ........................................................................ 184
Withholding Taxes ...................................................................................................... 185
Non-Resident Tax on Remittances .......................................................................... 185
Capital Gains Tax ....................................................................................................... 186
Withholding Tax on Unlisted Securities ................................................................. 186
Penalties for Late Payment of Tax .............................................................................. 186
Departmental Practice Notes .................................................................................. 186
Tax Amnesty ............................................................................................................... 187
Dispute Resolution, Objections and Appeals.............................................................. 188
Customs Administration ............................................................................................. 188
Transit Fraud .......................................................................................................... 188
Pre-Clearance of Goods ......................................................................................... 189
Re-organising ZIMRA ................................................................................................ 190
ZIMRA Structure ..................................................................................................... 190
CONCLUSION ............................................................................................................... 191

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 And what the land is, whether it
be fat, or lean, whether there be
wood therein, or not. And be you
of good courage, and bring of the
fruit of the land. Now the time
was the time of the first ripe
grapes. [Numbers 13:20]
INTRODUCTION

1. Mr Speaker Sir, in Article 3 of the Global Political Agreement,

the Parties to the same agreed to “give priority to the
restoration of economic stabilisation and growth in Zimbabwe
and committed to work together on a fully and comprehensive
economic programme aimed at addressing economic
production, food security, poverty and unemployment, and the
challenges of inflation and high exchange rates”.

2. It is exactly 668 days and 5 hours since the Global Political

Agreement (GPA) was signed on 15 September 2010. The
critical question that arises is whether or not the Inclusive
Government has implemented what was agreed under Article
3:1 of the GPA.

3. The 2010 Mid-Year Fiscal Policy Review seeks to update

Honourable Members on the 2009 outturn as well as fiscal and
economic developments to June 2010, that way, Mr Speaker

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 Sir, providing an assessment of economic performance under
the Inclusive Government over the past seventeen months.

4. The Review also proposes the necessary policy interventions

and other measures for the remaining half of 2010, critical for
the economy to remain on course towards realising our set
targets outlined in our Three Year Macro-economic Policy and
Budget Framework for 2010 – 2012.

5. Honourable Speaker Sir, I need to make it very clear that the

current Mid Term Review is only but a review and not a
supplementary Budget.

6. I seek no additional charges to the Consolidated Revenue Fund

as defined by Section 103 of the Constitution. The 2010
Budget will remain the same, with revenue and expenditures of
US$2.25 billion.

7. However, adjustments and re-alignments in certain Votes will

have to be made, largely as a result of the underperformance
of the Vote of Credit.

Recalling STERP I & II

8. Honourable Members will recall that a month after its

inauguration on 16 February 2009, the Inclusive Government
launched the Short Term Emergency Recovery Programme

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 (STERP) as a critical tool in addressing the fundamental
economic challenges and dis-equilibriums affecting and
arresting the country.

9. STERP provided an ideological campus for navigation towards

the rebuilding of the Zimbabwean economy through the
following fundamental matrices:

• Creation of a responsive, yet efficient State that uses

redistributive mechanisms, social rights, while maintaining
social development;
• Building of a strong economy, based on market principles
with careful State interventions to advance social
protection and justice; and
• Establishment of a participatory political democracy
through the new people driven Constitution and the
rebuilding of fundamental democratic institutions in our
country.

10. Mr Speaker Sir, on 23 December 2009, STERP was succeeded

by the Three Year Macro-Economic Policy and Budget
Framework 2010 – 2012 (STERP II).

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11. The Vision of this Framework was to build a dynamic, stable
and sustainable developmental economy whose objectives as
read together with the 2010 National Budget were:

• Sustaining macro-economic stabilisation and consolidating

STERP;
• Support for rapid growth and employment creation;
• Ensuring food security;
• Restoring basic services;
• Encouraging public and private investment;
• Promoting regional integration;
• Restoring basic freedoms; and
• Restoring international relations.

12. Furthermore, it was recognised right from the onset that

achieving the above objectives would require unequivocal and
unmitigated commitment to a National Vision that was above
narrow parochial political interests and recognised the
immutability of a minimum bundle of certain invaluable rights.

13. In short, the development of our own Jeffersonian Principles on

agreed inalienable rights – a counter cyclical political vision that
would remain intact irrespective of changes in the political
landscape.

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14. Apart from the National Vision, it was recognised that the rule
of law, restoration of basic freedoms and democracy were a
necessary precondition for sustained economic recovery.

15. Therefore, the implementation of agreed positions in the Global

Political Agreement around issues of the rule of law, the
Constitution, security of persons and prevention of violence,
freedom of expression and communication, among other things
was imperative.

16. Over and above this, it was recognised that fiscal discipline was
critical for stabilising the economy and, hence, the adopted
principle of living within our means. Therefore, the Revised
2009 Budget of 17 March 2009 made it clear that “What we
Gather is what we Eat”.

17. The net effect of the above was the attainment of substantial
stabilisation of the economy in 2009, with huge gains
particularly in the following areas:

• Inflation reduction;
• Improved capacity utilisation in productive sectors of
agriculture, mining and manufacturing, from below 10%
to around 30% to 50%;
• Removal of price distortions in both foreign exchange and
goods markets;

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 • Resuscitation of financial sector services;
• Some improvement in public service delivery, particularly
in the areas of water and sanitation, transport, health and
education sectors;
• Improvement in social protection programmes for
vulnerable groups;
• Overall business confidence building;
• Policy consistency and predictability on key policy
fundamentals;
• The enactment of key legislation dealing with credibility
and accountability over the use and management of
public resources; and
• Re-engagement with the international community.

18. Mr Speaker Sir, the above economic gains achieved in 2009 are
under threat of being eroded owing to a number of challenges
during the first half of 2010.

19. Shortcomings in the economy have included the threat to

macro-economic stabilisation through the resurgence of
inflation. Over and above this, has been the lack of capital,
modest recovery in capacity utilisation, and more importantly, a
general drop in hope and confidence in the economy.

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20. It is imperative that a new paradigm be adopted during the
second half of 2010. In our view we have to go back to basics
and abandon the “business as usual” mentality. This
economy requires Regeneration, Revival and Refocusing.
These three Rs, should underpin the basis of a frontloaded
growth in the second half of the year.

21. In Regenerating, Reviving and Refocusing this economy

we have to draw the line and adopt a “business unusual
stance”.

22. In drawing this line, this Review will thus:

a. Refocus the economy back to the 2009 trajectory of

discipline and stabilisation.
b. Re-energise and kick-start the economy towards real
growth and real delivery.
c. Re-targeting Government expenditure so that pro-poor
social spending targets on health, education and welfare
are met.
d. Relay the foundation of a common vision on the
developmental State.

GLOBAL ECONOMIC DEVELOPMENTS

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23. The global economy is beginning to show some signs of
emergence from the devastating economic crisis of 2008/2009,
against the background of global financial cooperation, extra-
ordinary fiscal stimulus policy interventions, capital injections
into failing financial institutions, lowering of borrowing costs, as
well as greater labour markets flexibility.

24. However, no sooner was Africa and the rest of the world
beginning to emerge from the global economic crisis was the
world hit by the Euro zone debt crisis, initially centred around
the Greek economy. Concerns also remain over the
performances of other economies, including Spain and
Portugal.

25. The responses of the Euro zone countries to the new debt crisis
have been dramatic and decisive. In Greece for instance, an
Emergency Economic Protection Act was passed on 28 March
2010, generating savings of €4.8 billion that benefitted from
public wage reductions.

26. The slashing of expenditure was met by corresponding

increases in taxes. VAT for instance was increased to 23% and
there was a 10% rise in luxury taxes.

27. In the United Kingdom, the new Government unveiled an

emergency austerity Budget on 22 June 2010. Its main thrust

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 was to address structural budget deficits through cuts in budget
spending, anticipated to amount to savings of 6.3% of GDP by
2014 – 2015. To raise revenue, VAT was also reviewed from
17.5% to 20%, while capital gains tax rose to 28%.

28. Globally, against the background of the anticipated recovery,

world economic growth is projected at a little over 4% in 2010
from an estimated under 1% in 2009.

29. Emerging and developing economies are expected to register

growth of over 6% in 2010, up from under 2.5% in 2009.
Remarkable growth is particularly expected from China and
India with an over 8% growth projection.

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30. If sustained, global economic recovery should underpin
anticipated improved growth of over 4.5% in 2010 for Sub
Saharan Africa. This would also be on the back of continued
implementation of strong fiscal and monetary policies. Last
year, at the height of the global financial crisis, growth for the
sub-region was an estimated 2%.

Inflation

31. In the outlook, inflation which had declined in 2009 to marginal

levels in developed economies and to around 5% in emerging
and developing economies, is projected to rise respectively to
around 1.5% and 6% in 2010. In 2011, decline in inflation is
anticipated.

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Commodity Prices

32. Increased world economic activity will auger well for

international commodity prices, improving export revenue
realisations and growth prospects for commodity exporting
countries.

33. However, vulnerabilities to exogenous shocks remain in

emerging and developing economies.

Metals and Minerals

34. So far, however, gold prices, which averaged US$973 per

ounce in 2009 have been increasing, from US$1 113 in March
2010 to US$1 200 by June.

35. Similarly, platinum prices which had declined from US$1 566.5
per ounce in 2008 to US$1 153.8 in 2009 have been on a
recovery path, reaching US$1 530 in June 2010.

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36. Nickel prices, which had slumped from US$21 000 per tonne in
2008 to US$10 471 in the first quarter of 2009, recovered
remarkably to US$26 031 by the first quarter of 2010.

Crude Oil

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37. On the negative, oil prices have since been rising in tandem
with the recovery in the global economy to levels averaging
US$78.71 per barrel by the first quarter of 2010.

38. Crude oil prices had succumbed to the effects of the global
economic crisis, falling sharply from US$96.99 per barrel in
2008 to US$44.11 by March 2009.

Agricultural Commodities

39. On the agricultural front, cotton prices which had dropped in

2009 to US138.2 cents per kg from US157.4 cents, also
recovered in 2010, averaging US198.6 cents by May.

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40. This compares unfavourably with an average of US60 cents and
US42 cents offered to local cotton growers in 2009 and 2010,
respectively.

41. International average prices for tobacco improved from

US$4.24 per kg in 2009 to US$4.47 in February 2010, before
easing to US$4.39 in April.

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42. Grain commodity prices, however, remain depressed with the
international price of maize falling sharply from US$223.1 per
tonne in 2008 to stabilise at around US$165 in 2009 and 2010.

43. Similarly, wheat prices have been in decline, reaching US$271.7

per tonne in 2010 from US$300 in 2009 and US$454.6 in 2008.

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Implications for Developing Countries

44. Looking ahead, the sluggish recovery in output associated with

high debt and the state of distress of financial markets in most
advanced economies poses major concerns for developing
countries, including Zimbabwe.

45. In this regard, challenges and competition among developing

economies over regaining export markets and attracting critical
investment for sustaining growth will intensify.

46. This makes resolving all the constraints to unlocking new

capital inflows unavoidable. Critical is the finalisation of our
external payment arrears clearance programme, central to
increased access to new financing from potential cooperating
partners and investors.

47. The establishment and maintenance of a conducive investment

environment, underpinned by honouring of Bilateral Investment
Promotion and Protection Agreements will also be necessary.

48. Among others, this will encompass further strengthening of

macro-economic stability, and sustenance of the liberalised
business environment ushered by STERP, free of unnecessary
restrictions and distortions.

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SECTORAL DEVELOPMENTS

49. The positive turnaround in economic activity experienced

during 2009, which saw overall economic growth for the year
revised upwards from 3.7% to 5.7% continued to face
challenges during the first half of 2010.

50. Major challenges undermining robust growth of the productive

sectors relate to the absence of medium to long term financing.
This has constrained critical investment in infrastructure
rehabilitation and the maintenance and upgrading of such key
enablers as sustainable supply of power generation capacity.

51. Furthermore, companies have not been able to realise

meaningful lines of credit to re-tool and access raw materials
for the restoration and improvement of production capacity
utilisation, vital for lowering unit production costs. The
available limited facilities have remained short-term and at high
cost.

52. Our original growth projection for 2010 was 7%. However,
fragile prospects for recovery in economic performance demand
a reduction of this figure. We have, thus, revised our growth
projection for 2010 to 5.4%.

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53. The revised projection figure of 5.4% should not be taken for
granted. A “business as usual” mentality will certainly
guarantee a further downward revision.

54. Indicators of positive performance in the first half of 2010 have

included growth in VAT revenue and output in agriculture
(18.8%), as well as projected growth in mining (31%),
manufacturing (4.5%), distribution, hotels and restaurants
(3.5%) and transport and communication (3%).

Sectoral Growth Rates

Sector 2008 Revised Original 2010
Actual 2009 Est. (Revised
2010 Proj.
Proj.)
Agriculture -39.3% 14.9% 10% 18.8%
Manufacturing -33.4% 10.2% 10% 4.5%
Mining -17.1% 8.5% 40% 31%
Tourism 2.8 % 6.5% 10% 3.5%
Electricity Gas -36.5% 1.9% 3.4% -1.8%
and Water
Construction -8.5% 2.1% 3.2% 1.5%
Finance and -27.9% 4.5% 5.5% 2.0%
Insurance
Real Estate -36.4% 2.0% 2.2% 1.5%
Transport and 5.4% 2.2% 4% 3%
Communication
Public 0% 2.0% 3% 2.0%
Administration
Overall GDP -14.8% 5.7% 7% 5.4%

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 Source: CSO, Ministry of Finance & the Reserve Bank

Agriculture

55. Agricultural growth of 18.8% in 2010 is up on last year’s

14.9%. This is mainly driven by tobacco, up 67.3% from 55.6
million kgs in 2009 to 93 million kgs; maize, up 3% from 1.24
million tonnes to 1.33 million tonnes; and beef up 2% from 93
000 tonnes to 95 000 tonnes.

56. Sustaining viable tobacco pricing in the liberalised marketing

environment should offer scope for increased hectarage under
tobacco production over the coming seasons.

57. In the current season, some 86.5 million kgs of tobacco have
been sold at an average price of US$2.98 per kg by end June
2010. This compares with last year’s auction floor sales of 55.6
million kgs at an average price of US$3.01 per kg during the
same period.

58. Horticulture production in 2010 is also projected to register

growth, rising to 43 000 tonnes against last year’s 35 000
tonnes. There is still much more investment to be undertaken
before production levels rise to levels above 60 000 tonnes
experienced previously.

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59. Depressed cotton prices and financing constraints in 2009
undermined cotton production which decreased from 246 000
tonnes in 2009 to 172 000 tonnes in 2010.

60. However, following interventions by Government and

subsequent review by cotton merchants, the price for cotton
increased to US45 cents per kg this year, up from US30 cents
per kg in 2009.

61. Sugar production during 2010 is also projected to decline below

last year’s levels. In 2009, sugar production was 286 000
tonnes. This year, an estimated 250 000 tonnes of sugar is
anticipated.

Agricultural Production, Main Products (000 tons)

2005 2006 2007 2008 2009 2010

Tobacco 74 55 80 56 55 93
Maize 750 1,485 953 575 1,240 1,300
Beef 90 90 95 90 93 95
Cotton 198 260 235 226 247 172
Sugar 430 447 442 298 286 250
Horticulture 60 64 66 60 35 43
Source: Ministry of Agriculture

Cereal Production

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62. Recovery in cereal production, including maize, during the
2009/2010 agricultural season benefitted from improved
support, timely availability of inputs through the open market
as well as the liberalised marketing environment, which
enhanced viability of farming and boosted overall confidence.

63. The upturn in maize production when taken together with other
grains resulted in an increase in cereal production from 1.51
million tonnes to 1.52 million tonnes against a national
requirement of 1.95 million tonnes, giving a cereal deficit of
432 540 tonnes.

64. The 3% increase in maize production over last season’s

production was in spite of poor performance in the southern
provinces of the country.

65. Improvement in Government support extended to farmers saw

a total of US$227.4 million or 25.9% of total Budget
expenditure mobilised in support of cereal production and local
grain purchase. Of this, US$197.1 million was availed in
support of A2 and vulnerable A1 and communal farmers.

Commercial Credit Scheme

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66. Of the financial support to A2 farmers, Government, in
conjunction with commercial banks secured credit facilities
totalling US$82.9 million for inputs through the GMB.

67. Over-procurement, however, meant that out of the inputs

secured, farmers only collected inputs worth US$59.5 million.
This has left a carry-over stock of inputs valued at US$23.4
million being held at GMB depots comprising 3 685 tonnes of
fertilizer and 8 228 tonnes of seed.

Crop Input Pack Scheme

68. With regard to A1 and communal farmers, Government

financial support largely related to provision of subsidised
fertilizer inputs. Under this scheme, a 50kg bag of AN fertilizer
was sold at US$7 against the market price of US$28.

69. Overall, farmers accessed 32 843 tonnes of top-dressing

fertilizers which Government subsidised to the tune of US$40
million.

70. Government support for agriculture was complemented by

resources amounting to US$74 million mobilised by cooperating
partners under the coordination of the Food and Agriculture
Organisation.

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71. These supported over 738 000 vulnerable households under the
input pack scheme, where each household received two 50kg
bags of fertilizer, one AN and one compound D, as well as 10kg
of maize seed.

72. The combined impact of Government and cooperating partner

support for small holder farmers boosted communal farmers’
maize output to 966 755 tonnes in 2009/2010. In the previous
season, their output amounted to 902 158 tonnes.

Winter Wheat

73. Notwithstanding Government’s US$20 million seeds and

fertilizer inputs support for preparations for the winter wheat
crop, uncertainty in the supply of electricity throughout the
crop cycle has seen an increasing number of farmers reluctant
to invest in wheat production.

74. By the end of the planting season on 31 May 2010, only 10 000
ha had been put under wheat, against the targeted 30 000 ha.

75. Consequently the uptake on the inputs secured by Government

stood at 84 tonnes for seed and 2 015 tonnes of compound D.
This was against available stocks of 720 tonnes for seed and 14
415 tonnes for compound D as at 11 June 2010.

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Mining

76. In mining, productivity in the sector continues to be hamstrung

by erratic power supply. This has meant that mining houses
have not been able to sustain increased production even in
cases where they have had limited access to lines of credit in
support of recapitalisation.

77. As a result, realised output during the first half of 2010 has
prompted downwards revision to overall mining sector growth
from 40% to 31% in 2010. Most of this growth is underpinned
by continued bullish mineral and metal prices.

Mineral Production
2005 2006 2007 2008 2009 2010
Jan Feb Mar Apr
Gold (t) 13.45 10.80 6.80 3.07 4.97 0.61 0.57 0.76 0.52
Nickel (t) 9.47 9.20 9.25 6.35 4.86 0.55 0.48 0.53 -
Coal (t) 3,468.94 2,200.00 2,600.00 1,701.60 1,606.32 193.01 194.18 158.16 140.00
Asbestos () 123.15 110.00 115.00 11.49 5.50 0.86 0.63 0.36 0.10
Chrome (t) 831.88 690.00 693.45 442.58 201.00 0.04 0.04 0.04 0.04
Platinum (t) 4.56 5.19 5.30 5.50 6.86 0.79 0.68 0.75 -

Source: Ministry of Mines, Chamber of Mines

Gold Production

30
Chrome Production

Nickel Production

31
Platinum Production

Coal Production

32
Asbestos Production

Gold and Platinum Production: 2005 - 2009

33
Nickel Production: 2005 - 2009

Chrome Production: 2005 - 2009

34
Coal Production: 2005 - 2009

Asbestos Production: 2005 - 2009

35
Shipments Contribution by Minerals for the first half of 2010

Diamonds

36
78. A total of over 4.4 million carats were produced since the
beginning of the year to May 2010 from the country’s four
diamond mines, which includes Mbada, Canadile, Murowa and
River Ranch.

79. Currently, there is no marketing of the country’s diamonds as a

result of issues related to the Kimberly Process Certification
Scheme, a situation which has also affected traditional
producers - Murowa and River Ranch mines, respectively.

Manufacturing

80. The momentum of recovery in the manufacturing sector has

not been sustained during the first half of 2010 as reflected by
sluggish gains in average capacity utilisation levels still hovering
around 35-40%.

81. Notable exceptions have, however, been noted in the food and
beverages sub-sector where major gains in capacity utilisation
have left some firms operating at about 70%.

82. In line with the experiences of the other production sectors,

manufacturing continues to face major power outages, over
and above absence of meaningful lines of credit in support of
improved capacity utilisation.

37
83. This has sustained production costs at relatively high levels,
with negative implications on the general competitiveness of
domestic manufactured goods against imports from the region
and beyond.

Food, Beverages & Tobacco

84. The food and beverages sub-sector has witnessed notable

growth following liberalisation and the introduction of multiple
currencies in 2009. This allowed increased investment in new
plant and equipment, particularly in the beverages sector where
capacity utilisation increased beyond the initial STERP targets.

85. In line with the other sectors, challenges relate to erratic power
and water supplies, coupled with shortages of working capital
resources.

Cotton, Clothing & Textiles

86. Capacity utilisation in the cotton, clothing and textiles sector

during the first half of 2010 remains below potential production
levels of 700 000 tonnes.

87. During this period, the ginning industry managed to produce

only 240 000 tonnes of lint, also against cotton farmer viability
challenges.

38
88. Other challenges facing clothing and garment manufacturing
include lack of investment, which is constraining industry
efforts to modernise plant and adopt newer and more efficient
technologies. In the absence of this, competition over the
domestic as well as export markets will intensify.

Chemicals & Pharmaceuticals

89. The local pharmaceutical manufacturing industry has the

capacity to supply more than 122 products, which translates to
47% of the country’s essential drugs requirements.

90. However, primarily owing to lack of working capital and skills

shortages, the industry operated at average capacity of below
25% during the first half of 2010.

Metal Industry

91. The metals sub-sector provides strong backward and forward

linkages to sectors such as mining, construction, agriculture,
machinery, and transport. The sub-sector is operating at an
average capacity of below 40%.

92. Challenges associated with Zisco Steel, previously the country’s

major steel producer, have further exacerbated the domestic

39
 metals sub-sector. Zisco accounted for 80% of raw materials
required in the production of steel and other related products.

Leather Industry

93. The leather and leather products industry has capacity to

produce a wide range of products such as semi-produced
leathers, finished leathers, leather clothing, travel bags and
cases, footwear and accessories.

94. Realising this potential, and raise capacity utilisation above

40%, will require major investments to overcome shortage of
working capital and antiquated machinery.

Fertilizer

95. The fertilizer and chemical industry has a strong impact on both
agriculture and manufacturing sector performance. Currently,
about 32% of fertilizer supplies are produced locally, while the
balance are imports.

96. Capacity utilisation currently stands at 40% against the 19%

recorded in 2009. This is expected to increase to around 45%
by the end of 2010, mainly driven by refurbishment of plant at
Sable Chemicals, which will help boost fertilizer output from 40

40
 000 tonnes produced in 2009 to 100 000 tonnes by the end of
2010.

Tourism

97. In the first half of 2010 the distribution, hotels and restaurants
sector which grew by an estimated 6.5% in 2009 showed
further positive signs of growth, recording increased tourist
arrivals, average room occupancy (37%) and overall earnings.

98. Arrivals to March 2010 were up 0.7% to 319 788 over the first
quarter of 2009. To year end, tourist arrivals are projected to
remain upward against the background of sustained macro-
economic and social stability.

99. The market share for the overseas market stood at 12% in first
quarter of 2010. Europe remains the major contributor to the
overseas market arrivals in first quarter of 2010 having
contributed 42% of the overseas market despite a 43%
decrease in tourist arrivals from the region. America has the
second largest overseas market share (22%) after Europe.

100. Africa which is the country’s traditional main contributor to

overall tourist arrivals, recorded an 11% increase in tourist
arrivals from 254 911 in the first quarter of 2009 to 282 528 in

41
the first quarter of 2010, with South Africa alone accounting for
76%.

2006-2010 First Quarter Tourist Arrivals

42
101. Overally, the tourism sector is expected to grow by 3.5%
during the year 2010.

Construction

102. The construction industry, also a barometer for underlying

business developments, has also been showing signs of
resuscitation during the first half of 2010. In this regard,
increased demand for such building materials as cement and
bricks is being experienced.

103. Cement production is, therefore, projected to soar up by 140%

to about 555 000 tonnes in 2010. Similarly, suppliers of bricks
and other building materials have also been experiencing gains
in production, notwithstanding production challenges related to
erratic power supplies and unavailable lines of credit.

Consumption & Investment

104. The adverse effects of accelerating inflation on real incomes

and tighter liquidity conditions slowed down both Government
and private consumption during the first half of the year.
Reflecting this, aggregate consumption during 2010 is
projected to register decline of 2.4%, following a growth of
4.3% in 2009.

43
105. Similarly, aggregate investment growth is forecast to also
decelerate to 26.8% in 2010. The slow down in investment is
attributed to inadequate efforts to mobilise domestic savings,
exacerbated by the “wait and see attitude” of investors linked
to the perceived uncertainties related to the Indigenisation and
Empowerment Regulations.

GDP by Expenditure current prices

GDP Expenditure 2009 (est) 2010 (proj)

(Current Prices)
Nominal GDP (US$ mil) 5,220 5,517
% Change 5.7 5.4

(% Change)
Final Consumption 4.3 -2.4
Private Consumption -4.4 -5.5
Government Consumption 618.9 26.8

Total Investment 748.1 25.1

Government 216.3 298.2

Exports -7.2 23.7

Imports 23.2 5.3
Source: CSO, Ministry of Finance

Inflation

106. Inflationary pressures picked up during the first half of 2010

with year-on-year inflation recording 0.7% in January, 1% in
February, 3.5% in March, 4.8% in April 2010 and 6.1% in May
2010.

44
 Consumer Price Inflation monthly % changes
3.0

2.0

1.0

0.0

M 09

M 10
Se 9
M 9

09

A 9

M 10
A 9

A 0
D 9
Fe 9

O 9

N 9

Fe 0
9

0
9
-0
0

l-0
-0

-1
-0
0

0
-0

1
-0

-1
-0
-1.0 -

-
b-

n-

b-
n-

p-

n-
pr

pr
ug

ov
ct
ar

ar
ay

ay
ec
Ju
Ju
Ja

Ja
-2.0

-3.0

-4.0

-5.0

-6.0
CPI annual % chg eop CPI food inflation
Source: CSO CPI non food inflation

107. The upward movement in prices of the above items partly

reflects wage increases awarded in the first quarter of the year,
which in turn increased unit costs of domestic production.
Tariff adjustments for public utilities, as well as the
strengthening of the South African rand against the US dollar
also contributed to the price increases.

108. However, during the second quarter of 2010, the exchange rate
between the rand and the US dollar had stabilised.

109. Failure to put a tight lid on the resurgence of domestic inflation

would only serve to reduce the competitiveness of local goods

45
 in both the domestic and export markets. The impact on our
already income constrained consumers would be further resort
to lower priced imported products, with adverse consequences
for local production and employment.

Price Indexes Tradable and Non-Tradable Good and services

Consumer Price Index Dec 2008 = 100

Tradable and Non Tradable Goods and Services
100
98
96
94
92
90
88
86
84
82
80
Ma 9

Ma 0
Sep 9
Au 9
Ma 9

Ma 0
Ap 9

Ap 0
Fe 9

-09

No 9

Fe 0
De 9
8

9
9

0
r -0

r -1
g- 0
l-0
b-0

n-0

b-1
r- 0

r- 1
-0

t-0

-1
v-0
c-0

c-0
y-0

y-1
Jan

Jan
Ju

Oc
Ju
De

Tradables
Non Tradables
Source: Based on CSO CPI data All Items

Financial Sector

110. With regards to the financial sector, the challenges remain the
limited domestic deposit base to gradually improve the capacity
of banks to provide meaningful credit to the private sector.

46
 Banking Sector Deposits and Loans

Banking Sector Depostis and Loans

(millions US$ and Depostits/Loans ratio)
2.0 70
60
1.5 50
40
1.0
30

0.5 20
10
0.0 -
M 09

0
A 9

Se 9
09

M 0
A 9

D 9

A 0
O 9

N 9

Fe 0
9

Ja 9

-1
l- 0

-0

1
-0

-1
-0
0
-0

1
-0

-0
-

n-

b-
p-

n-
pr

pr
ct
ug

ov
ar

ar
ay

ec
Ju
Ju
M

Banks Deposits Banks Loans Loans/Depisit Ratio

Source: RBZ

111. This has meant that although there has been some increase in
bank lending throughout the first half of 2010, most loans
remain short term (90 days or less) with longer-term loans
accounting for less than 3% of the overall deposits. This has
created serious challenges for the provision of longer-term debt
capital thereby, limiting the intermediary role of the financial
sector.

112. Credit costs of as much as above 30% and bank spreads of

around 30% remain high, reflecting high credit risks and the
liquidity crunch in the economy.

47
 Banking Interest rates on loans and deposits

Banking Interest Rates on Loans and Deposits and Spread

(maximum annualized rates charged)
30.0
25.0
20.0
15.0
10.0
5.0
0.0
9

0
-0 9

-1 0

-1 0
-0 9
9

0
9
9

0
r -0

r -1
l- 0
g-0

t- 0
r- 0

r- 1
v -0
c -0
y -0

y -1
Jun

Jan

F eb
S ep
Ju
Ap

Ap
Oc
Au

De
Ma

Ma
No
Ma

Ma
Source: RBZ Deposit Rates Lending Rates
Spread

113. In terms of loans distribution, agriculture, transport and

distribution followed by manufacturing were the biggest
beneficiaries while construction got the least.

Sectoral Distribution of Loans

48
 S ec toral Dis tribution of L oans
30%
25%
20%
15%
10%
5%
0%

r
ls

g
is t
g

re

e
in
ce
rin

ua

tio

th
tu
D

in
i
tu

ul

c
v id

O
rv

M
&

tru
ac

Se
ric

di
s
uf

ns
an

Ag

In
an

Co
Tr
M

S ec toral L oan Dis tribution(31 Oc tober

2009)
S ec toral L oan Dis tribution(31 Dec ember
2009)
S ec toral L oan Dis tribution(31 A pril 2010)

Zimbabwe Stock Exchange

114. Trading on the Zimbabwe Stock Exchange has largely been low,
mainly due to market illiquidity in the first half of the year.

115. Foreign participation has remained subdued with investments

mainly confined to portfolio restructurings. Corporate results
have also failed to uplift the equity market as most corporates
are still undercapitalised and also suffering from subdued
demand.

116. Of the companies that sought recapitalisation mainly through

rights issues, shareholder support averaged 50% with the
balance being taken over by the underwriters.

49
117. The Tables below illustrate trading at the Zimbabwe Stock
Exchange:

Jan Feb March April May June

Industrials 156.52 158.07 142.37 139.01 129.40 127.46
Minings 209.81 215.03 216.85 167.90 159.28 143.08
Source: Zimbabwe Stock Exchange

118. The industrial index which started the year at a high of 156.52
had dropped to 127.46 by June 2010, whilst the mining index
fell from an opening of 209.8 to 143.08.

119. Similarly, market capitalisation fell from US$3.97 billion in

January 2010 to US$3.19 billion by end of June 2010.

Jan Feb Mar Apr May Jun

US$ bn US$ bn US$ bn US$ bn US$ bn US$ bn
3.97 3.55 3.67 3.49 3.25 3.19
Source: Zimbabwe Stock Exchange

120. The poor performance is as a result of investors pulling out

their investments reflecting depressed investors’ sentiment over
perceived financial risks, especially following gazetting of the
Indigenisation Regulations on March 1.

121. In particular, foreign investors’ contribution to market turnover

fell from between 40-50% to an average 20% per month.

50
 Zimbabwe Stock Exchange Indices

Z imbabwe S toc k E xc hang e Indic es

350 1.60%
300 1.40%
250 1.20%
1.00%
200
0.80%
150
0.60%
100 0.40%
50 0.20%
0 0.00%
A pr- May- J un- J ul- A ug- S ep- O c t- Nov- Dec - J an- F eb- Mar- A pr-
09 09 09 09 09 09 09 09 09 10 10 10 10

Indus trial Index Mining Index Makert L iquidity Indic ators

External Sector

122. The overall highlights in the external sector are that

developments in the first half of the year point to further
deterioration in the balance of payments to the end of the year
2010. This is against the background of slower recovery of
exports, absence of external financial inflows, and growing
reliance on imports.

123. Total exports for the first four months of 2010 were US$870
million against imports of US$1 544.5 million, resulting in a
trade deficit of US$675 million.

124. Notwithstanding some commodity price gains, notably gold and

platinum, overall deterioration in the terms of trade during the

51
 first half of 2010 will make it more difficult to finance the trade
and current account deficits.

125. The current account gap is projected to widen further in 2010

to US$1.3 billion as imports rise to a projected US$3.6 billion
for the rest of the year. This is against exports of US$1.9
billion and net private transfers of US$0.6 billion.

126. The current account deficit was largely financed by SDR

allocations and reduction in banks’ foreign assets.

Exports, Im ports & Current Account Balance (% of GDP)

70.0
60.0
50.0
40.0
% of GDP

30.0
20.0
10.0
0.0
-10.0
-20.0
-30.0
2008 2009 2010 2011 2012
Years

Exports Imports Current Account Deficit

2009-2010 Monthly Exports and Imports (millions US$) Source: CSO/ZIMSTAT

Note: Imports exclude imports of electricity

Balance of Payments. Trade Account and Financing

Balance of Payments 2005 2006 2007 2008 2009 Est. 2010 Proj.

52
 (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil)
Current Account (excl.official
transfers) -549 -365 -243 -779 -928 -1326

% GDP -9.7 -6.7 -4.6 -15.7 -17.8 -24

Trade Balance -406 -475 -294 -972 -1622 -1706

Exports fob 1588 1721 1819 1657 1591 1930

% GDP 3.6 3.8 4.4 4.6 5.8 7.2

Imports fob 1994 2196 2113 2630 3213 3636

% GDP 35.2 40.3 40.1 53 61.6 65.9

Non factor services (net) -109 -121 -143 -207 -32 -55

Income (net) -197 -209 -245 -224 -200 -203

Private transfers (net) 163 439 440 625 926 638

Capital Account (Incl. Official

Transfers) 3 88 166 273 -70 729

Overall balance -208 -286 -323 -725 -1908 -597

Memorandum items:

Gross Official Reserves 61 74 153 76 366 156

Months of imports cover 0.3 0.3 0.7 0.3 1.2 0.5

Source: RBZ

FISCAL DEVELOPMENTS

127. Cumulative tax revenue collections significantly improved in the

first half of the year as a result of an increase in tax revenue
and a slowdown in the growth of current expenditures.

128. Revenues for the year are projected to increase to US$1.75

billion, mostly stemming from increased VAT and PAYE
collections, which in turn reflect improved economic activity as
well as increased collection efforts at ZIMRA.

129. Notwithstanding increased tax revenue collections, the fiscal

position remains fragile. The projected growth of revenue of

53
 US$300 million falls far short of the projected shortfalls in the
Vote of Credit US$810 million financing of the original 2010
Budget expenditures of US$2.25 billion.

130. Developments during the first half of 2010 confirm that the
Vote of Credit has not performed at all. If not reversed, this
threatens to leave the 2010 Budget as originally outlined in an
unsustainable position.

131. This will simply mean that the Government will not be able to
fulfil on some of those programmes it set out to undertake.
Sadly, the bulk of the affected areas are in the key Public
Sector Investment Projects, provision of social services
including health and education.

132. This is precisely why a new paradigm is required. Indeed it is

precisely why Refocusing, Regeneration and Revival is
essential. It cannot be business as usual.

Revenue

133. Whereas Customs Duty and VAT collections on imports

accounted for two thirds of revenue during the first four
months of 2009, taxes on income and profits have rebounded
as economic recovery began to take root. Hence, domestic tax
resources now account for two thirds of total revenue.

54
134. Cumulative tax revenue collections for the period January-June
2010 amounted to US$930.7 million, against a revised target of
US$830.5 million. VAT, Pay As You Earn (PAYE) and Customs
Duty contributed significantly to total revenue.

Value Added Tax (VAT)

135. VAT contributed US$349.7 million or 37.6% of total revenue

against a target of US$320.9 million. VAT on domestic and
imported goods and services accounted for US$196.7 million
and US$153.1 million, respectively.

Customs Duty

55
136. Cumulative revenue collections from customs duty for the
period under review amounted to US$132.8 million or 14.3% of
total revenue, against a target of US$128.6 million. Revenue
collections from customs duty for the same period in 2009
amounted to 31.5% of total revenue. Significant progress
towards less reliance on trade taxes in preparation for
harmonisation under the regional integration programme has,
thus, been achieved.

Pay As You Earn (PAYE)

137. PAYE collections for the period January-June 2010 amounted to

US$168.8 million or 18.1% of total revenue against a revised
target of US$139.1 million. PAYE contributions for the same
period in 2009 amounted to US$47.9 million.

138. The significant improvement in performance of this revenue

head is attributed to the re-engagement of employees as
capacity utilisation in industry improves and improved
remuneration is realised in both the public and private sectors.

Corporate Tax

139. Corporate tax contributed US$100.5 million or 10.8% to total

revenue, against a revised target of US$65.1 million. The

56
 positive performance is mainly on account of increased
estimated profit margins emanating from improved capacity
utilisation.

Excise Duty

140. Excise duty collections amounted to US$76.3 million against a

revised target of US$100.6 million. The bulk of excise duty was
collected from fuel and beer, which contributed US$40.8 million
and US$16.7 million, respectively.

Mining Revenue

141. Mr Speaker Sir, the contribution of mining to Budget revenue

during the first half of the year remained low. This is indicative
of key structural deficiencies in our taxation of mining sector
activity.

142. Hence, while it is fact that Zimbabwe has a diverse spread of

exploitable mineral resources, it is fact that the contribution of
this sector to the fiscus has been minimal.

Other Taxes

143. Revenue collections from other taxes for the period under
review amounted to US$54.9 million or 5.9% of total revenue.

57
 Collections from domestic dividends and interest, other indirect
taxes and carbon tax contributed the bulk of revenue
amounting to US$16.1 million, US$14.5 million and US$13.3
million, respectively.

Non-Tax Revenue

144. Non-tax revenue is comprised of royalties, fees, charges and

fines, pension contribution and revenue from investment and
property. Collections from non-tax revenue during the period
January-June 2010 amounted to US$47.6 million or 5.1% of
total revenue against a target of US$44.5 million.

145. Although the revenue head performed below target, there was
a significant increase in collections from fees and charges,
benefiting from the review at the beginning of 2010.

Expenditure

146. Expenditure developments during the first half of 2010

continued to be guided by cash budgeting adopted by
Government since February 2009.

147. Total expenditures during the first half to June 2010 amounted
to US$813.4 million. Of this, US$720.5 million(89%) went
towards current expenditures, whilst US$123.7 million was for

58
 capital development projects. The balance of US$32.4 million
was spent under the ZIMRA grant.

148. The amount attributed to capital expenditure falls far short of

the requirements, if we are to address the infrastructure
challenges facing this economy.

149. First half expenditure performance is shown on the pie chart

below.

150. The current expenditure structure of the Budget where 82% of

expenditure is recurrent underpins a complete absence of fiscal
space and is unsustainable. This is precisely why this Review
proposes a Refocus for the second half of the year.

59
 Recurrent Expenditures

151. The bulk of the current expenditures of US$720.5 million for

the six months January-June 2010 were on employment costs
inclusive of pension, goods and services and transfers to grant
aided institutions as detailed below.

152. The positive revenue performance during the past six months
should ordinarily have allowed us more flexibility in addressing
other critical expenditure issues affecting the country,
particularly infrastructure. However, this was not possible as
some budget items, particularly the wage bill continued to
crowd out social and development expenditures.

Employment Costs

153. Employment costs comprised the civil service wage bill,

pensions and remuneration to grant aided institutions. These
amounted to US$493.2 million against total Government
revenue collections of US$930.7 million.

154. As a result of the wage bill absorbing a disproportionate share

of revenue, fiscal space for non-wage operational expenditures
as well as critical capital expenditures urgently needed for
rehabilitation and infrastructure development was reduced.

60
 Civil Service Wage Bill

155. The graph below illustrates developments and fluctuations on

the payroll and wage bill for the civil service.

61
156. The wage bill has been steadily growing over the last six
months, from an average of US$50 million over the first two
months, rising to US$55.1 million by June.

157. This outturn is mainly because of a net growth in employment

levels of 19 170, for which the Ministry of Education, Sport, Arts
and Culture is accounting for 15 197 (79%) as illustrated in the
graph below:

62
158. The current wage bill levels of around 60% of the total Budget
and 15% of GDP compromises both non-wage operational and
critical capital expenditures. Regional best practices indicate
levels of 30% of the total Budget and 10% of GDP.

Operations and Maintenance

159. To date, expenditure on Operations and Maintenance stands at

US$126.1 million against a target of US$120 million. The
expenditures are comprised as follows: rentals and vehicles and
other hire services (US$31.6 million), foreign travel (US$13.1
million), Ministries’ programme expenses (US$35.2 million),
maintenance of buildings and equipment (US$14.3 million),
domestic travel (US$4.6 million) and other operational
expenses (US$27.3 million) as indicated in the graph below.

63
 Payments to Service Providers

160. The 2010 Budget Statement to Parliament reaffirmed

Government’s commitment to clear all outstanding payments to
service providers in such areas as telecommunication, vehicle
hire, office accommodation, water and other utilities. These
arrears stood at US$46 million as at January 2010. We have
managed to pay US$18 million so far. Notwithstanding this
payment, our arrear position as at June 2010 stands at US$58
million.

Foreign Travel

64
161. Expenditure on foreign travel declined significantly to 10% of
operational expenditure in the period up to June 2010. This is
comparable to a share of 24% for the same period in 2009.

162. It remains essential that we tighten control on travel expenses

given the need to free resources for other critical service
delivery oriented expenditures.

Foreign Missions

163. Support to Foreign missions in the first half of 2010 amounted

to US$12 million. Notwithstanding this expenditure level,
Government has not made any progress in halting the
accumulation of arrears.

Social Service Delivery

164. Whilst resources at the disposal of Government remain limited,

notable investments have been made in the health sector to
reverse decline suffered over a number of years.

165. To date, nine hospitals, namely Harare, Mpilo, Ngomahuru,

Mutare, Ingutsheni, Gweru, Karoi, Masvingo and Gwanda are
already benefiting under the targeted approach. The
intervention by Government has resulted in an improvement in
the availability of drugs, medical equipment, other medical

65
 supplies, food, linen and improvement in the general ambiance
of the hospitals.

166. As resources become available more hospitals will be targeted.

167. In the education sector, support amounting to US$8 million has

been received targeting the BEAM programme and
procurement of textbooks.

168. The achievements attained in the social sectors would not have
been possible without the much appreciated support from our
cooperating partners.

Grants and Transfers

169. A total amount of US$29.7 million was expended with respect

to the non-wage operational expenses of grant-aided
institutions as well as payments of contributions to regional and
international organisations.

170. From the US$28.1 million disbursed as operational support to

granted-aided institutions, US$1.9 million supported the
operations of State Universities, local and foreign based
students (US$5.7 million) and the processing and marking of
national examinations by ZIMSEC (US$1.3 million). Health

66
 institutions, including Mission Hospitals and Parirenyatwa Group
of Hospitals received US$4.3 million.

171. The Central Statistical Office received US$0.5 million to finance

the conduct of the field mapping exercise critical for the holding
of the 2012 Population Census.

Capital Expenditures

172. Capital expenditures amounted to US$123.7 million as at end of

June, inclusive of US$20.9 million under the Vote of Credit.

173. The total resources spent on total capital expenditure to date is

14% which is a marked improvement from the 4.5% spent in
2009. The fact of the matter is that there has to be a Refocus
of expenditures to achieve sustainable levels of capital
expenditure given the state of infrastructure in Zimbabwe. It
cannot be Business as Usual.

Energy

174. The focus of Budget intervention in the power sector during the
first half of 2010 has been to reverse decline in domestic
generation capacity particularly at Hwange Power Station.

67
 Hwange Power Station

175. Government has availed US$10 million for the procurement of

critical spares and plant items. This intervention will also
enable the ZPC to maintain the safety of the Ash Dam.

176. The above amount falls short of the US$125 million required at
Hwange Power Station in order to increase production from the
current 300 MW to 780 MW as well as achieve reliability of the
plant.

177. Most of the plant equipment is unreliable resulting in irregular

generation and supply of electricity to the economy. Whilst the
plant requires regular maintenance, it has not been possible
over the years to maintain the plant as per the prescribed
frequencies largely due to lack of resources.

178. Major areas such as coal handling facilities, boilers, water

pumps, auxiliary plant, etc all require major rehabilitation to
improve the performance of the plant.

Kariba Power Station

179. Kariba Power Station, which currently produces 750 megawatts

of power, remains the only reliable source of power to the
country. To ensure continued production and reliability of the

68
 plant, an amount of US$14 million is required for refurbishment
and rehabilitation of plant and equipment.

180. Equally there are challenges with regards to the transmission

and distribution networks that have to be addressed with
urgency.

Transport

181. An amount of US$33.4 million was disbursed for road

dualisation and bridge construction (US$10.3 million) as well as
the railway track infrastructure (US$5 million) and upgrading of
airports (US$18.1 million).

Road Dualisation

182. Work is already underway to complete the dualisation of

Harare-Masvingo and Harare-Gweru road including construction
of Manyame and Mukuvisi bridges.

Airports Infrastructure

183. Resources amounting to US$18.1 million have also been

provided for the rehabilitation of taxiway at Harare
International Airport and completion of J.M Nkomo Airport

69
 which is due to be opened before the end of the year. I am
aware that CAAZ had requested resources for the construction
of the car park at J.M Nkomo Airport. Such a project is ideal
for public private partnership arrangement, CAAZ, therefore,
should start engaging the private sector in this regard.

Railway Infrastructure

184. With regards to railway infrastructure, focus has been on the

rehabilitation of track infrastructure as well as signaling, to
improve communication and reduce accidents along the line.

Road Maintenance

185. Large requirements in support of road maintenance have

necessitated the introduction of toll gate fees to complement
the limited available Budget resources, for which an amount of
US$1.1 million was availed from the fiscus towards re-grading
of 23 roads of 1 121 km during the first half of the year.

186. The introduction of toll fees has provided additional resources

for the maintenance and rehabilitation of our road network
which spans about 90 000 kilometres.

187. For the first five months of this year, ZINARA has raised
US$23.2 million from toll and road access fees. Of this amount,

70
US$15 million has already been disbursed to the road
authorities for the maintenance of our road network as follows:

ROAD AUTHORITY DISBURSEMENTS TO

JUNE 2010
Urban Councils 200,571
Department of Roads 4,984,251
DDF 1,193,000
Rural District Councils 8,330,139
ow
Beitbridge 32,534
Bikita 26,179
Bindura 2,590,000
Chamunika 510,000
Chimanimani 54,869
Chipinge 46,147
Chivi 50,321
Gokwe North 28,293
Guruve 10,000
Gwanda 52,079
Hwange 65,659
Karoi 24,267
Kusile 37,983
Makonde 46,049
Matopo 38,575
Mazowe 190,000
Mberengwa 42,248
Mhondoro-Ngezi 1,830,000
Mudzi 25,754
Mutare 65,568
Mutoko 56,569
Muzarabani 27,319
Mwenezi 59,841
Nkayi 53,000
Nyaminyami 30,315

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 Nyanga 46,362
Pfura 137,655
UMP 23,632
Zaka 24,112
Zibagwe 34,000
Zvimba 2,070,809
GRAND TOTAL 14,707,961

Water and Sanitation

188. Budget interventions in the water and sanitation sector during

the first half of 2010 remained focused at supporting the
restoration of minimum adequate services. This is against the
background of the cholera outbreak of 2008 which brought to
the fore the problems afflicting the sector.

189. In this regard, Government has called upon local authorities to

play a more meaningful role in the restoration of the water and
sanitation infrastructure by dedicating a percentage of the
revenue collected from water and sewerage charges for re-
investment.

190. Government has already availed US$7 million for the

construction of the Mtshabezi pipeline. Furthermore, resources
for the rehabilitation of water and sewage infrastructure have
been provided to Bulawayo City Council (US$6.4 million),
Marondera Town Council (US$2.9 million), and Mutoko Rural
District Council (US$180 000). Work is also currently underway

72
 to quantify the requirements for Mutare and Gweru City
Councils.

191. Interventions have also been made during the first half of the
year to accelerate efforts targeted at providing potable water
and promoting sanitation within our rural communities. This
includes addressing non-functional boreholes, central to
adequate rural water supply and sanitation.

Agriculture Support

192. In my presentation on the sectoral developments, I have

already alluded to Budget support for the agricultural sector
which has received the largest share of fiscus resources during
the first half of the year.

193. Agriculture financing for the year was US$252.4 million broken
down as follows:

Government Funding Cooperating Partners

Type of US$210 US$66 US$1.6 US$40 Total Vulnerable EU Large
Product million million million million Input Facility Scale
Facility Facility Facility Facility Farmers
Support
US$ US$ US$ US$ US$ US$ US$
Seeds 5,776,030 30,058,569 _ _ 35,834,599 14,593,400
Fertilizers 11,574,342 29,721,902 1,695,000 40,000,000 82,991,244 28,500,000 25,000,000
Working

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Capital _ 4,300,000 _ _ 4,300,000 30,906,600
Total 17,350,372 64,080,471 1,695,000 40,000,000 123,125,843 74,000,000 25,000,000

Summary US$
Cereal Production 222,125,843
Grain Procurement 30,280,000
o/w Total Government Funding 143,405,843
GMB loan 10,000,000
EU Support 25,000,000
Other Donors Funding 74,000,000
Total Support 252,405,843

194. Of the resources managed through commercial banks, with a

subsidy element that allowed farmers to acquire US$59 million
worth of inputs at affordable prices, the end of June had been
targeted for the collection of substantial repayments.

195. Mr Speaker Sir, participating banks are, therefore, expected to

follow up on their clients as they market their produce and start
loan recoveries from 1 August 2010.

196. Government is, however, aware of the fact that some farmers
still have crops in the field and are not ready for marketing due
to high moisture content, some have not yet received their
money from buyers with others having been adversely affected
by the uneven rainfall pattern.

74
197. It has also been observed that some farmers got more inputs
than required to hoard for the up-coming season and,
therefore, are failing to meet loan repayments from the past
cropping season.

198. It is against this reality that banks have to categorise their

clients and firm up on binding repayment arrangements. The
collections should allow for the revolving of funds for input
support. This is critical for sustaining access to financial sector
facilities for bigger support in coming agricultural seasons.

Strategic Grain Reserve Purchase

199. During 2010, Budget support for agriculture will have to extend
to provision of resources in support of grain procurement from
farmers for the Strategic Grain Reserve through the GMB.

200. The procurement of grain will also facilitate movement of maize

to the deficit southern parts of the country.

201. Last year, Government similarly capacitated the GMB with the
support of financial institutions to the tune of US$10 million to
procure 26 041 tonnes of grain for Strategic Reserves.

202. An additional US$20.2 million was availed in 2009 directly from

the fiscus, procuring for the Strategic Grain Reserve held

75
 through the GMB 54 055 tonnes of grain of which 34 714
tonnes was maize whilst 19 342 tonnes was wheat.

203. In 2010, Government is targeting to procure 80 000 tonnes

from local farmers at a price of US$275 per tonne through the
GMB. Resources amounting to US$26 million are required to
secure this tonnage.

Grain Procurement & Importation

204. The involvement of the State in grain procurement for the

Strategic Grain Reserve will be alongside grain purchases by
private players who last year, following the deregulation and
liberalisation of the marketing of agriculture commodities,
played a critical role in the importation and local purchase of
grain to meet the national grain deficit.

205. Grain millers and cooperating partners imported in 2009 a

combined tonnage of 530 000 tonnes of grain, whilst other
private importers imported 150 000 tonnes of mealie meal, with
Government playing a facilitative role.

206. Given last year’s demonstration by private importers to import

680 000 tonnes using own resources, it is still relevant for
Government to continue playing the facilitative role in grain
importation.

76
207. This reduces pressure on the fiscus, allowing Government to
concentrate on mobilising resources for local maize purchasing
and movement to deficit areas.

Telecommunications

208. Budget efforts in the first half of 2010 to facilitate investment in

broadband telecommunications saw Government avail
resources amounting to US$6.2 million to Tel One for the fibre
optic link from Harare to Mutare and US$1 million for the
installation of 5 new radio transmitters.

Housing

209. In housing, the Budget disbursed an amount of US$10 million

as seed money for housing development, including off site
infrastructure.

210. This will require complementary support by Local Authorities

through provision of land for housing, with the private sector
also playing its part in addressing the housing problem.

Institutional Accommodation

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211. Institutional accommodation for Government Ministries remains
a major challenge.

212. It is, therefore, critical that on-going projects like Central and
District Registries, Lupane Composite be completed on time.

213. I am, however, concerned with the slow pace of

implementation at the Central Registry building where, despite
availing resources in March no meaningful work has been
recorded on the ground.

214. Given the lack of will power and urgency, being exhibited by
the implementing agencies for this particular project, Treasury
is, therefore, serving notice to redirect these resources towards
performing projects.

Vote of Credit

215. The 2010 Budget targeted provision of US$810 million through

the Vote of Credit in support of mostly infrastructure and social
protection programmes in health, education and rural
development.

216. Unfortunately, limited cooperating partner support has meant

that as of 30 June 2010 only US$207 million had been made

78
 available in support of various programmes budgeted under the
Vote of Credit.

217. Some of the key projects are as follows:

SECTOR PROJECTS / SOURCE OF TOTAL

PROGRAMMES FUNDING DISBURSED BY
30 JUNE 2010
Agriculture Procurement of seed and DFID / GRM US$9.3 million
fertilizers.
Health Medical supplies, HIV/AIDS, UN Agencies, US$127.3 million
TB & Malaria programmes. Global Fund &
others
Education Procurement of text books UNICEF US$12.7 million
for primary schools.
Local Water & Sanitation UNICEF US$17.4 million
Authorities programmes.
Social BEAM, Child protection. UNICEF, IMO, US$17.5 million
Protection WFP
New New Constitution Making UNICEF / ICRC US$5.7 million
Constitution Process.

218. Of the total disbursed amount, health got the largest share of
about US$127 million for programmes related to the purchase
of drugs and combating of Malaria, Tuberculosis and HIV/AIDS.

219. Water and sanitation programmes also received over US$16

million for the drilling of over 500 boreholes in urban and rural
areas.

220. The education sector also received an amount of US$12.7

million in support for the procurement of textbooks and

79
 stationery under the Education Transitional Fund. So far 5 300
schools have received stationery purchased under this Fund. In
addition, about 527 000 children benefited from the Basic
Education Assistance Module through payment of school fees
amounting to about US$2 million.

221. Lastly, social protection programmes were also funded to the

tune of US$17.5 million by UNICEF, IMO, WFP for child
protection, food aid, orphans and vulnerable children, while
US$9.2 million from DFID / GRM financed procurement of seed
and fertilizers for vulnerable farming groups.

222. Government is most grateful for the support received from

respective cooperating partners in the identified areas.

STRUCTURAL CHALLENGES ON THE ECONOMY

223. As indicated above, huge gains were made particularly in the

area of macro-economic stabilisation among other areas. On
the back of this, the focus of the 2010 Budget was that of
transformation and growth with the following:

Reconstruction

• Infrastructure rehabilitation and development in the areas

of power, roads, rail, aviation, water and sanitation, and

80
 Information Communication Technology (ICT). This is to
ensure that these utilities underpin overall economic
performance across the entirety of the productive sectors.

Equitable Growth

• Improving delivery of public services in sectors of water

and sanitation, transport, health and education;
• Enhancing social protection programmes to cushion
vulnerable groups;
• Ensuring that women are an equal and legitimate player
and shareholder in the development processes of the
country and, therefore, providing a framework for gender
affirmative programmes as permitted by Section 23 of the
Constitution of Zimbabwe.

Stabilisation

• Consolidating macro-economic stability, focusing on

containing inflation within single digit levels consistent
with the SADC macro-economic convergence criteria
achieved under STERP;
• Intensive and extensive investment promotion drive,
necessary for supporting productive sectors, particularly
in agriculture, mining and manufacturing as well as
infrastructure development;

81
224. To a large extent, a large part of the above objectives have not
been fulfilled. It is important to identify the challenges faced by
the economy to date.

Lack of Capital

225. The challenges in forward thrusting the economy on a

sustained rapid growth and development path include severe
lack of inflows of investment capital resources, estimated in the
Three Year Macro-economic Policy and Budget Framework at
US$10 billion annually. This translates into over US$30 billion
for the period 2010 – 2012.

226. The bulk of these resources can only come from external
sources in the form of both foreign direct investment and lines
of credit, given the current domestic resource constraints.

227. Foreign direct investment and indeed domestic investment are

essential in expanding the production base, thereby, creating
headline employment, aggregate demand and surplus rent
which is the basis of savings and more investment.

228. On the other hand, lines of credit are simply essential in

ensuring the recapitalisation and rebuilding of wasted capacity,
fresh working capital and of course new internal investment.

82
229. However, the country has not been able to attract meaningful
external support in the form of lines of credit, foreign direct
investment and donor support.

230. In 2009, disbursed lines of credit amounted to US$656 million

and were US$192 million in 2010 against commitments of
about US$737 million.

Foreign Direct Investment

231. Zimbabwe has also not been able to attract meaningful foreign
direct investment in the past 18 months. Only US$852 million
was attracted in 2009 and, so far US$105 million has been
invested.

232. Mr Speaker Sir, a large part of the problem related to the

investment deficit has been the political discord in the country.
This contributes towards entrenching negative perceptions over
the competitiveness of our economy. A mitigated political
environment should see Zimbabwe dramatically rise on the
rankings.

The Liquidity Crunch and the High Cost of Money

83
233. The domestic financial market continues to face liquidity
challenges, constraining lending which remains limited and
short-term at high rates of interest.

234. Inadequate efforts by banks to mobilise domestic savings,

coupled with huge demand for money in the economy and
elements of over-borrowings by some banks to meet capital
requirements have all added high premiums on borrowed
money.

Lack of Fiscal Space

235. Owing to the fragility of the economy, revenue collections

estimated at US$1.75 billion are consumed largely by current
expenditures dominated by a high wage bill constituting over
60% of the Budget.

236. This situation leaves little room for high resource requirements
for the accelerated reconstruction agenda.

237. It is critical to bring the issue of the wage bill level in its proper
context against a background of a still fragile economy
characterised by low GDP and low domestic fiscal revenues.

238. Therefore, it is paramount that Government takes immediate

steps to put the wage bill back on a sustainable path, so as to
help create fiscal space for other essential programmes in the

84
 social sectors of health and education as well as capital
development expenditure, which are included in the Vote of
Credit, in the face of uncertainty about donor financing of 2010
Budget priorities.

Debt Overhang

239. The debt overhang estimated at US$6.7 billion remains an

impediment to efforts on unlocking new external financing
requirements for the country’s huge developmental
programmes.

240. This debt has become a major developmental roadblock.

Without its liquidation and in particular the liquidation of
arrears to International Financial Institutions, Zimbabwe cannot
access the huge current stocks of development assistance
domiciled in both Washington DC and Tunis. The
implementation of a debt strategy is, thus, imperative and long
overdue.

241. Resolution of the debt overhang, therefore, remains a priority,

which calls for urgent re-engagement with creditors and the
international community at large for the future development of
the country.

85
 Management of Public Resources

242. Given the low fiscal revenues available for various public
expenditure programmes, mechanisms that ensure effective
utilisation become essential through enforcing accountability
using appropriate legal and institutional frameworks, in order to
derive maximum mileage.

Lack of Project Implementation Capacity

243. In the past, implementing agencies have cited lack of resources

as an impediment to project implementation. We have since
discovered that this is not the case as demonstrated by the lack
of implementation on projects where disbursed resources
remain largely unutilised.

244. Notably, the Central Registry Building is still sitting on availed

US$3.5 million. Similarly, the City of Bulawayo and that of
Marondera have not been able to utilise the US$6.5 million and
US$2.9 million availed, respectively, by Government for their
water and sanitation projects.

245. In the same vein, the Civil Aviation Authority has not been able
to utilise the US$14 million earmarked for the rehabilitation of
taxiways at Harare Airport.

86
246. This also applies to projects under the Ministry of Health and
Child Welfare where from the R100 million availed for
revitalization of hospitals; only R20 million has been drawn
down, resulting in slow progress on the ground.

247. The low uptake of resources is on account of capacity

constraints with regard to project planning and management.
In addition most service providers of inputs do not have
capacity to supply critical construction materials on time,
thereby delaying project completion.

Skills Gap

248. The brain drain experienced during the last decade continues to
affect implementation of various projects and programmes as
well as operations of productive sectors.

249. Strategies for training, retaining and attraction of skilled

personnel will be essential in capacitating both the public and
the private sectors.

Energy

250. The issue of electricity remains the elephant in the house as far
as this economy is concerned. The operational credibility of this

87
 Government remains mulcited by its incapacity to deal with this
issue.

251. It is important that Government deals urgently with the key

issues of power generation, the refurbishment and upgrading of
power transmission lines, and the design, installation, operation
and maintenance of a smart metering project.

252. Further, issues connected with refurbishment and upgrading of

Power Stations must be dealt with the involvement of
Independent Power Producers. In this regard, the decision
taken by Cabinet in its meeting of 6 July 2010 with regards to
power generation in Hwange, Sinamatella and other areas is
commendable. No doubt, the new Minister of energy will
devote his abundant energy to the gestation of some of these
projects.

253. Attracting Independent Power Producers will depend on

Zimbabwe’s capacity to collect revenue from electricity
consumers. Sadly, this is where the Zimbabwe Power Company
is failing.

254. It is, therefore, critical that Government embarks on the

installation, operation and maintenance of a smart metering
project.

88
255. This will entail:

a) The installation of prepayment and smart metering

system to domestic consumers;

b) The installation of automatic meter reading and smart

metering system for large power (industrial and
commercial) users.

256. Over and above this, Government will prioritise the

refurbishment and upgrading of power transmission lines. This
will have the effect of relieving congestion on the ZESA central
corridor.

257. Some of the transmission lines requiring urgent works include

the Triangle to Orange Groove line, Alaska to Sherwood, and
the Hwange to Victoria Falls line.

258. Other projects include Hwange/Insukamini, and

Bindura/Mutorashamga, the latter line which will facilitate
integration in the Southern African Power Pool Region.

259. In addition, the energy sector clearly requires one unified

Regulator. In this regard, Government has agreed on a new
Energy Regulation Bill which will shortly be tabled before
Parliament.

89
 High Cost of Utilities

260. Despite achievements made in economic stabilisation, the cost

of electricity tariffs, water bills and communication charges,
which are a cross-cutting production and consumption variable,
have remained on the high side.

261. This is compounded by supply interruptions and inefficient

delivery of such public utilities as power and water, resulting in
added costs and losses of production.

262. Hence, addressing high cost of utilities complemented by

investment on utilities remain central to overcoming constraints
on productive sectors.

Other Tariffs

263. Challenges related to high tariff charges are not restricted to

the public sector. The private sector also has an array of
tariffs, some validated by Statute, that are levied as a
percentage for such services as provision of security services,
real estate, freight forwarding, auctioneering, the 4%
conveyancing fees charged by lawyers in the transfer of
properties, legal and medical services.

90
264. Recently, the State Procurement Board lost a case in Court for
awarding a tender to suppliers whose charges, though lower,
departed from minimum chargeable rates by security
companies.

265. Hence, a holistic review of all tariffs in both the public and
private sectors will be necessary.

Labour Costs

266. Furthermore, by comparative regional standards, Zimbabwe’s

labour costs are high, making some of our industries relatively
uncompetitive, and that way having the effect of pricing the
country out of regional and global markets.

267. In the shoe industry for instance, Zimbabwe produces less than
one tenth of China’s total output at three times the cost.

268. Recently, the 60% NEC wage increase awarded for the poultry
industry was immediately translated into higher wholesale and
retail prices. Similar experiences are widespread across the
various NECs, with nominated arbitrators awarding wage
adjustments that have no bearing on maintaining regional price
competitiveness, industrial productivity and capacity to pay.

Land Utilisation

91
269. Agriculture remains a key sector to the economy, given its
share of GDP of 16.1% and as a main source of inputs for the
rest of other sectors of the economy.

270. The challenge of restoring the role of agriculture in contributing

to GDP goes beyond provision of financial resources by
Government. Self evidently, no State can comprehensively
finance agriculture. This obligation throughout the world lies
on private capital, the same which requires collateral.

271. Beneficiaries of our Land Reform Programme would also have

to be challenged to fully play their part with regards to effective
land utilisation.

272. Government, on its part will also need to expedite interventions

to overcome the challenges related to absence of a land tenure
system guaranteeing entitlement to land, that way unlocking
land value and facilitating investment on farms. The current
arrangement has so far only been able to process very few 99
year leases, with only 122 having been issued. This year so
far, only 2 leases are being presented as having been issued.

273. Without title deeds or securitised 99 year leases recognised in a

Constitution and in an Act of Parliament, land in Zimbabwe will
remain as dead capital. As long as this economy continues to

92
 be agriculture dependent but without security of tenure, then
all significant growth ambitions will remain unrealised.

Infrastructure

274. Since the 1970s, this country has seen a serious marginal
decline in Public Sector Investment Projects (PSIP).

275. The net effect of this disinvestment has been a collapse of road
and railway infrastructure, an erratic power sector that is not
able to provide more than 50% of the national demand. Our
outdated ICT places Zimbabwe behind regional standards in the
area of fibre optic network and new generation ICTs.

Human Development

276. The fundamental asset of any country is its people. Hence, the
matrix of our human development and social security strategy
needs to deal with access to primary health care, universal
primary education, provision of social safety nets and the main-
streaming of gender across all sectors.

Environmental Protection

277. In addition, we have a duty of securing the protection of our

environment against pollution, waste production, environmental

93
 degradation and dangerous mining practices. The payment of
lip service to the above module has corrosive effect on the
quality and quantity of the economy’s capacity to reproduce
and regenerate itself.

Hyperinflation Hangover

278. The tragedy of the Zimbabwean economy is that many of our

corporates are finding it hard to live with normal legitimate
returns of a stabilised economy. They are refusing to wean
themselves from the hyperinflation drug, a state of intoxication
with drunken consequences.

Accountability over Public Resources

279. A major threat to the effective implementation of our Budget

programmes is the remnants of a culture lack of accountability
and a culture of entitlement, impunity and indifference over
public resources. Individuals take risk and are not afraid of the
consequences of their actions.

Common Vision

280. Mr Speaker Sir, for our economy to move, the stitching

together of a binding National Vision is simply imperative. That

94
 common vision must be based on common national interests,
national values, national opportunities and national threats.

281. The net result of absence of the necessary synergies and

chemistry that are essential to create a national vision would be
a motley of unperformed mandates and unmet promises.

Business as Usual Mentality

282. This economy is suffering the consequences of a business as

usual mentality. No economy has the luxury of inaction.

283. It is imperative and obligatory for everyone in the economy to

adopt a business unusual mentality. Without this business
unusual mentality it would be so easy to slide back to the pre
2009 days of attrition and abrasion.

284. Honourable Speaker, it is self evident why the three Rs are an

imperator. The Regeneration, Revival and Refocusing of
this economy is an essential paradigm in retrenching the
business as usual mentality.

REVISED MACRO-ECONOMIC FRAMEWORK

285. The 2010 original Macro-economic and Budget framework was

premised on a GDP growth of 7% underpinned by projected

95
 positive performance in agriculture (10%), mining (40%),
manufacturing (10%) and tourism (10%). Consistent with this
GDP, an annual average inflation of 5.1% was, therefore,
anticipated.

286. Consequently, revenues were projected at 26% of GDP

translating into US$1.440 billion. In line with the cash
budgeting principle, the 2010 Budget, therefore, provided for
total expenditures of US$2.250 billion inclusive of US$810
million anticipated from international cooperating partners
under the Vote of Credit.

287. However, economic developments during the first half of 2010

necessitated the revision of the above macro-economic
framework. Agriculture, which was originally projected to grow
by 10% has now been revised upwards to 18.8% on account of
improved output growth of maize and tobacco by 3% and 71%,
respectively.

288. However, the positive performance in agriculture was

outweighed by underperformance in manufacturing and
tourism, which are now projected to grow by 4.5% and 3.5%
respectively from the original 10% each. Similarly, the mining
sector was also not spared by challenges such as shortages of
working capital and erratic power and water supply and

96
 therefore is now projected to grow by 31% from the original
40%.

289. As a result, GDP for 2010 is now projected at a moderate

growth of 5.4%, whilst average annual inflation has been
revised to 4.5%.

290. Revenue performance is however projected to improve from

26% to 29.2% of GDP (US$1.440 billion to US$1.75 billion)
owing to improved tax administration and collection efforts.

291. However, owing to the envisaged underperformance of inflows

from donors (Vote of Credit), the overall budget will be
contained within the original resource envelope of US$2.25
billion, necessitating budget rationalisation to meet the gap
arising from VOC underperformance as well as other pressure
areas.

The 2010 Revised Macro-economic and Budget Framework

2010 Orig. 2010 Rev.
2009 Outturn Proj. Proj.

Real GDP 5.7% 7.0% 5.4%

Annual Average Inflation -7.7% 5.1% 4.5%

Nominal GDP US$5.220 billion US$5.561 billion US$5.517 billion

Revenues US$0.973 billion US$1.440 billion US$1.750 billion

97
 % of GDP 18.6% 26% 31.7%

Total Expenditures US$ 1.013 billion US$2.250 billion US$2.250 billion

% of GPD 19.4% 40.50% 40.78%

Overall Balance (U$93 million) (US$810 million) (US$500 million)

Vote of Credit US$93 million US$810 million US$500 million

% of GDP 1.8% 14.60% 9.1%

External Sector
Exports of Goods and
Services US$1.591 billion US$2.018 billion US$1.929 billion

% of GDP 30.4% 36.30% 37.50%

Import of Goods and
Services US$3.213 billion US$3.498 billion US$3.635 billion

% of GDP 61.5% 62.9% 65.90%

292. The above Macro-economic Framework is consistent with most

of the SADC macro-economic convergence targets. In a
number of areas, including inflation, budget deficit, and growth
prospects, Zimbabwe’s economic performance is slowly
beginning to catch up with other members of SADC.

293. Key challenges, however, remain with regards to savings and

investment, import cover, public debt and the current account,
which remain some of the areas we need to address.

Economic Indicators for SADC Member Countries: 2009

GDP GDP GDP per Revenue Expenditure Investment Population Inflation Public
Growth (US$bill) capita US$ bill US$ bill % of GDP below PDL Rates Debt
as %
of GDP
Zimbabwe 5.7% 5.561 432 0.973 0.980 14% -7.7% 150%

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Angola -0.6% 70.53 8,900 30.82 27.91 15.6% 40.5% 13.1% 16.8%
Botswana -5.2% 10.94 13,100 2.675 3.868 26.7% 30.3% 7.3% 17.9%
DRC 2.7% 11.23 300 0.700 2.000 16.7%
Lesotho -2% 1.643 1,700 0.563 0.675 39.6% 49% 8.5%
Malawi 5.9% 4.967 900 1.215 1.325 11.6% 53% 8.5% 58%
Mauritius 2.1% 9.264 12,400 1.857 2.190 23.3% 8% 3.4% 58.3%
Mozambique 4.3% 9.767 900 2.434 3.171 23% 70% 3.5%
Namibia 0.7% 9.145 6,400 2.759 2.913 22.7% 55.8% 8.8% 15.1%
Swaziland -0.4% 2.963 4,400 0.592 0.695 21.8% 69% 8.5%
Tanzania 4.9% 22.420 1,400 3.780 4.693 18.1% 36% 11.6% 24.8%
Zambia 4.5% 12.440 1,500 2.514 2.860 19.5% 86% 13.5% 31.5%
South Africa -1.8% 280.600 10,100 74.920 86.260 20.6% 50% 7.2% 35.7%

POLICY INTERVENTIONS

294. In the aftermath of a decade long economic crisis and the

subsequent introduction of a multiple currency system
supported by the cash budgeting principle, the country is
principally relying on one instrument – “Fiscal Policy” in the
management of the economy. This is unlike most other
economies, managed through complementing monetary and
fiscal policies and supported by external inflows including donor
support among others.

295. Furthermore, owing to the narrow fiscal space with estimated

annual revenues of US$1.75 billion of which more than 85% is
consumed by current expenditures, the effectiveness of this
single fiscal policy instrument is compromised. This is moreso
given the underperformance of the expected VOC of US$810
million of which only about US$207 million had been received
by end of June 2010.

99
296. Under such circumstances, Zimbabwe is virtually on its own,
and requires “embracing a business-unusual approach” in
addressing current development challenges by leveraging its
own potential and available resources.

297. In Regenerating, Reviving and Refocusing it is critical that

Government sets up a stimulus package in support of
productive sectors to jump-start the economy. Such a package
should fundamentally be anchored on potential financing from
the vast mineral resources at the country’s disposal as well as
potential proceeds from privatisation and other sources. The
challenge in the second half of the year is to ensure that
sufficient groundwork is laid out to prepare the launch of this
stimulus package. In the meanwhile, the economy has to
contend with mobilised lines of credit.

298. The above roadmap will be augmented by a focused export

strategy which prioritises value added exports in which the
country has comparative advantage. Therefore, value addition
and beneficiation of our mineral and agricultural commodities
such as platinum, gold, diamonds, tobacco and cotton becomes
an integral part of the recovery and growth strategy.

299. In addition, reorienting the little available domestic resources

and, therefore, enhancing fiscal space for development
purposes will require refocusing, reprioritising and enhancing

100
 the efficiency of expenditures. The ring fencing of a substantial
part of generated revenues for critical capital development
projects will facilitate quick economic recovery.

300. In support of the above efforts, the concurrent reengagement

with the international community will be pursued to accelerate
the development process.

301. Furthermore, it will also be vital to adopt a holistic approach to

development, integrating economic and social objectives which
include pro-poor, inclusive growth and human centred
development.

302. Such a pro-poor and inclusive growth strategy will be achieved

and enhanced by ensuring adequate support to agriculture
being the source of livelihood for the majority of the poor,
living in rural areas. The focus will also be on strategically
supporting and investing in the informal economy which makes
intensive use of labour and generates both employment and
incomes for the poor.

303. Lastly, ensuring a pro-poor and inclusive growth requires

upholding human rights in development. This implies
prioritising access to basic human needs such as food security,
health care, education, housing, transport and access to public
utilities.

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304. In short, no stone should be left unturned in our quest to
Regenerate, Revive and Refocus this economy. As
indicated above, the thrust of this 2010 Mid-Term Fiscal Policy
Review is, therefore, to:

• place the economy back on track by consolidating macro-

economic stabilisation;
• redirect Government expenditures towards critical
neglected social and development areas;
• reorient the economy towards a pro-poor and equitable
developmental state; and
• prepare the economy for a faster and sustainable growth
path.

305. This will, above all, require consistency and predictability of our
policies and embracing a business-unusual approach.

Inflation

306. I have alluded to the challenge posed by inflation as prices are

once again on the rise, threatening the disinflation gains of last
year when we had managed to contain mostly within negative
levels averaging –7.7% by end of December 2009.

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307. Containing inflation will also require removal of supply side
bottlenecks that constrain higher capacity utilisation levels in
our industries. These relate to mobilising working capital and
investment for productive sectors, removing inefficiencies with
public enterprises, particularly power and water and exercising
wage restraint across all the sectors.

308. In the public sector, this will require that we maintain the
Cabinet commitment to contain the public service wage bill at
current levels with any future reviews guided by economic
performance and improved revenue inflows. This stance will be
broadened to embrace public enterprises and local authorities.

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309. Similarly, the private sector will be required to play its part
within the spirit of the Social Contract, which acknowledges the
necessity of relating salaries and wages to productivity.

310. Also central to containing inflation will be ensuring sufficient

supply of goods and services in the market.

Duty on Basic Commodities

311. In this regard, submissions from industry have been that we

maintain some of the prevailing duty dispensation on basic
commodities to facilitate adequate supplies of goods and
services at affordable levels. This is in light of the current low
capacity utilisation of the domestic industry of between 30%
and 50%.

Lines of Credit

312. Undoubtedly the key question affecting industry apart from the
high cost of utilities is clearly the absence of lines of credit and
indeed the high cost of money. In this regard, one of the key
functions of this Statement is the outlining of details on
available lines of credit that should help stimulate the economy
in the second half of the year.

313. In 2009, arrangements with Afreximbank, PTA Bank, as well as

other shareholder loans from parent companies translated into

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 disbursements of about US$656 million against the STERP
target of US$1 billion. The bulk of these resources benefited
mostly the mining followed by agriculture, financial,
manufacturing and the rest of the other sectors.

314. However, during the first five months of 2010, external support
has not been performing to expectations with only US$195.92
million having been disbursed, against commitments of US$605
million.

315. The major financier remained Afreximbank whose facilities for

the first half of 2010 amounted to US$268.5 million.

316. The current prevailing macro-economic stability has also slightly

improved the country’s credit rating resulting in better terms
and conditions for the new facilities. Tenors have improved
from as low as 90 days to as much as ten years, with interest
rates of around Libor plus 5%.

317. In terms of resource distribution, the agricultural sector got the

largest share of US$145 million followed by the financial
(US$19 million), manufacturing (US$13 million), mining (US$10
million) and distribution sectors (US$5million).

318. Below is a table showing the distribution and disbursements of

the facilities:-

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 Facilities approved Disbursements
Sector (US$ millions) (US$ millions)
Agriculture 297.50 148.92
Manufacturing 115.00 13.00
Financial 76.00 19.00
Telecommunications 67.50 -
Mining 33.50 10.00
Tourism 11.10 -
Distribution 5.00 5.00
Total 605.63 195.92

Available Facilities in the Second Half of 2010

319. Consistent with the commitment of ensuring that the

productive sectors improve their capacity utilisation to over
80%, Government is pursuing negotiations with a number of
countries and financiers. This includes those within the SADC
region, as well as those in other parts of the world.

320. Furthermore, the processes to establish the Zimbabwe

Economic and Trade Revival Fund (ZETRF) will be finalised
during the last half of the year with an initial start-up capital of
US$50 million already identified.

321. The money will then be on-lent to Zimbabwean companies

through commercial banks on rates of interests that are Libor
plus 5% and for periods that are in excess of six months.

Diaspora Bond

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322. Over and above these lines of credit, Government in
conjunction with local commercial banks and Afreximbank is
arranging a “diaspora bond” amounting to US$50 million, which
should also benefit our productive sectors.

SADC Support

323. Mr Speaker Sir, Government acknowledges the support of the

SADC Member States with regards to securing additional lines
of credit.

324. In this regard, discussions with various SADC countries are

taking place over facilities to finance Zimbabwe business
entities on the basis of win-win arrangements.

325. The provision of fresh lines of credit in this economy will

provide the necessary Regeneration and Revival that this
economy requires. The next few months will, therefore, see
major energy being expended in operationalising such facilities.

Foreign Direct Investment

326. Most of the challenges including under performance of public

utilities relate to lack of capital, which cannot all be raised from
domestic sources. Sustained economic recovery and

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 development, therefore, hinges upon the ability to attract
foreign direct investment.

327. However, the success in attracting quality foreign investment

requires putting in place a competitive conducive investment
environment. Key factors are security of investment, property
rights and macro-economic stability as well as competitive
returns.

328. In addition, our rating levels on key essential issues such as the
ease to start a business, tax legislation, credit availability,
property registration, the ease of obtaining employment
permits, trading across borders and judicial enforcement of
rights must simply improve.

329. This will require that we remain ready to deal with all the
concerns raised by friendly investors surrounding lack of clarity
and any lingering misconceptions over our amended
Indigenisation and Empowerment Regulations.

330. Quite clearly a new investment law is required that talks to the
many issues raised herein. Over and above this it is important
that a one stop shop for all investment is established in
Zimbabwe. The new Minister of Economic Planning and
Investment Promotion certainly has his work cut out for him.

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Leveraging Mineral Resources

331. Mr Speaker Sir, in the extractive industries, Zimbabwe has got

a goose which continues to lay eggs but with, unfortunately, a
very limited share of these eggs complementing the revenues
of the fiscus.

332. Similarly, communities have not been able to see anything

developmental out of the resources extracted from their
habitats.

333. Hence, a “business unusual” approach is required in mining

if we are to leverage our mineral resources in support of the
country’s development programmes.

334. It will, therefore, be necessary that more openness and

transparency over the exploitation of the country’s natural
resource endowments be instituted.

Mineral Policy

335. Firstly, Government must address all issues related to

exploration and the crafting of an Exploration Registration and
Extraction Mining Policy.

336. It is essential that a database and Register of all known

minerals in Zimbabwe is established. The obligation and

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 imperator of the creation of this Exploration, Registration and
Extraction Mining Register must be codified in the proposed
amendments to the Mining Act.

Mining Claims

337. Secondly, the economy continues to suffer from a culture of

hoarding of Claims and continuous renewal of unmined mining
Claims.

338. Mr Speaker Sir, the principle of “use it or lose it” has to be

incorporated into the new Law. The amendments to the Mining
Act are, therefore, long overdue.

Mineral Beneficiation

339. Thirdly, the absence of value addition and beneficiation of our

minerals continues to perpetuate a false accumulation model.
Real value and transformation is possible only through value
addition.

340. A sectoral approach needs to be adopted in respect of every

mineral that is intended to establish avenues of beneficiation.
Without this, there will continue to be a net outflow of mining
rents from the country.

Mineral Taxation

110
341. Fourthly, the current legal structure codified in our Mining law
that the State can only look to corporate tax and royalties from
the mining sector is unsustainable.

342. The current debate the world over, more recently in Australia,
is an attempt by Governments to find a more equitable mining
taxation model that is not offensive to rational market
principles.

Inter-Generational Fund

343. Finally, to the extent that minerals are an ephemeral national

resource, there must be a formula to benefit future
generations.

344. The setting up of some Inter-Generational Fund to deposit

some proceeds from the mining sector for future generations is,
therefore, imperative.

Diamonds

345. Mr Speaker Sir, the issue of diamonds in Zimbabwe, in

particular the alluvial diamonds at Chiadzwa has become critical
and overblown. Hence, a common understanding needs to be
found on the matter.

Rule of Law

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346. Firstly, it is important that whatever Zimbabwe does must
respect the rule of law and constitutionalism. This, therefore,
means that, the litigation with ACR must be concluded
preferably through a win-win solution.

Commitment to the Kimberly Process

347. In addition, Zimbabwe reaffirms its firm commitment to the

Kimberly Process Certification Scheme (KPCS) and its principles.
In this regard, Government remains ready to address all the
issues raised by the KPCS in their first and second Close-out
Reports of June and September 2009, respectively.

Sale of Diamonds within the Kimberly Process

348. In addressing the above issues, the KPCS and the Government
of Zimbabwe agreed on a Joint Work Plan, which was adopted
by Parties in the Swakopmund Plenary held in November 2009.

349. The Monitor, Mr A. Chikane, was then appointed by the KPCS,

to ensure that Zimbabwe complied with its Joint Work Plan and
a fortiori, with the minimum standards of the KPCS.

350. On 28 May 2010, the Monitor produced his report, the net
effect of which was to state that Zimbabwe had complied with
the minimum standards of KP certification scheme.

351. On page 22 of his report, the KPCS Monitor stated as follows:

112
 “Based on the evidence provided by the Government of
Zimbabwe and private investors, and on his firsthand
assessment of the situation, Zimbabwe has satisfied
minimum requirements of the KPCS for the trade in rough
diamonds. In terms of the Administrative Decision
adopted by the Swakopmund Plenary of the KPCS, the KP
Monitor is ready to supervise exports arrangements, in
close collaboration with the relevant Zimbabwean
Authorities and other relevant parties. The KP Monitor is
available to visit Zimbabwe to conduct certification under
the Supervised Export Mechanism at the invitation of the
Zimbabwean Ministry of Mines and mining Development.
He awaits a notification via electronic mail or fax.”

352. Mr Speaker Sir, if Zimbabwe has complied with the KPCS

minimum standards, then Zimbabwe should be allowed to sell
its diamonds under the supervision of the KPCS Monitor. Any
contradiction is not based on due process and is contrary to the
interests of ordinary Zimbabweans.

Amendments to the ZMDC Act

353. Mr Speaker Sir, the Zimbabwe Mining Development Company

(ZMDC) is in Joint ventures with two companies namely
Grandwell Investments and Core Investments through a
subsidiary known as Marange Investments.

354. In terms of Section 32 of the ZMDC Act [Cap 21:08],

Government of Zimbabwe returns on its shareholding in ZMDC’s

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 operations in Marange is restricted to revenues accruing by way
of a dividend.

355. Government, therefore, proposes to amend the ZMDC Act to

require that all net income be transferred immediately to
Treasury and not be treated as normal revenue as currently
provided for under Section 32.

356. Furthermore, amendments will be proposed to require

immediate disbursements to Treasury following any diamond
sales.

Diamond Act

357. Mr Speaker Sir, there is broad consensus in Government that

there should be a new Diamond Act that requires that all
alluvial diamond mining be conducted by and through the
State.

358. This will be in recognition that it will not be “business as

usual” at Marange and that the State will not allow issuance of
multiple mining licences that facilitate proliferation of small
diamond mining operations.

359. The proposed Diamond Act will also deal with the issue of
compensation and relocation of displaced communities in

114
 Marange, including provision of the necessary social
infrastructure.

360. Furthermore, this Act will provide for the establishment of a

Diamond Fund, which will be part of the overall National Mining
Fund.

Past Diamond Sales

361. Mr Speaker Sir, it is important that any revenue from Marange

is accounted for transparently in terms of the law, with the
Consolidated Revenue Fund receiving its dues in full under
Parliamentary oversight in terms of the Constitution.

362. This will avoid the current opaqueness and suspicions over the
quality and actual value of resources being generated from the
current diamond mining operations in Marange.

363. According to the KPCS Monitor, Zimbabwe has sold at least

US$30 million worth of diamonds from Marange, which
Treasury and ZIMRA have no record or knowledge of. In his
report, the Monitor gives the following details of the sales:

PERIOD OCTOBER 2006 – MAY 2010

SALES VOLUME

SOURCE CARATS CARATS VALUE STOCK

PRODUCED

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MMCZ MOP UP 531,222.01 525,167.76 5,513,134.49 6,054.25

MARANGE 1,367,416.42 1,212,218.40 25,329,683.31 155,198.02

MBADA 3,707,806.01 _ _ 3,707,806.01

CANADILE 714,928.87 _ _ 714,928.87

ACR 129,031.87 _ _ 129,031.87

POLICE/MMMD 31,707.74 35,460.01 209,593.92 (3,752.27)

TOTALS 6,482,112.92 1,772,846.17 31,052,411.72 4,709,266.75

Minus ACR 129,031.87

364. In the short to medium term, the “revival and

regeneration” can be underpinned by income generated from
the extractive industries.

365. To date, our approach has been lackadaisical and indifferent.

Clearly, if we see through the framework advocated in this
Review, we will be somewhere towards attaining the
Developmental State called for in STERP.

Public Utilities

366. Public utilities still face a number of challenges, notwithstanding

the opportunities brought in by the new economic environment.

367. It will, therefore, be critical that we move with speed to deal

with those that can be addressed in the short term. Central will

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 be improved generation of working capital from internal
operations.

Debtors

368. An obvious source will be greater effort at reducing the current

high sums of money tied in debtors, a result of inefficient billing
and revenue collection mechanisms exacerbated by Ministerial
interferences on administrative issues.

369. Boards and management of public entities will, therefore, have

to be directed to implement effective debt recoveries, with
specific set targets and timeframes guided by debtor age
analysis. This will require enforcing settlement of outstanding
debts through disconnections of services by ZESA for electricity,
ZINWA and local authorities for water.

370. In the case of ZESA, improving revenue collection ratio will also
involve completing the upgrading of the billing system.

Wage/Revenue Ratios

371. In a worrying number of public entities, employment costs

consume a disproportionate chunk of revenue realisations, with
some reports of as high as 70%.

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372. In line with Cabinet guidelines over the deployment of
adequate revenue collections towards service delivery and
development, public entities including local authorities will be
required to observe the 30:70 ratio.

373. Under this requirement, particularly with regards to ZESA, local

authorities and ZINWA, at least 25% of the revenue collected
should be earmarked for infrastructure maintenance and
rehabilitation programmes.

Capitalisation

374. The efficiency, competitiveness and effectiveness of most

public utilities is being compromised mainly by under-
capitalisation.

375. Given resource constraints by Government to recapitalise its

parastatals, the focus will be on attracting private capital
through speeding up privatisation as well as public private
partnership models.

Rationalisation of State Enterprises

376. Government has categorised Public entities into three broad

categories namely those to be commercialised, those to be
privatised and those to be restructured.

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377. The Ministry of State Enterprises and Parastatals will be
required to produce, working with line Ministries, case-by-case
time-framed implementation strategies for commercialisation
and privatisation during the last half of the year.

Over-sight over Public Utilities

378. The biggest lacunae in our law governing both Local Authorities
and Public Utilities is that there is no oversight over their
recurrent budgets.

379. Thus, in the majority of cases, the recurrent budgets of these

institutions have been bloated with serious distortions. Many of
these institutions exist to serve top management and not the
national good.

380. The Public Finance Management Act provides a serious

oversight function in respect of the operations of Central
Government. Unfortunately, this law does not cover Local
Authorities and has limited application to Public Utilities.

381. To depart from a business as usual approach and to

Refocus on a trajectory of discipline, legal provisions are
required to have the same oversight protection of the Public
Finance Management Act to apply to Public Utilities and Local

119
 Authorities. Government will, thus, work on the relevant
legislation.

Public-Private Partnerships

382. Cabinet has already acknowledged the potential of private

sector participation in infrastructure development under PPP
Guidelines.

383. To facilitate and expedite implementation on identified projects,

Government is establishing in the Ministry of Finance a
dedicated and specialised PPP Unit.

384. This will be required to provide assistance in identifying and

securing strategic partners, assisting parastatals in raising
finance from the local and external capital markets.

Fuel Importation Transport Mode

385. Importation of fuel by road remains high, notwithstanding

Government investment through CPMZ in the Beira–Harare
pipeline to reduce fuel transportation costs.

386. In 2009, a total of 194,289,701 litres of fuel were transported

by road from Beira, rendering unviable the pipeline which
requires a minimum throughput of 67 million litres to sustain

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 the US$2.2 million monthly pipeline fee under the take-or-pay
arrangement.

387. Measures in support of improved utilisation of the pipeline by

oil companies will include overcoming the challenges related to
handling of disputes with NOCZIM over volumes of fuel
imported through the pipeline.

388. In support, Government has embarked on the restructuring of

NOCZIM to create two separate companies - one for fuel
importation and the other one dedicated to management of
infrastructure. The new infrastructure entity is expected to
overcome the administrative challenges associated with
handling of fuel at depots.

389. Once the administrative bottlenecks are removed and the

necessary confidence restored, Government will institute
through ZIMRA the necessary financial disincentives for road
importation.

Review of Labour Laws

390. There are concerns being raised on inflexibility of current

labour laws in light of high and unsustainable wage demands in
both the public and private sectors. As a result, some
companies, public enterprises and local authorities are failing to

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 meet salary and wage obligations some of which are awarded
by arbitrators.

391. The high wage demands are also being exacerbated by

misunderstandings between employees and employers
emanating from lack of transparency and information
deficiencies necessary for facilitating negotiations.

392. Of further concern as well, is the top-down structure of many

corporate wage bills. In many companies and Parastatals, a
disproportionate chunk of the wage bill is consumed by top
management.

393. The resuscitation and operationalisation of agreed protocols

under the Social Contract is critical. In this regard, the Kadoma
Declaration remains an important instrument.

394. Equally, a review of labour and other related laws consistent

with provisions of the Social Contract with a view of reducing
labour disputes and the related negative impact on the
economy becomes imperative. Such reviews will also seek to
enforce information disclosure vital for facilitating informed
wage negotiations and trust.

395. It should be pointed out that any review of the labour laws
should be done in consultation with social partners and within

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 the context of the Social Contract. The Ministry of Labour and
Social Services is currently engaged in these consultations.

Financial Sector Reforms

Central Bank Reforms

396. Mr. Speaker Sir, a strengthened governance and accountability

framework for the Reserve Bank provides a basis for restoring
the Bank’s credibility and integrity. Indeed, Mr Speaker Sir,
there can be no Regeneration, Revival and Refocusing of
this economy without a stable, functional, debt free Central
Bank.

397. With the amendment of the Reserve Bank Act [Chapter 24:15]
and the subsequent appointment of the Reserve Bank Board,
the focus is now on implementing the requisite governance
reforms through restructuring, and downsizing of the Bank to
align it to core functions under the multi-currency regime.

398. Central to these reforms, is also the issue of addressing the

indebtedness of the Reserve Bank estimated at about US$1.5
billion.

Reserve Bank Debt Restructuring

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399. Government has started working on the restructuring of the
Reserve Bank debt. The strategy entails hiving off the debt
from the Bank through a Special Purpose Vehicle with a view of
appropriately settling proven claims from sale of assets,
investment returns or allocated resources.

400. The disposal of non-core assets shall employ a transparent

process aimed at obtaining full market value of any such
assets.

401. Government will, therefore, be presenting the respective Bill on

restructuring of the Reserve Bank debt before this August
House once we have gone through all the Government internal
processes.

Banks Supervision and Surveillance

402. The rapid credit growth since the introduction of multi-

currencies and the resultant high balance of payments deficit
has increased vulnerabilities of banks and has the potential of
causing a reduction in Banks’ foreign assets.

403. This development necessitates Central Bank to step up

supervisory efforts in order to ensure that the banking system,
withstand the deterioration in the balance of payments position

124
 and the systemic risks stemming from inter-bank trading
exposures.

404. The Reserve Bank will be giving a detailed outline of challenges

facing the banking sector together with respective measures in
the forthcoming Monetary Policy Statement.

Statutory Reserves & Liquidity Ratios

405. As part of the measures to release more resources for lending

by the banking sector whilst at the same time reducing bank
vulnerabilities and systemic risks, Government, through the
Central Bank will be reviewing the Statutory Reserve and
Liquidity Ratio Requirements, whose details will be contained in
the upcoming Monetary Policy Review Statement.

Interest Rates Spreads

406. High lending rates of as high as 30% attributed by banks to the

liquidity constraints in the economy, short term nature of
deposits and high risks, against low deposits rates of as low as
2% attributed also to the short term nature of deposits (more
than 90%) penalise borrowers and discourage savings deposits,
respectively.

125
407. Government will, through the Reserve Bank, continue dialoging
with Bankers’ Association of Zimbabwe with a view of
narrowing interest rates spreads.

408. If the situation does not change, Government will have to take
corrective measures through the necessary Statutory
Instruments.

Currency Reforms

409. Mr Speaker Sir, Government has already stated that the current
multiple currency regime will prevail until 2012, and I wish to
re-confirm this policy position. Thereafter, currency reforms
will be guided by developments in macro-economic
fundamentals.

410. Meanwhile, Government is receiving and compiling various

submissions on the appropriate currency regime, and will
produce a “white paper” that will facilitate public debate at an
opportune time.

Smaller Denominations

411. Under the current multi currency regime, the inadequacy of

smaller denominations has posed a number of challenges in
transactions.

126
412. Treasury will, therefore, be facilitating in the last half of 2010
the importation of foreign smaller denominations and coins.

Micro Finance Institutions

413. Government recognises the role of micro-finance institutions in

providing access to working capital for Small-to-Medium
Enterprises (SMEs), as well as financial services to low income
groups including the self employed and women, who
traditionally lack access to banking and related services.

414. To facilitate the development of the micro-finance sector, a

comprehensive and holistic Micro-Finance Act will be developed
in consultation with stakeholders. This will consolidate the
various fragmented pieces of legislation currently governing the
regulation and supervision of micro-finance institutions.

Lender of Last Resort

415. Resuscitating the lender of last resort function of the Reserve

Bank will facilitate the revival of the interbank market, re-
establishing the overnight lending rate as the benchmark for
market rates.

127
416. In this regard, Treasury will ring fence resources to on-lend to
the Reserve Bank to enable the Bank to resume its lender of
last resort function.

Securities Market

Securities Rules & Regulations

417. Operationalisation of the Securities Act [Chapter 24:25] is

underway following the gazetting of Securities Rules &
Regulations (S.I 100 of 2010). The regulations will strengthen
the Securities Commission’s supervisory capacity to protect the
interest of investors, ensuring transparency and market
integrity.

418. Pursuant to the operationalisation of the Securities Act, the

regulation and supervision of Collective Investment Schemes
(CIS) and Asset Managers will be transferred from the Reserve
Bank to the Securities Commission. This arrangement is
consistent with the provisions of the Securities Act [Chapter
24:25] and, thus, eliminating the fragmentation of capital
markets regulation in the country.

Central Securities Depository

128
419. The Securities Act mandates the Securities Commission of
Zimbabwe (SECZ) to provide for the development of free, fair
and orderly capital and securities markets in Zimbabwe.

420. In order to achieve this objective, SECZ is currently facilitating

a stakeholder driven process of establishing a Central Securities
Depository (CSD), whose principal function is to immobilise or
dematerialise securities.

421. This will ensure that the bulk of securities transactions are
processed in an electronic book entry form, thus, expediting the
settlement of equity transactions and ensuring adherence to
the International Organisation of Securities Commissions
(IOSCO)’s guidelines on securities settlements. This will
improve transparency, market integrity and combat money
laundering through improved regulatory oversight.

422. The CSD is targeted to be in place by December 2010. The

establishment of a Central Securities Depository and the switch
to electronic trading on the Zimbabwe Stock Exchange should
also harmonise the settlement cycles for all securities, equities
as well as bonds.

Automated Trading System

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423. The current ZSE “open cry” manual trading system represents
risk of human error, settlement delays and undermine market
confidence. In this regard, the Zimbabwe Stock Exchange will
establish an automated trading platform by end of the year.

Insurance and Pensions

424. The 2010 Budget Statement announced the minimum capital

requirements for all types of insurance businesses, to ensure
that insurers have adequate capital to underwrite meaningful
business and ensure investor protection.

425. The status of compliance as of the end of June 2010 is as

follows:

Type of business Number of No. of complying Percentage

companies companies compliance
Life Assurance companies 9 8 89
Life re-assurers 3 2 67
Short term insurance 31 23 74
Short term re-insurers 10 8 80
Funeral Assurers 14 6 43

426. The Commissioner of Insurance will proceed to invoke Section

22 of the Insurance Act [Chapter 24:07] in all cases of non
compliance with the minimum capital requirements.

Debt Relief Strategy & Process

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427. With regard to resolving the country’s debt overhang now
estimated at over US$6.7 billion, Government has already
adopted a Sustainable and Holistic Debt Strategy which entails
a homegrown holistic hybrid arrears clearance and debt
management model.

428. This combines traditional debt resolution initiatives and the

creative leveraging of the country’s natural resources for
economic development, also taking cognisance of Zimbabwe’s
specific situation and the need for the removal of sanctions.

429. In the execution of the strategy for debt relief, it is paramount

that we move with speed with regards to the implementation of
Government’s Arrears Clearance and Debt Relief Programme.

Debt Management Office

430. Effective management of public debt has become paramount if

the economic recovery and growth are to be sustained in
future. This is moreso given the current challenges associated
with the unsustainable debt overhang.

431. Guided by international best practices, it is important that debt

management functions be consolidated to ensure effective debt
management arrangements.

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432. Such an enhanced institutional framework for public debt
management will be able to manage the national debt
effectively and plan for a level and rate of growth in the public
debt that is sustainable and consistent with a continued
improvement in the country's growth and capacity.

433. In this regard, Treasury is now in the process of setting up a

Debt Management Office (DMO) with the assistance of the
African Development Bank, which is planned to be operational
during the last quarter of 2010.

434. Specifically the DMO will implement the country’s arrears

clearance and debt relief strategy, review and strengthen
current statutes and regulations where necessary, and give
advice to Government on public debt issues.

Multi Donor Trust Fund

435. Government’s Aid Coordination Policy of May 2009 recognises

the necessity of establishing the Multi Donor Trust Fund
(MDTF) as a Government-Donor conduit for mobilising and
channeling support for Zimbabwe’s economic recovery.

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436. Consequently, the MDTF was established initially under the
coordination and administration of the Word Bank but could not
take off early owing to delays in developing the general
framework and guidelines for operationalising the Fund.

437. A further review of the above challenges culminated in the

transfer of the co-ordination and administration role to the
African Development Bank (ADB), given its strategic role in
spearheading developmental programmes in Africa.

438. Initially, about US$40 million is required to operationalise the

Fund. In this regard, Denmark has announced its contribution
of US$3.5 million, while other donors indicated early
commitment in support of the Fund once declared operational.

439. Treasury is, therefore, following up with various donors on

firming up their commitments as per their pledges in order to
expedite the launch of the MDTF by the targeted date of end
July 2010.

Aid Coordination and Management

440. Development assistance has largely been channeled outside the

national Budget, thereby exacerbating fragmentation of aid
delivery systems into the country.

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441. Treasury is, therefore, finalising an Aid Coordination and
Management Procedures Manual, which seeks to foster a
harmonised and coordinated approach towards development
assistance to Zimbabwe.

442. The Manual provides a set of guiding principles and procedures

for use by key stakeholders and also clarifies the mandates,
relationships and information flows between Government
Departments and Development Partners, in order to ensure
optimal use of external development assistance.

Data Availability

443. The weakening of the Central Statistical Office has created

room for production and dissemination of distorted and
unreliable statistical data by various other entities.

444. Government has, thus, undertaken to reform the National

Statistical System in the country through the promulgation of
the new Census and Statistics Act of 2007, which established
the Zimbabwe National Statistical Agency (ZIMSTAT) as a semi-
autonomous Government agency responsible for coordinating,
supervising, harmonising and monitoring the National Statistical
System (NSS).

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445. The CSO will in the last half of 2010, pursue to complete
various programmes which will culminate in the production of
the following surveys:

• Census of Industrial Production covering manufacturing,

mining, electricity supply, water and construction;
• Quarterly Employment Inquiry covering all sectors of the
economy;
• Business Tendency Survey covering manufacturing and
mining;
• Volume of Manufacturing Index;
• Agriculture and Livestock Survey; and
• Household Income and Expenditure Survey.

Revenue Retention Funds

446. The Public Finance Management Act [Chapter 22:19] mandates

Treasury to establish Funds whenever money is appropriated
by an Act of Parliament for the establishment of such Funds for
specific purposes, or where Treasury deems it necessary or
desirable for the purpose of facilitating the accounting for
public resources that separate Funds be established.

447. A number of retention Funds were established and are

operating under similar provisions of repealed legislation to

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 incentivise Ministries and Departments to follow-up on and
collect revenue due to the fiscus on a timely basis.

448. The Funds so established retain a predetermined percentage of

qualifying revenue collections for use by the Ministry or
Department to augment the resources availed through annual
Budget Appropriations.

449. Virtually all such Funds were retaining amounts received at

source, making it is difficult for Treasury to keep track of
revenue collections due to non-compliance with set operating
and reporting arrangements.

450. Recent inspections by the Treasury to review the operations of

such Funds came across instances of, among other areas of
concern:-

• poor record keeping in respect of transactions involving

Fund resources.
• failure to comply with Statutory and other financial
reporting requirements.
• non-remittance of revenue due to the Consolidated
Revenue Fund and retention of amounts in excess of the
thresholds set in the Fund Constitutions.

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 • non-compliance with provisions of the Constitutions that
regulate Fund management arrangements and
operations.

451. To address these concerns and ensure proper accountability for

all revenue collections, Treasury directed that, with effect from
1 June 2010 Ministries and Departments with Funds whose
Constitutions entitle them to a share of qualifying revenue
receipts remit the full amounts collected to the Consolidated
Revenue Fund.

452. Each Fund’s share of the amount collected will then be

disbursed in line with the entitlements stipulated in the
respective Constitutions after the submission to Treasury of
appropriate reports and verification of amounts collected and
deposited into the Consolidated Revenue Fund.

POTRAZ Universal Service Fund

453. The Postal and Telecommunications Regulatory Authority of

Zimbabwe (POTRAZ) was established in terms of the Postal and
Telecommunications Act [Chapter 12:05] to “ensure the
provision of sufficient domestic and international
telecommunication and postal services throughout Zimbabwe
on such terms and conditions as the Authority may fix”.

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454. The funds of the Authority consist mainly of fees, charges and
other income accruing to the Authority from licences issued.

455. The Act provides that “any surplus of income over expenditure
at the end of the Authority’s financial year shall be appropriated
to the Universal Service Fund” established in terms of the same
Act.

456. According to the audited Statement of Comprehensive Income

for the financial year 2009, POTRAZ had a surplus of US$9 970
234, whilst the Universal Service Fund had income of US$6 994
816. An amount of US$4 506 177.91 has been collected during
the period January–May 2010, bringing the total available for
the Universal Service Fund to US$21 021 228.

457. Mr Speaker Sir, POTRAZ has not provided any concrete plan for
the utilisation of the funds except to indicate that US$6 994
816.52 is committed to specific projects as approved by the
Minister.

458. The Authority has only incurred expenditure of US$45 335.80

for the period January 2009 to May 2010 against the Universal
Service Fund of US$11 500 994.43.

459. Mr Speaker Sir, following discussions over the resource

challenges in the telecommunication and postal sector with the

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 Minister responsible for POTRAZ, I propose that these
resources be utilised in line with the objects of the Universal
Service Fund.

460. Requirements for the national fibre optic backbone amount to a

total of US$39 million worth of cable to cover Harare –
Bulawayo, Gwanda and Beitbridge, as well as Harare – Kariba.
However, the project is being done in phases.

461. Already, Treasury has availed US$6.2 million for Harare –

Mutare under the 2010 Budget.

462. The next phase worth US$10 million is targeted at laying new
fibre optic cable between Harare and Bulawayo, and an
upgrade of cable between Harare and Kariba. The cable
between Harare and Bulawayo will, therefore, be able to
benefit from the under-sea cable coming from Maputo to
Harare.

463. The fibre optic cable for Harare – Kariba will be upgraded from
the current STM16 to STM64, which will result in a four-fold
increase in capacity.

464. Furthermore, notwithstanding significant investments being

undertaken by the three mobile network operators, there is still
much more to be done in both the rural and urban areas.

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465. Cognisant of these requirements, I propose that we utilise
resources available to the Universal Fund as follows:

• US$10 million towards supporting the country’s fibre optic

backbone, critical for the maintenance of high standards
of quality in the provision of telecommunication services.
This will be complemented by an allocation of another
US$3 million through IDBZ.

• US$1 million in support of E-Governance.

• US$2 million towards improving access to ICT in such

under-serviced areas and communities as schools in both
rural and urban areas.

• US$5 million towards extension of cellular

telecommunication services in under-serviced rural areas.

POTRAZ Annual Implementation Plan

466. Mr Speaker Sir, it will be necessary that our legislation

recognises the role of the State in determining the investment
priorities in postal and telecommunication services through
POTRAZ’s Annual Implementation Plan.

467. Since the Fund’s resources are targeted at supporting national

programmes in postal and telecommunication services, it will be

140
 necessary that both Treasury and the Ministry responsible for
POTRAZ are involved in the formulation of POTRAZ’s Annual
Plans.

468. This will require that Parliament re-visits Section 74 of the Act
which currently states that POTRAZ, in consultation with
players in the telecommunications and postal industry, is tasked
to come up with the Annual Plan for the use of Universal Fund
resources.

469. Mr Speaker Sir, I am, therefore, making proposals for the

amendment of Section 74 of the Act to make Government,
through the Ministry responsible for POTRAZ and Treasury,
have oversight on the formulation of the Annual
Implementation Plan.

Public Shareholding

470. Mr Speaker Sir, the challenges I have outlined above also

prevail across a wider spectrum of Government investment and
shareholding. In most cases, Government’s ownership is in
name only, with Government being called upon only to assume
debts and liabilities.

471. I will, therefore, be proposing review of the various legislation

with regards to Government oversight over investment and

141
 utilisation of surpluses generated across the various entities
Government owns.

472. This will include governance legislation over assets and

resources of such entities as ZMDC, ZINARA, IDC, MMCZ, etc.

473. In the case of NSSA, the interest of Government will relate to

strengthening the management of their investment portfolio in
line with the public interest.

Reserve Fund

474. Mr Speaker Sir, the challenges we have been experiencing with

regards to the non-performance of the Vote of Credit for the
Budget have necessitated that we make savings which we have
deposited into a Reserve Fund.

475. Amounts standing to the credit of the Consolidated Revenue

Fund can be set aside as provided for in the Public Finance
Management Act to specifically cater for accumulation of
adequate reserve funds for such items as bonus payments,
capital projects and other anticipated contingent expenditures.

476. Furthermore, to the extent that revenues perform above

budgeted levels, Treasury will undertake to deposit the
additional revenues towards the build-up of Reserve Funds.

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477. This will allow for greater scope to also embark on some of the
infrastructural projects whose resource requirements are larger
than anticipated revenue flows.

EXPENDITURE RATIONALISATION

478. Mr Speaker Sir, the review of the 2010 Budget performance

during the first half of the year clearly indicates some
weaknesses particularly related to three major aspects, namely
lack of fiscal space to support programmes and projects,
underperforming Vote of Credit and lack of project
implementation capacity.

479. Therefore, I am proposing to re-align the 2010 Budget

provisions to also cater for priority areas in an effort to still
meet the original Budget objectives.

480. The rationalisation of the 2010 Budget will entail the following:-

a) Allocating an additional revenue towards already incurred

shortfalls and commitments, including arrears to service
providers.

b) Transferring and recognising expenditures incurred

through the SDR Facility to the respective Votes.

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 c) Financing critical selected programmes and projects
where donors have withheld funding initially earmarked to
come through the Vote of Credit.

481. This rationalisation will be achieved within the original 2010

Budget framework threshold of total expenditure estimates of
US$2.250 billion, taking into account the projected improved
revenue collections of US$1.611 billion.

482. The overriding objective of the 2010 Budget rationalisation

outlined above is to ensure the Budget remains tailored to the
theme “Reconstruction, with Equitable Growth and Stability” as
well as our resource capacity as per the Revised 2010 Budget
Framework.

Recurrent Expenditure

Outstanding Bills to Service Providers

483. Notwithstanding payment of US$18 million, Ministries and

Departments have continued to accumulate arrears on services
provided. Arrears to June 2010 stand at US$58 million.

484. I propose to set aside US$10 million for clearing outstanding

bills. Ministries that accumulate new arrears will have their
Vote allocations reduced by the amount of arrears, which
amount will be directed towards payment of service providers.

144
485. It will be critical that Ministries institute measures that contain
utilisation, thereby reducing accumulation of bills.

Social Protection

486. Acute food deficits have been identified in eleven districts, with
Chivi, Mangwe and Mberengwa having an immediate
requirement to support an estimated 17 340 households. The
remaining eight districts have a total of 63 304 households who
require food assistance from October 2010.

487. I, therefore, propose to allocate resources towards the

implementation of the public works programme. This will be
complimented by resources from cooperating partners to be
mobilised through the Consolidated Appeals Programme.

Foreign Service Payments

488. The effort made to ensure Foreign Services receive up to US$4

million per month during the first half of the year leaves the
2010 Budget provision for this item short by an estimated
US$10 million.

489. This does not take account of the arrears that have
accumulated over the years which stand at US$27 million,
comprised of staff salaries (US$18 million) and running
expenses (US$9 million).

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490. Given our lack of fiscal space, the Ministry of Foreign Affairs,
together with Treasury and those Ministries and Departments
with representation at Missions, are finalising proposals to
rationalise Foreign Service expenditures.

Other Recurrent Expenditures

491. Additional provisions are also required on other recurrent

expenditures such as sub-contracting, foreign travel, cadetship
programme, operations for the security Ministries and some of
the grant aided institutions.

Capital Expenditure

492. The targeted approach to the implementation of projects and

programmes that Government adopted last year has seen
marked improvement in service delivery.

493. Success has hinged on our ability to concentrate resources on

fewer projects. Prioritisation of projects remains necessary
even as we scale up implementation.

Energy

494. Maintenance works at Hwange and Kariba Power Stations need

US$125 million and US$14 million, respectively, to ensure
increased output and reliability in the generation of electricity.

146
495. The performance of all the power generating plants is as
indicated on the Table below:-

Power Station Installed Current Cost of

Capacity Output Production
USc/KWH
Kariba South 750 MW 735 MW 2.39
Hwange Thermal 920 MW 574 MW 6.04
Harare Thermal 80 MW 0 13.04
Munyati Thermal 80 MW 0 13.04
Bulawayo Thermal 90 MW 0 13.04
Total 1 920 MW 1 309 MW

496. The transmission and distribution networks will also need to be

rehabilitated in order to improve systems performance.

497. However, from the Budget I will only be able to re-allocate an

amount of US$15 million to address some of the energy
challenges.

498. Given the limited capacity of the Budget there is, therefore,
need to mobilise additional resources from ring fencing part of
the ZESA monthly earnings and enforcement of debt
collections.

Debtors

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499. ZESA is owed a total amount of US$376 million, with the Table
below showing the distribution of the outstanding debt by
category of customer:-

Distribution of Outstanding Debt (US$ million)

Tariff Current 30 Days 60 Days 90 Days 120 Days Total %
Domestic 16 17 20 68 18 139 37
Public Lighting 1 1 1 2 1 5 1
Mining 5 3 6 6 6 26 7
Industry 12 8 7 5 16 48 13
Institutions 2 1 2 2 1 11 3
Commercial 10 11 14 51 16 101 27
Farming 7 5 6 7 22 47 12
TOTAL 53 47 55 141 80 376 100
% 14 13 15 38 21 100

500. At 37% and 27% respectively, domestic and commercial

consumers, account for the largest proportion of both
consumption and debt.

501. To ensure that users of electricity pay for the use of the
service, ZESA is being empowered to take steps to recover all
outstanding amounts from its debtors with effect from 1 August
2010. Where customers fail to present payment plans, such
steps should include disconnections as necessary.

Maintenance Fund

502. The increase in revenue arising from payment by the utility’s

debtors should be deposited into a Fund to be jointly managed
by Government and ZESA. This Fund would be dedicated

148
 towards the upgrading, refurbishment and maintenance of
infrastructure.

503. Furthermore, I propose that ZESA ring fence part of their

monthly revenue collection of US$25 million towards such a
Fund.

Pre Payment Meters

504. To avoid further development of payment arrears, ZESA is

working on a programme to install 100 000 prepayment
meters. This will enable customers to pay cash upfront and
allow better management of electricity consumption.

Water and Sanitation

505. In all Local Authorities, demand for water and sanitation

services is outstripping supply leading to water rationing,
exacerbated by leakages and burst pipes.

506. Government has already intervened in some local authorities

and for the remainder of the year, focus will be on sewer and
water infrastructure rehabilitation for Gweru and Mutare.

149
507. To this effect, I also propose to allocate a limited amount of
resources to deal with the water and sewer rehabilitation
problems in these towns.

Transport

508. The sector has lost significant capacity due to lack of

maintenance and investment in equipment and infrastructure.

Aviation

509. Whilst the rehabilitation of taxiways at Harare Airport as well as

completion of J.M Nkomo Airport have already benefited from
the US$18.1 million disbursed this year, there is a requirement
for a new instrument landing system at J. M Nkomo Airport.

510. I am proposing to allocate an amount of US$3.6 million for this

requirement.

Rail

511. Ageing equipment, depreciation of track infrastructure,

compounded by vandalism and theft of cables and signaling
equipment has undermined the performance of NRZ. Already,
415 km of the track is operating under cautions/speed
restrictions.

150
512. In order to facilitate NRZ to speed up the rehabilitation
programme, I also propose to provide US$2 million towards this
purpose.

Social Service Delivery

513. Support to the social sectors particularly, health and education,

remains one of the top priorities for Government.

514. In the health sector, the targeted approach to the

implementation of projects will continue. The 2010 Budget
identified 10 institutions of which 7 are already under
implementation, including Harare and Mpilo central hospitals.

515. The remaining three institutions, namely United Bulawayo

Hospitals, Masvingo and Gwanda will be attended to during the
remainder of the year through re-direction of allocations within
the Health Vote.

516. In addition, Government will also be procuring 40 ambulances

as well as other medical equipment.

Education

151
517. In order to improve quality of education in our schools,
Government will be procuring about 40 supervision vehicles to
be used by education inspectors.

518. Students at most State universities face an acute shortage of

accommodation. To alleviate this challenge, it is critical that
Government targets the construction and rehabilitation of halls
of residence at these institutions.

519. I, therefore, propose to allocate US$5 million for rehabilitation

of existing infrastructure as well as designs for the construction
of one hall of residence per each of our State universities.

E-learning

520. Utilisation of ICT is a function of ICT literacy. In this regard,

ICT should become an integral component of every school
curriculum through provision of computers. Some schools
through the initiatives of parents and Schools Development
Associations (SDAs) have already procured computers to
promote e-learning.

521. Therefore, to augment efforts already being made by parents,

Government is allocating US$2 million for procurement of
computers under the first phase of this programme which will
benefit a number of schools countrywide.

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PUBLIC EXPENDITURE MANAGEMENT

Public Finance Management Legal Framework

Public Finance Management Act

522. Consistent with Government’s objective to strengthen

governance and accountability in the management of public
resources enunciated in STERP, the Public Finance
Management Act [Chapter 22:19] was enacted on April 2, 2010.

523. This repealed and replaced the Audit and Exchequer Act
[Chapter 22:03] that provided for the management and control
of public monies and State property and the State Loans and
Guarantees Act [Chapter 22:13] that regulated the borrowing
and administration of State loans and the issuance of
guarantees by Government.

524. The new Act consolidates and strengthens the provisions of the
repealed statutes by, among other provisions, clarifying the
roles and responsibilities of various players in the resource
management chain, enhancing the corporate governance
arrangements and putting in place more rigorous reporting
requirements to facilitate effective oversight over financial and
other operations.

153
525. In addition to central Government operations, the Act’s
coverage extends to public enterprises, local authorities,
companies in which the State has a controlling interest and
partnerships and joint ventures between the State and other
parties, to address resource management and corporate
governance concerns in those institutions, and incorporates
penalty provisions for cases of non-compliance

526. Treasury is now working on crafting the regulations necessary

to operationalise the provisions of the Public Finance
Management Act, and will be inviting relevant stakeholders for
input into that process.

Audit Office Act

527. The provisions of the Audit and Exchequer Act that dealt with
the Office of the Comptroller and Auditor-General and audits by
that office have been hived off and enhanced in a separate
Audit Office Act.

528. This seeks to capacitate the Office to more effectively discharge

its mandate and facilitate Parliamentary oversight over the
management of public resources.

154
Public Finance Management System

529. To complement the legislative reforms, Government is working

on restoring the Public Finance Management System (PFMS); –
the computer based accounting and financial management
system that has been rolled out to all the 36 Ministries, to full
functionality.

530. The system that was initially implemented in 1999 on a pilot

basis and thereafter progressively rolled out to all Ministries up
to the provincial offices, had its operation adversely affected by
unsustainably high inflation levels, equipment obsolescence and
loss of skills.

Quality Assurance

531. Following the upgrade and reconfiguration of the system by

Government personnel in 2009, cooperating partners have
availed experts on the SAP software, the platform on which the
PFMS system runs, to review and provide quality assurance on
the work done.

532. This situation had resulted in Government Ministries having to

incur additional costs as officials commute to centres outside
their work stations to process transactions at points where the
system is available.

155
 Equipment Procurement

533. Furthermore, Government has, with assistance from

cooperating partners, embarked on a computer and network
equipment procurement programme to facilitate online
transacting. To date more than 1 400 computers have been
procured under the programme, while the acquisition of
network gadgets is under way.

534. The non-availability of the system during the upgrade process

resulted in the bulk of the 2009 transactions being processed
outside the PFMS. The relevant data has been uploaded onto
the system and work to validate the transactions is underway,
with Ministries required to process all current year transactions
through the PFMS as soon as the system challenges alluded to
earlier have been rectified.

Training

535. To rebuild the skills base decimated by the brain drain during
the period of sustained economic challenges, and ensure
Government derives maximum benefit from the investment,
training of officers on the new system is already under way.

156
536. To date, over 240 officials ranging from Directors of Finance
and their deputies, Audit Office personnel and other end users
have undergone some training in areas relevant to their
functions. The weekly exercises will continue until all system
users have received the training necessary for Government to
fully benefit from the system functionalities.

Internal Audit Training

537. To complement the above activities, internal audit personnel

are being trained to use tools that facilitate extraction and
analysis of computer based data and transactions. This
initiative will create capacity for effective monitoring of PFMS
system transactions and financial administration in Government
Ministries in line with the mandate conferred on the internal
audit function by the Public Finance Management Act.

District Roll Out

538. Once the system operations have been fully restored, it will be
rolled out to the districts to facilitate on line transacting and
improved monitoring and management of Government
finances.

Help Desk

157
539. In line with international practice, a PFMS Help Desk is also
being set up to provide support to system users on a day-to-
day basis.

Curbing Accumulation of Bills

540. The cash budgeting system that Government introduced in

2009 has so far succeeded in controlling over expenditure.
However, we have noted incidences where Ministries are
procuring goods and services without the requisite cash.

541. In order to realise the full benefits of the cash budgeting

system, any Ministry official who knowingly procures a service
without the requisite cash resources will be charged with an act
of misconduct in terms of the new Public Finance Management
Act (Section 85). In addition any service provider who
knowingly provides a service to a Government Department
without a purchase order will do so at their own peril as
disbursement of resources will not be guaranteed.

542. Government is still committed to clearing the arrears as they

have become an impediment to the achievement of operational
efficiency for the service providers.

Vehicle Hire

158
543. In my 2010 Budget Statement, I introduced a new billing
system aimed at minimising the use of vehicles and, hence,
unnecessary demand for fuel through a prepayment system to
CMED.

544. However, I note that Ministries continue to hold on to vehicles

even after expiry of the agreed hire period and in the absence
of adequate funding. I propose that, henceforth, CMED be
authorised to withhold releasing vehicles to any Ministry after
expiry of the agreed hire period.

545. Furthermore, I also note the rampant abuse of Government

vehicles by officials. In this regard, I recommend that the
Ministry of Transport, and Infrastructure Development, working
with line Ministries and CMED put in place a system of
identifying Government vehicles by Ministry in order to enable
members of the public to report on abuse of vehicles to the
relevant authorities. The responsible Ministry should also put a
hotline for the reporting of such incidents.

Loss of Public Assets

546. Increasingly we have noted that Ministries are quick to

conclude cases of loss or damage of state property such as
repair of accident damaged vehicles without going through the

159
 laid down process and procedures necessary to determine
liability.

547. It will be an act of misconduct in terms of the new Public

Finance Management Act (Section 85) for any Government
official who do not follow laid down process and procedures.

Tendering

548. The adoption by Government of multicurrency necessitated the

need to review all running contracts denominated in Zimbabwe
dollars. I am aware that the State Procurement Board issued
instructions to Line Ministries highlighting the need to revalidate
or re-tender depending on progress on the project.

549. I am concerned, therefore, that the majority of Ministries have

not approached SPB for the revalidation of contracts on most
capital projects. I propose that Accounting Officers be directed
not to process payment to any service provider whose contract
would not have been revalidated by the State Procurement
Board.

550. Some service providers deliberately leave out some critical

components of the projects from their bids so that their prices
are lower thereby ensuring that they win the tenders.

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551. During implementation, however, additional components are
brought on board leading to budget overruns. Such
malpractice disadvantages genuine bidders whose contracts
would have been rejected on the basis of high prices.

552. I propose that any contractor found undertaking such practices

be barred from participating in any Government contracts for a
period of 5 years.

Advance Payment

553. The hyper-inflationary situation created an environment for

suppliers to demand up front payment for goods and services.
In order to secure the required goods that were usually in short
supply as well as manage the daily and at times hourly price
escalations, authority was granted for Government Ministries
and Departments to pay in advance of delivery.

554. The current stable multicurrency environment calls for the

urgent review of this arrangement.

555. Furthermore, Government has lost resources from poor or

shoddy performance after full payment has been made, and in
some cases suppliers have disappeared before delivery after
receiving full payment.

161
556. Hence, with immediate effect, Government will not make full
advance payment to goods and services providers. Payments
will only be made basing on submission of invoices or
certificates and verification of work done.

Contract Management

557. Contracts cleared by the Attorney General’s office should be

signed for any advance part payment to be made in advance of
delivery or performance.

558. Furthermore, Ministries are required to ensure that availability

of funds is confirmed with Treasury before major contracts are
signed.

559. Suppliers are encouraged to get Treasury endorsement for

contracts above $500 000 and should approach Treasury in the
event of any breach in the agreed payment arrangements.

560. A Ministry or Department is considered in default if the amount

due as per the signed contract has been outstanding for more
than fourteen days.

Non Performing Contractors

162
561. There are some contractors who continue to win tenders
despite their lack of performance. This has resulted in such
contractors spreading their resources so thinly as to make no
impact on the project.

562. To safeguard public resources and ensure that Ministries and

institutions procure goods and services at best advantage to
Government, it will be necessary to appoint only contractors
with proven high performance track record.

563. As implementing agencies re-tender, care must be taken to

avoid multiple awards of tenders.

Electronic Funds Transfer

564. Government with effect from 01 August, 2010 will be

introducing the Electronic Funds Transfer System for the
payment of creditors.

565. Payments will be made by the Bank directly into the designated
accounts of the creditors. Instructions will originate from the
Line Ministries and electronically transmitted to the Bank.

566. Introduction of electronic funds transfer is meant to reduce

cash transactions that have limited audit trail, enhance security
as well as expedite payment of creditors.

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REVENUE MEASURES

567. Mr. Speaker Sir, the proposed revenue measures focus on

support to industry for improved capacity utilisation.

568. However, some of the measures are also aimed at enhancing

revenue collection.

569. I also provide a review of our progress with the implementation

of some of the policies I announced in the 2010 National
Budget.

Redrafting of the Income Tax Act

570. Honourable Members would recall that I announced during the

2010 Budget the intention to redraft the Income Tax Act,
simplifying the language for ease of understanding and
administration on the part of taxpayers and revenue
authorities.

571. Furthermore, the new Income Tax Act will also uphold the tax
principles of equity, fairness and neutrality as well as increase
the revenue base.

164
572. The proposed draft Income Tax Act has since been produced
and circulated to stakeholders for input, which should be
submitted for analysis and incorporation into the new Income
Tax Act by the end of October 2010.

573. The draft Income Tax Act will incorporate the following
concepts:

• Residence based taxation system;

• Accounting principles;
• Taxation of net gains from the disposal of business and
other assets;
• Enhancement of anti-avoidance measures in line with
international best practices; and
• Restriction of deductions to expenses incurred in the
production of income by excluding deductions incurred for
purposes of trade.

574. The proposed draft Income Tax Act will be tabled before
Parliament for approval as part of the 2011 Budget.

VAT Fiscalised Recording of Taxable Transactions

575. Mr Speaker Sir, in order to reduce revenue leakages through

fraud, I proposed in the 2010 Budget the introduction of

165
 Fiscalised Electronic Registers and Fiscal Memory Devices with
enhanced security features that minimise fraud.

576. Legislation to implement fiscalised recording of taxable

transactions has since been gazetted. Furthermore, suppliers
of the fiscalised devices have been identified.

577. I, therefore, propose to implement the VAT Fiscalised recording

of taxable transactions on 1 October, 2010.

Electronic Cargo Tracking System

578. Honourable Members will recall that during the 2010 National
Budget I proposed the introduction of Electronic Cargo Tracking
System, in view of the high risk to revenue that is posed by
transit cargo.

579. The implementation of the Electronic Cargo Tracking System

has, however, been delayed due to challenges in rolling out the
necessary infrastructure that links ports of entry and exit.

580. I, therefore, propose to shift the implementation of the

Electronic Cargo Tracking System to the second quarter of
2011.

166
Revenue Enhancing Measures

Tax Exemptions and Deductions

581. Mr. Speaker Sir, during the 2010 Budget a number of tax
exemptions and deductions were reviewed with the ultimate
goal of broadening the tax base.

582. I further propose to repeal some of the remaining tax

exemptions and deductions as follows:

• Interest earned on Foreign Currency Accounts is exempt

from tax. This measure was necessary in order to attract
foreign currency savings during the Zimbabwe Dollar era,
hence is no longer necessary, since all accounts are
denominated in foreign currency. This measure takes
effect from 1 August 2010; and

• Special Initial Allowance of 150% on the cost of plant and

machinery on small to medium scale enterprises. The
depreciation allowance will, thus, be restricted to 100%
with effect from 1 January 2011.

Suspension of Duty on Motor Vehicles Imported by Tourist

Operators

167
583. Mr. Speaker Sir, customs duty on motor vehicles imported by
tourist operators was suspended in order to assist operators to
recapitalise aged fleets.

584. Whereas the facility has assisted the tourism industry, it

however has been abused, to the extent whereby some
operators imported vehicles for personal use or for purposes
other than tourism, thereby prejudicing the fiscus of potential
revenue.

585. I, therefore, propose to withdraw the suspension of duty on

motor vehicles imported by Tourist Operators, with effect from
1 September 2010.

Rebates of Duty which no longer reflect Policy Priorities

586. Honourable Members will recall that in the 2009 Mid-Term

Fiscal Policy Review Statement, I alluded to the fact that the
dynamics of the economic environment and changes in
investment patterns necessitate a review of some of the
customs duty rebates which no longer reflect policy priorities.

587. I, therefore, propose to repeal the following rebates of duty

with effect from 1 August 2010:

168
 • Rebate of duty on imports covered by a duty free
certificate issued under the export incentive scheme. The
facility no longer exists;
• Rebate of duty on newspapers, magazines, periodicals,
pamphlets, brochures and similar publications. Duty has
been removed on these items; and
• Bicycle assembly rebate. In the absence of assemblers of
bicycles, this is being fraudulently utilised.

Taxation of the Mining Sector

588. Mr. Speaker Sir, I announced in the 2010 Budget Statement

that the contribution of the mining sector to the fiscus is
minimal, compared to other countries in the region. Whereas
turnover of the mining sector was close to US$1 billion in 2009,
a paltry US$44.8 million which includes corporate tax, VAT,
PAYE and royalties was contributed to the fiscus.

589. In order to enhance the contribution of the mining sector to the

fiscus, I propose the following measures:

Review of Royalties on Minerals

590. I announced in the 2009 Mid-Term Fiscal Policy Review that I

will be making proposals in the 2010 Budget to review the

169
 mining sector fiscal regime, in order for the Nation to benefit
from the exploitation of its non-renewable natural resources.

591. I, therefore, propose to review upwards the royalty rate on

precious metals from 3.5% to 4% of the gross market value
with effect from 1 October 2010.

Export Tax on Unprocessed Chrome

592. In order to encourage value addition on chrome ore and fines,

which are currently exported in raw form, an export tax of 15%
on the value of gross exports proceeds on chrome ore and fines
was introduced.

593. However, since the introduction of the export tax on chrome

ore and fines, exporters have resorted to exporting crushed
chrome ore with no value addition, so as to avoid the export
tax.

594. In order to encourage meaningful value addition to chrome ore

and fines, I propose to amend the definition of unbeneficiated
chrome ore and fines to include semi-processed chrome
concentrates.

595. I further propose to raise the export tax on chrome ore and
fines from 15% to 20%.

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596. The above measures take effect from 1 August 2010.

Special Initial Allowance

597. Despite improvements in the price of precious metals on the

international market, tax revenue contribution of the mining
sector to the fiscus remains insignificant. This is largely
attributed to tax deferral arising from the current treatment of
capital allowances which are claimed wholly in the year
expenditure is incurred, resulting in losses which are
perpetually carried forward.

598. Minerals are an irreplaceable wasting resource, hence, there is

need to maximise tax revenue from mineral extraction and also
encourage investment.

599. A proportionate spread of the special initial allowance of the

cost of the specified assets will, thus, be considered in the 2011
Budget.

Fees, Charges and Fines

Fines on Motor Vehicles Used to Smuggle Goods

171
600. Currently, any person who leases a motor vehicle which is used
to carry smuggled goods is liable to a fine not exceeding level 7
(US$400) on the standard scale of fines or imprisonment for a
period not less than one year.

601. However, this level of penalty has not been an effective

deterrent as evidenced by an increase in the number of cases
whereby leased motor vehicles continue to carry smuggled
goods.

602. I, therefore, propose to review the fine from level 7 to 14

(US$5 000) on the standard scale of fines.

Relief Measures

Regional Integration

603. Mr. Speaker Sir, one of the milestones that has been achieved
under the regional integration agenda is attainment of the
COMESA and SADC Free Trade Areas. The Free Trade Area
Protocols provide for duty free importation of goods from
COMESA and SADC Member States, provided such goods meet
the set criteria on the rules of origin.

604. Whilst the benefits of regional integration are appreciated, the

local industry, however, faces major challenges that include the

172
 use of antiquated equipment, erratic power supply, high utility
costs and limited access to long term finance, among others.

605. The local industry is, thus, unable to compete on a level playing
field with companies in the region which have access to
cheaper finance, advanced technology and operate at optimal
capacity levels.

606. It is, thus, important to levy duty that levels the playing field,
allowing industry to also re-build capacity.

607. I, therefore, propose the following measures:

Duty on Competing Products Imported under SADC

608. The bulk of products that are being traded through the local
retail outlets originate from SADC, as a consequence of
preferential rates of duty. There is, however, potential for the
local industry to supply some of the products, thereby boosting
employment and raising aggregate demand for goods.

609. In order to avail an opportunity for the local industry to

produce, I propose to levy duty on selected finished products
from the SADC region with effect from 1 August 2010 as
follows:

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Tariff code Description MFN rates SADC rates Proposed
of duty of duty rates of duty
under SADC
2106.9090 Other food 5 0 10
preparations
3917.3110 Piping 15 0 15
3923.1000 Plastic Packaging 15 0 15
6305.3200 Solid and woven 15 0 15
7210.4100 Galvanised Steel 20 0 20
Sheets-corrugated
7210.4990 Galvanised Steel 20 0 20
Sheets - fluted profile

Suspension of Duty on Inputs used by the Local Industry

610. Customs duty on raw materials and intermediate goods was

progressively reduced in response to submissions made by the
industry.

611. I propose to suspend customs duty on raw materials,

intermediate and capital goods to take into account input from
stakeholders as follows:

Tariff Code Product Current MFN Proposed MFN

rates of duty rates of duty (%)
(%)

1511.9090 Palm Oil 10 5

2713.2010 Bleaching earth 15 10
3215.1900 Other printing ink, 15 10
whether or not
concentrated or solid excl
black
3917.3290 Other shrink tube 15 10
3919.9090 Other adhesive labels 15 10
3920.2010 Plates, of polymers of 15 10

174
 ethylene not reinforced
3920.2090 Other, polymers of 20 10
ethylene
3920.5900 Acrylic polymers 15 10
3921.1200 PVC Packaging 15 10
4016.9910 Parts of industry, 15 10
agriculture and mining
machinery of vulcanised
rubber
4821.1000 Printed metalised battery 15 10
labels
5909.0000 Textile tubing with or 15 10
without lining, cotton
damper covers
7216.1000 Steel U Section 15 10
7216.2200 Steel T Section 15 10
7301.2000 Angles, shapes and 15 10
section bolts
7318.2300 Rivets 20 15
7320.1000 Leaf spring 20 15
7320.2000 Helical 20 15
7320.9000 Coil spring 20 15
7326.9097 File grips and paper 20 15
binders, nail plate basin
buckets of cast iron, clips
for tobacco curing.
8474.8000 Egg grading and 5 0
processing equipment
9406.0090 Other- advanced poultry 10 0
houses

612. The above measure takes effect from 1 August 2010.

Review of Suspension of Duty on Basic Commodities

613. In order to address food shortages and stabilise prices whilst

also availing industry ample time to increase capacity
utilisation, a suspension of duty on basic commodities was

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 extended to 31 July 2010. Revenue foregone as a result of
implementing this relief measure amounted to US$36 million,
during the period January to April 2010.

614. Whilst the suspension of duty on basic commodities has

resulted in improved supply of goods and stabilisation of prices,
there is, however, need to enhance capacity utilisation of
companies that manufacture basic commodities and also
address consumer welfare.

615. In view of increased capacity utilisation of some basic

commodities, I propose to introduce the suspended duty rates
on selected commodities with effect from 1 August 2010 as
follows:

Product MFN rates SADC Proposed

Description of duty rates of rates of duty
duty
Margarine 40 15 15
Washing 40 10 10
powder
Petroleum 40 10 10
Jelly
Bath soap 40 10 10
Beauty or 40 15 15
make up
preparations
for the care of

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the skin

616. I further propose to extend suspension of duty on the

remaining basic commodities to 31 December 2010.

617. A review of the suspension of duty on these commodities will

be undertaken during the 2011 National Budget.

Dumping of Sub-standard Imported Products

618. The suspension of duty on imported basic commodities has

resulted in improved supply of goods and stabilisation of prices.
However, there has been an influx of sub-standard, counterfeit
and, in some instances, expired products on the local market,
thereby, exposing consumers to health hazards and also
depriving them of value for money.

619. The quality of products is a key determinant to the welfare of

consumers, hence, there is need to safeguard against dumping
of sub-standard products, whether they be food stuffs, drugs,
etc.

620. In order to protect vulnerable consumers and also level the

playing field between locally produced and imported products,
Government will strengthen enforcement capacity of the

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 structures which administer standards and also invoke anti-
dumping measures and countervailing duties where necessary.

Rebate of Duty on Fiscalised Electronic Tax Registers and Fiscal

Memory Devices

621. I have already proposed that implementation of VAT Fiscalised

recording of taxable transactions commence on 1 October
2010.

622. In order to minimise the cost of acquiring Fiscalised Electronic

Tax Registers and Fiscal Memory Devices, I propose that a
rebate of duty be granted on machines imported by approved
suppliers.

623. This measure takes effect from 1 August 2010.

624. I further propose that 50% of the cost of acquiring the

machines be claimed as input VAT.

Duty on Textiles, Clothing and Footwear

625. Clothing and textiles, and footwear currently attract duty of

40% plus US$10 per kg and 40% plus US$5 per pair,
respectively. However, these goods retail at prices below the
duty level, reflecting the large extent of smuggling.

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626. Furthermore, some of the goods are imported duty free using
travellers’ rebate, notwithstanding that they are commercial
and should be dutiable.

627. In order to discourage rent seeking activities and abuse of

travellers’ rebate, I propose to reduce duty on clothing and
textiles, and footwear as follows:

Item Current rate of duty Proposed rate of duty

Blankets 40%+ US$10/kg 40%+US$2.50/kg
Clothing 40%+ US$10/kg 40%+US$2.50/kg
Footwear 40%+US$5 per pair 40%+US$2.50 per pair

628. This measure takes effect from 1 August 2010.

Administration of Certificates of Origin

629. Goods that originate from the COMESA and SADC Member
States are imported duty free. There, however, has been a
surge of duty free importation of goods purported to originate
from the countries covered by preferential arrangements,
hence prejudicing the fiscus of potential revenue.

630. In order to minimise leakages of revenue through the duty free

importation of goods, ZIMRA will establish a fully fledged Post

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 Clearance Audit Unit to strengthen the verification of the origin
of goods.

Export of Scrap Metal

631. In an effort to encourage value addition of locally available raw

materials, all scrap metal exports were banned with effect from
1 August 2004. However, the local market has no capacity to
absorb output of scrap metal due to the liquidity challenges.

632. Furthermore, local merchants pay low prices on scrap metal

due to subdued demand arising from the closure of large
foundries during the past few years. Manufacturers of steel
products have, thus, accumulated scrap metal which they are
not able to offload on the local market.

633. I, therefore, propose that scrap metal generated as a by-

product of the production process be exempted from the export
ban of scrap metal. Export licences of scrap metal will, thus,
be issued by the relevant Ministry on a case by case basis with
effect from 1 August 2010.

Alternative Energy Sources

634. Government announced in STERP II that efforts will be directed

towards fostering and supporting investment in abundant but

180
 underutilised domestic renewable alternative energy sources,
focusing on solar, wind energy and bio-fuels, among others.

635. In support of investment in solar energy, I propose to remove

customs duty on solar panels, inverters, batteries, regulators,
geysers, lanterns, water pumps & heaters and energy saving
bulbs with effect from 1 August 2010.

Excise Duty

636. Excise duty on locally produced wines and spirits is currently

levied on the retail price, whilst on imported products it is
charged on landed cost at the port of entry.

637. The differences in the base for levying excise duty on imported
and locally produced wines and spirits has disadvantaged local
producers, since the landed cost of imported products excludes
retail mark-up. Excise duty on locally produced wines and
spirits is thus higher compared to imported products.

638. As a result, capacity utilisation of local manufacturers of wines

and spirits has significantly declined to levels below 20%, due
to unfair competition from imported finished products.

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639. In order to level the playing field between imported and locally
produced products, I propose to levy specific excise duty based
on the level of absolute alcohol content as follows:

Category Current rate of Proposed rate of

Excise Duty Excise Duty (per
litre of Absolute
Alcohol)
All spirits 40% US$ 2.00
Fortified wines 15% US$ 0.50
Unfortified (still wines) 15% US$ 0.40

640. The above measure takes effect from 1 August 2010.

Bond Requirements for Excisable Products

641. The current Customs and Excise legislation provides that a

licence entitling a person to manufacture goods subject to
excise duty shall not be issued until the applicant has obtained
a bond guarantee drawn on either a bank or insurance
company. The guarantees attract fees and interest charges,
hence, impact negatively on financial positions of companies.

642. In order to provide relief to companies that are required to

obtain bond guarantees, I propose to grant the Commissioner
General discretional powers to waive bond requirements on
selected compliant taxpayers.

182
643. This measure takes effect from 1 September 2010.

Pay As You Earn (PAYE)

Tax-Free Threshold

644. PAYE collection for the period January to May 2009 amounted
to US$30.5 million compared to US$126.3 million for the same
period in 2010. This revenue trend indicates increase in
remuneration and employment levels.

645. I, therefore, propose to increase the tax free threshold from

US$160 to US$175 in order to enhance disposable income in
the hands of taxpayers, thereby stimulating aggregate demand
for goods and services.

646. This measure takes effect from 1 September 2010.

Remittance Date

647. Employers are required to remit PAYE withheld from employees’

salaries to ZIMRA by the 3rd of the following month. However,
due to liquidity constraints, employers prioritise payment of net
wages and salaries and thereafter honour PAYE obligations.

183
648. In view of liquidity challenges faced by employers, I propose to
extend the PAYE remittance date from the 3rd to the 10th of
the following month, in line with payment dates for other taxes
with effect from 1 September 2010.

Value Added Tax

Remittance Period

649. Under the VAT Act, a supply of goods or services is deemed to

take place at the time an invoice is issued by the supplier or the
time payment is received by the supplier, whichever time is
earlier. VAT is, thus, due and payable upon issuance of an
invoice, regardless of whether sales are on credit or cash basis.

650. In order to facilitate credit creation in the economy, thereby,

stimulating economic activity, I propose to extend the VAT
payment date from the 10th to the 15th of the following month
with effect from 1 September 2010.

VAT Zero Rating - Day Old Chicks

651. Currently, day old chicks are standard rated for VAT purposes.
Breeding of day old chicks is mainly carried out by small-holder
farmers and ordinary households, who are not registered

184
 operators for VAT purposes, hence, are not able to claim input
VAT.

652. In order to reduce the cost of breeding chicken, I propose to

zero rate day old chicks with effect from 1 September 2010.

Withholding Taxes

Non-Resident Tax on Remittances

653. Withholding taxes are levied directly on income accruing to

resident and non-resident individuals and companies, before
the income is paid over to the recipient. These taxes guarantee
taxpayer compliance and minimise administrative costs by the
Revenue Authority.

654. Rates of withholding taxes on technical fees, royalties, interest

and dividends were reduced from 20% to 15% and 15% to
10% in the case of dividends distributed by companies listed on
the Zimbabwe Stock Exchange. Withholding tax on non-
resident tax on remittances, however, remains at 20%.

655. I propose to review withholding tax on non-residents tax on

remittances from 20% to 15%, in line with other withholding
taxes with effect from 1 September 2010.

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Capital Gains Tax

Withholding Tax on Unlisted Securities

656. In recognition of the role played by capital markets in spurring

productivity which is critical for economic transformation and
also to reduce transaction costs related to the Zimbabwe Stock
Exchange, Capital Gains Withholding Tax on listed securities
was reduced from 5% to 1%.

657. In line with the reduction of capital gains tax on listed

securities, I propose to reduce capital gains tax on unlisted
securities from the current 10% to 5% with effect from 1
September 2010.

Penalties for Late Payment of Tax

Departmental Practice Notes

658. The current income tax legislation provides that where a

taxpayer delays payment of tax, omits or submits incorrect
information, or fails to disclose facts which should be disclosed,
the taxpayer is liable to a fine of up to 100%.

659. Whereas the Revenue Authority uses a penalty loading model

to determine the level of fines, there are, however, incidences
whereby similar offences attract different penalties.

186
660. I, therefore, propose that Departmental Practice Notes on the
administration of penalties be published for purposes of
transparency with effect from 1 January 2011.

Tax Amnesty

661. Mr. Speaker Sir, the economic meltdown during the past
decade resulted in a significant number of corporates
informalising their operations in order to be competitive, under
the then prevailing macro-economic environment. Most of
these businesses no longer file tax returns, whilst new entrants
into business remain outside the tax net.

662. It is, thus, important to regularise the tax affairs of those

corporates that had gone informal, in order to expand the tax
base as well as provide a window of opportunity for these
taxpayers to benefit from Government business which requires
up-to-date tax returns.

663. I, therefore, propose that a moratorium be granted to specified

taxpayers who wish to normalise their tax obligations for the
period prior to 31 December 2008.

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664. Appropriate regulations outlining the details of the amnesty
such as the category of taxpayers that qualify will be published
in due course.

Dispute Resolution, Objections and Appeals

665. An effective dispute resolution process is critical to the integrity

of a tax system. The mechanism for resolving disputes should
thus be simple, transparent and expedient.

666. The current appeal process is, however, dysfunctional due to

the long time-frames that elapse before the disputes are
resolved. Cases have been cited whereby an average time
period of three to four years has elapsed before finalisation of
court proceedings.

667. In order to facilitate expeditious dispute resolution, foster

transparency, efficiency and effectiveness of the Appeals Court,
Treasury will be exploring the possibility of amalgamating the
Fiscal Appeals Court and the Special Court for Income Tax
Appeals into a Fiscal Appeals Court akin to the Labour Court.

Customs Administration

Transit Fraud

188
668. Mr. Speaker Sir, transit goods, especially motor vehicles, pose
high risk to revenue, as some of the consignments are diverted
and offloaded onto the local market without payment of import
duty and other taxes due. Although efforts to track cargo in
transit are underway, the progress has, however, been
hampered by the delay in the roll out of the necessary
infrastructure to link ports of entry and exit.

669. I propose that transit motor vehicles be ferried by carriers, in

order to reduce transit fraud on motor vehicles with effect from
1 November 2010.

Pre-Clearance of Goods

670. The current legislation provides for pre-clearance of goods

before arrival at a port of entry or clearance on arrival. Under
the pre-clearance facility, importers deposit estimated amounts
of duty and tax due in advance in order to facilitate timeous
release of consignments on arrival, thereby reducing congestion
at the border post.

671. ZIMRA will, thus, simplify the current documentation

requirements in order to take advantage of the pre-clearance
facility.

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Re-organising ZIMRA

ZIMRA Structure

672. Mr. Speaker Sir, the Zimbabwe Revenue Authority was

established in 2001 in order to improve efficiency in revenue
administration, thereby, enhancing revenue collection and trade
facilitation.

673. This policy thrust requires a continuous review of ZIMRA’s

operations so that it conforms to regional and international
standards.

674. The review process involves implementation of reforms such as

taxpayers’ segmentation, setting up comprehensive valuation,
origin and harmonised system tariff management,
establishment of a risk based post clearance audit, streamlining
cargo clearance procedures, upgrading information technology
systems and enforcement of the management function through
development of a national anti-smuggling strategy, among
others.

675. ZIMRA, thus, requires skills specialisation for efficient delivery

of its core business of trade facilitation and revenue collection
through separation of tax collection and trade facilitation
functions, in order to enhance expertise.

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CONCLUSION

676. Mr Speaker Sir, the Nation has travelled a difficult path as we

implement STERP. We have sought to remove distortions in the
economy and the structural low equilibrium associated with lack
of capacity and zero supply movement. Through this
Statement, Government seeks to drive this economy towards
high equilibrium, towards full employment, towards growth, and
towards development.

677. Put simply, Mr Speaker Sir, Regeneration, Revival and

Refocus is our thrust in the next six months.

678. Government is mindful, Mr Speaker Sir, that our efforts should

be inextricably connected to the national challenges. It is also
aware that economic equilibrium alone without corresponding
movement on democracy, the rule of law and constitutionalism
is not sufficient to move this country forward.

679. Furthermore, Government is also mindful of the debilitating

effect of a culture of indifference and lackadaisicness, a culture
of excuses and low standards, a culture of impunity and
entitlement.

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680. Mr. Speaker Sir, it was Albeit Einstein who stated many years
ago that “problems cannot be solved by the same level of
thinking that created them”. We make a case for a new
beginning, and it cannot be business as usual.

681. Without much ado, I commend this Mid Term Fiscal Review
Statement and also lay on the Table the amended Estimates of
Expenditure for the year ending 31 December 2010 before this
August House.

Hon. T. Biti (MP)

MINISTER OF FINANCE

End

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