GOVERNMENT has removed the local ownership requirement for foreign investment into the country, save for the diamond and platinum sectors, Finance Minister Patrick Chinamasa announced on Thursday, in a major policy change by the new administration.
President Emmerson Mnangagwa, who has made job creation one of his priorities, had telegraphed his radical policy shift by dropping the indigenisation portfolio when he named his Cabinet last week.
The indigenisation law, which requires 51 percent control by locals in the major sectors of the economy, has been blamed for Zimbabwe’s inability to attract significant foreign investment and create empolyment. The country has an estimated 90 percent jobless rate.
Chinamasa, presenting the 2018 national budget under President Emmerson Mnangagwa’s new government, said the law would be relaxed through an amendment soon to be tabled in Parliament.
Government would amend the Indigenisation and Economic Empowerment Act through the Finance Bill carrying the 2018 budget, with the changes coming into effect from April 2018
“Diamonds and platinum are the only sub-sectors designated as extractive. Accordingly, the proposed amendments will confine the 51/49 indigenisation threshold to only the two minerals,” Chinamasa said.
“The 51/49 threshold will not apply to the rest of the extractive sector, nor will it apply to the other sectors of the economy, which will be open to any investor regardless of nationality.”
Announcing a $5,8 billion 2018 budget themed: “A new economic order”, Chinamasa declared that Zimbabwe was open for business.
“Zimbabwe is now open for business, and is putting in place supportive measures that seek to rebuild confidence and compete for investment, and enhance the economy’s competitiveness,” he said.
Projecting a 4,5 percent gross domestic product (GDP) expansion in 2018, up from a forecast 3,7 percent his year, to be driven by agriculture and a raft of reforms, Chinamasa expressed concern over a $1,7 billion budget deficit for 2017, abou 11 percent of GDP. He expects the deficit to narrow to $700 million in 2018, about 4 percent of GDP, with forecast revenues of $5,1 billion.
Chinamasa, whose austerity measures were frustrated by former President Robert Mugabe, announced spending curbs that would see government maintaining a freeze on new recruitment to fill vacant posts and the retirement of officers aged above 65 years. Government will also introduce a voluntary retirement scheme.
He also said government would press on with the abolition of nearly 4,000 youth officer positions, saving nearly $20 million annually in the process.
Chinamasa said the reduction of ministries from 27 to the current 21 would also result in the reduction of government staff.
Revealing that government had requests amounting to $140 million for senior officials’ vehicles, Chinamasa announced new restrictions on car allocations. Permanent secretaries and commissioners of constitutional bodies would now have one personal issue vehicle, while principal directors, directors and deputy directors would procure vehicles through loan schemes.
Government has also revised rules on foreign travel, limiting trips and delegation sizes.
“Experience has shown that Zimbabwe delegations to regional and international fora being among the largest from the region at such gatherings,” Chinamasa said.
“In this regard, the following requirements now apply: Strict reduction in the size of delegations to levels that are absolutely necessary and, where there is diplomatic presence, taking advantage of this to realise representation in outside meetings.”
Zimbabwe’s diplomatic missions, which cost an average $65 million annually, will also be reduced, Chinamasa said.
He also promised parastatal reforms, with those which cannot be rehabilitated being privatised or shut down.
2018 National Budget Highlights
- 4,5 percent GDP growth projected
- Inflation to average 3 percent throughout 2018
- Total 2018 revenues, minus statutory and retention funds, at $5,071 billion
- Total expenditure $5,743 billion
- Recurrent expenditure at $4,6 billion, while the capital budget is $1,2 billion, or 21 percent
- Budget deficit projected at $672 million, about 4 percent of GDP, down from $1,7 billion in 2017
- Majority local ownership scrapped for most sectors, except for diamond and platinum sectors
- 15 percent tax on unprocessed platinum deferred to January 2019
- When implemented, platinum export tax to be reduced to between 1 percent and 5 percent
- Spending cuts will restrict foreign travel, delegation size, fuel and vehicle allocation for senior officials
- Diplomatic missions, which cost $65 million annually, to be reduced
- $3,3 billion, or 65 percent of 2018 revenues, to go towards wage bill
- A provision of $176 million for 2017 civil servants’ bonus payments, to be paid in phases next year
- Nearly 4,000 youth officer posts abolished, saving $19,3 million annually
- $132,2 million allocated for 2018 election, much lower than ZEC’s $274 million budget
- Power projects exempted from corporate tax for 5 years, after which a 15 percent tax rate applies