eBusiness Weekly
Kudzanai Sharara
Finance and Economic Development Minister Professor Mthuli Ncube, yesterday availed further incentives and extend the tenure of existing ones as part of a host of measures meant to support the productive sector, but market players say more should have been done to capacitate the off takers of the products — the consumer — as well as addressing production key enablers such as electricity.
Presenting the 2020 National Budget Statement themed “Gearing for Higher Productivity, Growth and Job Creation”, Minister Ncube said incentives that Government availed in the past had contributed to the restoration of production capacity and enhanced competitiveness of some industries.
In providing the tax incentives, Minister Ncube said Government had in the past foregone US$1,45 billion revenue, but as a result of the accrued benefits, was looking at availing new incentives as well as extending existing ones.
The Motor Vehicle Industry got a boost as the minister proposed to remove SKD kits from the specified list of goods liable for duty in foreign currency.
The facility was also extended for a further three years, beginning December 1, 2019.
In order to promote growth and formalisation of small-scale manufacturers, Minister Ncube proposed a Duty Refund Facility, whereby players in the sector pay duty on imported raw materials, which is claimable on a quarterly basis, with effect from January 1, 2020.
The ailing pharmaceutical sector, where the revival of CAPS Pharmaceuticals, is key, also got a shot in the arm in the wake of “finalised plans
to increase the product range of manufactured goods.”
As a result, the minister proposed to provide for additional raw materials to be imported under rebate of duty.
The dairy sector, which as a result of a myriad of reasons, is far from meeting consumption demand of approximately 120 million litres per annum and requirements of the dairy milk processors, also got further support from the minister who proposed to extend duty suspension on milk powder for the year 2020.
Dairibord chief executive officer Antony Mandiwanza, said the extension of duty suspension will help “ameliorate” the cost of inputs as any duty would have been a cost increase at a time when the overall cost of production is “excruciating”.
“I think that was a good gesture to retain a zero duty on milk powders especially against a backdrop of production constrain in the country, so that is good,” he said.
Mandiwanza, however, said the budget might not reach the intended target to stimulate production, which is its primary objective because of countless other economic challenges.
“In the context of wider economic issues the minister could have done better,” Mandiwanza said.
“The main drivers of productivity in the dairy industry did not receive significant attention in the 2020 budget.”
According to Mandiwanza, the availability of foreign currency, electricity and water had not been spoken to by the minister.
“Unless the monetary authority come up with a monetary statement that compliment what the minister is wanting to achieve, we remain in a very difficult situation where we can’t import critical raw materials which in addition to powder milk includes packaging material.
“We have a very huge exposure to imported input into our production. Those (limited availability of electricity, water, and forex) are not conditions that are attractive to stimulate production and there is nothing that has been said about those very key granular issues,” said Mandiwanza.
Clothing manufacturers such as Edgar’s Carousel (Private) Limited and Truworth’s Bravette would be pleased that Minister Ncube extended the Clothing Manufacturers’ Rebate facility for a further two years, beginning January 1, 2020, in order to lower the cost of production.
This will, however, be subject to foreign currency availability as recently Truworth’s CEO Themba Ndebele, said Bravette had turned to local cotton fabric suppliers due to non-availability of foreign currency.
In a phone interview with Business Weekly yesterday evening, Ndebele said while clothing manufacturers welcome the “rebate” as it lowers the cost of inputs, the benefits will be limited if consumer disposable incomes are drastically low as they are at the moment.
“What needs to be done in this country is for the consumer to have money. If that issue is not addressed, then anything else that the Minister said is meaningless.
“Incomes of people have been impaired by 15,.5 times which is the extent of the devaluation. It’s a loss of value from 1:1 to 1:15,5 times,” he said.
Zimbabwe Stock Exchange listed companies that released quarterly trading updates yesterday also revealed how constrained the consumer is. National Foods reported a 36 percent drop in sales volumes for the three months to September 2019. Dairibord had a 40 percent overall volumes decline while Delta Corporation’s lager beer volumes were also 40 percent lower. At Simbisa brands erosion of customer spending power resulted in a 40 percent year-on-year decline in customer counts. The same applies to OK Zimbabwe where volumes were down 23 percent.
This, according to Ndebele, means more should have been done to increase disposable incomes. He said the Minister should not have tempered with the value of the local currency if there was no “back up”.
However, in boosting consumer disposable income, Minister Ncube reduced Value Added Tax to 14,5 percent from 15 percent but stuck to the 2 percent tax which many suggest has seriously eroded disposable incomes.
Analyst Walter Mandeya of Trigrams Investment said the 2 percent tax is more harmful to productivity as it destroys disposable incomes and in turn aggregate demand in the economy.
“Removing the 2 percent tax and leaving all other taxes unchanged would have had a greater impact on demand in the economy, especially towards the festive season,” said Mandeya.
“Coming to policy measures announced, we appreciate that the minister has very little space, but we would have wanted to hear more on the transition from austerity to productivity with more creative funding models than what was presented. We believe that an overall decrease in the tax and regulatory burdens would do more for productivity in the short-term.”
