2012 National Budget Statement
The National Budget Statement by Finance Minister Tendai Biti proposed a US$4 billion budget for 2012. Resumed trading in the country’s diamond resources is expected to contribute US$600m. He said the 2012 budget was inspired by the need for economic growth and job creation
A GDP growth rate of 9.4 percent was projected for 2012, a negligible increase from the 9.3 percent expected for 2011, with agriculture and mining as the major drivers. The growth momentum will be underpinned by expansion in finance, mining, tourism, agriculture, manufacturing and transport sectors. Finance is expected to grow by 23%, mining 15.8%, tourism13.7%, agriculture 11.6%, manufacturing 6%, with transport and communication expected to grow by 6% respectively.
In 2012 mining is anticipated to remain the major driving force behind overall economic growth, benefiting from further private capital injections, firm international commodity prices and anticipated initiatives to minimize electricity supply interruptions.
Further recovery in the agriculture and mining sectors is expected to have positive spill over benefits for manufacturing industry which is projected to register a 6% growth in 2012. Capacity utilization in some of the higher performing subsectors is set to significantly improve from current average levels of 65%. However, capacity utilization in such sub sectors as clothing, textiles and printing is set to remain poor. This is believed to be as a result of low product demand, obsolete machinery, lack of working capital and raw materials.
On the negative side, electricity output is projected at 1244MW in 2012 reflecting only 4.5% growth, which is well short of power supply levels required to drive sustainable increased production activity. Hence erratic and insufficient power supplies will continue to be an obstacle for growth for the foreseeable future.
For developing countries like Zimbabwe gross capital formation must be at least 30%of the GDP to facilitate high and sustainable growth rates. In the period 2011-2012 it is expected to float within the range 15-22% of GDP and this feature will act as a brake on required investment levels.
Foreign Direct Investment (FDI) in Zimbabwe continues to decline with the 2011 FDI being only US$125 million. There is need to intensify strategies to attract FDI. Development assistance from donors in 2011 has amounted to USD 370 million and is expected to grow to USD 618 million next year. This aid is mainly for health projects with some going towards education.
The Finance minister gave an annual projection of below 5 percent inflation for next year which is comparable to current inflation sitting at 4.2% last month. The major drivers of inflation in 2011 are housing and rental costs as well as alcohol and food.
Exports are expected to grow by 30.2% in 2011 and a further 15.3% in 2012. This translates into total export earnings of US$4.4billion and US$5.1billion respectively. Main export products are mineral commodities, tobacco and manufactured products.
Import growth is expected to decelerate from 23.3% in 2011 to 6.8% in 2012. This accounts for total imports of US$6.4billion in 2011 and US$6.8billion in 2012 implying a trade and current account deficit of US$2billion in 2011 and US$1.7 billion in 2012.
Revenue collections this year up to September amounted to USD 2.1 billion with expenditure over the same period reaching USD 1.9 billion, of which employment costs comprise 63%. No civil service salary increases have been budgeted for next year. USD 4.0 billion is the projected revenue for 2012. Of this amount the education sector received the biggest allocation of US$707million, followed by the health sector with US$345.6 expected mainly to go towards improving hospitals. The US$600 expected from diamond sales will be directed towards water, sanitation, infrastructure and energy sectors. US$30million is set aside for the referendum on the constitution, but no mention was made of the possibility of elections in the statement. An allocation of US$226.7 million was made for agriculture with US$50 million for irrigation,US$16.6million for extension services, and US$50 million for grain procurement.
Agriculture
A significant part of the budget involved agricultural matters. Agriculture remains a major contributor to GDP (15%), with also a substantial share of exports (16%), formal employment (25%) and most importantly, provides livelihoods to over 70% of the rural population. The sector is also central to the rest of the economy through guaranteeing food security, and backward and forward linkage with agro-input suppliers.
The agriculture sector requires about USD 2 billion annually to fully take advantage of its potential which can be obtained through joint efforts through the government, private sector and external partners together with the farmers. Grain requirements amount to US$702 million. The 11.6% projected agricultural output for 2012 will be led by increased output in tobacco, maize, cotton, soya beans and poultry.
Regarding agriculture the following is proposed:-
· The introduction of an Agriculture Three Year Rolling Financing Strategy for the agricultural seasons 2011/2012, 2012/2013 and 2013/2014.
· This will align the annual Budget provisions with the requirements and timing of the summer agricultural season and activities, allowing timeous and adequate preparations for procurement of inputs without undermining cash budgeting principles.
· During the first quarter of 2012, detailed financing structure of the Agriculture Three Year Rolling Financing Strategy will be announced.
· The stimulation of larger private financial investments into agriculture will benefit from the issuance of Leases acceptable as collateral value to the banking sector. The Attorney General’s Office has completed work on a securitised Lease which addresses concerns from the banking sector.
· The issuance of bankable Leases to A2 farmers is also dependent on the Surveying of the Sub-divisions to the farm land, over 90% of which is de facto State land.
· Speedy surveying of farm Sub-divisions and issuance of bankable Leases creates value for the land, as well as assures farmers of clarity over their property rights and security of tenure. It is central to encouraging farmers to invest in the land, and promoting private sector financing as
a complement to Government funding efforts. US$ 2 million is allocated for this.
· In the absence of sustainable irrigation schemes, most farmers have failed to transition from subsistence to commercial farming where higher yields are realised. There is a need to enhance efforts in irrigation development and rehabilitation. To sustain the current irrigation rehabilitation and development programme, US$15 million is targeted at 56 schemes.
· Improved farming skills are necessary to optimally increase agricultural productivity. The capacity of extension and research service providers needs to be strengthened, and US$16.6 million towards Research and Extension Services and a further US$3 million for agricultural training centres is set aside for this.
· On marketing the Agricultural Commodity Exchange is not yet functional and this remains overdue. The Minister stated that the relevant parties must set aside administrative jealousies over turf and come together to make this a reality. In the absence of the commodity exchange, grain farmers are forced to rely on Government for payment against deliveries through the GMB.
· Government capacity to remain the sole marketing agency for commodities such as grain remains limited, if this operates outside the Strategic Grain Reserve policy framework. As of 18 November 2011, the GMB is holding 455 764 tons of maize, 47 691 tons of wheat and 16 579 tons of small grains.
· For 2012, US$50.2 million is to go towards grain procurement for the GMB, also targeting a build-up of our Strategic Grain Reserve up to the stipulated 946 000 tons, guaranteeing national capacity to deal with any famine.
· So far, grain payments to the GMB under the 2011 Budget, mainly against 2011 deliveries by farmers, have amounted to US$56 million, with an outstanding balance of US$26 million owed to farmers.
Preparations for 2011/2012 Summer Season
Preparations for the 2011/2012 summer season, against the backdrop of anticipated normal rainfall assumed in the budget statement, have resulted in Government coordinating the establishment of various schemes embracing farmers, development partners, Farmers’ Unions, contract farmers, banks, and input suppliers.
About US$75 million has been secured comprising the following facilities:-
· A US$45 million Subsidised Agriculture Inputs Support Scheme
Government is supporting about 500 000 farmers, with the participation of other partners. Beneficiaries include 100 000 vulnerable households, with inputs such as seeds and fertilizer, in order to ensure food security at household level.
This scheme also seeks to capacitate local input producers through procurement of 4 880 tons of seed maize, 60 tons of small grain seed from local seed houses, 25 000 tons of compound D, and 32 500 tons of ammonium nitrate – all costed at US$45 million.
· Support Facility for Vulnerable Households: US$8.1 million
Out of the US$45 million, about US$8.1 million constitutes an inputs facility for 100 000 vulnerable farmers. These farmers will access fertilizer and seed from GMB depots for free through a voucher system. Furthermore, this facility will be complemented by US$60 million mobilised by development partners through the Food and Agriculture Organisation.
· US$20.3 million Communal Farmers Subsidised Agriculture Facility
Under this facility, about 250 000 communal farmers are being supported through an input package valued at US$20.3 million. The beneficiaries are accessing the inputs from GMB depots at subsidised prices on a cash basis.
· US$17 million A1, Small Scale Commercial, Resettled & A2 Farmers Support Facility
In addition, about 150 000 A1, Small Scale Commercial, Old resettled and A2 farmers are also accessing subsidized inputs from the GMB on a cash basis. This facility is valued at US$17 million.
· US$30 million Grain Input Swap Facility
Over and above the US$45 million support schemes, Government through Treasury, in conjunction with the Ministry of Agriculture has also established a US$30 million Grain Input Swap Facility. Under this arrangement, Treasury has secured credit from agriculture input suppliers for the supply of inputs to farmers owed by the GMB for grain delivered.
These inputs will be accessed at full market value by participating farmers against amounts owed by the Grain Marketing Board, thereby reducing the Government obligation on grain deliveries by US$30 million, assuming a 100% uptake. Already, 3 221 tons of seed and 34 500 tons of fertilizer are available under this facility.
· Agro Bills
Government has also been arranging a commercial Agricultural Financing Facility by the banking sector to complement the above Government funded schemes for the 2011/2012 farming season. This will unlock additional funding arrangements by the private sector to meet some of the financing gaps identified in the 2011/2012 agricultural requirements.
Already, negotiations are taking place with the banking sector to mobilise US$100 million through the issuance of agro bills. Treasury is mindful of the need to put sweeteners to the bills, to ensure full subscription. In this regard, Government is ready to grant special features which include prescribed asset
status, liquid asset status, and tax exemptions. Government is engaging the banking sector with a view of
ensuring that the special features of the agro bills cascade to farmers to the extent that credit to farmers will be at affordable interest rates of around 10%.
· AMA Bills
In addition to the above banking sector initiatives, the Agricultural Marketing Authority is also raising
US$20 million through AMA bills targeted at financing this year’s soya bean crop. In this regard, the first floatation of AMA bills in the market was for 270 days. This raised US$4.5 million at an average interest rate of 10.67%.
· Contract Farming
Contract farming arrangements are also in place for 2012, mainly supporting the production of cash crops
like cotton, soyabeans, maize seed, and tobacco.
With regards to tobacco, the TIMB, in partnership with other stakeholders, has already confirmed US$418 million funding arrangements for production from 70 000 hectares. Half of this hectarage will be financed through contract growing and marketing, while the balance relates to bank borrowings and use of own resources.
· Livestock Development
In previous Budgets, Government focused more on supporting the production of food crops such as maize and wheat, with little attention to livestock. In 2011 and 2012, beef production is projected to marginally grow by 0.5% and 0.1%, respectively from 0.2% in 2010. This sector has the potential to grow by over 5% as achieved in the 1990s, and besides meeting a large proportion of Zimbabwe’s meat requirements, also supports the canning and leather industries, among others.
In support of livestock development, Government availed US$2.5 million in 2011 through Agribank, which also topped the amount with another US$2.5 million to give a total of US$5 million. In 2012, livestock development will be further re-capitalised by US$6.5 million. This will be complemented by additional resources raised by the banking system.
LAND
Regarding compensation the Ministry of Lands so far this year has spent USD 2.5 million on the purchase of land and user rights. The budget allocation for this item is increased to USD 6.0 million in 2012. Further increases are projected in the budget with USD 9.0 million for 2013, and USD 12.0 million for 2014.
TAXATION
The following alterations are made to the tax regime.
Tax Free Threshold
The monthly tax free portion on salaries was raised by $25 to US$250, starting January 1, 2012.
Tax Bands
The income tax band is to be widened to begin at US$250 and end at US$10 000 above which income will be taxed at the highest marginal rate of 45%, starting on 1 January 2012.
Bonus Tax
The tax free bonus threshold is increased to US$700 from US500, with effect from 1 November 2011.
Customs Duty
Customs duties on specified raw materials not sourced within the SADC region will be reduced from an average of 10% to an average of 5%. With effect from 1 January 2012 customs duties on a range of fresh farm vegetables sourced within the SADC region will be increased from10% to 25%. The duty on basic commodities like maize meal and cooking oil, reintroduced earlier this year, are to be maintained next year. Duties on pre-packed rice, salt and flour are introduced by up to 15%. However bulk salt, rice and flour can still be imported duty free. No duty will be charged on wheat imports but wheat flour will now attract a duty of 5%.
A rebate of duty with effect from 1 January 2012 has been proposed on ambulances imported by local authorities, on donated sport equipment, and on motor vehicles imported by the physically challenged.
Surtax
A surtax of 25% is to be introduced on certain finished products effective 1 January 2012.
· Selected range of motor vehicles
· Selected electrical goods
· Soaps and Cosmetics
· Milling Industry Products
· Fruits and Vegetables (when in season)
· Meat Products
· Beverages
· Tobacco
· Sugar
· Dairy products
· Foot-ware and Textiles
Although farmers will benefit from the tariff protection placed on some of these items the surtax will certainly add to general inflation.
Excise Duty
Excise duty on locally produced cigarettes is to be increased from USD 7.00 to USD 10.00 per 1000 sticks; and from 40% plus USD 5.00 to 40% plus USD 7.00 per 1000 sticks on imported cigarettes, to become effective from 1 December 2011.
Royalties
Royalties on gold and platinum will be increased from 4.5% and 5.0% currently applicable respectively, to 7.0% and 10% respectively with effect from 1 January 2012.
VAT
A few items have been zero rated for value added tax. These include some raw materials for the fertilizer industry such as phosphates, sulphuric acid, and sulphur, effective from 1 January 2012.
The VAT remittance period has been extended from the 20th to the 25th of the following month.
Presumptive Tax
A range of presumptive taxes, dependent on passenger capacity, are to be imposed on speed boats and houseboats with effect from 1 January 2012. A quarterly tax will be applied to fishing rigs