By Zimbabwe Coalition on Debt and Development
Notable Issues This Week:
Policy and Regulatory Issues
ARREST OF KAGONYE, A TEST CASE FOR SACU ON LAND BARONS
The Newsday reported that the former Minister of Labour and Social Welfare, Petronella Kagonye was arrested by the ZRP working with the Special Anti-Corruption Unit for alleged illegal land dealings in and out of Harare1. The crime is reported to have been committed by illegally parcelling out land to co- operatives in Goromonzi as part of ZANU PF campaign in the 2013 elections.
What is striking in this case is that the Harare City Mayor, Councillor Jacob Mafume was swiftly arrested and remanded in custody for alleged abuse of office where he is alleged to have influenced council officials to give residential stands to his sister and secretary. Given that Kagonye allegedly parcelled land to a cooperative and is a politically exposed person, how the state handles her case will depict its seriousness or lack of it in fighting corruption.
FOREX AUCTION EASED LIQUIDITY CRISIS
Although the introduction of the foreign currency auction has indeed gone a long way in solving the liquidity challenges in the economy, the economy still has a long way to stabilize. Inflation has gone down to 348.59%, but it is still the second highest in the world after Venezuela which is at 1813.5%. The black-market rate on the other side, has remained untamed, maintaining the band of US$1 to ZWL$105-130, since the introduction of the Dutch Auction System.
It reflects the unmet demand of the foreign currency in the economy, by the official auction system. Prices of basic goods and services are continuing to increase, making the life of ordinary citizens difficult by each day. Compounded by the adverse effects of Covid-19, the majority of the citizens are finding it hard to put food on the table.
COVID19 RESOURCE TRACKING – VACCINES IN FOCUS
Government has announced a budget of US$100million for the COVID-19 vaccine. However, the absence of a clear long-term plan and the opacity around the financing of the $100million vaccine budget is an issue of concern for citizens. The possibility of renewed debt contraction to fund vaccine costs is of particular concern mindful of the existing high and unsustainable debt.
Given the macroeconomic quagmire Zimbabweans find themselves in, the major issue of concern is resource allocation amidst competing demands within a delicate context and a small resource base. Citizens bemoan the lack of a clear strategy on how the government intends to balance COVID-19 financing against a pool of other social and economic challenges.
A High Court order ordering the government to disseminate comprehensive information on COVID-19 will help facilitate improved information flow if heeded. Urgent Information gaps abound, thereby limiting consensus building and collective action. Official positions on issues such as vaccine choice, vaccine efficacy; benefits of the vaccines; associated side effects need to be availed in the public domain
1. COVID-19 Resource Tracking
Overall: Total Pledges = US$653,891,159; Honoured Pledges = $473,731,492; Amount Spent =
For the week ending 12 February 2021: Total Pledges = US$14,550,000; Honoured Pledges
=US$50,000; Amount Spent = US$0
The second wave of COVID-19 is hitting hard in the country with a spike in infection and death cases. Zimbabwe like other countries, has continued to put in place measures to curtail the spread of COVID-19 and to avert the effects of the pandemic on the economy and its citizens. As such, from the 5th of January 2021, Zimbabwe entered into a 30-day level 4 lockdown, to curb the spread of the pandemic. Zimbabwe continues to mobilise resources internally and externally to respond to the devastating socioeconomic effects of COVID-19 in the best way possible. Among other efforts, the government in the 2021 national budget has set aside ZWL7 billion to recruit more health personnel, procure PPEs, testing kits and sundries required in fighting COVID-19. The government has also budgeted ZWL3.5billion to cushion 500 000 vulnerable households whose beneficiaries comprise the informal sector, returning residents and children living in the streets.
- Government has announced a budget of US$100million for the COVID-19 vaccine. However, the absence of a clear long-term plan and the opacity around the financing of the $100million vaccine budget is an issue of concern for citizens.
- The possibility of renewed debt contraction to fund vaccine costs is of particular concern mindful of the existing high and unsustainable debt.
- Given the macroeconomic quagmire Zimbabweans find themselves in, the major issue of concern is on resource allocation amidst competing demands within a delicate context and a small resource base. Citizens bemoan the lack of a clear strategy on how the government intends to balance COVID-19 financing against a pool of other social and economic challenges.
- Information gaps pertaining the pandemic remain. A High Court order (http://www.veritaszim.net/node/4747) ordering the government to disseminate comprehensive information on COVID-19 will help facilitate improved information flow if heeded.
- Urgent Information gaps abound, thereby limiting consensus building and collective action. Official positions on issues such as vaccine choice, vaccine efficacy; benefits of the vaccines; associated side effects need to be availed in the public domain. Information to ascertain the prevalence of the COVID-19 virus strain 501Y.V2 in Zimbabwe is also in need.
Recommendations to the Government
- To restore public trust, the government should openly declare and provide evidence of where the US$100million set aside for the vaccine is coming from. The oversight role of the parliament remains central in ensuring the safeguards are in place to plug corruption, diversion and misappropriation of COVID-19 earmarked resources including vaccine distribution.
- An economic analysis is recommended to look into the social costs and gains of the government’s decision to go on the second front response to COVID-19 pandemic using the vaccine. Such an analysis should also be able to determine the multiplier effect of the vaccine.
- The government clearly needs a balancing act to ensure that financing the COVID-19 vaccine does not exist in isolation but should happen in the context of addressing already existing multi-layered social, economic and political challenges. A clear strategy involving both immediate and intermediate to long-term interventions are employed to ensure that resources are effectively allocated and deployed to address these competing demands.
- It is prudent that the government acts in accordance with the High Court order and allocate resources specifically for the dissemination of information that is accurate and sufficient in order to safeguard the lives of people as well as to observe the right to access to information as enshrined in the Constitution
1. Forex auction eased liquidity crisis
The RBZ introduced the Dutch Auction System on 23rd of June 2020, as a key aspect of monetary policy measures to address high inflation and high parallel market exchange rates. The auction system aims thus, to ease the liquidity crisis, by facilitating improvement of the availability of foreign currency in the economy.
Although the introduction of the foreign currency auction has gone a long way in solving the liquidity challenges in the economy, the economy still has a long way to stability. Inflation has gone down to 348.59%, but it is still the second highest in the world after Venezuela which is at 1813.5%.
The black-market rate has remained untamed, whilst maintaining band of US$1 to ZWL$105- 130, since the introduction of the Dutch Auction System. It reflects unmet demand of foreign currency in the economy, by the official auction system. Prices of basic goods and services, are continuing to increase, making life of ordinary citizens difficult by each day. Compounded by the adverse effects of Covid-19, the majority of the citizens are finding it hard to put food on the table.
Despite the stabilization in the foreign currency exchange rate to about US$1 to ZWL$83.37, prices of basic goods and services are still going high and beyond the reach of many ordinary citizens. It is therefore recommended that the government revert to the use of the basket of currency, to instil confidence in the economy. The local currency has increasingly become defenceless against other major currencies and hence cannot be able to address the liquidity crisis.
2. Explaining inflationary pressures in the economy
There has been a marked and seemingly persistent increase in prices of basic commodities over the past two months leaving many Zimbabweans struggling to make ends meet amidst the pressures of austerity, lockdown and economic recession. Government’s policy imperatives, local
and national budgetary frameworks and Statutory Instruments bunters have proven inadequate to quell mounting inflationary pressures. Many government departments themselves have abandoned the local currency preferring to charge for services in US$. This is in spite of assurances of the ‘celebrated’ stability of the local currency since the assumption of the auction system in June of 2020.
- Fuel taxes and fuel price revisions
The 2021 national budget levelled the excise duty for diesel and petrol at USD 0.30 per litre, thereby effectively increasing the excise duty on diesel by US$0.05. Additionally, the petroleum importers levy was set at USD 0.05 per litre for both diesel and petrol from ZWL 50 per litre. Further, the Zimbabwe Energy Regulatory Authority (ZERA) announced a fuel hike on the 5th of January 2021, pegging petrol at US$1.21 and diesel at US$1.23 per litre though the retail price is beyond the official prices. The budget also introduced a hike of presumptive taxes for the transport industry after a crippling increase in vehicle licensing fees in 2020. Economic theory is clear on the passing of costs to the ultimate consumer through price hikes manifesting in the economy. Even the state-owned public transport operator (ZUPCO) revised its fares in January of 2021, a sign of pressing operational costs inclusive of the fuel costs. Fuel, being a major cost constituent in the pricing of goods require medium to long term price stability thus government must scrap off the taxes on fuel to achieve the same.
- Tollgate fee hike
On the 20th of November 2020, a new tollgate fee structure took effect as published under the Toll Roads (National Road Network) (Amendment) Regulations, 2020 (No. 11) – hiking toll fees for all vehicle classes in excess of 100% (with the exception of motor cycles) as shown hereunder.
|Vehicle class||Old Fee (ZWL)||New Fee (ZWL)||% Change||USD Equivalent2|
|Class 1 (Light motor vehicles)||45||120||167||1.47|
|Class 2 (Minibuses)||80||180||125||2.20|
|Class 3 (Buses)||90||240||167||2.94|
|Class 4 (Heavy vehicles)||115||300||160||3.67|
|Class 5 (Haulage trucks)||225||590||162||7.22|
|Class 6 (Motor cycles)||Exempted||Exempted||Exempted||Exempted|
|Class 7 (Tollgate residents)||250||600||140||7.34|
Further, the government in January 2021 through the Toll, Roads (National Road Network) (Amendment) Regulations, 2021 (No. 12) “Fourth Schedule” announced not only another hike in toll fees but the charging of toll fees in USD, with optional settlement in local currency at the bank rate. Not only are the toll fees charged in a currency not earned in the country but, the US$ charges surpass the US$ toll fees that once existed during the dollarization era.3 The US$ toll fees are appended hereunder:
|Vehicle class||Charge (US$)|
|Light motor vehicles||2.00|
The increase in tollgate fees is inflationary as the extra cost feeds into the costing of goods and services thereby increasing the prices. The US$ toll fee hike signals government’s loss of confidence in the ZWL. It is imperative for government to ascertain business confidence and cushion the poor from the effects of excessive fee increases.
i. Foreign currency shortage
Whereas the auction market seemingly stabilized the exchange rate, the same market has failed to meet forex demand for sectors outside the priority list. Still, the sectors in the priority list do not receive the exact amounts they bid for – propelling them to seek forex in the parallel market. The resultant negative exchange pass through explains the increase in inflation. Also, the managed exchange rate in the auction system has constricted the liquidity of the auction market as the exchange rate does not reflect the interaction of demand and supply for forex. The RBZ has also failed to avail forex timeously for bids won implying limited forex reserves. This has increased the premium for the USD in the parallel market, hence the increase in inflation as reflected in the Total Consumption Poverty Line for November and December of 2020 as well as January of 2021. Adopting a floating and market-based forex market eliminates exchange rate distortions and ascertains exchange rate stability.
ii. A largely informal economy
The Zimbabwean economy is excessively informal. This explains the failure of the monetary policy to effectively control inflation as the formalized monetary policy measures are not observed in the underground economy. Vast financial resources circulate in the informal sector and evade the control of the fiscal authorities. Also, the inflation measures continue to capture the price changes in the formal economy, thus developments in the informal sector are not accounted for, hence policy failure in curbing inflation growth. It is reasonable to formulate anti-inflation measures that inculcate the informal sector as a way of arresting inflation.
1. Arrest of Kagonye, a test case for SACU on land barons
The Newsday reported that the former Minister of Labour and Social Welfare, Petronella Kagonye was arrested by the Zimbabwe Republican Police (ZRP) working with the Special Anti- Corruption Unit for alleged illegal land dealings in and out of Harare4. Kagonye is reported to have illegally parcelled out land to co-operatives in Goromonzi as part of electoral campaigning in the 2013 elections. The handling of this case involving the parcelling out of land to a cooperative by a Senior Public Official will give important signals about the seriousness or lack thereof in fighting corruption. Many will look to derive pointers about judicial independence, political interference, and the rule of law from this case.
Selective application of the law, political lawfare and the ‘catch and release’ treatment of senor public officials undermine the Second Republic’s mantra of “zero tolerance to corruption.” The state should expedite her case without fear or favour and SACU should also swoop on other suspected land barons. Finalising these cases would save hundreds of desperate home seekers of their hard-earned financial resources.
1. Formalise ASGM and adopt EITI to plug gold leakages by cartels
The Maverick Citizen published a study on Cartel Power Dynamics in Zimbabwe and their impact on service delivery, socioeconomic development and prospects for the democratisation of the country5. The report highlights that the key drivers for cartels is rent seeking and political financing. One of the social ills of cartels is that they transfer money from consumers and public accounts into the hands of cartels. Sadly, the report notes that nearly USD1.5 billion worth of gold is smuggled out of the country and ends up in Dubai on a yearly basis. The missing USD15 billion from the alluvial diamond mining in Manicaland add fuel to this paradox. Even the Prosecutor General bemoaned that cartels are in every sector of society. He acknowledged that Zimbabwe now has the cartels in the judiciary, Zimbabwe Republic Police, National Prosecuting Authority and Zimbabwe Anti-Corruption Commission who are manipulating investigations. This indeed shows that cartels are now are social cost to development.
The recent arrest of Henrietta Rushwaya on allegations of trying to smuggle gold from Zimbabwe to Dubai adds weight to the role of the Artisanal and Small-Scale Gold Miners (ASGM) in Zimbabwe. Since the ASGM is informal, and government has no way of accounting for production from this sector, there is a high chance that the gold being smuggled to Dubai is from the ASGM sector. The fact that the smuggling is reportedly done by Politically Exposed People and syndicates signifies how difficult it could be to stop this cancer. However, while the smuggling of minerals is taking place, it is the country which suffers from forgone taxes and missed opportunities for improved service delivery.
If Zimbabwe is to plug off gold leakages from the ASGM sector, then there is an urgent need for the formalisation of this sector. Formalisation will improve accountability in the submission of mining returns.
Zimbabwe needs to join the Extractive Industries Transparency Initiative (EITI). The EITI is a global standard to promote open and accountable management of extractive resources6. Joining the EITI can help the country to improve transparency in the awarding of mining contracts and mineral revenue management7.
1. Shava, Mhona land Cabinet posts
The appointment of new Cabinet Ministers and Deputy Ministers came at a critical juncture when the country needs leaders to fill in the vacancies created by the untimely death of three cabinet Ministers. The country is grappling with the Covid-19 pandemic as well as other socio-economic challenges hence leadership is critical to help the country navigate through these hurdles and build resilience to the precarious challenges. The onus of the new appointees is to enhance government responsiveness to the needs of the citizens. Government has the responsibility to ensure that the development challenges being faced by citizens are efficiently and effectively tackled. The appointments must reflect improved governance in the country where the challenges faced by the people can be addressed through competent and committed leadership.
While the appointment of Minister Shava who was once in government could bear fruits in terms of his experience in leadership structures in international affairs, the common selection of ZANU PF hardliners in top government positions who have problems with their history in terms of honesty and integrity spells doubt in the citizens, the civil society and the international community. Following the involvement of some Ministers in the Willowgate scandal8 and countless allegations of corruption, there is a need to command the confidence of the civil society, the international community, and the citizens to guarantee that there will be prudent stewardship of public resources. It is important to hold the senior government officials to account from the time they get into power. One effective way of doing so is the compulsory declaration of assets by key officials upon assuming office. The disclosure of assets should not be seen as an end in itself but it should be reinforced by subsequent lifestyle audits to bring to book any abuse of office or public resources by politicians. Without properly defined and succinct measures to curb corruption democratic governance will never see the light of the day in Zimbabwe.