Zimbabwe budget 2018 aims to lure foreign direct investors, according to this analysis by Alisa Strobel, senior economist: sub-Saharan Africa, at IHS Markit.
Years of economic mismanagement have led to a collapse in domestic demand in combination with a struggling manufacturing industry and agricultural sector devastating the Zimbabwean economy.
Finance minister Patrick Chinamasa presented Zimbabwe’s final budget for 2018, which highlights the first fiscal policy direction move of the new administration past Robert Mugabe’s presidency, suggesting stronger cooperation with the international community.
The national budget was presented under the banner “Towards a New Economic Order”, and acknowledges that a decline in domestic and foreign investor confidence has led to a disappointing economic performance over recent years.
The new policy shift highlighted in the final budget paper focuses therefore on economic recovery, supported by foreign direct investment under a market economy principle.
Some of the key policy changes include: the progressive reduction of the share of employment costs to initially 70% in 2018, 65% in 2019, and below 60% of total revenue by 2020. Amending and relaxing the Indigenisation and Empowerment Act is one of the key policies that is structured to re-attract foreign investments.
Furthermore, the proposed amendments will confine the 51/49 Indigenisation threshold to only two minerals, namely diamonds and platinum in the extractive sector. The 51/49 threshold will not apply to the rest of the extractive sector or any other sector in the economy – suggesting openness to any investor, regardless of nationality.
IHS Markit welcomes the government’s aim to address the high country risk perception among existing and prospective investors, by abiding by the terms of Bilateral Investment Protection and Promotion Agreements Zimbabwe.
Additionally, IHS Markit welcomes the government’s expressed efforts in servicing and re-scheduling of domestic and external public debt obligations that are consistent with agreements with lenders and creditors. However, critically, proposed government employment costs are still too high to address the country’s fiscal imbalances.