FROM BEG BASKET TO BREAD BASKET THROUGH DOMESTIC RESOURCE MOBILISATION

Zimbabwe

OVERVIEW Zimbabwe was the breadbasket of Africa, exporting wheat, tobacco, and corn to the rest of the

continent and beyond. Zimbabwe contains the most fertile farmland on the continent. Wikipedia A Bread basket is a situation where a country, by its own critical momentum and effort, is able to

produce agricultural commodities in such excess as to have enough for domestic consumption, while exporting to neighbouring countries. Zimbabwe was such a vibrant economy, but, the economy has gone south since the turn of the millennium, official development assistance has gone down and economic activity is low.

Ever since the introduction of multi currencies the goal for every citizen is to get Zimbabwe moving again. The biggest challenge to efforts aimed at setting Zimbabwe back on a sustainable path to economic recovery and growth after a decade of recession until 2008 is lack of access to affordable funding.

Economist believe that no matter how brilliant Government policies are, without access to affordable long term finance, economic recovery or even development will be a challenge. Billions of dollars are required to rehabilitate and put new infrastructure from water and sanitation, health and child care to roads and power generation.

As such Zimbabwe has resorted to domestic resource mobilisation for economic growth due to the drying up of official development assistance and the unwillingness of donor countries to engage Zimbabwe.

THE CHALLENGEIn sub-Saharan Africa domestic resource mobilisation constitutes about 70% of development finance which means there is a deficit of 30% usually filled by loans or Aid or other forms of public finance. In Zimbabwe the statistic for Aid has gone down to less than 10% thus over 90% percent is DRM.

The economy is characterised by the following:

1. LOW SAVINGS A serious problem confronting Zimbabwe is the savings gap, this essentially means that many

households are not saving. This could be as a result of low disposable incomes, however, this may also be as a result of the

banking crisis that happened recently in Zimbabwe, households no longer trust bank and would rather keep their money at home under mattresses.

The main problem with mobilization of resource in Zimbabwe is that not enough savings are generated to facilitate the required investments.

The low saving rate in Zimbabwe also explains the low level of economic activity in the country and the slow pace of growth and sometimes negative growth.

To compound the problem those that have resources to save, prefer to save outside Zimbabwe.

2. CAPITAL FLIGHT “Zimbabwe’s macro-economic policies need to be re-aligned to decisively plug-off the high incidence

of capital flight characterising the economy. Estimates as at June 2015, based on a combination of balance of payments analysis against Zimbabwe’s potential equilibrium performance (macro-economic steady state growth path) indicate that annually, Zimbabwe lost an average of $1.5bn through capital flight between 2012 and June, 2015,” Munyaradzi Kereke MP. That means to date Zimbabwe has lost in excess of 5 billion.

Capital flight remains a stumbling blocks to D.R.M. Tax flights from Zimbabwe are obviously several times higher than aggregate inflows from official development assistance. Capital flight severely weakens D.R.M and it undermines social contracts and damages good governance thus exacerbating our situation.

3. TAX INCENTIVES AND EXEMPTIONS Zimbabwe tax office website state that, “Like many other developing countries, Zimbabwe offers a

number of tax and customs incentives in the form of tax holidays, reduced tax rates, and accelerated depreciation. The incentives are given by sector, type of activity, form of organization, and geographical location of investment”

In a wide-ranging survey of taxation challenges facing developing countries, Bird (2008) made a convincing argument for minimizing exemptions or completely eliminating them. Exemptions shrink the revenue base, complicate tax systems, and open the door to political capture (the party or group in power could use discretionary exemptions to retain power or undermine businesses linked to the opposition)

Research has shown that Tax incentives are not the primary determinants of the decision to invest. With the number incentives that Zimbabwe has, if incentives were a determinant we would have a new international company every month.

4. POOR TAX ADMINISTRATION Due to complex tax system and inefficient tax administration, most small enterprises prefer to

remain informal. The failure to adequately remunerate the skilled staff in tax offices is a major impediment to tax

collection in Zimbabwe which is leading to bribes and corruption. There is a culture that is growing in Zimbabwe, a culture of non-compliance which accounts for the

low D.R.M.

5.THE INFORMAL SECTOR Zimbabwe has a vibrant informal economy that is the biggest employer at the moment which is a

major obstacle to broadening the tax base and collecting direct taxes. It poses a wide range of economic challenges, taxes are not collected in that informal economy, and

informal entrepreneurs’ production is not measured and there are no labour and social protection schemes for workers.

POLICY RECOMMENDATIONS TO IMPROVE DRM IN ZIMBABWE It is a fact that much of the challenge of enhancing the role of domestic resources rests with national

policymakers, the domestic private sector, and citizens more broadly. It however has to be a collective effort it will not be fair to leave the agenda to a few individuals or a

few sectors of the economy. We need all inclusive policies to ensure Zimbabwe attains the SDGs by 2030. Research has shown

that financial inclusion leads to economic growth. In fact there is a general believe that “there is a fortune at the bottom of the pyramid” yet private

sectors in Zimbabwe has not been able to come up with products or services that excite the bottom of the pyramid.

We recently formed an organisation called Financial Inclusion for sustainable development Zimbabwe (FISDZim). We are advocating not only for financial inclusion but for sustainable financial inclusion.

We believe that financial literacy is a bridge between financial inclusion and sustainable financial inclusion.

We believe we can use the few aid funds to help Zimbabweans to become more self-reliant through for instance increased domestic revenue mobilization through the use of mobile money technology.

We recommend the following

1. MICRO SAVINGS In our paper mobile money: promoting a culture of savings in Zimbabwe, we realised that

Zimbabweans are saving but the challenge is that they do not trust the banking system anymore. A disruptive mobile money savings account will encourage the poor to save on a more secure

platform than under the pillow and mattresses. The poor are already saving through burial societies, rotating savings and credit associations,

accumulating savings and credit associations and savings clubs. Such funds if formalised will be available to finance domestic investment.

2. MICRO INSURANCE Research has shown that the needs of those in informal employment and at the bottom of the

pyramid are exactly the same as the needs of those in formal and at the middle or top of the pyramid.

Social security organisations should probably start looking at micro-pensions. These would make it possible for men and women in informal employment to easily, safely and at low

cost make contributions toward their retirement. This will add to what is already there from pension funds thereby enhancing DRM.

3. BROADENING THE TAX BASE Zimbabwe like Most African countries is overwhelmed with very large informal sectors and

underground economies where cash transactions do not leave any audit trails for tax purposes. It will therefore be necessary to find ways of taxing the informal sector.

There is need for government to embrace technology and adopt and start using and encouraging the use of mobile money in the economy.

Zimbabwe has an estimated $7 billion that is circulating in the informal sector and there is no record for those transactions and they are not taxed.

According to Zimstats labour force survey, 94.5% of the employed population in Zimbabwe is in informal employment and 5.5% are in formal employment. Zimbabwe’s economy is now more informal.

However it is worrying to note that our social security, pension funds and the tax man are still concentrating on the 5.5% in formal employment and not thinking about the majority in informal employment.

Enhancing DRM implies looking for new types of taxes and expanding the revenue base.

3. BROADENING THE TAX BASE

4.IMPROVEMENT IN TAX ADMINISTRATION There is the need to automate the business processes and procedures of tax administration in

Zimbabwe. We can only imagine how much more the government would collect if tax remittances were paid

through mobile money. Some companies end up not complying because of the hassle of having to look for a government

office to remit. By using mobile money government can reach out to many businesses. Tax Administrations should be restructured to address the issue of a large informal sector in our

country.

5.RATIONALIZATION OF TAX INCENTIVES As mentioned earlier, Tax incentives are not the primary determinants of the decision to invest. Most investors base their investment decisions on economic, commercial and political factors. Most start- up companies in Zimbabwe make losses for several years and do not benefit from tax

exemptions offered by government.

CONCLUSION Within our own limits with our own resources we can help Zimbabwe survive until such a time that

ODA starts flowing to Zimbabwe again. In the absence of official development assistance Zimbabwe needs to find ways to enhance DRM. As Financial Inclusion for Sustainable Development Zimbabwe we propose the following.

1.PUBLIC, PRIVATE-CORPORATE AND HOUSEHOLD Increased (public, private-corporate and household) savings mobilization through the trusted mobile

money accounts. Recently we read in the news that Kenya launched its first government bond offered exclusively

through mobile phones thus, taking advantage of the country's booming mobile money market. There is no doubt that for economies that are recovering, mobile money is playing a major role in

economic development by bringing access to finance at the bottom of the pyramid.

2.MORE EFFICIENT INTERMEDIATION More efficient intermediation so that domestic savings are invested. With the cell phone informal sector employees can contribute at any given time and from anywhere

at their own convenience. With over 5.9 million currently in informal employment a minimal contribution of say $0.25 towards retirement per day can lead to huge collections by the pension funds and social security organisations.

Such funds with relevant national policy can then be used to support the same informal sector to grow through bank managed loans that are disbursed through mobile money.

This will lead to domestic investment from DRM that has the potential of changing the shape of our economy and steer it towards recovery.