Here is the situation Zimbabwe finds itself in – it just cannot find ways to generate revenue. The only way the government makes anything is by extorting it out of its poor citizens.
In the RBZ’s Quarterly Review, we find that only 1.9% of the government’s revenue is from non-tax sources. Put another way, tax revenues accounted for 98.1% of total revenues.
You may have seen the video of the RBZ governor supporting Mthuli’s crazy tax regime, saying something loosely translated as “There is no money out there and so we have to get it here.”
While acknowledging the necessity of government revenue for operation, we are also acutely aware that elevated taxes can adversely affect economic activity. If the objective is to promote economic growth and enhance productivity, imposing high taxes is counterproductive.
The government acknowledged this when they revised their USD tax down. You may recall that when IMTT first hit the scene, the tax on locally remitted USD was 4%, which was later dropped to 2% and then 1% in 2023.
It is refreshing to see the Zim government adjust taxes down when it becomes counterproductive. Let’s hope the recently announced tax hikes will be revised in the near future.
On to productivity. In 2023, the country’s GDP was slated to grow by 4.5%, we shall know in a few months just what the actual growth rate was. What we know from VP Chiwenga is that estimates in October had it exceeding US$40bn in 2023 from US$35bn in 2022.
So, the country is producing more. In fact, the stats say GDP was US$17bn in 2017. That means the economy has more than doubled in the 5 years since 2017. I can’t say I’ve felt this growth.
In 2023, we also got an estimation of the country’s GDP that factors in the informal sector. World Economics estimates Zimbabwe’s GDP at US$66bn, which is much larger than the US$35bn we managed in 2022 or even the $40bn from January to October 2023 that Chiwenga talked about.
This suggests that the informal sector is about the same size as the formal sector. That’s impressive but if I’m being honest, I thought the informal sector was much larger than the formal sector.
That may indeed be the case still because even World Economics acknowledges that it is hard to estimate the size of the informal sector. Even Eddie Cross, the economist, thinks the $66bn figure might be conservative. Cross has recently been too glowing in his assessments of the Zim economy though, that’s the context you need on his thoughts here.
Exports and Remittances
In the 9 months to September 2023, the country’s exports grew by 8.1% to US$5.16bn from $4.78bn in the same period in 2022. That’s something there, hopefully this trend continues until this forex crunch is a thing of the past.
We have to rein in our imports if that’s to happen though because imports of $6.67bn went along with the $5.16bn exports. That’s a trade deficit of $1.51bn, which is not ideal.
With this in mind, you can clearly see why we celebrate the USD inflows that come from our brethren based in foreign countries.
In the 10 months to October 2023, Zimbabwe received $1.47bn in remittances, an 8% increase but that’s just captured remittances.
There is a significant amount of remittances that come in via informal channels that are not captured in this figure. No one really knows how much comes in this way.
However, even just the formal remittances are almost enough to offset the trade deficit of $1.51bn we talked about above.
As you know, the last quarter of the year is the busiest when it comes to remittances inward. So, the total remittances figure for the whole of 2023 will be much higher than the $1.47bn in October. However, I don’t think we will reach the $2.1bn that the government had forecast.
Makes you wonder, do we have too many players in the remittance industry? Yes, $2bn is a lot of money but can it support the fintech companies popping up every other week?
Let’s hope this competition leads to lower transaction charges and the introduction of new and novel services.
Back to exports
Instead of looking to Zimbos based outside to balance our current account, we should be looking to increase our exports, reduce our imports or both.
We talked about an 8.1% increase in exports, here are some key highlights from that growth:
- exports of manufactured or value-added products – increased by 22% from $264.9m to $324.1m
- tobacco exports grew by 60% from $46m to $73m
- processed food exports grew by 39% to $85.2m
- household electricals and furniture by 21% to $18.5m
What’s concerning is that exports to South Africa, our biggest export market decreased by 10.4% to $1.76bn. The positive is that exports grew despite our biggest export market shrinking, meaning we are diversifying.
This year we will focus on showcasing what startups are doing. The above is the economy they will be operating in.
Reading the above you can see why there is a rush by all players to get in on the remittance game, estimates say it’s a US$2 billion industry. If they can convince those using informal channels to go formal, then they would be sitting pretty.
There are many other problems worth solving in the Zimbabwean economy and we look forward to showcasing what Zimbabwean entrepreneurs are up to.