PART 12013 BUDGET DISCUSSION

By Dr Joseph Kanyekanye

Group CEO – Allied Timbers

CZI POST BUDGET REVIEW & MTP UPDATE SEMINAR 16/11/2012

CZI PRESENTATION

CZI PRESENTATION

Presentation Summary Key Issues for Zimbabwe from the budget and implications for manufactring industry

What needs to be done to meet conerns coming from manufcturing survey presented last week

MTP Reloaded Faith is taking the first step even when you do not see the whole staircase. MARTIN LUTHER KINGReality check: power, capacity utilisation, lines of credit, Botswana and RSA Bippa prospects, policy consistencyGrowth: Minister projection of double digit, IMF projection and the key drivers, industry sluggishDebt: options but legal framework for hybrid approachNew Investment: control or regulations. Does anyone believe in a 5 day window

CZI PRESENTATION

KEY ENABLERS TO GROW THE SECTOR

Access to affordable working capital and long term funding to re-tool ( ZETREF 1 AND 2, RSA FACILITY, P500 MILLION, $50 MILLION FROM ANDOLA) NOT ENOUGH, SLOW TO DISBURSE

Sustainable growth in output from key economic sectors, namely Agriculture and Mining ( EXPLORATION, 100% OWNERSHIP OF DIAMONDS, DIAMOND ACT, POTENTILA FOR $14B PER YEAR MINING) : THUNDER NO RAIN

Sustainable supply of key economic enablers, namely electricity, fuel including coal and water. (N0W 7% OF EXPORTS FROM 30%)

Availability of reliable infrastructure in the form of good road and rail networks ( DBSA FOR BEITBRIDGE AND ROADS, MONEY TO ZINARA FOR GRADERS, NO ATTENTION TO RAIL)

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Professor Nick Bine

Appropriate Quotation: Impossibility is found in the dictionary of foolsThe world has moved eastSingapore case study: what works in an island of 4 million, anything is possibleSub-Sahara Africa: outside RSA, African economy not developed – governance issueIssue of planning for an increased populationIndia as a remarkable success led by former Finance Minister now Prime Minister.More change not less, Nations and companies will be tested.Escalaor outcomes – run faster than the escalatorCharacterisation of different countries: fixationn with memory but not vision, diversity of global economyGo east but go on reasonable terms – new wave of colonisation. The future lies in the east not Britain NiaahAfrica: No infrastructure but capacity for resilence and hard-work. Missing link is governance or political leadership.r

CZI PRESENTATION

EXTERNAL DEPENDENCE: DIASPORA INFLOWS, COMODITY PRICES, LINES OF CREDIT – SPOT ONNO POLITICAL CONSENSUS: UNRESOLVED ISSUES – DEBT RELIEFGOVERNMENT IS A SINGLE CLUB GOLFER PLAYING THE COURSE WITH THE PATTERGOVERNANCE DEFICIT: SUSTAINED GROWTH NOT POSSIBLE UNLESS WE REALIGN OUR POLITICS, DOLLARISATION IMPOSED BY MARKETS AND IS THE SINGLE MOST IMPORTANT BASIS FOR STABILISATION IN PLACE NOWCONCUR THAT POLICY INCONSISTENCY ON INDIGENISATION

Professor HawkinsCZI PRESENTATION

CZI PRESETATION

Key issues for Zimbabwe

ABSENCE OF LINES OF CREDITWESTERN SCEPTICISMPOOR ENGAGEMENT SKILLSLACK OF NATIONAL INTERESTFAILURE TO PICTURE OUR WAY

OUT

CZI PRESENTATION

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Funding..Funding …. Inadequate fundingTenure and interest rates are unfavourable to business.

The local financial institutions are also offering credit, but again at

punitive interest rates ranging from 8% to 60%, and short term tenure

of between one to six months.

Local roll over facility comes at a cost to industry.

Official statistics indicate that the domestic credit continues to grow,

with domestic credit increasing from $766.8 million in January 2010,

to $1.247 billion in July 2010. Albeit the fact that domestic credit has

been increasing the conditions remain unfavourable to industry.

It is also fairly obvious that medium to long term credit necessary for

capital expenditure is not readily available locally.

Costly rights issues which have generally been poorly subscribed.

CZI PRESENTATION

Where are we on power?

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Source Current Av. Capacity (MW)

Dependable Capacity (MW)

Remarks

Kariba 720 750 All units in Service

Hwange 300 780 Major Overhauls a Must Fuel (Coal & Diesel)

constraintsSmall Thermals

0 150 No Coal High Cost Relative to Tariffs

Total 1020 1680 >600 MW Shortfall

ZIMBABWE ELECTRICITY TRANSMISSION AND DISTRIBUTION COMPANY

Internal Correspondence

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Where are we on land?

COMPULSORY READING ‘ Until the President makes the certification described in sub-section(d), and except as may be required to meet basic human needs or for good governance, the Secretary of the Treasury shall instruct the United States Executive director to each international financial institution to oppose and vote against: (1) any extension by the respective institutions of any loan, credit, or guarantee to the Government of Zimbabwe: or (2) any cancellation or reduction of indebtedness owed by the Government of Zimbabwe to the United States or any international financial institution’SANCTIONS? RESTRICTIVE MEASURES? TARGETED? ZDERA?

CZI PRESENTATION

USA/EU Skepticism and Sanctions - 1FACTS? TRUTH?POLITICS? FAILURE TO ENGAGE?Conversations with EU,USA, Ambassadors, ADB, World Bank, IMF, PTA .Zimbabwe Democracy & Economic recovery Act (2001) versus Bill (S.3722.IS) Zimbabwe sanctions Repeal Act 2010 ( acknowledges the burden of sanctions in Zimbabwe GNU)EU Council resolution (EC) – 314/2004 CFSP – financial restrictions on Zimbabwe and travel ban on select government leadersSanctions UNILATERAL – no UN or WTO rulesCan sanctions be justified post GNA? You decide.Is it fair? China after T. square, Angolan rulers, Liberian diamonds

‘

CZI PRESENTATION

Western Skepticism or EU US Sanctions - 2FACTS? TRUTH?POLITICS? FAILURE TO ENGAGE? ZIDERA prevents debt rescheduling needed to unlock funding and deal wit arrears since 1999US/EU can influence Zimbabwe getting lines of creditThe West has not forgiven or forgotten our controversial land reform – heart of the issueTargeted entities:

State constitute at least 40% of businessesState utilities and enablers of growth largely depend on foreign loans for capex – power, railways

Deal with ZIDERA and land reform.

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CZI PRESENTATION

CZI PRESENTATIONZIMBABWE FORECAST

% p.a. 2009

2010

2011 2012

GDP Growth 4 4 4.5 6Inflation – end year

minus7.7%

10 6 6

Interest Rates (USD)

12% 16 13 10Source: Hawkins 2010

Hawkins, 2010

ZIMBABWE SECTORAL GROWTH% p.a. 200

9201

02011 201

2Agriculture 14.9 18.8 10.0 10.0Mining 8.5 31.0 25.0 15.0Manufacturing 10.2 4,5 4.5 6.0Distribution 15.0 12.5 8.0 10.0Tourism 6.5 3.5 6.0 6.0

CZI PRESENTATION

Some Key areas of competitiveness in Zimbabwe

Clothing and textile industry Agro-Processing ChemicalsManufacturing - Food Pharmaceuticals Metals and Minerals TechnologyWood and furniture

CZI PRESENTATION

Way forward :Priority Areas The country must not only choose priority

industries to focus on, but products as well The products must come from sectors

where the country has competitive advantage and can therefore be pushed into the region – focus on quick fix e.g. in Argentina and Hungary [SADC&COMESA]

Consideration must also be given to non-tradable goods

The priority areas & products must also consider the 2010 World Cup opportunities, and its aftermath

CZI PRESENTATION

How to rebuild competitiveness Government should come up with a

comprehensive National Industrial Strategy

Assist industries by giving them a competitive edge in the export of their goods

Rejuvenate Zimtrade to enhance exports Make use of the EPA benefits as this may

yield increase and progress in market liberisation

Industry must innovate or die Allowing more players and ensuring that

only market rules apply Seek incubation period before zero tariffs

CZI PRESENTATION

How to rebuild competitiveness cont. Advocate for foreign enterprises and other players

that seek to partner local industries Endeavour to export value added products Identify and address the challenges faced by

companies Industries need to modernise Need to dump high mark-up low productivity

business models Use Total Quantity Measurement Strategies (TQM)

which improve the quality of goods and services thereby increasing customer satisfaction

CZI PRESENTATION

What industry expects in General Institutional and structural reforms – stop

fighting private sector, commercialise or privatise state enterprises immediately

Make the nation attractive to investment – Soros economic Development Fund at US$500k to US$5m in Liberia and Sierra Leone

Policies that spawn new firms so as to keep ourselves at the top – e.g. micro-finance

Boost Research and development tax credits Lower corporate tax Capital equipment credits and NO VAT FOR

CAPEX. Reduce taxation regime imposed on

manufacturers

CZI PRESENTATION

What industry expects in General • Assistance in form of incentives, tax holidays• Supporting of low interest rate loans which

businesses can borrow• Providing affordable industrial finance which

enables industry to recapitalize, retool and increase capacity utilisation

• Going back to the social contract & a investor - friendly Labour Relations Act not paid for special leave and quasi - Marxist employee endowments

• Continuing to groom entrepreneurs

CZI PRESENTATION

What industry expects on Government Style and Pace

Pace of working – ZESA Power project & ZISCO delays do not make sense; Marange diamondsCluster communicationConsensus as opposed to Rulers or arroganceNeed for national unity and purpose –politics must take a back step for businessDeal with Venal Elites decisively and quickly – they spoil the environmentUpholding court judgements and International Agreements

CZI PRESENTATION

What industry expects on Taxation

Contingent liabilities carried over from hyperinflation need to go to give financials that attract investment

Moratorium to normalise tax needed without extremely punitive penalties post dollarization

Vat Payment on 15th day does not create credit but groceries for cash.

Create correct history – offset new and outstanding statutory obligations against forex ‘taken’ by RBZ and pre-dollarization Zimbabwean dollar balances

CZI PRESENTATION

DO NOT TAMPER WITH PROPERTY RIGHTS UNLESS YOU USE FREE MARKET RULES – RSA CASE: BLACK RULE; TEMPORARY EMPOWERMENT;CHIMURENGA RULES DO NOT APPLY EXACTLY;

LISTEN TO YOUR INDUSTRY SECTOR LEADERS – KENYA CASE STUDY

ENVISAGE A SUSTAINABLE OUTCOME IN BOTH SHORT AND LONG TERM HORIZONS THAT WORK ON A VIABLE PLATFORM OF A FUNCTIONAL ECONOMY

HONOUR AGREEMENTS AND INTERNATIONAL LAWS BEFORE GOING PUBLIC – WTO(100% FOREIGN INVESTMENT IN MINING) & COMESA (TARIFFS & FOREIGN CAPITAL ) – CAN BE CHANGED BUT OBEY THE RULES

BBBEE NEEDS TO BE SECTOR SPECIFIC AND BE BASED ON CONSENSUS – MANDELA'S RSA HAS INEQUALITIES AND TENDERPRENEURS

MANAGE THE DESTABILISING LUNATIC FRINGE - MARKET RULES APPLY

What industry expects on Indigenisation, Empowerment or BBBEE

CZI PRESENTATION

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Unlocking Funding … funding and HIPCThese lines of credit should be closely monitored and

performance of the recipients will be measured considering the

scarcity of resources. CZI believes that such schemes have to be

administered through banks rather than government to avoid

cronyism.

Debt relief under HIPC initiative to improve sovereign debt rating

and reduce risk for outside investors.

Mobilization of donor funds/credit guarantees for lending to the

private sector.

Secure medium term funding

CZI PRESENTATION

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CZI PRESENTATION

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National DebtZimbabwe National Debt needs to be sorted out. The reality is that with

or without the unilateral EU/USA sanctions, Zimbabwe has arrears since

1999 which prevent access to World Bank/IMF facilities to include African

Development Bank.

ZDERA and unilateral EU sanction both constitute an unsustainable

posture in a post GNU society. ZIDERA specifically works against debt

relief.

HIPC should be done. CZI’s discussions with the IMF suggest a debt

forgiveness strategy that involves staff supervision is a viable option. We

strongly believe serious political will to privatize can help the situation.

CZI’s view is that a hybrid approach if diligently followed can unlock

funding within 6 months.

CZI PRESENTATION

CONCLUSIONBuilding blocks for policies must be market based principles:Focus on incentives rather than punitive measuresLets listen to sector leaders. Stop local and international business hostility Look East and Learn – Kenya case: Sino-Indian Persian triumvirate has upstaged UK 3 billion pound investment, Oversubscribed Bond Programme, GrowthIndigenisation is a curved ball that must be played well and professionally taking cognisance of free market rules or we will lose exclusively through own goals.When we fight within, amongst and between us, there will be no investment.Lets retrace our steps … this time through consensus and avoiding the ruler concept.

CZI PRESENTATION

'Behind me is infinite power; before me is endless possibility; around me is boundless opportunity. Why should I fear?" - StellaStuart

THANK YOU31

CZI PRESENTATION