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Zimbabwe: Analysts Warn Against Policy Inconsistencies

ECONOMIC analysts have warned that continued policy inconsistency by government continues to undermine investment flows into the country, while making corporate planning difficult.

They spoke after government, which has been accused of announcing policies and immediately reversing them, reversed two key policies between January and this month.

In January, the Postal and Telecommunications Regulatory Authority of Zimbabwe approved huge tariff increments on data.

But following a public outcry that telecoms operators were out to reap super profits at the expense of consumers, the Ministry of Information, Communication Technology, Postal and Courier Services directed that operators revert to previous tariff levels.

The directive triggered a fallout between government and Econet Wireless Zimbabwe, which questioned government’s order.

The country’s largest telecoms firm by revenue then published a strongly worded statement hitting at government for its directive to reverse the tariff.

But just as the dust was settling, Finance and Economic Development Minister, Patrick Chinamasa announced that government would start charging a 15 percent Value Added Tax (VAT) on basic food stuffs, which had previously not been subjected to the tax.

Faced with shrinking tax revenues and mounting government expenditure, Chinamasa appeared to have little option but to charge VAT on rice, margarine, meat, cereals and potatoes to increase the tax base.

The move saw prices of the basic foodstuffs rocketing immediately after the announcement.

This compounded the woes of consumers in a country battling a 90 percent jobless rate and a deepening economic crisis.

His decision caused uproar from consumers.

In a ministerial statement in Parliament only a week after introducing the VAT, Chinamasa made a U-turn and said he would put on hold plans for the introduction of the VAT.

“This will allow for further consultation with relevant stakeholders and those consultations, I will start them with this august House. I need the august House to give me guidance. I must tax something to raise money to pay for service delivery, allowances, and wages. So, we need to have guidance so that we understand and agree on which items to tax,” Chinamasa told Parliament.

Consultations are now underway.

But Zimbabweans have questioned why he had failed to make consultations before introducing the VAT in the first place.

Business organisations said this could affect planning, not only in government but in the retail industry, which had the task to collect the tax from consumers for transmission to Treasury.

In 2012, government ordered the reinstatement of a rebate on shoes and clothes that had previously been scrapped.

This was generally welcomed by the public, but analysts described the summersault as a serious indictment of government policies.

The reversal of the policy, which had only been effected five months earlier, exposed government’s rush to implement policies before consultations, which are important to understand the impact of any pronouncement on stakeholders.

There has also been concern over the treatment of foreign investors within the framework of the Indigenisation and Economic Empowerment Policy, which restricts offshore investors to minorities in domestic businesses.

Until President Robert Mugabe moved to clarify a range of issues in the policy last year, analysts had queried why the policy said investors in the manufacturing sector would sell off only 40 percent to locals, while the law said 49 percent.

The deal between Indian firm, Essar Africa Holdings and government to take over Ziscosteel had seemed to receive preferential treatment by allowing the foreign shareholder to hold more than 49 percent shareholding in the business.

In 2010 it was announced that government would phase out the importation of cars that were five years old and above, but after a public outcry this was reversed.

Policy analyst, Butler Tambo, said government should change its approach to policy making.

“Policy inconsistency and contradictory statements from government officials have also made doing business in Zimbabwe a nightmare,” Tambo said.

“Proper institutions need to be put in place which can aid investors to know the true picture of the opportunities in Zimbabwe and not a situation where investors’ businesses are threatened with closure overnight and the next morning the same sentiments are reversed. The role of institutions goes beyond the legal framework. Government’s attitude towards markets and freedoms and the efficiency of its operations are also very important; excessive bureaucracy and red tape, overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, and political dependence of the judicial system impose significant economic costs to businesses and slow the process of economic development,” said Tambo.

Analysts said inconsistency in the application of policies had left the economy in bad shape.

They blamed government for producing high-sounding economic blueprints.

Economist Vince Musewe said policy inconsistency in costs money and creates uncertainties.

“Policy inconsistencies affect good planning and have an impact on profitability. No investors like moving targets and no project can be successful if the rules change midway. As a result, investors do not invest,” Musewe said.

“Also, it increases perceived country risk and impacts on all sectors of the economy. Any government should be consistent in its policies to allow development and certainty,” he added.

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