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Weak growth means rough ride for Zim consumers

Harare - Experts say Zimbabwe's economy will notch up a paltry 1.7% growth for this year, driven down by slowdown in mining and other productive sectors while the cost of living is set to go up after the government introduced new tax measures aimed at boosting declining state coffers.

A fuel price hike as well as higher prices for basic commodities and foodstuffs are now imminent, a situation economists said will trigger wage increase demands. Zimbabwean companies are already battling to contain runaway costs to stay afloat in a downsizing economy.

“The government is killing the struggling companies that are already saddled with huge tax demands. In the end, it’s the consumers that will suffer through rises in prices but the real threat is to the economy as grey markets fuelled by smuggled imports will see local produce being shunned because of high prices,” said economist Johannes Kwangwari.

Business Monitor International has said in a new research report released on Thursday that the country is unlikely to record the 3.1% growth Finance Minister Patrick Chinamasa announced on Thursday.

Earlier, Chinamasa had said Zimbabwe's economy would rebound by as much as 6.1%, although the World Bank had insisted that growth for 2014 would be much lower than that at about 3.1%.

"Challenges for Zimbabwe's economy continue to mount and we have downgraded our 2014 and 2015 growth forecasts to 1.7% and 2.2% respectively from 3.1% and 3.3% previously," said analysts at BMI.

New tax measures announced by Chinamasa - after the mining sector failed to provide the much-needed cushion to the struggling economy - will push up mobile tariffs as well as fuel prices. It will also lead to higher prices for soap, cooking oil and vehicle imports among other goods.

Chinamasa said in his 2014 mid-term budget review statement on Thursday that Zimbabwe “faces challenges in raising funding” and announced measures to “increase the excise duty on fuel (diesel and petrol) from 25 and 30 percent to 30 and 35 percent respectively”.

He also said an additional 5% tax will be levied on data and voice airtime top-ups while mobile handsets imported into the country will carry a 25% duty.

Read: Cash-strapped Zimbabwe to tax mobile phones

Chinamasa also cut the gold royalty from 7% to 5% to lift the revenue burden on producers.

However, mining executives have told Fin24 that the government still needs to introduce more growth-friendly measures to spur productivity in the sector.

A chamber of mines senior executive said miners still had concerns on the importation of raw materials, access to funding at low rates and other fees such as those charged by the Environmental Management Agency, which they have complained about.

Reserve Bank of Zimbabwe governor John Mangudya was quoted on Friday as saying Chinamasa’s measures in the budget review statement would spur production in the economy.

However, other industry leaders told Fin24 that new measures to tax fringe benefits would affect workers, who could in turn demand more from their employers.

“(The new measures) addresses (sic) the issue of production. On taxation, it is something that people never like but it is necessary for government to enhance revenue,” said Mangudya.

Zimbabwe’s debt overhang has ballooned to US$8.8bn, said Chinamasa. He added that government expenditure for the half-year to June had surged to $1.953bn compared to $1.848bn during the same period last year, while imports had topped $3bn.

 - Fin24

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