Fruits of a tough reform journey are beginning to show – Zimbabwe FinMin Mthuli Ncube

Minister Mthuli Ncube was appointed Finance Minister of Zimbabwe on Friday 7 September 2018 under President Emmerson Mnangagwa’s government. Under his wing, there may just be some hope for a new economy for Zimbabwe. Minister Ncube joined the BizNews Power Hour to share his new role and future plans. He says Zim’s new economy will attract foreign investors as the old law of ‘indigenisation’ by former President Robert Mugabe has been amended to be more inclusive. – Claire Badenhorst

Minister of Finance Mthuli Ncube on what’s required to turn an economy (like Zimbabwe’s) around:

The process of turning around the economy requires clarity and resolution. One has to be resolute in terms of enacting policies – I maintain that. What is really required is to stay the course and [someone who] can walk the talk, but also I’ve received enormous political support. There’s political will and first of all, from the president and then the party – that is the ruling party. So that is also needed. But being clear, being resolute, and walking the talk, and being steady as it goes is the attitude that you need to adopt to do this kind of job.

Really, it’s about staying the course in terms of the tough choices that we have to make, even brave choices, in fact, in terms of policymaking, and then sticking to one’s guns in doing that because we understood what we needed to achieve. We need strong economic growth, we need the economy to recover, we need a more normal economy. We need to interact with the rest of the world and improve our engagement with the rest of the world.

On why he took on the role:

Firstly, it was an honour to be requested by the President of Zimbabwe to be Minister of Finance in his cabinet. One can’t turn down those kinds of honours, and secondly, he had a vision that I believed in when it was put before me. And I have helped him to craft a vision. We’ve just completed the crafting of the National Development Strategy and so that’s what we’re implementing right now and that is his vision. He crafted a vision [for] 2030, which I walked into, and frankly, I’ve been sold in terms of his vision of moving Zimbabwe to an upper-middle-income status by [the] year 2030. He desires to see a Zimbabwe or an economy for Zimbabwe that is private sector-led and I believe that.

And, of course, I have a contribution to make in this regard. I learned a lot from being vice president and chief economist of the African Development Bank and those skills have come in very handy because I had the opportunity to really impact the whole of Africa, every type of African country. So those skills have come in very handy, but also my academic skills, analytical skills have served me well in being able to tell the wood from the trees in terms of the analytics and then implementing the right policies. Also, my managerial skills – I’ve had to manage people, turn around big business, manage people at the  African Development Bank. That also has helped me in terms of managing my team and steering them in the right direction. But the vision and believing in the vision was critical in my accepting this job.

On inflation being down and record cement sales: 

There’s so much demand for cement that cement companies cannot cope with the demand. If we look at GDP growth for 2021, we’re targeting 7.4% at least, if we’re being conservative and the output from the agricultural sector is expected to grow by close to 40% in 2021. That’s a record. We’ve never had this output in agriculture since 40 years ago. And I mean, I repeat, 40 years ago – that’s a major recovery in the sector. Going back to companies, if you look at capacity, utilisation is now closer to 60%, up from as low as 20% a full four years ago. So this is a remarkable success, remarkable achievement, and it’s quite pleasing indeed. It’s got to do with the policies that we’ve put in place. The inflation has dropped from something like 836% this time last year, on a year-on-year basis, down to about 161% for the month of May, and we expect it to dip below 100 next month. So by year-end, we expect inflation to be in the teens and the month-on-month inflation to be firmly, well below 2% per month. So that means that things are normal.

What perhaps also needs to be emphasised is that we’re so brave as a government, we introduced a new domestic currency from scratch and we’ve done that in under two years. We have the Zimbabwe dollar circulating – it’s stable – and that stability is partly the reason why inflation has come down so fast because all the inflation in the past had to do with the volatility and weakness in that currency. So we’ve done a lot in two years. Reforms have been tough, to an extent brutal, and we thank the citizens of Zimbabwe for bearing with the government with these tough reforms. But the fruits of that reform, a tough reform journey, is beginning to show.

We were running a much tougher economic reform programme than the IMF would ever have suggested. In fact, I recall them saying, Minister, what you are proposing is much tougher than what we’re suggesting and you are doing it without any support from outside. Typically, when you’re doing this kind of reform agenda, you’d receive a balance of payment in support. We did it without that. That’s why I’m saying we have to thank the people of Zimbabwe for bearing this pain. We are over that hump now and really we believe in what we’re doing and the results are here to show us. It was tough love, as we say, but here we are. Things are looking up.

On Zimbabweans’ resilience: 

Zimbabweans are tough. They’ve been used to hardship. They are resilient, and they are also very enterprising. I’ve been amazed at how enterprising they are and how resilient they are. They go on with their lives. They respond to these shocks. They’re able to take these shocks in their stride. But I still thank them for that resilience and for putting up with reforms so far. And here we are. Things are looking up. They’re looking much, much better.

On achieving the target of being an upper-middle-income country by 2030:

We are on track; all we require is an average growth rate of about 5.1% in GDP per annum until 2030. We will achieve that upper-middle-income status. We are already at a lower-middle-income status so we’ll have to build towards that GNI per capita of about US$3,500 to US$4,000  per person per capita. We are on track for that; we believe it’s achievable. If we look at the regional GNI per capita, the city of Harare is much closer to upper-middle-income status on average already, followed by the city of Bulawayo as a province, and then other provinces are also catching up. There are some that are much lower, such as the provinces in the east of the country – Manicaland, and other provinces. I track GDP and GNI per capita province by province so that we know what projects we should promote and intervene [in] in order to promote income growth in that province. That then helps overall economic growth, so we are well on our way to achieving that status – I’m certain of that. And we can achieve upwards of 5.1% on average.

On receiving support from diaspora: 

The diaspora have been very supportive to Zimbabwe. First of all, last year in 2020, we received one billion US dollars in inflows from the diaspora. We must thank the diaspora because that’s providing us with some balance of payments, support, although it’s targeted to their families, which is wonderful. It’s like targeted aid but it’s foreign currency inflows nonetheless. So we must thank them for that. But as a government, we do have a diaspora support policy through the Ministry of Foreign Affairs when we are reaching out to the diaspora for them to invest back in the country. They’re only sending money to relatives but invest more systematically in the country. We’re actually working on providing incentives for investment by the diaspora.

Government has established an offshore financial centre in Victoria Falls, which is purely in US dollars to compete with other financial centres around the world, such as Mauritius, Abu Dhabi, Azerbaijan, and others. But it’s an investment in terms of African investment for anyone who wants to use that platform, and the diaspora are being invited to also use that platform for investing back in the country or wherever they want to invest. We want to also raise capital as a government. We’re actually in the process of placing a bond globally and we will approach our diaspora to invest in the country through that bond by lending money to government because that’s what it is, so you are exactly right that we are targeting them. They are already showing that they are able to support us in terms of balance of payment by supporting their families. They are doing a lot. We want them to do more. We will also support them and organise them accordingly.

On support from South African companies: 

I mean, the investment in South African companies has been most welcome. They’ve done a phenomenal job. If you take, for instance, Implats, it is the largest taxpayer in the country. So I’m a very happy finance minister because of what they do here. So in terms of also foreign currency earnings, US dollar earnings, that is supporting our balance of payments earnings. So they’ve done a lot. You’ve mentioned PPC, which is a cement company, and others. You have your Pick n Pay in the retail space, you’ve got the banks, Standard Bank, which is basically the largest bank in Africa. They are present in Zimbabwe. They are probably also the largest corporate bank in the country supporting most of our exporters. So they are doing a lot. We are supporting them. They are really contributing to the country and we want them to invest some more. We entertained visitors again from South Africa, a group of investors from South Africa. I did a tour in Cape Town recently meeting the portfolio managers, not those investing in the real sector, but those investing in Zimbabwe’s stock exchange. It was a fantastic roadshow. So South Africa and Zimbabwe are really joined at the hip, so to say, in terms of investment and we will support South African companies that are investing locally.

On Tongaat Hulett’s performance in Zimbabwe:

I thought they were doing very well, really, as a company. They are supporting the local communities because they run outgrower schemes. They are contributing to the fiscus in terms of taxes. So they are contributing to the economy. We’re very happy generally with their performance and with the economy turning up, we expect them to do even better. So Tongaat Hulett is doing fantastic and so are many other companies from South Africa. I think you will see their results are looking up as are many other companies. Just looking at the PPC performance recently, I can see that they never made so much money in the longest while and I expect there to be a similar pattern for Tongaat, for the banking sector, for the mining sector companies from South Africa.

On engaging with other African countries so that they may learn from Zimbabwe:

Well, we meet as ministers of finance. We share experiences. My mind has not been to say, learn from Zimbabwe, but rather let’s share experiences in policymaking, let’s share experiences in response to Covid. We’ve been doing that and in fact, here in Zimbabwe, just looking at Covid, for example, I believe that we really tried our best to manage it well and our vaccination programme is going rather well. We are really on track to achieving that herd immunity. Of course, it takes time to get there, but we can see quite clearly where we are headed and we share those experiences as ministers of finance. And recently, Zimbabwe underwent a peer review in terms of macroeconomic performance, which was led by SADC, but by the Malawian authorities being in the driving seat of that process. So we are sharing experiences. With Mozambique, we’re doing the same, with Botswana, and also with South Africa. So it’s about sharing that policy experience, that’s how we support each other.

On repairing relationships with countries in the north:

We are making a lot of progress. In fact, just yesterday I saw a tweet from the acting US ambassador saying that it’s really time that American companies look at Zimbabwe seriously in terms of investment. We entertained a huge delegation from the US, led by former or retired General Clark, who is a big player now in the private sector space in the US, particularly private equity. So the US is saying that – that tells you a lot. We have been having investment engagements with the UK companies. I did that about two months ago with the French companies as well. And this week I’m having a conversation with the Swiss companies. I had another conversation last week with, again, with a group of US companies – about 50. So there’s a lot of interest in terms of investment in Zimbabwe right now. They, too, wouldn’t want to be left behind. The Chinese companies have been very active in Zimbabwe, and we’ve welcomed them. The Indian companies the same. But really we’re open for business and open for the whole world. We have lots of opportunities right across – whether you’re looking at agriculture, mining, retail, manufacturing – wherever you look, there’s space for investment by foreigners.

On attracting foreign investors:

We have basically expunged the law that forces foreigners to sell 51% of their equity to local investors. That has been removed right across the board. A foreigner can own up to 100% of their company. Secondly, when they operate in a special economic zone or offshore financial centre, there are no exchange controls at all in terms of them taking out their profits. But even if they invest normally, not through that structure, you’re allowed to receive 100% of whatever you add in terms of dividends. Wherever there have been challenges, really, in that space it’s got to do with just the availability of US dollars, but not because you’re not allowed to take out your money. So there are so many incentives for investors.

Looking at tax incentives, if you invest in an offshore zone or export processing zone, your corporate tax in the first five years – there’s a full rebate on that. After that, your corporate tax really drops to about 15%. And if a foreign investor, in fact, any investor, once your export revenues or volumes exceed 51% of your total, your corporate tax drops from 24.5% down to 15%. For anyone importing new equipment for any sector, again, there’s a full tax rebate on that. You don’t pay any customs duties. So we have so many incentives right across all our sectors and most are for foreign investors or those who invest through economic zones or offshore financial centres.

On crafting a transition stabilisation plan in just five days after taking office: 

I worked pretty fast with my team – I must thank them – that I was able to put together a document, a blueprint to really create stability in our economy, transforming, all within a period of two years. We worked pretty fast, but we focused. I remember launching it on the 4th of October 2018 in Harare and then on the 5th, literally the following day, I then also presented it in London at a Financial Times conference. Then I flew to Indonesia, to Bali to present it at the World Bank IMF meetings, also all within a period of four days. I was able to push it across the world and say, this is our roadmap. This is what we’ll do. We will walk the talk on it and that’s exactly what we’ve done.

But also, I’ve got a lot of experience in sort of designing blueprints for a typical African country. When I was at the African Development Bank, I lead the development of the strategy for the African Development Bank, which basically is a strategy about Africa. But also prior to that, I contributed enormously to the vision 2063 at the AU, the vision for the whole of Africa, contributing to the pillars for that strategy and then later for the African Development Bank. Then you will find that for the Zimbabwe blueprint, especially for the latest development strategy, pillars for the strategy are not too far different from that experience at the African Development Bank, that we are focusing on macroeconomic stability, focusing on infrastructure investment, making sure that we can support value chain development or domestic value chains, supporting the small-to-medium scale enterprises, better management of our natural resources in the mining sector, improving our relations with the rest of the world. All those things are really, if you look at them, they are in the vision 2063 for Africa or in some aspects of the African Development Bank strategy for Africa, which is the 10-year strategy that I helped lead when I was there. So, some experience helps.

On South Africa’s economy:

Well, South Africa is a huge economy. It’s a sister or brother economy nearby, so I tend to watch what South Africa is doing. Obviously, it’s a big market for Zimbabwe. It’s a big source of both hard and initial capital in terms of equipment. So those relations are critical. So we will have a stake in how South Africa is doing. So we wish South Africa well in terms of economic policy and the impact and just working through the Covid-19 pandemic shock. It’s a big market and we really work closely with South Africa. We are joined at the hip. I think South Africa, like the rest of the world, is poised for recovery. But of course, I cannot be specific about numbers. I’ll leave that to my colleague Tito Mboweni, but we wish South Africa well.

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