ENABLEMENT ENVIRONMENT CREATED
5.3.0 The Fiscal Policy
Under this conditionality the Zimbabwean government was
supposed to reduce and eliminate fiscal deficit by contracting public expenditure, increasing prices in public sector to cover costs and raise revenues, reforming tax system to improve the efficiency of raising revenue; and creating new sources of revenue.
The success of financial liberalisation measures also depends on other preconditions that are necessary to support them. Financial liberalisation needs to be coordinated with other stabilisation measures. In the Zimbabwean situation, the effect of financial liberalisation on financial savings has been over-shadowed by lack of
macroeconomic stability due to high government deficits. Fiscal policy influences the
level of domestic savings directly and indirectly through its influence on savings incentives and decisions of private savers (Kanyenze, 1997).
With regard to the direct effect of fiscal policy, adjustment programmes emphasise the importance of reducing budget deficits in order to increase total savings. This scenario of increased deficit and dissaving by the Zimbabwean government led to a debt trap, which in turn had serious implications on provision of services, like
sewerage, water and shelter.
Table 5.1: Contribution of Government to Dissaving in $m (1990/91-1994/95) 1990/91 1991/92 1992/93 1993/94 1994/95 BUdget Deficit 1,565.5 1,709.3 2,644.3 2,138.2 6,15.3 Less Capital 857.6 1,097.7 1,422.5 1,723.8 2,990.6 Expenditure
Dissaving 707.9 611.6 1,221.8 414.7 3,624.7
Source: Calculated from Financial Statements [(various), ZCTU, 1997]
Since the adoption of Economic Structural Adjustment Programme, the government had been dissaving. This occurs when government recurrent expenditure exceeds current revenues so that loan capital is used for consumption purposes (Table5.1). It is obvious that if the fiscal deficits were reduced, total savings would increase. With regard to the indirect effect, the introduction of the 30% withholding tax on interest income from savings held with some financial intermediaries may have discouraged savings. Indeed, even in periods of high deposit interest rates, the impact of the tax is to effectively lower the return on savings held with commercial banks (Zimbabwe, 1997). Less savings, meant that the families seeking shelter would not raise enough money even with government subsidies. On the other hand government dissaving meant a limited number of families would be given housing subsidies and
guarantees. Also inflationary pressure would mount on the economy which would drive the cost of shelter to unaffordable margins.
The Non-quantifiable Factors: Such factors include the proximity of bank branches, the appropriateness of available financial instruments compared to available alternatives, cultural values, and so on. The proximity of bank branches increases savings substantially because this enlarges the catchment area and encourages savings with formal institutions. This arises from the reduction in transaction costs associated with reduced distances to banks. Furthermore, non- interest factors are important in determining portfolio allocation of savings among the various alternative forms, ranging from holding cattle to holding financial savings.
The portfolio changes expected to be generated by high real deposit interest rates may not always be desirable to savers. Additionally, some cultural norms especially in rural areas perpetuate the accumulation of stocks such as cattle, where they are used as a measure of wealth. Under these circumstances, increases in real deposit rates cannot be expected to result in the liquidation of such stocks (Zimbabwe"
n.d.a). The challenge is to develop institutions and mechanisms that people can trust for intermediate savings through a formal financial system.
Tax regime Improvements: Low and evenly spread taxes are advocated in a Neo- Liberalist economy as they are said to be a catalyst to investment and an incentive to people to pay their taxes and at the same time encourage savings and investments.
On the other hand, high and thinly spread taxes are said to discourage people from paying their taxes and discourage savings and investments, therefore denying government the much-needed public income. Like most other Sub-Saharan
countries, Zimbabwe has had to depend on a small taxable base for tax collection, because very few people and companies pay very high taxes: 40%. Although there are now many small scale and informal businesses, there has been no
comprehensive form of tax collection for the majority of these informal traders, businesses and self-employed persons. Some of them make more profit than some formal businesses. The study stresses the benefits of the tax reforms which, were meant to bring out the ideology of shifting government role from "provider" to
"supporter" of shelter provision. Better revenue resources and collection would lead to enough revenue to support policy formulation and a balanced budget leading to better provision of services like water, sewerage and roads.
5.4.0 The Public Enterprise Policy
Under this conditionality the Zimbabwean government was
supposed to cut public investment and shift to infrastructure and social sectors, improve public enterprises to efficiency and
profitability, close or privatize unprofitable public companies. This part of the study traces the intended efforts and companies related to shelter provision.
Public companies and Indigenisation: private sector participation is important to both the Structural Adjustment Programme and the enabling shelter strategy. To this end the Zimbabwean government formed the Department for State Enterprises and indigenisation, an autonomous department of the Government established through the Privatisation and Indigenisation Act of 1991. It was charged with the
responsibility of disposing of publicly owned companies, which comprised 70% of the national economy to the private sector and raise funds for public sector expenditure.
Not only has Government raised money from the sale of these companies, but it has also made huge savings from the subsidies that would otherwise have been given to these companies. In the 1990s, the urgency of indigenisation came to the fore and led to the establishment of Indigenous Business Development Centre. The
government policy of privatization was to be used as a vehicle for Indigenisation and empowerment for the native Black Zimbabweans. The President's Office went on to create a Department for State Enterprises and indigenisation to show its commitment to this venture. There was a trust to go with it; the National Investment Trust (NIT) created for the purpose of building an asset base for indigenous entrepreneurs. The NIT is an instrument for buying and warehousing shares on behalf of the indigenous people. This action meant preferential treatment to emerging black Construction industry entrepreneurs (Yash Tandon, 1999).
Bond (1996) noted that: bank carried conditionalities for example, the 1991 Bank loan of $1000 million to support the Zimbabwean construction industry carried
tenders for all public sector works. The conditionality was formally introduced in 1993, and required all government construction projects below $10 million ($3 million later) to be contracted to members of the Zimbabwe Building Contractors
Association (ZBCA) and that provisions be made on larger contracts to subcontract at least 7.5% to its members (Bond, 1996)
Privatization of much of Zimbabwean Urban form occurred via local government, and with the cost recovery disciple of private sector intermediaries such as building societies. If the intention of efficiency and profitability was achieved, the shelter sector would benefit in prices and service deliverance. For example, ZISCO's inefficiency has led to its loss of export contracts, and low steel supply on the
domestic market. Zimbabwe Congress of Trade Union (1999) reported that in Fiscal Year 1997/98, ZISCO steels had a budget loss of Z$81 Million. Contrary to
advocation of the Public Enterprises conditionality the Zimbabwean government has continued business in this unprofitable company. This brings to surface the
unwillingness of the government to implement the conditionalities of the IMF.
5.5.0 The Trade Policy
Under this conditionality the Zimbabwean government had to adopt a real exchange rate and lift export restrictions, reduce quantitative restrictions on imports, and cut tariffs. The intention of the study is to seek the effects that the policy had on the shelter provision.
The Foreign Currency Inflows: A review of Zimbabwe's real deposit rates between 1990 and 1993 showed that they were generally lower than those in a selection of leading Organisation of Economic Co-operation Development economies (OCED).
However, the situation appears to have been reversed in 1993 and 1994. But the higher deposit rates at home only become beneficial to savers if movements in the exchange rate do not erode the differential interest rates (Zimbabwe, 1997).
The evidence gathered showed that with the exception of 1992 when the Zimbabwe dollar appreciated against the pound sterling and the Japanese yen, it depreciated against all the currencies of Zimbabwe's trading partners. Results actually indicated that only in the case of savings in short-term maturities (90-day negotiable certificate of deposits, for example) in1993 and 1994 were increases in real deposit rates in Zimbabwe large enough to make it profitable to save in the country, taking into account exchange rate movements. This, together with the liberalisation of the foreign sector, particularly the policy of allowing individuals and companies to open FCDAs within Zimbabwe in January 1994, appears to have resulted in a large inflow of foreign exchange. Foreign Current Deposit Accounts (FCDAs) deposits with commercial and merchant banks, which accounted for 3.5% of the stock of broad money (M2) in January 1994, rose to account for 8.8% by the end of that year.
However, 77.7% of those FCDA deposits were held as demand deposits. Thus, the bulk of the amounts were hot money held in short-term maturities where it could not be used to finance long-term investments. Itwould appear that most people wanted
to take advantage of the high interest rate differentials between Zimbabwe and its major trading partners (Kanyedze, 1997).
One major unintended effect of significant foreign currency inflows through Foreign Current Deposit Accounts (FCDAs) has been their contribution to money supply growth. Partly due to the FCDAs and partly due to aid inflows associated with donor funding for ESAP, net foreign assets accounted for 75.5% of the increase in money supply in 1994 compared with a contribution of 64.3% of the increase in money supply in 1993. Such a development presents authorities with an apparent paradox.
On one hand, an increase in foreign currency inflows raises a country's foreign exchange reserves, on the other it fuels inflation through its effect on the growth in money supply. The authorities have had to sterilise such inflows through raising domestic interest rates to dampen demand for credit. The problem of large capital inflows, especially if they are of a short-term nature, is intensified as the probability of abrupt and sudden reversal increases (Zimbabwe, ZCTU, 1997).
Unarguably, holding Foreign Current Deposit Accounts, in principal was to facilitate efficiency in foreign transactions of companies, which would benefit the consumers and in this study; the shelter sector. Purchase of materials and equipment that were not readily available was then made possible. The intent in provision of shelter, made deliverance faster than before.