Investor Alert: 2016 National Budget Highlights

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Finance Minister Patrick Chinamasa yesterday proposed a $4 billion 2016 national budget with the economy expected to grow by 2.7% from 2015 estimated growth of 1.5. Government projected growth to come from agriculture 1.8% (-3.6%) mining 1.6% (-2.5), manufacturing 2.1% (1.6%), electricity and water 3.6% (-10.8%), construction 4.5% (7%), finance and insurance 5% (6%) and real estate 2.5% (3.9%), distribution, hotels and restaurants 4%.The minister however projected revenues of $3.850 billion resulting in a deficit of $150 million to be funded through domestic borrowing. Of the budget, recurrent expenditure is expected to consume 92% or $3.685 billion of the budget. Employment costs will take up $3.191 billion or 22.5% of the country’s GDP. Capital expenditure will only be allocated $315 million or 2.2% of GDP slightly up from $237 million allocated last year. Government expect further deflation in 2016 with forecast of minus 1.6% by end of the year. Minister Chinamasa projected an export bill of $3.673 billion up from $3.430 billion last year. The Import bill will however remain high at $6.221 billion up from $6.311 billion. This will result in a current account deficit of $2.579 billion from $2.595 billion.

Economic recovery hinged on payment of debt

-Government expect the clearance of arrears to unlock growth opportunities through the injection of fresh capital, reduction in costs, and improved competitiveness from a pricing perspective. Servicing the debt is also expected to enhance credibility and creditworthiness of the Government which in turn will enable it to access subsequent loans at affordable costs.

-To clear the arrears Government plans to use domestic resources to clear US$111 million arrears to the IMF; arrange Bridge finance with regional and international banks to clear US$601 million African Development Bank debt arrears; and use medium to long-term loan facility to clear US$1.1 billion arrears to the World Bank Group.

Major Budget interventions for 2016

-Challenges related to unpredictable rainfall patterns due to climate change demand use of existing irrigation facilities. To channel a further US$7 million towards irrigation development, targeting 11 290 hectares across the country complemented by US$8.6 million from development partners. The Kuwait Fund (US$20 million) and the Abu Dhabi Fund (US$8.7 million. Under the protocol agreement, Government will contribute US$7 million.

-To exempt from VAT, goods that include protective clothing, milk, eggs, vegetables, fruits, rice, cereals and margarine, with effect from 1 January 2016.

-To extend a rebate of duty on capital equipment imported by the mining, agriculture, manufacturing and energy sectors, for equipment valued at US$1 million and above, with effect from 1 January 2016. Capital equipment imported under the facility will not be liable to Customs Duty and VAT.

-To introduce a reduced royalty rate of 3% on incremental output of gold using the previous year’s production as a base year, with effect from 1 January 2016. Since incremental production will only be accounted for by the end of the following year, mining houses that qualify will benefit from the scheme through a tax credit which will be used to pay future tax obligations.

-To exempt from tax, interest earned on deposits with a tenure of more than 12 months to encourage long term savings. This measure takes effect from 1 January 2016.

-To limit the VAT payable on short term insurance to commission earned on the buying and selling of insurance policies by brokers and agents of insurance and reinsurance firms.

-To reduce tobacco levy from 1.5% to 0.75%, with effect from 1 January 2016.

Measures in support of the productive sectors

-To introduce a specific duty of US$5 per kilogramme on plough beam, with effect from 1 January 2016. (Zimplow)

-In order to level the playing field between imported and locally produced soap, Government to introduce a specific duty of US$0.50 per kg, with effect from 1 January 2016.

-To increase duty on selected fabric that can be produced locally from 10% to 40% + US$2.50/kg, with effect from 1 January 2016.

-To register new dairy processors to benefit under the suspension of duty on powdered milk facility. (Dairibord)

-To introduce a manufacturer’s rebate to approved manufacturers of luggage ware for a period of two years, with effect from 1 January 2016.

-To remove selected motor vehicles and buses imported by Government and School Development Associations from the Duty Free Certificate Facility

-To increase duty on imported canopies and drop side panels from 10% to 40%, with effect from 1 January 2016.

Improving competitiveness

-Constraints to the country’s competiveness were identified as inefficiencies in the goods, labour and financial markets, slow uptake of new technology, high tax rates, infrastructure deficiency and multiplicity of business licences and levies. For this purpose, Thematic Technical Working Groups under the following issues are now in place:

  • Starting A Business;
  • Paying Taxes and Trading Across Borders;
  • Getting credit, and Resolving Insolvency;
  • Enforcing Contracts and Protecting Minority Investors; and
  • Registering Property and Getting Construction Permits.
  • The target date for overall completion of all major reforms is March 2016.


-Reiterated that the 51% shareholding will be effected through the resource being exploited, and at no monetary cost to the Government or the designated entities.

-Consultations towards strengthening and clarifying the processes of implementing the indigenisation policies in the other sectors of the economy outside the resources sector have been completed. To this end, the Minister of Youth, Indigenisation and Economic Empowerment, will be announcing and gazetting before Christmas the frameworks’ templates and procedures for implementing the indigenisation policies in a manner that both promotes investment and eliminates discretionary application of the law.

By |November 27th, 2015|Categories: Investor Alert|

About the Author:

Kudzanai’s background in financial journalism with ZFN, combined with a continuing education in financial management, provide a solid grounding for his work in the research department.