It’s almost a year since Finance minister Mthuli Ncube was appointed by President Emmerson Mnangagwa to help turn around an economy weighed down by decades of ruinous policies.
In the 10 months that he has been in charge, the former
African Development Bank (AfDB) vice-president has overseen the abolishment of
dollarisation, introduction of an unpopular 2% tax on mobile money transactions
and a gradual removal of government subsidies.
Ncube (MN) last Thursday became the first guest to be
interviewed by Alpha Media Holdings (AMH) chairman Trevor Ncube (TN) on the
forum In Conversation with Trevor.
He spoke about his reaction to his appointment, the
policies rolled out by his ministry so far and what lies ahead. Below are
excerpts from the interview.
TN: Your appointment was a surprise to everybody, was it a
surprise to you?
MN: It was a surprise to me, for sure, I was very
comfortable where I was in private equity.
I was travelling between Switzerland and Oxford teaching
students about how to do public policy and do business in Africa, MBA (Master
of Business Administration), MPA (Master of Public Administration) degree
students at Oxford and that is a private equity system, so I was very
comfortable and they called came.
I thought this was a good chance for me to contribute.
TN: First of all, what came into your mind when you got the
call?
MN: What went through my mind was actually relocation. You
know it’s never easy to relocate yourself and family.
From Zimbabwe, I relocated to South Africa, when I was busy
being dean of this business school and enjoying all that, I had to relocate to
Tunisia in the middle of all that; after a year into Tunisia there was a
revolution (and) so many upheavals.
Lucky enough my family hadn’t been on board by then and
after that I relocated to the UK and Switzerland.
So I had moved around a bit and I thought am I going to
move again? But I thought this is going back home and I’m being given the
chance to contribute and turn things around.
So after about a day or so, I was very upbeat.
TN: This is a tough job, given the environment and where
you come from, why would you take such a job, minister?
MN: It reminds me, a week after, one of the finance
ministers in the region gave me a call and said minister, I think you are the
only minister in Africa, maybe in the world, who is going to have a real job.
I wake up every day and I feel I think I have a real job
compared to my colleagues.
It is a tough job, but someone needs to do it, this type of
job you need to be someone who understands complexity.
TN: Which brings me to the next point, you have been in
charge for 10 months, what has been the biggest surprise for you?
MN: I think the surprise for me has been the extent of the
deficit when I came in. I knew it was big, but not that big, and you can see
what went through my mind when I thought about tackling it. Now you know where
the 2% tax came from, when I saw the extent of the whole thing.
The other surprise was the adversarial nature of politics,
especially in Parliament, that is all that surprises me, the shouting,
finger-pointing, name-calling, which is always very unproductive. Those who
know me, know I like to get on with things. I don’t want to spend time arguing,
I hate that. I want to focus on something and get on with it.
TN: Your office is where politics meets reality, how have
you been able to manage this?
MN: Initially I thought it was a finance job, then very
quickly it became a finance-political job and most of the time it’s a political
job because at the end of the day you have to recognise that finance follows
strategy.
In government it follows politics, it is a political job
and you have to juggle, you have to realise that certain demands are apolitical,
a little bit political. There is a manifesto, there is a party in power and it
has to deliver on what would have been promised.
So what I have to do now is to check on whether my budgets
also speak to the manifesto, that is a promise to the people.
Luckily for me, what is in the manifesto of Zanu PF is
exactly what I have in my TSP (Transitional Stabilisation Programme), so it
works, but the pressures are there.
The other day I had to deal with rural political projects,
which clearly have a strong political nature. I told myself, yes it’s
political, but it’s about the people, the communities, they need to make bread,
take the children to school, afford healthcare.
TN: Share with us, you have been unpopular for the 2% tax,
some people call you Mr 2%, let’s deal with this 2%, that’s bold, that’s brave.
MN: I thought to myself, here is an economy which probably
got the highest level of electronic money, probably overtaken by Kenya, that’s
one before the RTGS dollar; number two, I have a deficit; number three, I have
three and a half billion dollars, which has been collected by corporates, but
not remitted to treasury.
What happened is that my predecessor had to approach the
central bank and was using the central bank window to the tune of $3 billion, so
that’s an additional debt as well; four, there is a huge informal sector, the
economy has been informalised.
So how do I get the informal sector on board to pay their
dues, and I thought the best is to use some tax based on the usage of
electronic money. I get 100% compliance, everyone pays, you only don’t pay, if
we say don’t pay.
Some people have been saying, minister, given that this
works so well, why don’t you reduce other taxes and increase this one. I have
been thinking about it.
TN: And what are you thinking about that?
MN: You know what, it’s very attractive and in my next
budget I’m even mulling over that.
TN: So are you promising these guys tax reduction in
certain areas?
MN: You know what they say, you must never announce policy
in an interview. So I’m not promising them anything, but I am thinking about
it, I am getting the compliance I need.
TN: Let’s deal with the insensitivity of the 2% where
people are saying, yes, we see what you are trying to do, but you are hurting
the people out in Siyaso and that kind of stuff, what’s your response to that?
MN: Well, maybe we have to see how we adjust our
exemptions, it’s about exemptions, and we said that anyone with a transaction
of about $10 and below should not pay a tax, clearly that has to be raised
given the rate of inflation.
It’s not that we are insensitive, but actually, it’s an
inclusive tax, to that extent we don’t want those that are not advantaged like
you to pay, they shouldn’t be paying at all.
TN: So we now have a lot of exemptions, is that an ideal
space to be in?
MN: I think so, I would say there needs to be some
fine-tuning, there is one issue I may remove on exemptions in the budget, so
there is still six months to think about it.
TN: Let’s move on, perhaps you have decided to do away with
the multi-currency regime and introduced our Zim dollar, there is a lot of
pushback. What was your thinking and what is the status of the policy
initiative now?
MN: You know, I said it before we thought we had a
budgetary constraint when we adopted the US dollar, but we didn’t.
We had a fiscal policy that was a risk to monetary policy
and to the entire macro-economic environment, but when I got in, we managed to
put the fiscus under control, then I realised that we were walking on one leg.
We also need the monetary policy, then we have a complete
tool kit to also deal with the macroeconomic environment.
We have been on the journey towards currency reforms, we
just didn’t tell you. We started on the 1st of October.
TN: So you didn’t panic, this was not a panic move?
MN: No, this was not a panic move and so on the 1st of
October we separated the accounts as you recall and in January, we did a
quasi-currency reform in the form of the fuel price and, of course, the
reaction was, I would say interesting and then, on the 20th of February we
introduced the interbank market exchange rate and formally abandoned the fixed
exchange rate of 1:1 and on the 24th of June we introduced the domestic
currency.
We have been on the journey. Maybe the issue is that we
moved faster on certain things, slower on certain things.
If you recall my few interviews where I said we need a new
currency and people couldn’t believe me, I was preparing minds. The president
also gave similar signs, but, of course, you can’t negotiate a day when you
introduce a new currency, you do it.
If you start to negotiate, people take positions, they
speculate and that is what we were also trying to deal with.
So we needed to restore monetary policy as part of the tool
kit.
Look at what we did on the day the Zimbabwe dollar was
introduced, we pushed up interest rates to about 50% overnight because I was
aware and I even know a specific company that I would not mention where they
would borrow RTGS at the interest rate of 12% and go into the parallel market
and take the money.
TN: Why don’t you mention the company?
MN: No, it is not right. Look, they were doing business,
you know, so they used their strategies, but that strategy as they go about
their business was wrecking the economy and my job is to protect everyone and
it is the job of government to create a level playing field.
So we have unleashed the monetary policy as part of the
tool kit and this will see us appoint a monetary policy committee, put it in
place and then go and strengthen the interbank market.
We are quite aware that it needs fine-tuning, I am the
first to admit that. But now we have a full tool kit.
Most people were surprised that I did not remove import
duties on cars in US dollars, because that is an import management tool.
It is very effective. It is working very well because the
current account deficit has shrunk substantially.
Why do we need it to shrink? Because if you go into your
domestic currency, you don’t want your import demand to become a risk to the
currency and cause volatility, so you tighten your fiscal side, the monetary side
you unleash a full tool kit of monetary policy including interest rate policy;
on the external front you then control import demand.
It is temporary, we are controlling the three pillars that
are necessary to stabilise the domestic currency.
TN: How would you make sure that the value of the local
currency remains where you want it to be and also the sense that the market is
getting is that the interbank market does not exist?
MN: I would say that in terms of the interbank market, we
are going to fine-tune and make sure that it really works, it is a process, it
is a journey, and I don’t think we are there yet.
I am aware that the banks are running their own individual
markets; they have got clients, so they match the clients with exporters and so
on, and we know what is going on.
TN: But when will we have a national interbank market
system and not individual banks running their own thing?
MN: We have an idea, we have a plan of how it works, I see
the deputy (RBZ) governor standing up saying not now.
We need to fine-tune the market to make sure that it works.
You should just go the bank and it offers you a rate, if you are an exporter or
trying to pay school fees, we will get there. It is a journey.
There are countries that have gone through this like
Nigeria, for example, or Egypt, they have gone through similar steps and we
will get there.
You have asked about protecting the value of the currency,
sorry for going deeper into economics, the value of a currency is driven by the
following variables:
it is your state of your fiscal position that is your
fiscal deficit or surplus, it is basically the level of interest rates, the
inflation, the deferential between yourself and the other countries, it is the
growth in the money supply and then the state of your current account external
balance.
The three pillars that I talked about and the variations
determine the value of your currency.
As long as we keep a tight leash on these variables, we
will be able to stabilise our currency.
The biggest of them all is that link between the fiscus and
the money supply growth.
Because if you got a fiscal deficit, you have to monetise
it to finance, so you issue treasury bills and that is what causes money supply
growth.
So if you look at the growth in money supply, it hasn’t
moved much.
TN: You are happy on that side?
MN: I am very happy on that, but also in our Staff
Monitoring Programme with the (International-Monitored Fund), one of our
targets is the economic growth, is what we call growth in high- powered money.
We have a target, we are watching that target and as long
as we watch that target, we are okay in terms of money supply growth and have a
stable currency for some time in the near future.
You won’t see a runaway budget deficit under my watch. I
have been very consistent, not under my watch.
TN: Let us have the minister speak to the issue of petrol
and diesel, which in a huge way undermines whatever progress you are talking
about. What is government doing in the long-term for both petrol and diesel and
also power?
MN: I agree with you because the power situation is very
serious, but the cause of it is weather. I don’t think we had fully understood
as government the full impact of El Nino on water levels at Kariba Dam, so
power generation has gone down drastically. In fact, it has halved.
Anyway, we have always been on a deficit as a country, so
that is a major issue.
So what are we doing about?
I would say we have the short-term and the medium-term to
the long-term.
In the short-term we have got into a serious demand
management strategy. We need to categorise users of electricity, residential,
industry, the corporates and manufacturing sector.
The mining sector, there is no reason why they shouldn’t
pay tariffs that are linked to the exchange rate because these are earners of
the foreign currency in the first place.
So we need a differentiated tariff structure, but also
manage the demand side. We also have the issue of the supply management side.
Here I am talking about the hydro, the thermal and a bit of
importation.
We can’t do much about the hydro now, but we can do much
about the importation.
We have already done some ground work on this at the level
of the principal, I mean at the president level, to enter into some financing
arrangement for increased supply from the Cahora Bassa Dam, so we are going to
get more power from there, and then Eskom, of course.
But still on power supply management, in the medium term
not the current situation, is renewable energy.
I think we have been too slow in embracing renewable energy
in Zimbabwe.
We have so much sunshine, but where are the solar farms?
I was going through an incredible video last night for the
site in Morocco, one of the largest solar farms in the world; we have so much
sunshine,why can’t we have solar farms here?
The other thing is that we have this (audit) report from
PwC (PricewaterhouseCoopers) in terms of the goings-on at Zesa that needs to be
dealt with.
The other issue is about the tariff, in US dollar terms the
tariff is very low.
I have been in the past quoted as being unhappy about an
automatic increase of the tariff, why? Because I wanted these three other
things to be dealt with.
Let us understand the demand and supply of electricity, the
internal issues in terms of the company and then when we have done all of these
issues, we can then say we still need to increase the tariff. Standard
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