Resource misallocation causing low productivity in developing countries: Report

Resource misallocation causing low productivity in developing countries: Report

As Zimbabwe seeks to optimize revenue collection from the informal sector, a new research from the International Monetary Fund (IMF) has tipped that lower compliance costs and stronger enforcement can reduce the unfair cost advantages informal firms enjoy, to make room for more productive and tax compliant firms to increase their market share.

The paper says a number of measures can employed to redress the anomaly. “Measures include reducing compliance costs and promoting compliance by ensuring that taxpayers are registered; that they are knowledgeable regarding their tax obligations and that reporting is accurate”, said the IMF’s Fiscal Monitor analytical chapter released today.

The report also said the productivity of firms in low income developing countries has been declining since 2005, as measured by total factor productivity, due to resource misallocation and poor use of labour and capital.


The report says the resource misallocation manifest itself in a wide dispersion in productivity levels across firms, even within narrowly defined industries. “This dispersion reveals that some businesses in each country have managed to achieve high levels of efficiency, possibly close to those of the world frontier in their particular industry, which in turn implies that existing conditions within the county can be compatible with higher levels of productivity”, says the report.

It further argues that countries can reap more total factor productivity gains from reducing resource misallocation and allowing other firms to catch up with the high productivity firms in their own economies.

The report further postulated that upgrading the design of tax systems can help countries chip away at resource misallocation by ensuring that firms’ decisions are made for business and not tax reasons. In Zimbabwe, there have been a number of scenarios whereby taxes were imposed with an apparent intention of just mobilising more revenue for the fiscus without considering the impact on business performance and viability.

In February, for instance, government imposed VAT on some basic commodities in a move which saw prices going up sharply, resulting in the tax being reversed after a few weeks. Last week, the taxman also had to reverse the tax it had imposed on tobacco farmers without tax clearances after farmers complained that the size of the tax was just about equal to their margins.

“Government can eliminate distortions that they themselves have created. Government should seek to minimize differentiated tax treatments across assets and financing. This approach would help tilt firms’ investment decisions toward assets that are more productive, rather than more tax-favoured”, said the report.

“In emerging and low income developing countries, stronger tax administration could help reduce the unfair cost advantage enjoyed by informal firms that underreport their sales to tax authorities”, it added.

The report also opined that audit plays a key role in promoting accurate reporting, including by encouraging higher declarations from firms that are not audited. “However, audit is more effective when it is risk based and when auditors are well trained”, it added.

Emerging and developing countries to contribute 75% to 2017 global growth

Emerging and developing countries to contribute 75% to 2017 global growth

HARARE – The International Monetary Fund (IMF) says after six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes, and greater prosperity going forward.

In a statement prior to the release of the World Economic Outlook’s April update, IMF managing director Christine Lagarde says as the momentum unfolds, at least in some advanced economies doubts on benefits of economic integration are still prone. She said for advanced economies, the outlook has improved with stronger manufacturing activity and the upswing is broad-based across countries.

On emerging and developing economies, she said the prospects also bode well for global growth and these countries have driven the global recovery in recent years, and they will continue to contribute more than three-quarters of global GDP growth in 2017.

Lagarde said higher commodity prices have brought relief to many low-income countries, albeit these economies still face difficult challenges, including revenue levels that are projected to stay well below the boom years.

“Putting all this together, we see a global economy that has a spring in its step, benefiting from sound policy choices in many countries in recent years,” she said.

Risks

Lagarde said there are clear downside risks: political uncertainty, including in Europe; the sword of protectionism hanging over global trade; and tighter global financial conditions that could trigger disruptive capital outflows from emerging and developing economies.

“And underneath those short-term issues lies a weak productivity trend that continues to be a severe drag on strong and inclusive growth largely because of population aging, the slowdown in trade, and weak private investment since the 2008 financial crisis,” she said.

She said if productivity growth had followed its pre-2008 crisis trend, overall GDP in advanced economies would be about 5 percent higher today and that would be the equivalent of adding a country with an output larger than Germany to the global economy.

Policies

In terms of policies, the IMF chief said this suggests that there is no room for complacency when it comes to economic policies.

“We need to build on the policies that have delivered so much for the world. And at the same time, we must avoid policy mis-steps or as I have described them, “self-inflicted wounds.”

She said there are three dimensions of economic policies which include supporting growth, with an emphasis on productivity, sharing the benefits more equitably; and cooperating across borders through a multilateral framework that has served the world well.

On supporting growth, Lagarde said the first dimension is to maintain the current growth momentum, which requires the right mix of fiscal, monetary, and structural measures tailored to individual country needs.

She gave an example of demand which is still weak in a number of countries and inflation which is not yet within the radar, which call for continued monetary support and a greater emphasis on growth-friendly fiscal policies, revamping tax and benefit systems to improve incentives and boosting high-quality infrastructure investment in countries that have room in their budgets.

More fundamentally, she said policymakers need to reinvigorate productivity over the long term as this is the most important source of higher income and rising living standards; adding that should start by fostering innovation, to boost productivity, and also invest more in education and infrastructure, while providing tax incentives for research and development.

Equitable growth

Lagarde emphasised on inclusive growth saying when the benefits of growth are shared more broadly, growth is stronger, more durable, and more resilient.

“Think of technology; while it has brought enormous benefits to societies, we have found that technology has been the major factor behind the relative decline of lower and middle-skilled workers’ incomes in recent years, with trade contributing to a much lesser extent.

“And there are concerns that automation will progressively jeopardize employment growth in emerging and developing economies as well.When economic winds shift, we must find better ways of supporting workers.”

International Cooperation

Lagarde said fostering more resilient growth requires more international cooperation and cooperating to reduce excessive external imbalances. She added that restricting trade would be a “self-inflicted wound” that disrupts supply chains, hurts global output, and inflates the prices of production materials and consumer goods.

“We also need to cooperate to ensure financial stability including a stronger global financial safety net to help emerging and developing countries better cope with capital flow volatility in times of distress.”

SADC Member States not committed to private sector development’ – Industrialist

SADC Member States not committed to private sector development’ – Industrialist
HARARE – The Southern African Development Community (SADC) has shown very little commitment to the importance of genuine private sector engagement, an industrialist has said.
This comes as SADC Heads of State, who recently held an Extraordinary Summit in Swaziland approved the Costed Action Plan for SADC Industrialisation Strategy and Roadmap 2015-2063 and underscored the role of the private sector as a key player in the implementation of the SADC industrialisation agenda.
President of the Association of SADC Chambers of Commerce and Industry, who is also Chairman of the Business Council of Southern Africa, Oswell Binha, however said SADC Member States are intimidated by the existence of organized business as well as credible private sector players for reasons best known to themselves.
“Many initiatives and programs have been attempted at regional level meant to increase Public-Private Dialogue at Member States level and there has been very little or no success. For example, we currently have a requirement for formulation of national committees, whose composition is both public and private sector representatives. Zimbabwe is yet to facilitate creation of these”, said Binha. He said SADC Member States do not have domestic regional policy and that the state of affairs makes it difficult for the private sector to accrue optimum benefits from regional economic initiatives.
He added that the local industry is currently not adequately informed about the SADC Industrialisation Strategy and Roadmap. “Local industry is currently seized with reconfiguring themselves to respond to the ever-changing business environment for own survival. Their main focus is to navigate the multiplicity of operational challenges to, at least, remain in business”
“Regional industrialization roadmap is very foreign to them. If government wishes to ensure local productive sectors benefit from such grand initiatives, conditions for company growth rather than survival must underpin national economic strategy. The assumption that companies can compete with regional peers on both quality and price is misplaced”, he said.
“The dichotomy is that Zimbabwe, though credited with redefining the SADC regional agenda from predominantly political and regional security matters to productivity, value addition and beneficiation of our commodities, has done very little to exploit the abundant opportunities that come with it. Change of regional economic discourse will inevitably increase and facilitate regional value added exports”, said Binha.
He said very little is at the local industry’s disposal to exploit so as to enhance their ability to become critical regional players; adding that policy dispensation, among other tools, is inward looking.
“A number of key companywide administrative tools have since become macro in nature. Purchasing and cash management now resides with monetary authorities. Company managers can no-longer determine delivery times and costs of products and services. Key economic enablers remain insufficient and expensive. Overregulation of company activities is the order of the day among other problems”, he bemoaned.
He however said that the local industry may engage in creation of regional or regionally facilitated markets; adding that the country should strive to reclaim lost markets as well as development of new ones. “This is only possible if the country seizes itself with efforts to develop productive sectors. The propensity to informalize industry is ill informed. No informal sector survives in isolation from large reputable formal industry”, he said.
Binha said the development of productivity related infrastructure is key, adding that benchmarking local industry’s processes and procedures with external industrial players allows companies to create their own niche that allows them to integrate themselves in national, regional and global value chains, with huge potential for local up and down stream synergies.
He said that there are a number of support measures that government can implement to abet the role that industry can play.
“Firstly, government must stop listening to its own voices. Creation of a solid and credible private sector engagement platform will ensure fluidity of implementation of economic policy with commitment and buy in from economic players. Government must also simplify the regulatory and legislative environment to enhance voluntary compliance with all regulatory requirements”, he said.
He also called for government to streamline its activities to respond to the need for economic efficiency. “The mere fact that each state institution has basically become a revenue collector presents a premium on the cost of doing business. State structures must move from enforcement to facilitation. The carrot side of the state function must be larger than the stick”, said Binha.
He said the State’s role should be to create an environment necessary for growth and development of productive sectors, adding that anything outside that remains a recipe for disaster. “Zimbabwe, like most of its peers in the region, is notorious for creating political enmity with those who own the means of production. The state will never replace private players in any economy. It can only create an enabling environment for the private business to thrive, hence widening of a revenue collection base”, he said.
“Developmental states create opportunities for unlimited capacity for innovation and creativity leading to industrial development with broad scope to utilize indigenous knowledge systems among other various benefits. The status quo is leading us to either a gradual economic decline or a sudden economic collapse”, he added.

 

Africa’s investment flow takes a -5% dip

Africa’s investment flow takes a -5% dip

The world’s foreign direct investment (FDI) took a significant decline of 13 percent last year, recording an estimated $1.52 trillion, as global economic growth remained weak and world trade volumes posted anaemic gains, says the Global Trends Investment Monitor released Wednesday.

The report says that the fall reflects a heterogeneous impact of the current economic environment on countries worldwide as it was not shared equally across regions.

FDI flows to Africa also registered a -5 percent decline to close the year at $51 billion. Mozambique saw its FDI fall 11 percent, but the level was still significant at an estimated $3 billion. South Africa saw a 38 percent increase in FDI inflows, though they remained at a relatively low level of $2.4 billion.

The report says that equity investments at the global level were boosted by a 13 percent increase in the value of cross-border mergers and acquisitions, which rose to their highest level since 2007, reaching $831 billion. “The value of greenfield projects announcements reached an estimated $810 billion – a 5% rise from the previous year, although this was largely due to a number of very large projects announced in a handful of countries”, says the report.

It was noted in the report that slowing economic growth and falling commodities prices weighed on FDI flows to developing economies with inflows to these economies falling to an estimated $600 billion, due to significant decreases in Developing Asia and in Latin America and the Caribbean. “Nevertheless, developing economies continue to comprise half of the top 10 host economies. There was a widespread downturn in cross-border mergers and acquisitions activity across developing sub-regions during the year, which fell 44% in terms of value”, says the report.

Looking ahead, the report says economic fundamentals are supportive of a potential rebound in FDI flows in 2017. Global economic growth is projected to accelerate in the coming year, reaching 3.4 percent compared to the post-crisis low of 3.1 percent in 2016. Growth in developed countries is expected to improve, including in the United States through fiscal stimulus.

“Emerging and developing economies are also forecast to rebound significantly in 2017, led by a sharp rise in growth in natural resources exporting countries as commodities prices are expected to increase, especially for crude oil”, the report says. Greater economic activity will help boost world trade volumes, which are forecast to expand by 3.8 percent in 2017 compared to just 2.3 percent in 2016. UNCTAD projects that global FDI flows will increase by around 10% over the year.

Nokia-Alacatel’s Nigerian offices closed by watchdog for lack of licence

ABUJA


Nigeria’s telecoms regulator has shut the offices of Nokia-Alcatel for operating in Africa’s largest economy without the necessary permit, the watchdog said on Friday.

The Nigerian Communications Commission’s (NCC) spokesman Tony Ojobo said that the mobile telecoms equipment manufacturer had failed to obtain the 2 million naira ($6,349) licence required for the sale and installation of network equipment.

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The head of Nokia’s Nigerian operations said the company was in talks with the NCC to secure the licence and that its offices would reopen imminently.

Nokia-Alcatel had applied for the licence about three months ago but had not completed the process, a separate NCC source said, adding that the company had operated without the permit for some time.
Nokia-Alcatel’s office will be reopened after they comply, he said.,  -(Reuters)

South Africa’s rand tumbles on global risk aversion, blue chips lift stocks

JOHANNESBURG


South Africa’s rand slumped as much as 2 percent against the dollar on Friday, as global concerns following North Korea’s nuclear test compounded domestic political uncertainty, sending investors fleeing to safe haven assets.

Stocks however snapped two sessions of losses, lifted by companies with sales outside South Africa which stand to benefit from the weaker currency.

The rand stumbled to 14.4500 to the dollar during Friday trade, its softest in a week, and was trading at 14.3700 by 1530 GMT, a 1.6 percent decline from Thursday’s New York close.
It tracked other emerging market currencies which fell partly on news that North Korea had conducted its fifth nuclear test.

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“If there’s a serious threat to geo-political stability we are likely to see risk-off trading, and the rand being one of the most liquid in terms of emerging market currencies will be affected,” ETM market analyst Ricardo Da Camara said. Government bonds were also weaker, with the yield on the 2026 benchmark issue climbing 16 basis points to 8.755 percent.

The rand’s woes were compounded by continuing domestic concerns around an investigation into Finance Minister Pravin Gordhan over the activities of a surveillance unit set up under his watch, which police say spied on politicians. Gordhan questioned on Thursday the motive of the inquiry, saying it had no basis. Opposition parties have called it a witch-hunt and a veiled attack on the independence of the Treasury. – Reuters

South Africa’s finmin approves “going concern” guarantee for national airline

JOHANNESBURG


South Africa’s Finance Minister Pravin Gordhan has conditionally approved an application from the cash-strapped national airline for a guarantee as a going concern, the ministry said on Friday. South African Airways (SAA) has been surviving on state-guaranteed loans and has failed to submit financial statements for the past two years, with results for 2015/16 held back after the Treasury refused to grant it 5 billion rand ($346 million) in additional loan guarantees.

“SAA’s application for a going concern guarantee has been approved with conditions which include (that) the primary focus of the board must be to return the airline to financial sustainability,” a finance ministry statement released after Gordhan met SAA’s new board said.
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It said funding must be secured to meet the airline’s liquidity requirements and that SAA should work with the National Treasury and the public enterprises department on the potential introduction of a strategic equity partner.
The government last week reappointed Dudu Myeni, an ally of President Jacob Zuma, as SAA’s chairwoman, despite objections from the main opposition party which holds her responsible for the crisis at the airline. On Wednesday Gordhan told parliament that he wanted SAA to become financially viable in five years’ time and to discontinue unprofitable routes. (Reuters)

IMF insists on international audit of Mozambique debt

MAPUTO


The International Monetary Fund (IMF) is demanding an external forensic audit of Mozambique’s public debt to regain investor confidence after a scandal over more than $2 billion in secret loans, its local representative said on Tuesday. Parliament and the attorney-general’s office have launched investigations into the undisclosed borrowing in 2013 and 2014 but the government has baulked at opening up its books to outside auditors.

However, the IMF, which suspended assistance when the loans came to light this year, has insisted on external scrutiny as a precursor to resuming financial aid to what is one of the world’s poorest countries.
“It is important to move quickly to an international forensic audit,” its representative, Alex Segura-Ubiergo, said in an interview on Radio Mozambique, the public broadcaster.

The debt crisis and aid suspension has hit Mozambique hard, with its currency, the metical, losing nearly 40 percent against the dollar since January and economic growth slowing to below 4 percent.
With foreign debt soaring towards 100 percent of GDP, the government has been forced to revise its 2016 budget, which now shows a deficit equal to 11.3 percent of GDP, while the central bank hiked interest rates by 300 basis points in July to try to prop up the currency and contain inflation.

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South Africa’s ANC backs Gordhan but warns ministers to obey police summons

JOHANNESBURG


South Africa’s ruling party backed Finance Minister Pravin Gordhan on Tuesday but said ministers should obey police summons issued during investigations, days after Gordhan declined to meet detectives looking into his time at the tax office.
Gordhan said last week he had done nothing wrong and had no legal obligation to obey a police summons over the probe into whether he used a surveillance unit set up when he was head of the tax service to spy on politicians.

There has been speculation in local media that Gordhan could be charged over the investigation, but state prosecutors have denied the claims, which have hit South African assets.
“The continued speculation and the public spectacle … is hurting the economy and could be dealt with better,” African National Congress (ANC) Secretary General Gwede Mantashe said. “The ANC reaffirms its unreserved confidence in the Minister.” The rand gained briefly after Mantashe expressed confidence in Gordhan but then went into reverse, falling 0.6 percent to a session low, after he told a news conference that ministers must obey police summons.

“The minister must cooperate with processes. If he has no case to answer he can only prove that through processes,” Mantashe told a news conference.
He also said the Treasury, one of South Africa’s most respected government departments, should not seek to present itself as being above the law and deserving of special treatment.
“We do however caution them against taking a public posture that seems to isolate themselves from the rest of government and positions them as victims to be protected by society,” he said.
The investigation first came to light in February. Political analysts say it is part of a plot to undermine Gordhan by a faction allied to President Jacob Zuma, who is said to have been among the politicians spied on by the tax surveillance unit.

CEO of Millicom Africa sees growth opportunities in data

GHANA


Following her recent visit to Ghana, Cynthia Gordon, the CEO of Millicom Africa has emphasized the remarkable growth opportunities in data and Tigo’s commitment to giving customers access to superior high speed internet services.

“We were the first to launch 4G in 3 operations in Africa including Tanzania, Chad and Rwanda and have seen exponential growth in our data revenues – close to 34% in Q2 2016. We are exploring options to giving customers 4G services in Ghana,” she said.

 

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While in Ghana, Cynthia Gordon, called on the Minister for Communications, Dr. Omane Boamah, who expressed his commitment to ensuring fairness among the players in the telecom industry and was optimistic that the early introduction of key enablers such as a technology neutral unified license will support universal usage of spectrum. He believed this would be a key factor to growing and supporting government’s economic development efforts.

The Millicom Africa Chief also met with the executives of the National Communications Authority, the NCA to discuss further advancements in technology. She was very impressed with the vision to develop the market and the high levels of support and cooperation. “We share a common passion to a working partnership for the benefits of mobile broadband to Ghanaians and this will accelerate GDP growth and socio-economic development,” she explained.

“With our technology developments and ongoing efforts, we will continue to grow our market share and complement our existing portfolio of services including Tigo Cash which currently has a registered base of 3.2 million customers. In addition to this, Tigo Business will continue to develop strong and viable mobile and fixed solutions to Ghana’s underserved enterprise sector.