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THE MASTER CONVERTER: TURNING A RURAL AREA INTO AN ECONOMIC ZONE
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EDITORIAL August 2018 CONTENTS
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A note from the Editor
elcome to the inaugural issue of the TMR eJournal! I am so excited that this project is beginning to finally find its feet after months of concept development. It’s the TMR eJournal, a media release of The Municipal Review, itself an emerging research institute for public sector accountability, transparency and sustainability. In the eJournal, we are bringing together public sector research reports and reviews as well as professional insights from experts, in fields ranging from public sector finance, auditing, financial reporting to development finance; and it is all coming to you at no cost.
PAGE 3 | Editorial PAGE 4 | News PAGE 5 | Focus: Public Sector - Accounting - Auditing - Infrastructural Development PAGE 14 | Features . - Socio Economic Transformation - Dealing with Fraud
This eJournal will address these and many other topical issues in the context of the public sector. I hope you will enjoy this journey we are beginning through the release of this issue. Together we can enhance public sector accountability, transparency and sustainability.
PAGE 20 | Cover Profile Matobo Rural District Council PAGE 26 | The SDGs Bureau BACK PAGE | The Lighter Side
among other topics.. We have also included some interesting interactive sections for your reading pleasure. If you have stories to share, or articles to submit, please feel free to get in touch with us via our dedicated WhatsApp platform +263 77 461 6738. You can follow us on Twitter @municipalreview or email us at admin@munrev.com. Adios
Bukhosibenkosi H Moyo Editor
This issue covers interesting topics that include the auditing of government (the first of several parts), fraud in the public sector as well as infrastructural development insights, Feel free to comment on any of our articles by sending a message on WhatsApp, E-mail or Twitter on the following details.
PUBLISHERS MUNREV INVESTMENTS (PVT) LTD +263 71 723 5436 | +263 77 461 6738 6 Derby Road, Hillside, Bulawayo. @MunicipalReview :Instagram, Twitter, WhatsApp Business : +263 77 461 6738 Editor Bukhosibenkosi Hlabano Moyo
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Contributors Oliver Masuku Alson Bhebe Thulani Sibanda Karen Gumbo Bukhosibenkosi H Moyo Design & Layout Tamsanqa Mhepoh Production Consultant Tamsanqa Mhepoh (+1-402-304-6540 / +263-71-292-3105) mhepoh@gmail.com www.campusmoments.org
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NEWS ZILGA IS BORN FINALLY
DEBUT ISSUE: AUGUST 2018
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Councillor Bernard Manyenyeni Innocent Ruwende Senior Reporter The county’s urban and rural local authorities have finally agreed on a constitution for the Zimbabwe Local Government Association (ZILGA) following years of haggling around leadership and the secretariat of the organisation. Acting ZILGA president, Harare Mayor Councillor Bernard Manyenyeni, said the move would help in resolving issues affecting local authorities under one body.
“The coming together of the entire local government family in the country gives a combined space for local issues and a single face for international re-engagement,” he said. Over the years, ZILGA has experienced an on and off kind of existence as there were disagreements within the associations on the nature of the merger. - The Herald (24-072018)
BCC APPROVES REQUEST FOR BORROWING POWERS Nqobani Ndlovu THE Bulawayo City Council (BCC) has approved a request by its finance and development committee to seek $174 million borrowing powers from the Local Government ministry to undertake various capital projects. The council has also engaged a capital advisory firm to assist it with the floating of municipal bonds, a debt security issued to finance public projects such as schools, roads, water and sewer infrastructure, among others. Council received no objections to its bid to seek the borrowing powers after flighting its advertisement, a move seen as giving permission to the finance and development committee to seek the required monies for the capital projects.
“It was, therefore, resolved that borrowing powers of $ 100 065 000 be applied for from the ministry of Local Government, Public Works and National Housing. That loans up to $ 26 000 000 be sourced at an interest rate of 9% per annum over 10 years and the balance of $74 065 000 be accessed as and when long term funds become available,” according to the municipality’s latest report. “That authority be granted for council to engage a capital advisory consultant for floating municipal bonds.” Bulawayo has been battling poor road infrastructure and losing water to pipe bursts and leaks owing to infrastructure that has outlived its lifespan. As much as 800 water leaks and pipe bursts are reported monthly, adding to the already huge backlog.- Newsday (21/07/18)
Bulawayo City Hall
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THE MASTER CONVERTER: TURNING A RURAL AREA INTO AN ECONOMIC ZONE DISCLAIMER The information, opinions and views set out in the The Municipal Review are those of the author(s) and do not necessarily reflect the official opinion of the publication, executive members nor any of their partners. Neither The Municipal Review nor any person acting on their behalf may be held responsible for the use which may be made of the information contained therein. Rights to the photographs and articles remain with the photographers and with the authors respectively. Contact The Municipal Review for reproduction. While all care has been taken during editing, errors and omissions may slip through and we sincerely apologise for these. WHY YOU SHOULD BE READING THE MUNICIPAL REVIEW? With globalization gathering momentum, the need for public sector accountability is reaching fever pitch levels. On the contrary, corruption in the public sector continues unabated, costing governments around the world billions of dollars annually. In Zimbabwe, the annual cost of corruption has been approximated at US$1 billion (Transparency International Zimbabwe, 2016). Now, that’s a lot of money! Across the country, and indeed the continent of Africa, local government service delivery is low, further casting doubt on municipalities’ accountability to its stakeholders. The annual audit reports for the public sector issued by the office of the Auditor General tell an astonishing story of the deplorable levels of corporate governance and financial management and reporting. These ills are seemingly on the rise yet we are daily taking a step towards the year 2030 when SDGs must be attained. SDG 11 emphasizes the need for cities to be sustainable but the question is: can sustainability be achieved when there is no accountability and transparency? Will we ever get there as Zimbabwe?
FOCUS
PUBLIC SECTOR ACCOUNTING Drawing meaning from financials
With growing civil society and pressure groups, the auditor is placed in a tighter spotlight than before about the auditing of these state-owned enterprises. In this first issue, we review the audit of Harare City Council for 2012 and also for 2013, 2014 and 2015 as set out in pages 4 to 30 of the OAG’s report tabled to Parliament in 2017.
AUDITING “There lies, within the very reach of the CEO, a powerful tool that can shed more light into Empirical research has shown that there is a positive relationship between infrastructure operations investment and economic growth. Several researchers demonstrate the beneficial impact the of infrastructure investments on growth in African economies; this occurs because solid the business infrastructure accelerates annual growth convergence rates by as much as 13 percent and also of increases per capita annual growth by almost 1 percent. than any strategic planning session can. The financial statements.“
INFRASTRUCTURAL DEVELOPMENT
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THE NEED FOR INFRASTRUCTURAL DEVELOPMENT IN AFRICAN COUNTRIES by Karen N. Gumbo
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frica has enjoyed significant social and economic progress over the past 15 years, with an average GDP growth rate estimated at 4.5% in 2015 Yet, this progress has not resulted in commensurate job creation or meaningful economic transformation. Infrastructure deficit, hard and soft, has been undermining all the efforts towards achieving sustainable development and structural transformation in Africa, par-
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ticularly in view of a rapidly growing population. The emergence of a growing population nearly 350 million in 2010 is driving the demand for socio-economic infrastructure including access to water and sanitation. Further, structural transformation and industrialization require adequate infrastructure to power economic activity, fuel industrialization, connect producers to markets, enhance intra-African trade and foster regional inte-
gration, thus accelerating economic growth. Recent studies have also shown that Africa’s economic growth hinges partly on the integration of the economies and linking them to the global economic structure. This is partly because internal demand in individual African countries and for the continent as a whole, is too weak and volatile to sustain growth (Fafchamps et al., 2001).
Africa suffers from a pronounced infrastructure deficit. Africa’s infrastructure has been lagging when compared to developed countries. Investments in physical and social infrastructure (including human capital) play a key role in the economic development process of all nations (Tallman and Wang, 1992; Materu, 2007; Bloom et al., 2006). The World Bank estimates that $1.1 trillion in annual infrastructure expenditure is needed in developing countries through 2015, of which the greatest needs, as a share of GDP, are in low income countries, estimated at 12.5 percent of GDP (World Bank, 2011) Approximately 60% of the continent’s population lacks access to modern infrastructure, which isolates communities, prevents access to health care, education and jobs, and impedes economic growth and development. Compared with countries in other regions, African countries have a low stock of infrastructure, particularly in energy and transportation, and the potential for information and communication technologies (ICTs) has not been fully harnessed. Coupled with burdensome trade regulations and duplication of procedures ad efforts, these deficiencies have constrained gains in domestic productivity and present a critical bottleneck to more regional integration, thus impeding globalization, economic growth and development. Inadequate infrastructure has raised the transaction costs of business in most African economies. Today African countries exhibit the lowest levels of productivity of all low-income countries and are among the least competitive economies in the world. Inadequate infrastructure has been estimated to shave off at least 2 percent of Africa’s annual growth. With adequate infrastructure, African firms could achieve productivity gains of up to 40 percent. Africa’s infrastructure services cost more than almost any place in the world, According to the Infrastructure Consortium for Africa. For instance, African rural populations pay around 60 to 80 times per unit more for her energy than urban population in the developed world. Freight costs in Africa per tonne are USD 0.05 to USD 0.13 compared to USD 0.01 to USD 0.04 per tonne in developed countries, making African markets less competitive on the international level. The situation worsens for the 16 African Landlocked Developed Countries where trading costs are 50 times higher than in African coastal countries. Infrastructure that is sufficient and works properly is crucial for Africa’s economic integration and economic growth and development agenda. African economies can begin the process of deep integration if their infrastructure networks are designed in such a way as to link production centers and distribution hubs across the continent, as the networks of developed economies do. Such infrastructure will enable Africa to compete effectively, tap into regional markets, and benefit from globalization through investment and trade. To
achieve this calls for the construction of an efficient and secure national and cross-border physical infrastructure as well as a coherent system of regulation for business transactions. Infrastructure is also critical for the promotion of inclusive and sustainable growth. Rural infrastructure notably feeder roads and transmission lines that connect rural communities to national grids enable individuals, households, communities, and small businesses to embark on income-generating activities thanks to improved access to electricity and links to markets. The use of renewable energy or environment-friendly sources of energy including solar, wind, geothermal, and hydropower, with all of which Africa is well endowed would contribute to making growth sustainable. Well-developed energy, transportation, and communication infrastructure networks are a prerequisite for linking less-developed communities to markets in a sustainable way. Effective modes of transport, including quality roads, railroads, air transport, and ports enable entrepreneurs to get their goods and services to markets in a secure and timely manner, facilitate the movement of workers to the workplace, and encourage foreign direct investment. Economies also depend on electricity supplies that are free from interruptions and shortages so that businesses and factories can work unimpeded. In addition, a solid and extensive telecommunication network allows for a rapid and free flow of information, which increases overall economic efficiency by ensuring that businesses can communicate and make timely decisions, taking into account all available relevant information. For example, India is the world’s second-largest producer of fresh fruit and vegetables, but is battling foodprice inflation as 40% of the crop rots before it gets to market because of its crumbling road system and poor infrastructure. Empirical research has shown that there is a positive relationship between infrastructure investment and economic growth. Several researchers demonstrate the beneficial impact of infrastructure investments on growth in African economies; this occurs because solid infrastructure accelerates annual growth convergence rates by as much as 13 percent and also increases per capita annual growth by almost 1 percent. In fact, some of this work argues that the strongest impact comes from telecommunications, followed by roads and electricity. For example, it has been estimated that investing an additional 1 percent of gross domestic product (GDP) in transportation and communications on a sustained basis increases the GDP per capita growth rate by 0.6 percent The growth in productivity increases competitiveness in countries with an adequate supply of infrastructure services. Infrastructure therefore plays a critical role in enhancing a country’s competitiveness and in easing the cost of doing business. The flipside of this relationship is that, in countries with inadequate infrastructure, firms are burdened with high costs as they try to
provide infrastructure themselves, suffer potentially huge inefficiencies, or are simply unable to conduct activities for which infrastructure services are a prerequisite. Bridging the infrastructure deficit imposes itself with urgency to provide well-functioning regional and national infrastructure, including roads, railways and ports, information and communication technology. The urgency comes from the idea that infrastructure in the long run promotes economic growth and development which is one of Africa’s crucial development agenda
“.... With adequate infrastructure, African firms could achieve productivity gains of up to 40 percent. Africa’s infrastructure services cost more than almost any place in the world, According to the Infrastructure Consortium for Africa.” Karen is at the F.A.O of the United Nations in Italy. She is a Development Finance Expert. Email: karengumbo@gmail. com
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LOCAL GOVT AUDIT REVIEW: HARARE CITY COUNCIL by Bukhosibenkosi H Moyo This section reviews the Audit Reports tabled before the Parliament of Zimbabwe by the Office of the Auditor-General (OAG). In this first issue, we review the audit of Harare City Council for 2012 and also for 2013, 2014 and 2015, as set out in pages 4 to 30 of the OAG’s report tabled in Parliament in 2017. We will make significant comparisons with the 2012 report of the same local authority that was tabled in Parliament in 2016. We note with concern from the onset the general delay by local authorities in the submission of their financial statements for audit. On average, local authorities in Zimbabwe submit their financial statements after four years, a far cry from the annual expectation., These delays have a bearing on the significance and effectiveness of the audit exercise as a whole and impacts on the usefulness of the audit in achieving the intended goals of promoting an
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entity’s accountability to the public. In 2016, the OAG reported on the 2012 financial statements of Harare City Council. One of the first and major findings reported was that there was no bank reconciliation done. The ledger and the bank statement had a variance of a whooping US$200 million. Not only so, but these amounts were in overdraft position. There was no reference made in the 2012 report to the authorised overdraft limit. The budget for the municipality in 2012 was $272 million and the unreconciled variance accounted for 74% of the budget. This gives an impression of high level fraud or gross financial mismanagement. Bank reconciliations are by their nature internal control activities and should be done regularly to ensure that all bank transactions are recognised in the financial statement and vice versa
The OAG highlighted that this is resulting in the misstatement of cash and equivalents. Whilst this is true, the absence of a bank reconciliation means also that income, expenses, assets, liabilities as well as any other section of the financial statement maybe materially misstated.. In response, the management highlighted that bank reconciliation is ‘currently being performed’. This means that in 2015, three years down the line, the bank was still unreconciled with the ledger.. Such is the sorry state of public funds and public financial management within Harare City Council. With such an uncontrolled environment, fraudulent activities are prone to take place. In the subsequent audits for the years 2013 – 2015, there was no mention of this problem, The 2012 management response, issued in 2015 said the reconciliations were being done then. This implies that in 2013 through to
In this first issue, we review the audit of Harare City Council for 2012 and also for 2013, 2014 and 2015 as set out in pages 4 to 30 of the OAG’s report tabled in Parliament in 2017.
2015, the bank was still not reconciled with the ledger. Despite this, the OAG was mum on the variance. This raises many questions on the competency of the OAG. Why would such a significant issue be left out? Instead, in 2016 the OAG reported that they had made “material” audit findings which were itemised. Materiality is an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. An item might be material due to its nature, value and/or impact. Some of the ‘major audit findings’ that the OAG found ‘material’ included the following: 2013 Report a. Uncut grass and litter, litter and broken benches b. Flushing system not working in public toilets c. Worn out water gutters d. Piles of uncollected refuse e. Bad odour not controlled at dump site 2014 Report a. Non-compliance with the Urban Councils Act (29:15) with regards to borrowing to finance remuneration
b. Broken boom gates at Mbare Bus Terminus c. Broken benches d. 1% collections from billed amounts There are clearly limited references to the financial statements and no reason is given for this departure. Readers of the 20132015 audit reports would probably be more interested in knowing if the council’s approximately forty (40) bank accounts have been reconciled and whether the signatory panels for these accounts are updated. With less than 40 banks in the country, it is a big wonder why the council was operating all these accounts. One is left guessing what the motive was in their opening. Readers would also be interested in knowing if the salaries of council officials were paid according to guiding legislation and if they had been properly disclosed in the financial statements. A general review on the fairness of the financial statements is absent. A report of a broken boom gate is of no reading value unless its material effect on the financial statements is adequately explained. Not only is it of no reading value, but it also makes one query the objectivity of the OAG. Harare is a large municipality that
moves millions of dollars. Have there been no budget overruns? Has all expenditure been properly authorised? Have financial statements been prepared in accordance with a recognised and appropriate financial reporting framework? Have there been cash and inventory counts at year end? Have these been reconciled to the ledger? Has council operated within the requirements of the Urban Councils Act (29:15)? We want to know. Is there something we are not being told in these audit reports? Have these reports been censored or that is the level of reporting that the OAG has adopted? Is this not incentive enough for local authorities to sit back and relax? Has Parliament, through the Public Accounts Committee, taken decisive action? One is excused to believe that the 2013 – 2015 audits have not been carried out in accordance with International Standards on Auditing (ISAs) as stated by virtue of there being limited reference to the financial statements, directly or indirectly. We call upon local authorities to be more accountable to the public, and the OAG to professionally and effectively deliver on its constitutional mandate.
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AUDITING GOVERNMENT ENTITIES by Oliver Masuku
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“.... with growing civil society and pressure groups, the auditor is placed in a tighter spotlight than before about the auditing of these state-owned enterprises. ”
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overnment entities are associated with fraud, corruption and all forms of irregularities such as wasteful expenditure. The public almost expects that these ills exist in all government entities or state owned enterprises. At one end of a spectrum lies the appointing authority (government ministries) and on the other is the public that expects that these ills to be brought to light. In between is a government auditor that is perceived to be under paid, and subject to compromise.
of the opposition. What governance mechanism exist in any one country, even as the auditor performs his work. In the case of South Africa, the chapter 9 institutions include Public Protector (PP), the Auditor‐General (AG), the Electoral Commission (IEC), the South African Human Rights Commission (SAHRC) and many others. These are independent of government and only subject to constitution and the law.
It appears the debates have more entertainment value as the culprits seem to have the backing of top corrupt officials. It is important to note that despite this yawning expectation gap, the auditor is expected to perform his services in line with the publicsector auditing standards or other acceptable framework. Again, with growing civil society and pressure groups, the auditor is placed in a tighter spot light than before about the auditing of these state-owned enterprises.
In the case of Zimbabwe, Section 9 of the 2013 constitution states that, “The State must adopt and implement policies and legislation to develop efficiency, competence, accountability, transparency, personal integrity and financial probity in all institutions and agencies of government at every level and in every public institution, and in particular ; (a)— appointments to public offices must be made primarily on the basis of merit; (b) measures must be taken to expose, combat and eradicate all forms of corruption and abuse of power by those holding political and public offices. The State must ensure that all institutions and agencies of government at every level, in particular Commissions and other bodies established by or under this Constitution, are provided with adequate resources and facilities to enable them to carry out their functions conscientiously, fairly, honestly and efficiently.
What then is at play is the operating environment in which the AG finds himself in. This environment included the freedom of the press, the state of investigative journalism in the country, and the level of independence of Chapter 9 institutions (in the case of South Africa) further, how deep the press may dig and provide an adequate analysis of malpractices reported by the auditor also determines how the AG can work and also how the public reacts. Other factors that affect the operating environment are; the potential response by civic society and the political landscape, including the popularity
The independent commissions meant to strengthen governance also include the Zimbabwe Electoral Commission, Human Rights Commission, Zimbabwe Media Commission among many others. Of significance is that the Auditor General, unlike in South Africa, is not part of the independent commissions, even though covered under part 6 of the Constitution. The objectives of these commissions are (a) to support and entrench human rights and democracy; (b) to protect the sovereignty and interests of the people; (c) to promote constitutionalism; (d) to promote
The presentation of audit reports to parliament is as important as it is to broadcast it on television. At times, though one is tempted to think that the grilling of these public officials by the public accounts committee is a nice watch on YouTube or TV, such as the grilling of Wicknell Chivayo by the Parliamentary Portfolio Committee over the ZESA Gwanda tender.
transparency and accountability in public institutions; (e) to secure the observance of democratic values and principles by the State and all institutions and agencies of government, and government - controlled entities; and (f) to ensure that injustices are remedied. Further, these commissions are to be independent and not subject to the direction or control of anyone; must exercise their functions without fear, favour or prejudice and to be non-political. Although there are institutions in place to combat crime and corruption such as the National Prosecuting Authority and the Anti-Corruption Commission, critical is the political will to do right. Yet a lot can be written on the functions, objectives of these offices, in some cases these provisions are as strong as they are written on paper. The current Auditor General, Mildred Chiri, notoriously known for rattling powerful officials with her routine revelations of graft, profligacy and mismanagement of resources in government was sacked by the then president Robert Mugabe, more than two years before the expiry of her contract signed in 2013, before she was reinstated shortly thereafter. So, what does this mean for the incoming Auditor General and other senior members of staff in the auditor-general’s office? Can they still work without fear or favour? It has been important to bring to the fore the landscape and operating environment in any one country, before one explores the technical issues, or attempt to gauge the performance of the auditor general. It is key to understand that the tone at the top. Perhaps one would appreciate the effectiveness of audit reports under Magufuli of Tanzania than under Zuma of South Africa. Now that the foundation has been laid and the context of public sector auditing, watch out for part 2 in the next issue where we begin exploring technical issues Oliver is an Audit Specialist working with the General Conference Auditing Service (GCAS). He has served in 3 countries in the SADC region from 2005.
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DRAWING MEANING FROM YOUR FINANCIAL$ by Bukhosibenkosi H Moyo
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very CEO has a vision to drive his / her company forward, and every CEO doesn’t want the ship to hit an iceberg under his / her watch. Never. As a result, the CEO spends valuable time in briefings, in meetings and in workshops. He allows for an amazingly huge budget for annual strategic planning sessions. Sadly, notwithstanding the effort, company performance sometimes goes down embarrassingly. And the buck stops with the CEO. The CEO then has the unenviable task of facing seemingly ruthless shareholders to explain why performance dipped. In many such scenarios, many CEOs have paid with their contracts. Sad. But it need not be. There lies, within the very reach of the CEO, and within his imputed rights, a powerful communication tool that can shed more light into the operations of the business than any strategic planning session can. The financial statements. The financial statements are composed of the statements of financial activity, financial position, cash flows, changes in owners’ equity and the notes thereof. When they have been properly prepared (that is, prepared in accordance with an appropriate financial reporting framework such as
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IFRS, IAS, IPSAS), they provide company leadership at all levels including the apex, with valuable information that can lead to change of long term strategy. Whilst other non financial information is critical, such as market information and technological changes, the bigger and clearer picture is told by the financials. Without reducing the boss to a bogged down number cruncher, the financials provide a good snap shot of past, present and future performance, and affords valuable opportunity to plan for this future. Having analysed the financials, strategy can be amended to keep the ship afloat. Many CEOs are Chartered Accountants and would therefore have no problem in understanding financials. But for the sake of those from outside the numbers professions, here is what you should ask for and use. Ratio Analysis Gone are the days when the CEO was only interested in the ‘top line’ – the revenue, and the ‘bottom line’ – the profits. There is so much more. As an example, if the company were to invoice USD5 billion to a huge customer, who is set to pay off ‘later’, the financials will have a handsome top line and an even cuter bottom line. But there is a risk that the USD5 billion may be uncollectible.
A CEO who looks only at the top and bottom lines will have a wrong picture altogether. However, further analysis can show the correct picture. To the CEO, the FD should present a pre defined set of ratios, that summarise the financials. Ratios are classified into four distinct groups, namely liquidity ratios, profitability ratios, efficiency ratios and gearing ratios. These are so designed to analyse the financial statements in full and CEOs should be trained in the analysis. Efficiency ratios, for example, include some asset utilization ratios that show how much revenue you are generating from your investment in noncurrent assets. These assets are by their very nature meant to generate income for you. But have they? It could be that the heavy investment in plant has not yielded the expected proportionate increase in revenue. The ratios will say and you may decide on what corrective action to take. Liquidity ratios are designed to gauge your immediate ability to pay off short term obligations. You will agree that it is embarrassing to realize that by the 10th of April you are just unable to remit PAYE for March. So much from a learned and experienced CEO! Be on the lookout for these tell-tale signs of trouble. Check your
“There lies, within the very reach of the CEO, a powerful tool that can shed more light into the operations of the business than any strategic planning session can. The financial statements.
liquidity ratios regularly, because when they are left unguarded, technical insolvency is on the way. If you have long term loans, or debt instruments such as debentures, keep them under check. Gearing ratios help to show if your borrowings is getting out of hand. If you are to avoid handing the organization to the vultures, keep an eye on gearing. Profitability ratios measure the value of profit. We’ve made a profit, so what? Is it at the right levels? Profitability ratios such as Return on Capital Employed (ROCE) measure the return on the capital that has been invested into the business. The profit maybe a good dollar value but it may actually be a negative return on capital. These ratios will help the top boss to see if performance is still at levels that meet the shareholders’ requirements. It will be a pleasure to present such a report at an AGM! There are many ratios under these four categories and they all help to connect the different facets of the financial statements so as to give the CEO a quick bird’s eye view of the financial performance of the business, as well as to show the areas that need attention. It will also help the CEO not to come down hard unnecessarily on the Marketing Department when sales are low because the ratios may show that the low sales are due to reduced noncurrent assets.
Trend Analysis This year’s ratios look good… but wait a minute! What were they like last year? And the year before? It is very useful to do a trend analysis of not only performance, but also of analysis tools such as ratios. When performance is compared from one year to another, the trends may paint either an interesting or worrisome picture. The same is true for ratios. When compared against each other, they may reveal decreasing efficiency which, when noticed, can be then handled appropriately. For a CEO with a busy schedule, these trends can be pictorially presented in graphs and meaningful charts. The FD must be able to effortlessly feed these to the CEO regularly. However, trends should be viewed in the light of PESTEL issues so that they are not misinterpreted. This means that lower than average performance may have been due to a general slump in the economy, whilst actual asset utilization could have improved. Z Score Designed by Edward Altman in 1968, the Z score , a simple combination of weighted financial ratios, can tell the CEO if the company is heading towards bankruptcy or not. Empirical studies done reported that the
Z Score is able to give a bankruptcy warning even two years before the actual closure. If such a picture is shown timely, the CEO can urge the board to re strategise and avert failure. The Z score is easily calculated, and if the FD is worth his salt, he knows how to calculate and interpret it. As CEO, ask for it, demand it. You need to be always well informed of where you are going. While the Z Score may not predict business failure caused by fraudulent activities (as in the popular Enron case), it sure can tell you if your business model and financial position is leading you to the abyss. Many companies found themselves closing ‘without notice’. Whilst a good number closed due to increasingly unfavourable macro economic fundamentals, many met their fate because early warning signs were ignored. So, there you have it. Your financials, presented to you in full or in summary or by way of analysis, will help you to steer the ship to a safe harbor, where your shareholders will be eagerly waiting for you to dock. And if you arrive safely, your stay in office is guaranteed
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F E AT U R E
HOW TO DEAL WITH PUBLIC SECTOR FRAUD by Thulani Sibanda CFE, CFP
The media is abuzz with articles about embezzlement. Hardly a day passes by without hearing about bank tellers, cashier, bursars, messengers and clerks being fingered in embezzlement. It is not just done by people who are struggling financially, there are many Zimbabwean celebrities, lawyers and business executives who have been brought before the courts because of crossing the line that separates right from wrong. Any organisation is vulnerable and municipalities are not immune. So What Exactly is Embezzlement? AUG 2018|munrev.com |Page 14
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y definition embezzlement is the wrongful appropriation of money or property by a person to whom it has been lawfully entrusted. As pointed out, in most cases these people are accountants, cashiers, bursars, bank tellers or anyone in the organisation who is trusted to receive, safeguard and disburse money on behalf of the organisation.The basic elements of embezzlement can be broken down as follows:
can be a result of the current economic situation but, this can also be the tool being used by a fraudster. How To Catch An Embezzler There are a number of steps that an organisation can implement in order to prevent loss of finances and property through embezzlement. Below is a list to help you begin fraud proofing your establishment. Implement these measures according to the setup of your organisation.
The defendant / perpetrator took or converted,without the knowledge or consent of the owner, money or property, that was entrusted to them. Guess what, even if the boss has not paid you or is underpaying you, it is not a defence that you can use in the court of law. There is extreme pressure on most Zimbabweans to get money for school fees, rentals and food but stealing from your organisation will create more problems than solve them.
Job rotation - when different employees take turns to manage the company’s accounts. Book keeping personnel should be placed on a rotational system so that no one has the opportunity to implement a fraud scheme.
Red Flags Pointing Out That You Might Be A Victim Of Embezzlement Below are some red flags to look out for when you think your organisation is a victim of embezzlement: If the organisation experiences an unusual bad debts write off be careful to check if the person in charge of money is not running a fraudulent scheme and they are using the bad debts to mask the looting. Massive debt write off like the ones carried out by government are not what is meant, although there is a possibility that some might have taken them as an opportunity to cover-up loopholes in the system A change in lifestyle or a marked variation between their salary and lifestyle could indicate that your funds are being siphoned off. Although people can be creative and entrepreneurial and raise funds to buy cars and houses, it would be wise for organisations to suspend their belief and investigate when a worker suddenly develops a living standard above their earnings. Also, the perpetrator might not record some sales. Some businesses are shutting down as a result of poor management. When you see diminishing cash or credit sales or only a small increase in the same, know that business is either low or you are a victim. Ficticious purchases, unrecorded revenue, or employee pilferage can cause an inventory shortage which means that you have to be alert as an organisation by accounting for all stock whether in good condition or obsolete. We are not saying that declines in profit or increases in expenses are not possible but they could also be hiding the fact that cash is being siphoned off. Slow collections of subscriptions
At the same time it would be wise to separate employee duties. For example the individual responsible for receiving cash and checks should not be responsible for the entries in the accounts receivable system. In other words make sure that no one person is handling the transaction from beginning to the end. Likewise be mindful to exercise tight control over your accounting system, that is, the invoicing, purchase orders, customer credits etc, so as to avoid financial loss. Many schools and associations across the country have fallen victim to fraud schemes because there was a lax accounting system. It is not enough to put your trust on the character of a person, money has the capacity to amplify dormant human characteristics. Stories usually highlight the fact that the business owners or the organisation leaders will have put their total trust on the embezzler and feel betrayed by the fraudster’s actions. Surprise audits which are done on the spot. Do not announce the audit because it will give the perpetrator of a scheme to cover their tracks. Surprise audits will deter the potential fraudster from attempting to steal because they know that their actions are under scrutiny and they can be caught at any time. Do not allow the bookkeepers to take their work home. Most embezzlers take little or no vacation time, therefore mandatory leave for employees is also another effective way to make sure that your financial affairs are in order. Some frauds are uncovered when the person in charge of the accounting experiences some emergency that forces them to be out of action for some time such as sickness and death. So every organisation should make sure that staff members take their mandatory leave so that the system can be examined. Embezzlement is a big problem, however, it does not need to bring your organisation to its knees. Take note of the above preventative measures and you will go a long way to preserving your wealth
“.... Many schools and associations across the country have fallen victim to fraud schemes because there was a lax accounting system. It is not enough to put your trust on the character of a person, money has the capacity to amplify dormant human characteristics.”
Thulani is a seasoned consultant who has over 15 years experience in Banking, Forensic Auditing and business consulting.
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F EATU R E
MUNICIPALITIES : AGENTS FOR SOCIO-ECONOMIC TRANSFORMATION Municipalities as local governing authorities should act as the vehicles that drive the creation of an environment conducive for socioeconomic transformation. Economic activities in a transformed socioeconomic environment are performed for the benefit of all citizens. Transformation is the process through which exploitative tendencies are eradicated. Municipalities through their obligation to license all business activities within their jurisdiction, play a cardinal role in policing that economic activities are performed in a just manner. It is every investor’s objective to create wealth for themselves, but that must never be at the expense of citizens. by Alson Bhebe Alson Bhebe is a Business Advisor, a Social Commentator and author based in Cape Town. Reach him on his site: https://goo. gl/bSEoBK
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Production, distribution and consumption of goods and services
Fair distribution of wealth, opportunities and privileges
Economic Activities
Social Justice
Socioeconomic Environment
Source: A Bhebe.2018
T
he expectations of an independent State is an equitable socioeconomic environment. Most African communities, many decades into democracy are still grappling with economies that are not reflective of African demographics. Ownership of means of production remain under the firm control of former colonisers. Foreign direct investments come wrapped in conditions that render the vision of independence a pipe dream. International organizations such as Credit Ratings Agencies, are used to whip African countries into colonial submission. Foreign interests are entrenched into African governments through various funding schemes. A transformed socioeconomic environment remains a pipe dream for most African communities. But, what does a socioeconomic environment look like? What do we mean when we talk about socioeconomic transformation? “Socioeconomic transformation is a systematic science.” [1] “A systems science is defined as an interdisciplinary field of science which studies the nature of complex systems.” [2] In our instance, this system consists of two unique but related subsets, the economic sciences and the social sciences. The equation below can best explain how these two sciences relate. During the colonial era, our colonisers created an economic environment that
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excluded the black majority. Whites gave themselves privileges that helped them outperform blacks in wealth creation. Whites were afforded the best education system which empowered them not only to be employable but to be able to run their own businesses. Financial support of any kind was only offered to the white community. Socioeconomic transformation is therefore a science that seeks to redress these imbalances. However, the redress must be done in a delicate way always so that we do not upset the already functioning economies. Our land reform program is an example of a transformation trajectory that did not go well as it resulted in compromising a well-functioning Agricultural sector, compromising food production. Municipalities as local governing authorities should act as the vehicles that drive the creation of an environment conducive for socioeconomic transformation. Economic activities in a transformed socioeconomic environment are performed for the benefit of all citizens. Transformation is the process through which exploitative tendencies are eradicated. Municipalities through their obligation to license all business activities within their jurisdiction, play a cardinal role in policing that economic activities are performed in a just manner. It is every investor’s objective to create wealth for themselves, but that must never be at the expense of citizens.
Our colonial oppressors were motivated by the desire to amass wealth through affording themselves rights and privileges which they denied indigenous citizens. Communities where locals resided received compromised services. Municipalities serve a critical role not only in assuring that services are provided fairly to all citizens but also that they contract service providers from the previously disadvantaged communities. This will accommodate locals within the wealth creation value chain. Most independent governments have enacted laws that are meant to create an environment that encourages the previously disadvantaged to participate in economic activities. These emerging businesses from the previously disadvantaged rely on local authorities to give them jobs. Democratic processes that are premised on transparency require that they be a clear way of contracting service providers. In most instances there are policies and a clear legal framework that guide how business is conducted at all government levels. Local authorities, who understand the unique needs of their citizens must promote these policies. The monitoring and evaluation of such policies should be at the forefront of every municipality. In some countries municipalities are required to design and implement integrated development plans. Local municipalities can be the engine of any transformation program.
“Forget about banks that are too big to fail; the focus should be on cities, municipalities and countries that are too big to fail.” Andrew Ross Sorkin Municipalities in their role as transformation agents have a critical role to play in capacity building. Most of the previously disadvantaged lack critical skills of running sustainable businesses. Strategic municipalities would not only offer small scale businesses with jobs, but they would go an extra mile in providing skills development. Some Municipalities go to the extent of partnering with business advisors. If a smallscale business is offered a project, they are availed the services of a business advisor who
will help the small business with any skills sets they lack. This strategy works well as part of an integrated development plan. Capacity building can also involve partnering with academic institutions. It is a fact that most of the communities with indigenous citizens were offered poor education during the colonial era. Postindependence it’s not surprising to find that the 40 to 60-year age group are academically challenged. Empowerment which includes an educational program will assure any local authority of visionary small business owners. Empowering them through relevant education leaves them capable of turning their small businesses into medium or large enterprises. This would assure sustainability. Another transformational trajectory which a municipality should never overlook is the provision of decent accommodation. It is quite sad that some municipalities are governing in areas where local communities are literally living as vagrants. It is an unacceptable norm that most citizens in our communities live in squalid conditions whilst the elite live in luxury. Part of the major reason why living conditions are deplorable for the indigenous majority is because of lack of land to build decent homes. Urban land has been commercialised and left beyond the reach of ordinary citizens. Municipalities play a critical role in identifying land needs and land use. Rural municipalities equally play a critical role on rural land. One often wonders why land occupied by Black Africans is regarded
as communal land with no commercial value whereas land occupied by Whites is always referred to as commercial land. In some instances, this land is divided by a fence. Which means, it’s the same soil type which is capable of the same crop yield. In some farming arears, commercial farms, owned by whites, have a different value to farms owned by blacks. These anomalies aught to be addressed by local authorities. Through municipalities and rural councils, all land can be given commercial value and used as collateral for funding. Municipalities are public funded. If by holding them to account we are only concerned about how they spent public funds, we would not have done enough. Funds can be properly spent according to law and regulations. But those funds can be spent on business entities that do not benefit local citizens. A well-managed local authority is the one that spends its finances according to laws and regulations but spends on businesses that develop and empower local communities. REFERENCES 1. Bhebe, A. 2018 Understanding Socioeconomic Transformation in South Africa – What has not changed two decades into Democracy. Alef Innovations, Cape Town RSA 2. https://en.wikipedia.org/wiki/ Systems_science
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C OVER STORY
TURNING A RURAL AREA INTO AN ECONOMIC ZONE
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As an emerging local government practitioner, with a focus on local economic development through public private partnerships, Elvis Sibanda and his administration have good corporate governance and a competent attempt at stakeholder engagement at the core of their strategy.
by Tamsanqa Mhepoh
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Beautiful scenary of rural Matobo. These gorgeous granite formations tower above homesteads. This particular picture shows a Lodge in Matobo.
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I
magine turning rural Matabeleland South into some kind of economic zone. You start by converting a beer hall in the growth point into a Small and Medium Enterprises hub. And then convert one of the 25 wards into an animal conservancy. You also enact local policies that encourage economic empowerment, employment creation and investment. Such is the vision of Elvis Sibanda, Chief Executive Officer of Matobo Rural District Council (RDC), who professes the desire to put “all structures into meaningful use through public private partnerships.” For the past five years at the helm of the RDC, Sibanda has worked hard to turn this vision into reality.
of over 90 000 according to the 2012 Census. it is bounded to the east by Gwanda, to the west by Bulilima and Mangwe, to the North by Bulawayo and Botswana to the South. Northern Matobo consists of rocky hills which gave birth to the name Matobo. The district is part of the world heritage site with its scenic sites incorporating Cecil John Rhodes Grave, Old Bulawayo, Njelele Shrine; San rock paintings, the national park, and wildlife and dam sanctuaries. Moreover, flora, fauna and minerals in Matobo means that the District proffers a lot of opportunities for tourism, mining, agriculture and construction, hence the local authority’s aggressive stance to local economic development through synergies with locals, government and Non-Governmental Organisations.
His nomination for a 2018 Megafest Leadership Award could be testimony that Zimbabwe is noticing his effort.
“We had to invite SMEs to come and put up structures in what used to be the beer garden so that they conduct their businesses,” Sibanda said.
As an emerging local government practitioner with a focus on local economic development through public private partnerships, Sibanda and his administration have a good corporate governance system and a competent attempt at stakeholder engagement at the core of their strategy.
“We charge them a very minimal fee of US$8 per person. For example, if we had leased our beer garden we were going to charge US$250 per month, but if we have 50 SMEs and charge them US$8, how much do we earn?” Sibanda asked rhetorically. “There is value and practicality there,” he added.
“As a local authority, we have created rapport with stakeholders such that we challenge them to invite us to their meetings since we also invite them when we have full council meetings,” said Sibanda who works from Maphisa, a growth point about 123 km south of Bulawayo. “We do this so that they see that their aspirations are taken into consideration and also for transparency.”
The SME’s Hub dubbed the Small and Medium Enterprises One Stop Shop features a restaurant, flea market, carpentry and joinery workshop and a couple of electrical appliances sales and repair centres.
Matobo lies on about 7000 square kilometres of land and has a population
Sibanda also mentioned that the RDC had successfully engaged the services of a professional hunter who would oversee the operation of a conservancy in ward 20. However, the Ministry of Local Government was yet to give the project greenlight.
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The Rocky Path. Pursuing a developmental agenda in Matobo has sometimes been reminiscent of the natural terrain of the area, rocky and rugged. Even if religious adherence to statutory instruments such as the Public Financial Management Act and Rural District Councils Act is imperative to running the local authority efficiently, it is sometimes ground of conflict of interest, particularly with other government departments. “Most of these acts are our bible so to speak”, stated Sibanda pointedly. “There is a statutory instrument that declares RDC’s as planning authorities, but in the process of planning there is someone with more powers than the Rural Authority in terms of planning and it means there is conflict.” Even if the constitution confers the Rural Council authority to plan for land use, the Department of Physical Planning has to approve all of their endeavours. This is not the case with Urban Councils, who have considerably more autonomy as they approve land use on their own after consultation with relevant stakeholders. Just recently, the Department of Physical Planning rejected the Matobo RDC’s application for 500 stands on land directly opposite to the Maphisa District Hospital in a bid to expand Maphisa growth point for economic activities. The RDC was told that there were two mining
claims on that land but there appears to be no further details on ownership of those mining claims. “The constitution says local authorities shall have the power to govern, and there are issues listed there; power to collect, power to license, power to control, power to develop, but still you find other statutory instruments conflicting with that. An immediate example is the RDC Act Chapter 29:13. It has not been aligned to the new constitution,” cited the Chief Executive, who holds a Bachelors Degree in Local Government and a Masters in Development Studies.
The former beer garden now SME’s Hub
However, the rural local authorities through their association, are in the process of lobbying the government to delete sections in statutory instruments that undermine their ability to govern whilst granting Ministers “sweeping powers” in the running of local authorities. Another stumbling block adding to the rugged path in the operations of Sibanda’s council is the issue of defaulting rate payers. In 2013 Government issued a directive instructing all local authorities to write off rate payer’s debts. That injunction is the ghost haunting the RDC from the caves of Silozwane, Bambata and Nswatugi in the Matobo hills to Maphisa Township and the farming community.
Installation of solar panels for Marinoha piped water scheme in Ward 9
Sibanda suggested that residents have since developed a culture of defaulting payment of rates in the
Grab this space and sponsor this article. Call+263 77 461 6738 now! Earthworks and surfacing of roads in the Maphisa CBD.
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hope that politicians will employ populism tactics during election season and coerce local authorities to write off debts. He added that it is imperative that Government comes up with a clear position on such issues well in advance so that rate payers do not anticipate any changes. Such openness would encourage rate payers to remit bills on time so that council delivers services duly. Sibanda’s solution is to “engage the rate payers instead of employing debt collectors to deal with them.” He added that the RDC has since devised payment plans for residents and is happy that quite a number of them have honoured this pact. Sibanda hopes to see the status of Matobo Rural District Council as local authority elevated in the next five years, in the same fashion as that of the local authority in Beitbridge. “We will graduate from a being a rural authority to being a town council very soon. We also hope that we will be more developed. That is our vision.”
Matobo RDC Profile
Installation of water tanks for piped water scheme in Ratanyane Ward 4
Area: 7,245 km² Density: 12.97/km² [2012] – Change: -0.60%/year [2002 → 2012] Elevation: 1,017 m Population: 99 723 Location: Matabeleland South Province, Zimbabwe Opportunities: : 1. Agriculture: Livestock 2. Mining: Gold 3. Toursim: 4. Construction & Real Estate: residential and commercial property Accomodation: 3 Star Hotel averaging US$92. Source: Zimbabwe National Statistics Agency
Maphisa growth point 300m drainage construction in 2017
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T h e SD G’s Bu re au
LOCALISING
SDG’S IN ZIMBABWE by Bukhosibenkosi H Moyo
I
n this series of articles, we will examine how well local authorities in Zimbabwe, and subsequently in Sub Saharan Africa, have been capacitated to facilitate national attainment of the SDGs. We will explore how local authorities around the country have made efforts in contributing to the SDGs, as well as review the various challenges that they come across, and proffer solutions. The SDGs work in the spirit of partnership and pragmatism to make the right choices now to improve life, in a sustainable way, for future generations. At the grassroots of all economies and cultures are communities of people who desire improved lives in a sustainable way. National governments have the political responsibility to ensure that the citizenry is provided, on a non-exchange basis, with facilities and an environment that promotes the improvement of lives and living conditions. Municipalities, as local representatives of national governments, and operating at the grassroots levels, are the key deliverers of this conducive environment. Municipalities have a constitutional mandate to ensure they provide, at the least cost possible, basic services and facilities to their respective communities to improve the standard of living. It can therefore be argued that a country’s stride towards the attainment of the SDGs is only as strong and as effective as local government dictates. At national level, policies and frameworks are crafted and only a handful of projects are implemented. The population, however, interacts daily and meaningfully with the local authority, which then must be capacitated politically, financially and otherwise to adapt national poli-
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cies and frameworks for the attainment of SDGs. In the case of Zimbabwe, the national government adopted the SDGs, being a member of the United Nations. In a policy position paper, the then permanent secretary for Macro-Economic Planning and Investment, Dr D. M. Sibanda (2016) highlighted that the implementation of ‘all’ SDGs is underway in the country. He mentioned local authorities as one of the 11 stakeholders who are key in the implementation of the SDGs. This is critical. He however seemed to place the greater responsibility not on local government but on central government, which could have been because of the policy and oversight role of central government. He did acknowledge, however, that SDGs are implemented from grassroots levels. In 2017, the following statistics were available for Zimbabwe as progress made since 2016. KEY SUCCESSES SDG 1: Government has prioritised ending poverty and this is informed by and reflected in the country’s development policies.
dividend through skills development among other approaches. • Harnessing ICTs for sustainable development by building on current initiatives such as the STEM (Science, Technology, Engineering and Mathematics).
try is facing several challenges in terms of implementing the SDGs. These include: • Limited fiscal space, with the bulk of fiscal revenues going towards funding recurrent expenditures. This is exacerbated by high indebtedness. • The increase in the urban population coupled with rising informal economy activities which has led to several challenges including: rising incidence of urban poverty; inadequate housing; inadequate provision of services; and environmental degradation and pollution. • The negative impact of relatively low per capita incomes on secondary school enrolment and access to healthcare. • Gaps in terms of policy implemen-
SDG 2: Zimbabwe has a strong policy environment for achieving food security and improved nutrition, and has prioritised ending hunger within its overall development agenda. The government with support from the UN recently introduced the zero-hunger strategy. SDG 3: Zimbabwe has made positive efforts to create an enabling policy environment to improve public health. Some of these initiatives include: SDG 5: Government is committed to the achievement of gender equality and women’s empowerment and the Constitution provides a robust legal framework for the promotion of SGD 5. SDG 9: Well-developed infrastructure is crucial for a well-functioning society and competitive industrial sector. Building resilient infrastructure, promoting inclusive and sustainable industrialisation, and fostering innovation are firmly placed at the centre of the Government’s programme. Major infrastructure projects have been launched in the areas of utilities, transportation and connectivity, and industrial zones. CHALLENGES Despite the above achievements, the coun-
tation and coherence. • Insufficient timely and disaggregated data for most indicators, making it difficult to track and monitor progress. OPPORTUNITIES • Innovative mobilisation of domestic resources will be critical to building financial capacity and creating fiscal space for sustainable development. • There is scope for fiscal expansion in plugging leakages through illicit financial outflows to the tune of US$1.8 billion annually. • The huge informal economy also presents significant opportunities for Government to increase the fiscal space if appropriate policies are put in place to harness its full potential. • Leveraging the youth demographic
Source : (https://sustainabledevelopment.un.org/memberstates/zimbabwe) Having introduced the SDGs and where we are as Zimbabwe, we note, however, that SDG11 has not been prioritised by the Government of Zimbabwe. In the Position Paper referred to
above, SDG11 was also omitted in the list of urgent SDGs, despite the assertion that the country is implementing ALL SDGs. It is our submission that the attainment of SDG 11 (the promotion of sustainable cities) is pivotal to the other SDGs. We believe that if local authorities are enhanced and made sustainable, then the grassroots level, who are the prime targets for the SDGs, will then be well taken care of. It is in this premise that in our next article, we zero in on SDG11 and argue how local authorities
must be supported as a major driving force for the national attainment of SDGs, and how individual local authorities should incorporate SDG 11 in their master plans.
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LIGHT SIDE
FISCAL CROSSWORD PUZZLE ACROSS 4. Stock exchange counters Category (10) 5. Consumed (3) 7. Charged (7) 10. Outgo (11) 11. Gives confidence (7) 13. Fire (3) 14. Type of tax (5)
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DOWN 1. 1&2 go up rapidly (4) 2. See 1 down 3. Currency trading template (7) 6. Levies (5) 8. Foreign currency (5) 9. Government income (7) 12. Half of a ledger (4) 13. Summit (4)
