Despite many improvements in longer — term prospects, economic activity in Zimbabwe’s formal business sectors is being affected by high costs, serious liquidity constraints and lengthening delays in receiving approvals for foreign currency applications.
Although domestic demand has been sustained at reasonably high levels, suppliers’ ability to meet market needs has been undermined by erratic input deliveries, often because of interruptions in the flows of payments for essential imports. These have interfered with the completion of orders and affected payment streams through the supply chain.
Government’s decision to release the entire manufacturing sector from all indigenisation requirements has, however, led to some exploratory visits by potential manufacturing investors.
However, high production costs remain a disincentive, as do the licensing and permit requirements that would have to be met after going through the lengthy process of gaining the approval of the Zimbabwe Investment Authority.
Looking to the future, Zimbabwe’s business sector recognises that the rest of the world is constantly changing and that in the more robust economy to which Zimbabwe aspires, many manufacturers might well be making items that have yet to be developed for markets that do not yet exist.
While it is impossible to predict what their needs will be, Zimbabwe should be choosing now to concentrate its efforts on ensuring that, however, these needs are described, the country will make all the efforts necessary to provide an investment environment suited to these needs.
For existing as well as future investors, all the traditional food processing, clothing, household goods and building material industries have good prospects of revival when production efficiencies are restored.
The companies that have survived in these sectors are mostly in need of equity capital injections to make possible the adoption of more modern techniques, so rights issues and new stock exchange flotations should become frequent events.
However, to attract foreign investors, attention also has to be given to improving the quality of the infrastructure so that Zimbabwe can recover enough efficiency to compete with all the other nations that are trying to attract the same investors. If clear evidence of political stability and supportive economic policies can be generated, the country will have more success in raising long-term development loans on the international bond market. Success with development projects will generate thousands of new job opportunities and generate more efficiency for all the productive and service sectors.
Small-to-Medium Enterprises have become the key economic drivers due to the shrinking formal sector, but as unregistered and unincorporated entities, these informal sector players pay no taxes. Efforts to capture them into the tax net usually lead to their shutting shop and disappearing.
At present, their being allowed to remain unregistered and unincorporated adds up to a tax avoidance advantage that, for them, is far more attractive than the hassles involved in becoming registered as formal companies and becoming burdened by a long list of difficulties, all for no obvious advantages.
Government appears to have remained deaf to the entreaties of small businesses that have pointed out how many costs are incurred in registering and obtaining business licenses.
Even a small business might need six or more business licenses, and every business has to employ extra personnel just to handle the paperwork demanded by the tax and regulatory authorities.
The authorities not only want employee taxes and VAT payments every month, they also demand predictions and payments of estimated profits taxes every quarter, dividend taxes if part of the annual profits are paid out to shareholders and transactions details if the company hopes to get VAT refunds.
Various levies are charged to fund rural electrification, personnel development and AIDS research, checks on whether the company is harming the environment or generating radio activity have to be paid for, factory employees have to be registered with trades unions, safety conditions have to be met and various health inspections have to be carried out, all at the companies’ expense.
For a small company just starting in business, these requirements amount to such a discouraging burden that nearly all the small operations choose to remain informal and as invisible as possible to the authorities.
Government and the municipalities need to revise their entire thinking and concentrate instead on finding ways to assist small ventures, ways that offer them advantages and incentives, rather than add to difficulties and costs, all of which are accompanied by threats of severe penalties for stepping out of line.
A good response to these challenges, if it happens quickly enough, could have a bearing on the outcome of the coming elections, now set to take place on July 30.–businessweekly.co.zw