The inaugural National Competitiveness Summit organised by the National Competitiveness Commission in Bulawayo this week has come at the right time, as many in the formal business sector are complaining about the amount of regulation, and more particularly disjointed regulation, they face.
They are backed by many in the small and medium enterprises sector complaining of unfairness in the concept of fixed fees for business licences, a small shop and a large shop paying the same licence fees. And of course all this is meat and drink to the informal sector who delight in pointing out that any attempt to formalise them will destroy the livelihoods of many tens of thousands Zimabweans.
In his address to the first Cabinet meeting of the year last week, President Mnangagwa brought up the multiplicity of regulation often required to do business in Zimbabwe and the need for quite modest businesses to seek an assortment of permits and licences from a swathe of ministries.
One of the Second Republic’s major policies has been to make doing business in Zimbabwe a lot easier, and this disjointed approach to regulation is certainly not helping that.
We need to establish that many of the regulations make sense, but they were imposed by different authorities, in both local and central government, at different times and while a lot has been done to get everything down to one-stop permit collection for new investors, existing businesses find themselves dealing with a lot of different offices.
The Confederation of Zimbabwe Retailers has alleged that a supermarket may require up to 30 different licences, although they might be using a very broad definition of licence. We can easily see why a number of licences might be required. A supermarket is first of all a shop, so that is one licence. It is a food shop, where almost every edible item has an expiry date, and which cannot be sold after that date. It is usually a butchery, and many sell prepared foods.
And of course, most supermarkets earn a reasonable slice of their profits from being a bottle store.
So just on the health and safety standards, and these are very important, there could be a variety of different regulations and tests and inspections. For a start it would seem that almost all of these inspections can be done by one person under one licence, for food ingredients, fresh food and prepared food. The bottle store might need a second inspection by the relevant liquor licensing authority.
The retailers also complain about being a tax collector. Well, all businesses have to collect PAYE from employees, and then pay it on time. Businesses do complain sometimes about the dates for payment, soon after the end of the month, but technically their PAYE total they have to send to Zimra is not their money; it is supposed to be accounted for as a deduction from a paid salary or wages.
VAT has been a bone of contention for larger businesses, and these days most medium businesses as the threshold for having the connected cash registers is made ever smaller. One particular complaint by the retailers is that producers and wholesalers are expected to collect a presumptive VAT from small businesses not registered for VAT, and are also expected to check that these potential customers are licensed by their local authority and are registered with Zimra.
This particular measure was put in place by Government partly as a result of pressure by formal businesses complaining about tuckshops. Now wholesalers and retailers appear to have different views of tuckshops, the wholesalers wanting to do businesses and the retailers seeing them as unfair competition.
Zero or almost zero regulation is not an option. But what is an option is to go through all the regulations, eliminate those that no longer apply, modify those that need change, and then end the large collection of statutory instruments have a single set of must-have regulations under a single licence.
Most licensing costs are justified by the licence-granters as needed to police the system, which angers those who pay the licences, especially if they cannot see the reason or if they themselves are highly unlikely to sell time-expired products. Grouping the essential requirements together in a single set of regulations, with one licence issued by a single authority and one inspector checking on all points would obviously slash costs, force authorities to think about what is essential now, rather than in 1937, and generally simplify the systems.
Tax regulations will have to be separate, but again as far as possible the regulations should be looking at the needs of those paying the taxes, rather than collecting them, and again trying to have all the taxes that may apply to a particular business to be grouped for regulation to make payment simpler and easier.
Businesses have the perennial complaint about the exchange rate. We start with the fact that what is called the premium is the gap between the mid-exchange rate of the banks and the price a black marketer sells US dollars for, so we start with comparison of apples and pears. The black market laughs at the five percent margins of banks, and most dealers go for something in excess of 20 percent, so having the right figure is important.
Secondly, whatever the official rate set by banks would ever be, the black market would sell foreign currency for more. Official money cannot be used to smuggle out capital, cannot be used to buy drugs, and cannot be used for any other criminal activity. Generally, a black market even if not being used for crime is a convenience store type of operation, changing money in the middle of the night or whenever banks are closed. So there can never be a zero premium, only high or low premiums.
The premium is moving lower these days. There is still this distrust of local currency, which adds to the desperation some businesses have for accumulating foreign currency and so raises its black market price. This is a problem that really can only be solved in the longer term as we move gently towards a single currency for all local transactions, and businesses have to live with that.
Businesses complain about the load shedding from Zesa, and the subsequent cost of having to install solar or run a generator or even both, and the water problems of major cities. Obviously these are factors and there is need to solve the problems, which the Government is trying to do. But it needs a major jump in generation investment and most options will see tariffs rising, the degree of the rise being how much energy we can get for the buck. Dirt cheap Kariba power from a paid-for dam, free fuel in the form of free water, and a low-maintenance power station will be an ever smaller percentage of our total capacity.
The formalisation of the informal sector is now considered a priority. The tax side is being sorted out but the licensing and inspection has hardly been touched. Suggestions for a single licence costed on the size of the business need to be followed up urgently, along with a single tax payer number for each business. We need to start being very simple when it comes to a micro or small business and then see if we cannot extend a lot of that simplicity to larger businesses.
The efforts made so far by the Second Republic top create a far more pro-business environment have been significant but still have some way to go, as the President noted when he demanded more action.
On the other hand we are never going to have a totally unregulated business sector.
It is also useful when we start looking at problems facing business to think about what Reserve Bank of Zimbabwe Governor John Mushayavanhu has mentioned about getting the right reasons for failure or other problems. Not all are part of the fiscal and monetary policies and some are definitely failures within a particular business.
The retail sector has some highly successful and flourishing formal tax-paying businesses competing very successfully with some of those who are making the loudest complaints. When OK Zimbabwe was having problems stocking stores, shoppers moved to competitors, and some are very successful, who were well stocked and who had been making efforts to find new sources for some products.
We note that the summit in Bulawayo was about competitiveness, which means more than just the general environment should be more competitive although that is an important point. It also means that within that environment there is not guarantee of success, only that they most competitive businesses will be the ones to grow and flourish.
