‘Zim lo­cal au­thor­i­ties bud­gets not in touch with re­al­ity’

Chronicle (Zimbabwe) - - Business Chronicle - Pros­per Ndlovu Busi­ness Ed­i­tor

LO­CAL au­thor­i­ties the world over are a crit­i­cal pil­lar in build­ing a con­ducive en­vi­ron­ment that at­tracts in­vest­ment in their ar­eas in line with eco­nomic goals of cen­tral gov­ern­ments. It is in this re­gard that the craft­ing of coun­cil bud­gets and im­ple­men­ta­tion of by-laws should be guided by broader macro-eco­nomic fun­da­men­tals in a coun­try.

Per­tain­ing in­vest­ment, tar­iff lev­els by coun­cils can im­pact pos­i­tively or neg­a­tively on busi­ness com­pet­i­tive­ness and prof­itabil­ity of key eco­nomic sec­tors. The frag­ile eco­nomic sit­u­a­tion in Zim­babwe, for in­stance, points to ur­gent need for re­form at both cen­tral and lo­cal gov­ern­ment lev­els so as to sta­bilise and re­store lo­cal and ex­ter­nal in­vestor con­fi­dence.

Fi­nance and Eco­nomic Devel­op­ment Min­is­ter Pa­trick Chi­na­masa and cen­tral bank Gov­er­nor Dr John Man­gudya, have both ad­mit­ted that Zim­babwe needs ur­gent in­vest­ment climate re­forms so as to change the coun­try’s eco­nomic nar­ra­tive to pro­duc­tion and pro­duc­tiv­ity, which is very vi­tal in de­vel­op­ing the coun­try.

The Gov­ern­ment has shown alert­ness, as in­di­cated in the re­cent mid-term fis­cal and mon­e­tary pol­icy re­view statements, on the need to con­tain pro­duc­tion costs and pos­si­bly cut­ting on un­nec­es­sary ex­pen­di­ture to al­low growth. This comes on the back of con­cerns over the pub­lic sec­tor wage and salary bill be­ing one of the high­est in the world at more than 90 per­cent as a share of fis­cal rev­enue.

On the con­trary real wages and salaries have over the years in­creased, crowd­ing out cap­i­tal and so­cial ex­pen­di­ture — thus un­der­min­ing the econ­omy’s ca­pac­ity to en­hance em­ploy­ment and be com­pet­i­tive. The same sce­nario is pre­vail­ing in lo­cal au­thor­i­ties. In­deed so much ex­pec­ta­tion is di­rected at cen­tral gov­ern­ment but the gen­eral view is that lo­cal au­thor­i­ties should play their part as well, by be­ing pro-ac­tive in sup­port­ing busi­ness devel­op­ment, es­pe­cially with their levies.

A study on the busi­ness reg­u­la­tory re­form in Zim­babwe, pro­duced by Nathan As­so­ciates Inc for re­view by USAID in July, 2016 stresses the need to re­form the op­er­at­ing model of lo­cal au­thor­i­ties in Zim­babwe.

“The pre­vail­ing par­a­digm of ex­ec­u­tives and su­per­vis­ing coun­cil­lors who have been seen in­creas­ing coun­cil bud­gets each year de­spite calls to re­duce costs across the econ­omy can­not be ex­pected to re- or­gan­ise coun­cils so that they op­er­ate ef­fi­ciently in a dol­larised econ­omy,” reads part of the re­port.

The pri­vate sec­tor has been forced to re­duce both prices and costs by stiff com­pe­ti­tion. Prices have also been re­duced to in­duce con­sump­tion. Com­pa­nies have cut salaries and wages and many are go­ing through ra­tio­nal­i­sa­tion and re­struc­tur­ing pro­grammes. Edgars Lim­ited and many other listed com­pa­nies have re­ported in their re­ports of ra­tio­nal­i­sa­tion pro­grammes, which in­clude re­trench­ments. The listed com­pa­nies have re­ported a de­cline in their sales due to re­duced ag­gre­gate de­mand. As such lo­cal au­thor­i­ties and other reg­u­la­tory bod­ies need to learn from other eco­nomic play­ers and re­duce their costs and charges.

The set­ting of charges above af­ford­abil­ity level of con­sumers is mis­chievous as it is con­strued as delin­quency lead­ing to le­gal ac­tion when con­sumers fail to set­tle ar­rears. Put bluntly, the ac­tions of the quasigov­ern­ment bod­ies leaves a lot to be de­sired as it is blamed for ac­cel­er­at­ing eco­nomic de­cline. Con­sumers can­not be ex­pected to ser­vice ar­rears and pay cur­rent charges given the cir­cum­stance of not just stag­na­tion of the econ­omy but spi­ralling de­cline.

Lo­cal au­thor­i­ties in Zim­babwe seem to be not in touch with this macro-eco­nomic re­al­ity and this is re­vealed in their re­cent bud­get pro­pos­als for 2017. It is sur­pris­ing that in this dif­fi­cult eco­nomic en­vi­ron­ment some coun­cils like Vic­to­ria Falls and Beit­bridge have pro­posed to in­crease tar­iffs for next year while some such as Bu­l­awayo and Masvingo have pro­posed stand­still bud­gets with rates and tar­iffs re­main­ing un­changed.

An­a­lysts feel the ex­ist­ing charges are still high and should be re­duced be­cause the con­sumer is al­ready bur­dened. The ex­pla­na­tion is that such coun­cils con­tinue to suf­fer poor rev­enue col­lec­tion as most res­i­dents and busi­nesses are al­ready strug­gling to pay their dues. A lat­est coun­cil re­port for Bu­l­awayo, for ex­am­ple, in­di­cates that the coun­cil is owed a com­bined $136 mil­lion by dif­fer­ent con­sumers with the do­mes­tic debtors ow­ing the high­est at $78,5 mil­lion fol­lowed by in­dus­try and com­merce at $53,2 mil­lion and Gov­ern­ment de­part­ments at $4,8 mil­lion. Judg­ing by the city’s cap­i­tal ex­pen­di­ture to June 2016 of $3 mil­lion out of a cap­i­tal bud­get of $45 mil­lion, there is no jus­ti­fi­ca­tion for coun­cil to main­tain the same bud­get and costs, which it can­not ful­fil or sus­tain.

In­dus­try and com­merce ex­perts have urged coun­cils to ra­tio­nalise their salaries and al­lowances, which were gob­bling more than half of rev­enue col­lected, far be­yond the 30/70 per­cent ex­pen­di­ture ra­tio re­quire­ment. The charges by lo­cal au­thor­i­ties have also been noted as be­ing high by var­i­ous stud­ies that have been car­ried out by dif­fer­ent eco­nomic re­searchers.

In 2014 a study on Cost Driv­ers by Zeparu noted that the charges by Zim­bab­wean lo­cal au­thor­i­ties were rel­a­tively too high in the re­gion and should be re­duced. Sur­vey in­di­ca­tions are that prop­erty taxes should be re­duced by 40 to 50 per­cent for Harare and Bu­l­awayo. This is also re­flected in the dis­counts the two coun­cils have been of­fer­ing firms as they at­tempt to in­cen­tivise them to clear their ar­rears. Both cities have of­fered dis­counts rang­ing from 30 to 50 per­cent, which have, how­ever, been of lim­ited ef­fect as firms are not mak­ing ex­cess cash due to the pre­vail­ing liq­uid­ity crises.

The two stud­ies strongly rec­om­mended that coun­cils should re­duce their rates to an af­ford­able level such that it would not be dif­fi­cult to clear ar­rears should firms fall into ar­rears. Nathan As­so­ciates’ find­ings sug­gest that man­u­fac­tur­ing li­cences charged by coun­cils should be scrapped since firms are al­ready pay­ing rates to lo­cal au­thor­i­ties and the li­cence is an un­nec­es­sary bur­den.

Con­cern­ing stor­age fees, the study fur­ther recommends that coun­cil stor­age levies for fuel stor­age should be re­pealed as this is du­pli­ca­tion given that stor­age fees are also charged by the En­vi­ron­men­tal Man­age­ment Agency (EMA).

“The fees should be re­viewed as part of busi­ness case in re­defin­ing the busi­ness model that coun­cils should adopt af­ter a de­tailed study. Cur­rently coun­cils charge the same amount to start a new shop as at the re­newal of the li­cence yet the ad­min­is­tra­tive cost at re­newal is lower than at the be­gin­ning where there are in­spec­tions in­volved,” reads the re­port.

Lo­cal au­thor­ity reg­u­la­tions ac­tu­ally spell out some of the cru­cial roles of coun­cils per­tain­ing to in­vest­ment. The Coun­cil Act [Chap­ter 29:15], re­quires that new firms should have their premises in­spected by coun­cil of­fi­cials and be is­sued with an in­spec­tion/ health cer­tifi­cate in line with the Pub­lic Health Act [Chap­ter 15:09] which seeks to safe­guard pub­lic health and safety. Sec­tion 29 (3) of the Coun­cils Act pro­hibits the use of any build­ing in a man­ner other than that in­di­cated on the plans sub­mit­ted to and ap­proved by the coun­cil in con­nec­tion with the con­struc­tion, ex­cept with the con­sent of the coun­cil.

The Re­gional, Town and Coun­try Plan­ning Act [Chap­ter 29:12], also sup­port the Coun­cils Act and stip­u­lates that the ac­tiv­ity to be car­ried in the fac­tory or the sit­ting of the fac­tory should not be in con­tra­ven­tion of any ap­proved scheme, op­er­a­tive re­gional plan, op­er­a­tive mas­ter plan or op­er­a­tive lo­cal plan as de­fined in the Act.

Lo­cal au­thor­i­ties also reg­u­late ap­proval of plans for new build­ings and their charges are based on the cost of con­struc­tion. The level of fees charged is stag­gered up to six per­cent.

Com­pa­nies are also man­dated to com­ply with dif­fer­ent reg­u­la­tions from the city coun­cil by pay­ing some fees. This in­cludes a fac­tory li­cence, a per­mit to dis­charge, trad­ing per­mit, in­dus­trial clinic, and an in­dus­trial can­teen. In view of the above, the sig­nif­i­cance of lo­cal au­thor­i­ties in at­tract­ing in­vest­ment can­not be over em­pha­sised. Their role es­sen­tially places them on the driv­ing seat of eco­nomic devel­op­ment hence the need for pru­dence in the peg­ging of levies and tar­iffs.

Lo­cal au­thor­i­ties, thus, can­not ex­pect to push con­sumers when they are dis­play­ing lack of cre­ativ­ity in con­duct­ing the busi­ness of the or­gan­i­sa­tion they su­per­in­tend.

Bu­l­awayo Tower Block

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