Expediting efforts to improve ease, cost of doing business
LASTweek I shared with readers the key issues which can lead us to achieving the vision of “Transforming Zimbabwe into an upper middle income-economy by 2030” as articulated by President Mnangagwa in his inaugural speech on August 26.
This week, I want to deal with the stated objective of “speeding up the efforts to improve the ease and cost of doing business and economic competitiveness”.
It is critical that we unpack this objective so that we can be at the same level of appreciation of what this means and how we can all contribute to make it a reality.
It is fact that many visions lose momentum and appeal, not because they are not beneficial, but because they may be misunderstood.
Essentially, there are two distinctly different issues involved in this objective, the first one being the “ease of doing business” and the second being “economic competitiveness”.
Fortunately, both can be measured and there are international published reports which deal with each one of them.
What is, however, important, is that the ease of doing business and competitiveness have both been found to have a positive correlation to foreign direct investment flows. As a country, we, therefore, need to pay attention to these matters if we are to achieve our vision, because it will be driven mainly by the amount of both foreign and domestic investments we manage to attract.
The caveat here being that there are always other considerations why investors may flock to a particular country and we shall also discuss these at another time.
On the ease of doing business; The World Bank publishes the Doing Business annual report which measures aspects of regulation affecting 11 areas of the life of a business. These include: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency and features of labour market regulation.
On economic competitiveness; The Global Competitiveness Report is published annually by the World Economic Forum. It publishes the Global Competitiveness Index, which tries to determine the ability of nations to provide high levels of economic prosperity to their citizens and measures the set of institutions, policies and factors which impact sustainable current and mid-term policies.
In my opinion, these reports offer a well thought out and systematic framework which can allow us to get some sense of what we need to do, but we must not be married to them. Doing business in any country is, indeed, a unique experience and we must focus on what works for us given where we coming from and where we want to be. I am, however, not going to dwell on the rankings of Zimbabwe, readers can access these reports and see for themselves. Rather, I want to share a few practicalities on what we need to do as a country in order to improve the ease of doing business and to improve our economic competitiveness so that we can achieve vision 2030.
There is this misconception that it is only Government which must change its ways, but in my opinion, all of us, especially the private sector, have a part to play.
In our quest to reduce the costs of and making it easy to do business, there are policy issues, infrastructural issues and mindset or behavioural issues. It is a mixed bag of what we need to do as a country and touches our day-to-day activities in all sectors of the economy. We will, therefore, need a new consciousness and new values as a society so that we can all use our collective wisdom and energy to make our country great.
Clearly, every business enterprise is attracted to a country by how easy it is to do business. However, at times, the anticipated returns can increase the level of tolerance by potential investors of business regulations and red tape.
The fact of the matter is that regulations are important, but they must not be cumbersome with too much red tape nor must they be prohibitive cost-wise.
They must also be applied consistently and in transparent manner to avoid lack of predictability, discretion and corruption.
In our case in Zimbabwe, there are many things we need to address to attract foreign investment given where we coming from, but we must never forget that a vibrant domestic business sector is vital and must also be promoted, if not as a priority. This is simply because foreign investors are attracted to countries where there is a successful local business sector. Domestic investment is, therefore, important and there is an added advantage in that it is less mobile and maybe more patient or even more patriotic than foreign investment.
The Government of Zimbabwe is now well aware of what has to be done and we have seen the President talking the talk at every opportunity.
The mantra “Zimbabwe is Open for Business” has become known both locally and abroad. New investment guidelines were the first thing attended to by President Mnangagwa as early as November 2017. These key reforms sought to “demonstrate Zimbabwe’s commitment to adopting consistent and transparent policies that render Zimbabwe a competitive and preferred investment destination.” These key reforms include:
1. Providing an efficient, effective and transparent system for attracting investments;
2. Enhancing, modernising and streamlining the legal framework for investment; and
3. Promoting development and the application of good international standards and practices regarding investment.
Underlying these key reforms are the principles adopted as follows:
1. Non-discrimination between domestics and foreign investors and among foreign investors.
2. Effective protection of property.
3. Transparent and good regulatory standards.
4. Ensuring that all labour health, safety and environmental regulations are adhered to.
5. Promoting the retention of investments through confidence building.
6. Facilitating easy entry and sojourn of foreign technical skilled personnel and into the country.
7. Promoting and pursuing high standards of governance.
On the ease of doing business, there are several areas which need to be addressed.
Creating the appropriate infrastructures and the use of appropriate modern technologies are critical success factors which I shall deal with in the future.
For me, the first issue we need to deal with is availability and access to relevant information. Potential investors, whether they be foreign or domestic, act based on accurate and up-to-date information. It should not be a nightmare just to get correct information, especially from the public sector. Access to accurate information results in potential investors taking informed decisions, thus avoiding unnecessary delays. The Ministry of Information has a very critical role to play to ensure that information, especially in relation to economic activity, regulations, procedures and opportunities, is in the public domain. The new minister, Monica Mutsvangwa, is indeed paying attention to this matter. The regular collection and dissemination of economic-related information will allow stakeholders to be informed and to participate in contributing meaningfully to economic development.
Next are the procedures and costs of starting a business. From registering it, to opening a bank account, to getting all the appropriate licences and tax clearances.
We have to begin to ask why things are done the way they are and we shall find that in most instances, there will be no valid reasons except that “it has always been done that way”.
There is no reason why, for example, it must take more than a week to open a new bank account or to register a company or to get any business licence. Our tax authorities also need to come to the party and act more as enablers. Our institutions must adopt new technologies to expedite business processes and if necessary re-train and re-skill employees. Added to this must be a new mindset which appreciates that the quicker things are done, the better we are able to increase business activity and, therefore, economic growth.
Ease of doing business also involves quick decision-making and approvals or declines. It is important that investors and clients know the processes and these processes must be adhered to with some consistency and predictability. Our public and private institutions must be geared to expediting business activity and cutting red tape.
On the issue of business transactions, Zimbabwe’s private and public sectors are well known for late or very slow payment for goods supplied or services rendered.
Many of our businesses, especially SMEs, have gone under because of late and, in extreme cases, non-payment.
Late processing of transactions stifles business activities, has a negative impact on cash-flows and increases the cost of doing business. We, therefore, need to re-engineer our business processes.
Then comes the issue of devolution of power. This is required not only with our provinces, but also within our large corporates. The centralisation of decision making makes things happen slower, stifles creativity and flexibility.
We need to see a move towards flatter structures.
There are many issues involved, most of which I cannot cover here, but what is clear and encouraging is that we now have a President and a team who understand what needs to be done.
I, therefore, have no doubt that we shall see incremental changes with time as the vision to create an upper middle-income economy by 2030 becomes entrenched both in the public and private sectors.
Next week I shall deal with the objective of economic competitiveness. Zimbabwe is rising! ◆ Vince Musewe is an economist and economic development policy advisor. You may contact him directly on vtmusewe@gmail.com