The Sunday Mail
Taurai Changwa Business Forum —
THERE are mountains of regulations that businesses have had to contend with. Some have brought good times and some have not been so welcome. For example, although there was a lot of scepticism when Statutory Instrument 64 of 2016 was promulgated. But now many local manufacturers – the bulk of whom were being suffocated by imports – are enjoying a new lease of life.
There have been reports of improved capacity at companies such as National Foods, Cairns and Surface Wilmar to name just a few. It is now not uncommon to find products such as Chompkins and other Cairns products occupying local supermarket shop shelves instead of Lays and Simba potato crisps from South Africa.
But inasmuch as laws are ostensibly made for the greater good, at times there are laws that ultimately have devastating unintended consequences. Restrictions on importing goods have in some instances resulted in unhelpful bureaucracy in importing critical raw materials needed by industry.
Due to the inherent efficiencies of foreign industries relative to most local suppliers who have to put up with unreliable power and water supplies and high production costs, raw materials imports are often cheaper and of better quality.
Pricing, availability and quality control are some of the key factors Government has to look at before implementing certain policies. Although grain millers are lobbying for breadmakers to buy flour from local suppliers, the key question that has to be answered is: Does the locally available flour meet the quality expected by local bakers, and is the price affordable? Research by Marc Davis, an American business writer, shows businesses have long complained about government regulations and their restrictive nature.
Often cited as an impediment to corporate and small business profits, and a waste of precious time and effort, government statutory requirements have been denounced, side-stepped and violated by many a business since the early 20th century when corporate income tax and anti-trust laws were first enacted.
In some cases, regulations can add unnecessary costs to business. As it stands, business has to grapple with a lot of regulations from both local authorities and central Government.
Currently, there are statutory obligations that have to be paid to the Zimbabwe Revenue Authority, National Social Security Authority, national employment councils, Zimbabwe Manpower Development Fund, and local and regulatory authorities for a business to be considered to be compliant with the law.
Compliance, therefore, becomes a huge cost. And the cash flow implications of these laws might be very damaging for small-and medium-scale enterprises.
It is thus unsurprising that many companies owe a lot of money to statutory bodies. Businesses are in business to make money, and it does not make sense to them if they have to pay the bulk of their revenues to cover statutory obligations.
What is clear is that these regulations are contributing to the high cost of doing business in Zimbabwe. It becomes difficult in the circumstances for local products to be competitive. This is exactly what is happening in the tourism sector where local services are relatively higher than at other destinations in the region.
World Bank economists say entrepreneurs are likely to create fewer new businesses in countries with regulations that make starting companies difficult. Simplifying regulations and doing away with those that are unnecessary is the key to stimulating small companies.
For instance, researchers found that efforts to simplify the new business formation process in Mexico boosted small business employment by nearly three percent. Economists believe that regulation hurts small business in four ways.
First, as Nicole and Mark Crain of Lafayette University explain, regulatory compliance exerts a disproportionately large burden on small companies because the fixed costs of adhering to rules can be spread out over more revenue in large firms than in small ones.
Second, government regulations make small businesses less competitive against foreign competition. Third, adding regulations creates uncertainty, which keeps small business owners from investing and hiring.
Because few business owners can predict the scope or impact of new regulations, they often delay buying capital equipment or adding workers as they wait to see the impact of new regulation. Fourth, new regulations often have unintended consequences.
In corporate governance practices there are rule-based and principle-based approaches. Principle-based approaches are where you either comply or explain while with the rule-based approach you simply have to comply.
It is comforting that Zimbabwe is undertaking a comprehensive review of laws to make it simpler to do business. Whatever the outcome of the review, it must simplify the laws and do away with some of the bureaucratic red tape inherent in the current system.
Taurai Changwa is a member of the Institute of Chartered Accountants of Zimbabwe and an estate administrator with vast experience in tax, accounting, audit and corporate governance issues. He is MD of SAFIC Consultants and writes in his personal capacity. Feedback: [email protected], Facebook page SAFIC Consultancy abd WhatsApp +263772374784
