eBusiness Weekly
Kudzai Mubaiwa
A week after the Monetary Policy Statement, things are not quite right for Small to Medium Enterprises. Only two months have passed in the year but it has been a challenging one for a lot of people.
As usual, the hope was that after the elections there would be meaningful change, then that hope was extended to the Cabinet appointments, and later the fiscal and monetary policies. Each successive major occurrence has not improved the lot of the small business owner, if anything it has made it more complex.
Whilst “waiting” in between each of these events, clients delayed spending because of uncertainty, contracts that were running were put on hold and due payments were severely delayed and some of the events brought in major shocks that resulted in some businesses having to shut down completely. As it stands, there is still uncertainty, and it will take some weeks to really see the impact of the latest announcement.
Prices, however, have already gone up — mostly because of the formal acknowledgement of the true value of the dollar against the local currency.
Sadly, this is simultaneous with the realisation that whatever one held or earns in bond, which is now RTGS dollar, is only really worth a quarter or a third at best of what it is on face value.
Consumers can no longer spend and many businesses are already suffering. Just a quick look at the comments on some business pages on social media will be instructive; conversations are around affordability with customers complaining that prices are beyond them.
The process of price discovery is on-going and no one knows how long it may take, thus small businesses will suffer losses as they try to match what clients want and still make profit.
We must be mindful that most small businesses are employers too and are presently under pressure for upward adjustments in remuneration, which, though justified, cannot be pushed to the buyers without losing margin.
As it stands there is no incentive benefit to being formal — we are aware of laws being enacted that will require businesses to register again with the registry — a process probably well meant, but will likely result in additional time and money costs for already stretched businesses.
Opening a bank account is already a tedious process, and now the cost of maintaining it is high too, bank charges are quite high.
Tax registration is also a long process, which results in collections from already highly taxed business, an average enterprise that is tax registered will need to pay multiple times — employee tax, income tax, value added tax and intermediated money transfer tax.
Even companies that were better off because they export are now discouraged, setting up is a lot of work, as is producing world class quality products and shipping them across the globe.
This effort is not acknowledged and matched with the right retention policies and so even that which seemed a way out of the quagmire is now unappealing. It is difficult to believe that there was actual stakeholder consultation in all this and already complaints are emerging across the sectors.
We need to go back to the basics of roles in enterprise and local economic development. If everyone stays in their lane, everyone will be happy. Government must stop fighting small business. It is a known fact that we are amongst the top informal economies in the continent.
Microenterprise and small to medium owners do want to grow but it has not been made easy for them. As a result many of them prefer to operate “underground” as sole traders and deal in ways that avoid the tedious, expensive, inflexible formal systems. Microenterprise owners historically dealt on a cash basis to avoid tax, but were caught up by the shortages and had to default to mobile money — where intermediary monetary tax followed them.
That, plus bank charges, and the premium for accessing cash have raised the cost of doing business by an indicative 23 percent, a figure that almost matches income tax requirement of 25,75 percent. They will certainly not sign up for further tax. The small business owner who had done the right thing and registered, was allocated a business partner number and started exporting goods or services, will have to give up 20-45 percent of their foreign currency proceeds, depending on which sector they are in.
A 100 percent retention would have been preferred and so they will opt for the informal route — smuggling and be paid outside the country. All in all, our present policies are self-defeating.
There is an urgent need for Government to relook policy and improve on the ease of doing business for local companies. If they create the enabling environment — money will flow into the formal system easily. Foreign exchange reforms are required — allow exporters their 100 percent and everyone will benefit in the value chain, businesses will stay afloat, jobs will be kept and increased.
The exchange rate must be left entirely to the market, it can and will come right by itself without interference. Tax reforms are required, we are overdue for a simple mechanism in which a flat tax is charged premised on the size of business or we completely drop the various forms of tax and stick to the IMT type tax that charges once on transactions.
Just these two (seemingly) radical actions are necessary, as the biggest issue businesses are currently struggling with is pricing. Indeed a big bang will not be without effect, but as it stands what most want is clarity over uncertainty and everyone can settle within their affordability.
For every sector, the small business players already have solutions they can proffer to Government to help them become more productive and profitable, so Government need only listen.
As things stand, a bottom up approach is the best way toward rebuilding the economy, otherwise leakages will continue, as has already been seen in small scale gold mining.
There is no wisdom in fighting those who are producing the commodity that is scarce. As it stands, it seems that the ordinary small business owner must once again “entrepreneur” their way out of difficult policy. Small business owners are ready to be formal, Government must urgently make it easy!
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