HomeAnalysisZim institutions undermining ease of business environment

Zim institutions undermining ease of business environment

Chenayi Mutambasere
“INSTITUTIONS are the rules of the game in a society, or more formally  are humanly devised constraints that shape human interaction. In consequence they structure incentives in human exchange whether political, social, or economic. Institutional change shapes the way societies evolve through time…..”  (Douglas C. North, 1990a)

Vision 2030 is the current government’s policy direction for Zimbabwe for the next nine years. The vision aspires for Zimbabwe to be classified as an Upper-Middle Income Country.

Such an ambitious vision sets a requirement for value chain integration, industry regeneration and upgrade. The strategy identifies the businesses sector as a vital core contributor in achievement of this middle income status.

It, therefore, becomes imperative that Zimbabwe has an economic environment that facilitates and promotes the ease of doing business.  There are a number of state institutions that are key actors in influencing the business environment in Zimbabwe.

The state institutions architecture in Zimbabwe must be assessed cognisant   of the challenges faced by Zimbabwean businesses. Zimbabwe’s unstable political climate and declining economic growth have resulted in decades of hyperinflation, currency shortages and as such created constraints across business value chains.

In order to mitigate the negative impacts of these challenges institutions must present an offer to businesses that is cognisant of these prevailing factors.

State institutions in Zimbabwe are formed in connection with regulatory statutes; some of these regulations are out-dated and do not necessarily promote value addition.

The regulatory mandates, which are concerned mostly with market control mechanisms through price and market access.  While businesses may enjoy the perceived safeguarding of having guaranteed state buyers such as Grain Marketing Board (GMB) this is in contradiction with Vision 2030 that is moving towards extension of markets so as not to undermine farmers’ earnings.

The present marketing institutions operate in pegged price regimes that do not always accurately reflect market equilibriums on supply and demand.

Having a single buyer, such as GMB or Cottco, means farmers do not always get the best price for their produce, particularly in an environment with high currency inflation.

These regulations become barriers for new entrants into the market, which in turn undermines the efforts of agriculture extension officers.

Farmers may shun markets that are earmarked for import substitution, such as maize production in favour of other markets, like tobacco where they can undertake contract farming  that allows for more robust market access and pricing structure.

However, even in tobacco markets, state interference through institutions such as the Tobacco Industry and Marketing Board (TIMB) reduces the market buoyancy that comes with openly free market access.

While the nuances of protecting food security are an important driver, this must be balanced with industry sustainability.  Some concerns raised for instance with GMB are that farmers face delay in payments as these are made via bank transfers.

At times, GMB have claimed that extended delays are caused by customers not providing correct banking details or indeed their receiving banks are not set up to receive bulk payments.

Given that payments are made in local currency, any form of delay of payment is likely to result in inflation or currency losses.  With Vision 2030’s intention for expansion of market services, it is important that the strategy moves away from single state buyer markets as these undermine productivity.

Furthermore if the single buyer is facing cash challenges, this results in delayed payments for all producers for that market, which has a negative knock-on effect on production for the next agriculture cycle.

The doing business environment also suffers from ‘command control centres’ which are contrary to the ‘decentralisation and devolution’ intention stated in the National Development Strategy 1, which precludes Vision 2030.

The setting up of Zimbabwe Investment and Development Agency (Zida), for instance creates a power centre, whereby foreign investors must engage Zida for investment permits with the decision to issue a permit lying solely with the Zida chief executive. This means that local communities have little scope to engage in any social contracts with foreign investors.

The exclusion of parliament from direct involvement also removes the voice of the community. Foreign investors are imposed on the local communities albeit at the behest of the Zida executive. The President of Zimbabwe can also make contractual decisions outside of Parliament. In the mining sector, the president can grant permitsfor 25 years.

Notwithstanding, the viability of these decisions and their alignment to national strategy having centralised power centres have an impact on competition perception as well as transparency.

The lack of a four-eyed check on this decision also gives rise to corruption.   Some researcher would also argue that this can propagate other behaviours such as patronage.

The parliamentary committee, set up to evaluate investment contracts, is not always involved in key decision-making, which reduces openness, transparency and citizen accountability.

The World Bank Doing business reports (2020) indicated that Zimbabwe ranked 140 out of 186 countries for some processes such as getting construction related permits.  A lot of general administrative processes take very long because there are too many institutions to engage.

For instance, setting an operations site for a manufacturer involves 11 different institutions physically located in different areas all requiring engagement in person as opposed to on the phone or online.

Similarly, application by an agri-business for an export permit may involve 11 different institutions to complete the end to end process. Given the number of institutions involved, the process is unnecessarily lengthy, compounded by lack of co-location of the processes.

Such a system can be quite time and cost intensive to engage. Such that for small to medium businesses it becomes preferable to engage in informal trade than to attempt to get an export permit.

The processes to register for an export licence and for constructing a manufacturing site are too lengthy and involve too many agencies. The use of digital platforms will reduce some of the repetitive steps and may allow the operation of a push workflow system that will be seamless and less time consuming.

Countries, such as South Africa, have invested in digital platforms that enable small or large companies to register online. The applications are simple and straightforward to use from either a mobile phone or other device.

Once a company is registered, it is issued with a company number, which will link to the revenue system and other relevant platforms. This registration should then also be accessible by other service providers.

A business can apply for a relevant licence online if that business is registered and they do not have to complete their registration details as these are already accessible by the licensing department.

Having such systems in place means that communications with businesses are also easier as their contact details are easily retrievable.

In 2020, Zimbabwe ranked 169th out of 190 countries with respect to enforcing contracts.   The same report said it can take 149 days to enforce judgement where businesses seek justice on contract negligence.

These long delays on justice are concerning for investors, who would lose a lot of money both in seeking retribution and in unmet contracts.

Zimbabwe has also had a consistently high position on the corruption index over the last few years.

Meanwhile, there are several bodies set up to safeguard the country’s wealth and facilitate ease of doing business.  The Zimbabwe Anti-Corruption Commission (Zacc) was set up as an independent commission set up to combat corruption and crime in line with the constitution and Anti-Corruption Act.

In addition to the commission, there are also corruption courts that have been set up to expedite the hearing of corruption cases. However, there are some specific challenges including state interference, delays in concluding cases and quality of investigations and prosecutions.

In reality, there is little evidence to prove state willingness to address corruption or the issue of property rights. This worsens the country’s risk profile such that genuine investors are less willing to invest in the country.

Furthermore corrupt practices will continue to promote divestment of resources and reduce productive capacity.

The institution architecture for Zimbabwe has not evolved to present an offering that is focussed on value addition. In some cases, it is not clear to businesses why they are paying certain fees to these institutions and still have to source required interventions elsewhere.

A good example is the lack of an internationally recognised standards inspection institution that can provide international standard accreditation, in particular, to support export business.

This is in spite of there being several licensing and certifying organisations that businesses have to engage and pay fees to. This misalignment to strategy casts reasonable doubt over the achievement of middle income status where export production faces these barriers.

Another big drawback across all sectors is the poor infrastructure in Zimbabwe. Business suffers from poor transport and telecommunications networks.

This is in spite of the existence of state owned institutions mandated to provide the infrastructure. All infrastructure organisations are currently underperforming in terms of meeting business requirements.

Even state telecommunications network NetOne is on record highlighting that the lack of electricity in certain areas has meant they rely on diesel to support their satellites, which is inadequate. Businesses face delays where the rail network does not have capacity to transport all their output or raw materials such as chrome.

This results in the use of haulage trucks which increases pressure on an already crumbling road network. State institutions such as Zimbabwe National Road Administration (Zinara), National Railway of Zimbabwe, Zimbabwe Energy Regulatory Authority etc have a monopoly on delivering infrastructure services and yet are not able to deliver what is required.

Where institutions are not meeting requirements businesses have to implore strategies to mitigate the risks posed by these gaps.

Often this mitigation compromises on efficiency and quality.  For national output this means Zimbabwe fails to meet optimum productivity from existing businesses which dampens the high ambitions to meet upper middle income status.

If the government is genuine on the issue of increasing business potential then they need to revisit the drawing board with regards to the architecture of the institutions currently in place.

It appears state institutions in Zimbabwe have become chief vehicles of resource diversion either in the way businesses have to engage them or their inability to meet value chain requirements.

Without a reformation of this architecture Vision 2030 remains unachievable at best.

  • Mutambasere is a Zimbabwean developmental economist and technology architect based in the UK.

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