Ease of doing business challenges costing Zimbabwe growth

23 Oct, 2016 - 00:10 0 Views

The Sunday News

 Economic Focus, Bongani Ngwenya

THE concept of ease of doing business is loosely referred to here. Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting the following areas that are viewed as defining the life cycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulation.

There are a series of annual reports on doing business that are issued in every country in the Global World. These reports present quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies, from Afghanistan to Zimbabwe, over time. The indicators are used to analyse economic outcomes and identify what reforms have worked, where and why.

For policy makers trying to improve their economy’s regulatory environment for business, a good place to start is to find out how it compares with the regulatory environment in other economies. Doing business provides an aggregate ranking on the ease of doing business based on indicators.

Economies are ranked from one to 189 by the ease of doing business ranking. Doing business presents results for two aggregate measures: the distance to frontier score and the ease of doing business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from zero to 100, where zero represents the worst performance and 100 the frontier. The ease of doing business ranking compares economies with one another; the distance to frontier score benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best performance on each doing business indicator.

When compared across years, the distance to frontier score shows how much the regulatory environment for local entrepreneurs in an economy has changed over time in absolute terms, while the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies.

Ease of doing business challenges in Zimbabwe:

There has been so much concern about the challenges of ease of doing business in Zimbabwe. Actually it has been acknowledged that doing business in Zimbabwe is a critical problem. The problem has cost the country the potential for real growth. In previous instalments, I unpacked the economic performance of Zimbabwe since adoption of multi-currency.

The economic performance of the country has been characterised by a period or stage of recovery from the hyperinflation to an economic slide down. Zimbabwe has not experienced real economic growth yet. It is my argument that among several factors and reason, doing business emerges as one of the major factors that have cost Zimbabwe in terms of realising real economic growth. The eight years after hyperinflation are long enough to have seen Zimbabwe beginning to experience real economic growth.

According to the Ministry of Industry and Commerce, the Government has stepped up efforts to improve the business environment in the country through initiatives aimed at encouraging investment and making local producers competitive in light of the strong US dollar, which has affected local manufacturers.

In 2015 we were told by the Zimbabwe Investment Authority that the Government plans to promulgate 13 laws to improve the ease of doing business in Zimbabwe. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm and also quick facilitation of foreign firms to establish investments in the country.

My problem is the casual attitude that we seem to be having as a nation. We do not seem to have that requisite sense of urgency. I have read that some deals are stalled by the delays in the finalisation of the necessary regulatory requirements, such as the environmental impact certificates that are supposed to be issued.

This reminds me of a debate I was listening to on the radio one day. There were serious concerns that were raised in that debate, centering on the unnecessary time that EMA takes to approve the environmentally related investments and business in this country. For example, the six-week period that the applicants are made to wait, even for the mere correction of comas and full stops on application documents.

The case for Special Economic Zones is also puzzling. The latest being that the bill has been referred back to parliament because of certain issues of concern. My worry is, why were those concerns not picked earlier and addressed before the bill was ready for assenting into law by the President. The concern is that the Special Economic Zones issue has taken too long to materialise. Yet the country needs these reforms for real economic growth.

I was in Harare for the past two weeks on a teaching assignment. One of my MBA students who operates a spares distribution business told me a very interesting scenario of what happens in their industry. The motor spare parts that they distribute are imported from countries such as Dubai, China and Japan. Containers full of auto spares are transported from these countries to the Durban Port in South Africa. From Dubai to Durban the container takes an average of two weeks by sea freight, three weeks from China to Durban and four weeks from Japan to Durban.

What is interesting is that the consignments take an average of three to four days to move by railway from Durban to Beitbridge, and then take two to three weeks to move by rail from Beitbridge to Harare. This is terrible, something needs to be done to correct this. The railway system on the South African side take less than a week to cover a distance of about 1 100km, while on our side our railway system takes two to three weeks to cover a distance of about half the other side.

In conclusion, we still have a lot to do to improve the ease of doing business in Zimbabwe, especially if we are entertaining attracting FDI. Our shortcomings range from decision making processes to implementation.

Dr Bongani Ngwenya is a Bulawayo-based economist and senior lecturer at Solusi University’s Post Graduate School of Business. Feedback: [email protected]/mailto:[email protected]>[email protected]

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