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Businesses cry foul over ‘bad’ laws

Local manufacturers and businesses have blamed the Indigenisation and the Companies acts for sluggish economic growth and low foreign direct investments (FDI).

BY TATIRA ZWINOIRA

Confederation of Zimbabwe Industries president Busisa Moyo told Standardbusiness last week that delays in implementing the clarifications made by President Robert Mugabe on the indigenisation laws last year was creating confusion.

Last year, Mugabe had to intervene after a row between his ministers Patrick Chinamasa (Finance) and Patrick Zhuwao (Indigenisation) over the interpretation of the controversial Indigenisation Act.

The legislation stipulates that at least 51% shareholding in any business with a net asset value of at least $500 000 and operating in Zimbabwe should be in the hands of locals.

“The delays in aligning the Indigenisation and Empowerment Act to the clarifications made by his Excellency in April 2016 and the guideline issued earlier last year create confusion in implementation and making recommendations to current and potential investors,” Moyo said.

“The key in general is to align to the Constitution with the current outdated laws in the country which impede investment.

“These include the Companies Act, The Investment Authority Act, The Income Tax Act, among others.”

The ministry of Justice is working on consultations to review a number of legislation under the ease of doing business reforms. Moyo said drafts of the consultations should have been made public by now.

“The pace or review, repeal and adjustment is too slow for a country whose FDI has fallen to below half of diaspora remittances at $421 million,” he said.

Outdated laws have been cited by many private stakeholders and donors as stumbling blocks in realising positive growth of the business sector.

Recently, senior principal director in the Office of the President and Cabinet (OPC) Solomon Mhlanga said some old and outdated laws were still being enforced today.

Mhlanga said some of the Acts, for instance the Companies Act of 1952, were too old to be in the statutes.

The Companies Act limits how companies can embrace coordinated and comprehensible approaches, which mainstream rights and responsibilities in a way that promotes transparency and accountability, according to a review paper on the ministry of Justice website.

Further, it lacks adequate regulation that can effectively protect the interests of the company from directors and board members, resulting in possible prejudices, it said.

Also, the framework offered towards financial reporting structures is weak and does not compel comprehensive reporting, leaving room for bad corporate governance practices.

Currently, a draft bill of the act meant to modernise it is sitting at the Attorney-General’s office for approval before it goes to Parliament.

For instance, fly africa — an airline company — was fleeced off thousands of dollars through weak financial reporting structures.

However, many companies say manual registration of companies is a waste of valuable time, suggesting that such processes should be done online.

USAID country director Stephanie Funk said the 2015 Strategic Economic Research and Analysis (Sera) activity, found that 60% of the bottlenecks to doing business in Zimbabwe were a result of an overly bureaucratic business licensing system.

“Starting in 2015, USAID, through Sera activity, worked with the Harare City Council, local stakeholders, and other donors such as the World Bank to complete a research study on the ease of doing business,” she said.

“This study found that 60% of the bottlenecks to doing business in Zimbabwe are the result of an overly bureaucratic business licensing system.”

Prior to the clarifications by Mugabe, businesses were unable to look for investment through seeking out partnerships for capital injections.

But after the clarifications, companies could seek foreign partners as long as they would invest in technology, grow employment, transfer share ownership to employees later, and create linkages with local partners in the country.

One recent example is international yeast and fermentation company Lesaffre which achieved a turnover of more than $2,02 billion in emerging markets.

Lesaffre was allowed to get 60% in Lesaffre Zimbabwe (formerly Anchor Yeast) as a reward for them establishing their only plant locally which would service the whole Sadc region.

Economist Prosper Chitambara said the Indigenisation and Empowerment Act “has increased not only the cost of doing business because when you insist on a 51% threshold, what you are actually doing is imposing an indirect tax on business”.

“So, it has increased the risk premium in doing business in the country,” Chitambara said.

Funk said USAID launched a new activity, “governance and growth”, which will work in conjunction with the private and public sectors to increase dialogue around the policies and reforms needed to improve the economy. 

The project will cost around $12 million over five years.

The $12 million is an addition to USAID’s overall funding in 2016 that totalled $253 million.

For the Income Tax Act, the main complaint lodged against it centres on the penalties where a company delays in paying corporate taxes, results in a payment that is nearly double the initial amount it was supposed to pay.

One argument was that the practice of levying a high penalty was unfair as other companies were not even paying taxes. Also, if companies move locations, they are taxed according to the location they were based, meaning the bigger the building, the higher the tax.

For the Zimbabwe Investment Authority Act, there is concern the legislation does not allow for all investments processes to be done under the authority’s body. Despite persistent discussions on the matter, the fabled one-stop-shop meant to deal with it is still yet to be addressed practically.

As a result of the limitations these different acts present on businesses, the OPC is expected to scrutinise bills and acts that are deemed outdated at the end of this month.

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