ZIMBABWE’S regulatory landscape remains unpredictable after a record 241 statutory instruments (SIs) were promulgated in 2023, a new report has revealed.This unpredictability, according to Fincent Securities — one of the leading securities firms in the country — poses difficulties for businesses in long-term planning.
“The government’s failure to create a conducive business environment is evident as enterprises grapple with navigating intricate layers of bureaucracy and corruption to obtain necessary permits for establishing operations in Zimbabwe,” Fincent said in its report titled 2024 Market Outlook: Seeking Stability Amid Uncertainties.
“Adding to the challenge, the regulatory landscape remains unpredictable, with a total of 241 statutory instruments issued in 2023, averaging 4,6 instruments per week.”According to the Confederation of Zimbabwe Industries, the existing tax and fee structures are excessively burdensome, with compliance-related overheads accounting for a substantial 18,8% of total overhead costs, making it tough for businesses to thrive.
The research firm said despite industry and public outcry, the government gazetted Finance (No 2) Act 13 of 2023, adding another layer of fiscal regulation in an already over-regulated economy.
“This move has sparked concerns among industries, perceiving the measures as a deterrent to the goals outlined in the Industrial Policy, particularly in terms of capacity utilisation, growth and competitiveness,” it said.
“Critically, manufacturers and wholesalers find it challenging to navigate the imposed restrictions, especially the requirement to supply wholesalers before reaching retail outlets.“Had this not been revised, it would have led to inevitable price increases and disruptions in the trade channel, potentially accelerating the rate of informalisation. There is a risk that many informal traders and retailers will import and smuggle products to meet demand, and will shift away from local manufacturers.”
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Fincent said anticipating these challenges, consultations and meetings between the Finance, Economic Development and Investment Promotion ministry and industry are expected.“Looking ahead, the year is likely to bring forth more statutory instruments aimed at reversing policies deemed poorly thought through,” the firm said.
“Sustaining economic growth in Zimbabwe will necessitate tackling macroeconomic and structural challenges, including addressing price and exchange rate volatility and resolving public debt arrears to support economic growth and jobs.”
The securities firm said investor sentiment was negative as enterprises grappled with navigating intricate layers of bureaucracy and corruption to obtain necessary permits for establishing operations in Zimbabwe.
Fincent also said a notable feature of the last few years had been increasing informality.High inflation, exchange rate distortions and a difficult business environment also raised the cost of doing business for the formal sector, triggering a rise in informal activity.“Zimbabwe’s large informal sector has lowered fiscal revenues, constrained competitiveness, and made it more difficult for the authorities to manage the economy,” it said.
“Rising exchange rate distortions and high inflation have misallocated resources to sectors and firms with low productivity and limited private investment.”The firm said the accumulation of debt arrears had limited Zimbabwe’s access to external financing and kept public investment at low levels, further negatively impacting growth.
On the structural front, Fincent said significant support to agriculture in the form of agricultural inputs, cross-subsidies on electricity, and loan guarantees meant less public finance for human capital development and public infrastructure.