Business Barriers

Zambia like many other developing countries is on an ongoing campaign to support and facilitate both local and foreign investment in the country. There are daily pronouncements made by both Government officials and the private sector that call for more investment, and market the country as a stable and good place to do business.

On the ground however, there are increasingly more reasons that will undermine the country’s marketing effort as anti business experiences are shared by businesses within the economy.

A new cost to doing business has recently been introduced in the motor vehicle import sector. A Japanese firm has been contracted to check every used vehicle that is imported into Zambia for a flat mandatory fee of around K750,000 per vehicle. At the current levels of imports of used motor vehicles this revenue stream for this foreign investor is guaranteed to be in the region of K22,500,000,000 per annum because an estimated 30,000 vehicles come through our borders each year.

This is a great business opportunity for the Japanese investor which promotes a potential flight of at least K14 billion or USD3 million to Japan, and adds to the import costs of every used vehicle in the economy. Ultimately, this extra cost of doing business is passed on to the consumer.

In addition, the Road Transport and Safety Authority (RTSA) will continue to demand Fitness requirements for all motorists as part of the quarterly and annual licensing requirements. A duplicated effort is therefore being developed for no good reason.

One cannot understand why the RTSA needs a Japanese firm to check on the fitness of imported vehicles when RTSA has the mechanism and potential to do the work if structured and financed appropriately. What we are seeing instead is another Private Public Partnership (PPP) arrangement that will drain the pockets of the already struggling masses of Zambian vehicle owners.

There appears to be a lack of confidence in using our own human and other resources to do this rather simple operation of certifying the roadworthiness of vehicles, and we opt to outsource this work to companies that will take financial resources out of the country instead of investing it in the domestic economy. We may need to re-examine our motives on this issue.

Several investors that have obtained licenses and permits from the Zambia Development Agency (ZDA) have had running battles with the Zambia Revenue Authority (ZRA) over customs clearances of trucks, equipment, and machinery that are deemed tax free as per the licenses issued. ZRA demands that duty be paid in contravention of the investment incentives given by the Government. As a result, trucks, equipment, and machinery are marooned at ZRA yards and warehouses at the ports of entry for months until the demanded taxes are paid.

Eventually, any progressive business will pay the bill for fear of running into irrecoverable debt with financial institutions and business customers with who contracts have been signed for the delivery of goods and services.

ZRA wins the battle, and Zambia loses the war as it soon becomes clear that commitments made by ZDA through the investment licenses are not worth the paper that they are written on. Foreign banks and financiers begin to portray Zambia as a rogue state where contracts and agreements are not respected and therefore Zambia becomes a high risk investment destination. The cost of doing business goes up as interest rates go up, and again, the consumer in the end pays the price.

The media recently reported that the ZDA was cancelling licenses previously issued and one can only hope that these licenses will be replaced with new issues or else we may see yet another document that cannot be trusted or used to authenticate the validity of any investor under the ZDA Act.

The problem with inconsistency and reneged commitments is that word gets round in the investor communities whether local or foreign. The private sector begins to distrust the sincerity of the Government and the relevant Statutory Bodies, and the whole Fifth National Development Plan (FNDP) which is hinged on a private sector led economy, falls flat on its face.

Anarchy, corruption and side stepping become the order of the day as we have witnessed in some West African economies, and the country starts to record negative economic growth as economic activity begins to fall off the official radar screen as increasingly business is done under the table.

The many efforts of the various Government ministries to curb corruption and promote good business practices are based on the removal of barriers to business and to reduce the costs of doing business.

Clearly the various Government departments have serious problems in co-ordinating and collaborating with each other to the extent that one Ministry removes barriers to business while another introduces some new barriers under the guise of a newly introduced regulation.

The recent barriers to doing business seem to originate from a necessity to generate new revenue streams by Statutory bodies rather than to deliver services to the public that enhance productivity, promote improved quality of goods and services, and facilitate greater wealth creation in the economy.

Posted on 12 May, 2009