The business environment has never been tougher in the last decade. Many are forced to start businesses because formal employment is hard to come by. Others have brilliant ideas but these suffer a stillbirth for a variety of reasons. Thinking big looks impossible in the current environment. The ideas are there but they are scuttled by a number of drawbacks and uncertainties. Zimbabweans do not really always think small; the environment forces them to downsize. We explore this in more detail.
Lack of start-up capital
The world over, the view is that getting capital to start your business is increasingly becoming easier. This is because of the proliferation of venture capitalists and angel investors among the more tradition sources of finance. This is not the case for Zimbabwe. Government supported Agribank, Empowerbank and others are offering little. Rampant mismanagement has resulted in loans seemingly being accessible to those who have the right connections, political or otherwise. Private banks are very cautions in this environment. The collateral they require is something small start-ups cannot possibly have. As such, small businesses remain small. Those willing to start never afford to. Businesses tend to keep their ideas small and manageable although it would have been better off bigger.
Firefighting and policy uncertainty
As a country, our policies and actions are contradictory and uncertain. Look at it this way, combis employ about 40 000 people as drivers and conductors. With the coming in of ZUPCO, the combi industry has been thrown under the bus, literally. Those 40 000 jobs are at risk. In addition, we say that we are open for business yet we have set the wrong precedence by once shutting down the internet in trying to deal with hooligans. Anyone who had big ideas reliant on the internet will think twice now. We seem to make hurried decisions as if we are firefighting. This is not ideal if we want to attract and nurture big ideas.
Forex shortages and price distortions
Another factor which is hindering growth in Zimbabwe is price distortions. With government holding onto the 1:1 exchange rate fiction, many businesses are finding it difficult to price their products. Without an official credible exchange rate, businesses are having to rely on the black market. Foreign currency shortages have resulted in many companies failing to repatriate franchise fees and dividends to foreign partners. Those who rely on imported raw materials and finished products are hardly able to survive. Their ideas may be big but they would rather keep them low key for now. They cannot afford to make big losses if things don’t improve.
The high cost of compliance
It feels like those who choose to comply with government policy are punished for complying. As an example, Artisanal miners who sell their gold to Fidelity pay taxes to Zimra and part of their earnings are retained by government and substituted with bond notes at the untenable 1:1 rate. In short, instead of receiving US$43 for a gram of gold, they end up getting US$33. They earn more if they evade the government through side marketing or under declaring their output. To remedy this, government needs to reward businesses that wish to operate legally, rather than fleece them of their hard earned money. Incentives are needed for tax compliant companies as these will spur them to do the right thing all the time. So, to avoid government, many businesses would rather stay small and obscure so that government does not notice their existence.
Clearly, there is no shortage of big minds in Zimbabwe. The environment is just not conducive. The next Ecocash-like innovation is there somewhere but it may never see the light of day if the status quo persists. Even the bigger business players are choosing to play it safe. Will they be able to rise again when the time is right?