eBusiness Weekly
The final major economic pronouncement for the year was made when the new Minister of Finance and Economic Development presented the National Budget last week.Those that have been waiting “for direction” now have it — the Budget quantitative indications combined with the Transitional Stabilisation Programme which contains the qualitative details. How you interpret in and react to it will be up to you.
We look at the salient features of the Budget, what it means to the small business owner, and continue to emphasise the need to maintain flexibility and re-look the business model in view of the new information.
The theme “Austerity for Prosperity” seemed to trigger a lot of people as the feeling was that Government did not do enough to reflect true austerity; if anything it is individuals and small business owners that will feel most of the pain.
However, others in their reading interpreted it as pushing back the nation towards the basics of prosperity, in the main getting back to productivity and ultimately improving foreign currency generation.
The document highlighted the fact that all sectors of the economy have potential and abundant capacity to contribute to economic growth and job creation, a view that we fully agree with, seeing as we are coming off a very low base and the only way should be up. It is heartening to note that we have a slight improvement in our ease of doing business ranking — at 155 now up from 159 in prior year.
The six major areas noted to be dragging are pretty much the same issues raised by small business owners regularly — difficulties in starting a business and the licensing processes thereof, enforcing contracts, access to electricity, dealing with construction permits, time taken and cost to import and export goods, dealing with construction permits and resolving insolvency.
The promise is that Government would resolve these as part of their ease of doing business reform agenda. It is also admitted that Foreign Direct Investment is extremely low at just 2 percent of GDP in 2018 and action must be taken to improve this, national savings on the whole and ultimately access to capital.
Government committed to put in place an enabling environment for attracting investment through venture capital targeted towards good projects particularly in the agriculture, mining, transport and water sectors.
Accordingly, the budget set aside some US$30 million as seed money for the Industrial Development Fund (under the Industrial Development Corporation of Zimbabwe) as venture capital to revive some industries. As is the usual case, the paper acknowledged the meaningful contribution of SMEs and the informal sector to the economy.
A specific vote of US$14,6 million was allocated for capacity building initiatives on SMEs and women empowerment. Additionally, US$2,2 million was allocated for youth entrepreneurship support and employment creation.
Speaking to the TSP, the budget reiterated the need for innovation in tax policy design and administration. Key to this would be a tax structure that supports business growth, nurtures a competitive business environment, and the development of simplified tax structures for micro, small and medium enterprises — a topic we have written on in the past articles in detail.
While this is mentioned in the context of resource mobilisation, we see it as enabling small business to formalise and be taken seriously, but what is missing are the specific action points and time-lines.
As support to local industry the following facilities were proposed in various sectors: clothing manufacturers classified as micro, small and medium enterprises have in the past been unable to access rebates in this industry, going forward approved enterprises will access ring fenced quantities of raw materials, provided they meet the conditions of possessing a valid tax clearance certificate, are part of a registered association (with the Ministry of Small and Medium Enterprises and Co-operative Development),maintain a stock book that shows particulars of receipts and disposal of goods, and meet the definition of a micro, small and medium enterprise.
This is certainly good news, though available for just a year and small business owners that manufacture clothing must leverage this opportunity. The baking industry will also enjoy the rebate on raw materials that can be brought in duty-free.
In agriculture a similar rebate is extended with a duty free importation of fertilised eggs so as to improve the availability and price of poultry products, as well as downstream industries including stock feeds and milling.
The motor industry has been granted a rebate in the form of suspension of duty on cross border luxury buses, only requiring a rate of 5 percent. Public service buses of at least 60 passengers will be allowed the same treatment but only two units can be brought in per beneficiary and a total of 100 buses are required.
Small business owners in the wine industry cab take advantage of the suspended excise duty on imported raw wine, and similarly those in fertiliser manufacturing may import raw materials duty free.
The budget takes note that such support has resulted in increased capacity utilisation in the furniture industry, now at 70 percent from 45 percent in 2015.
In view of this the duty-free regime on inputs has also been extended to other raw materials and continues. This will certainly be appreciated by the many enterprises that form the cottage industry in Zimbabwe.
Tourism is not left behind — the proposal is to maintain suspension of duty on vehicles with carrying capacity of 8 to 55 passengers including the driver, purchased by tour operators that have been operational for two years at least and are registered.
It will be useful to follow up and take advantage of the measures in your specific sector or industry ahead of the January 1, 2019 effective date.
The National Budget also reviewed personal income tax with a revision of the tax free threshold to US$350 from the prevailing US$300.
This should, hopefully, benefit local companies as their employees would enjoy a slight improvement in remuneration, while their customers would equally have a little bit more to spend.
There is certainly a lot of room to manoeuvre for those with existing and emerging enterprises that can provide import substitution for the long list of products that will now attract duty in foreign currency and will thus prove more expensive — items such as make up, perfume, handbags, linen, dairy products, a variety of fruit and vegetables, confectionery and candy to name a few.
All business will need to revisit their business model and also anticipate increased input costs emanating from the increased fuel excise duties that commence on December 1, 2018.
Use the balance four weeks of this year to critically review your business and make a sober decision to either iterate (change focus of products/services/customers) or just wind up operations. Whichever the case, make the call quickly, cognisant that the whole intent of business is the bottom line: profit.
Also revisit the definition of entrepreneurship — the act of creating a business or businesses while building and scaling it to generate a profit. If you are to fail, fail fast, on your own terms, (and learn) before you are disrupted!
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