For an SME in Zambia the biggest challenge is not how fast one can grow, but rather how favourable the environment they are doing business in is. It’s been said that policy regulating investment in Zambia is not favourable. So how bad is it? Lets take a look at how investment policies affect an SME.
We had a chat with DotCom Zambia Managing Director, Mr. Mawano Kambeu who revealed two main points showing how SME investment in Zambia is affected by policy.
- Negotiating power necessitated by capital
The DotCom founder explained that the fact that anyone can invest in the Multi-Facility Economic Zones (MFEZ), means investors with low capital especially SMES have low negotiating power which places them at a disadvantage. Even though the policies are the same for both SMEs and foreign investors on paper, they are formulated to cater to both without considering the difference in financial capital.
“The biggest challenge that SMEs have is the capital structure to negotiate. The root issue is capital. The local firms don’t have a lot of capital. Foreign firms if they have capital can negotiate the terms which allow them to have access to other incentives,” Mr. Kambeu said.
Due to the capital strength, foreign firms can easily negotiate with government agencies the conditions of investment such as tax holiday and the reduction in the proposed amount to invest.
- Tax holiday application
Tax holiday in Zambia was only heard of in big firms that invest in areas such as the mining industry. For an SME, at the moment there is no tax holiday. Only recently the government announced removal of a 5 year tax holiday effective this year. However, its not clear whether the 5 year tax holiday for investors in the MFEZ still stands.
Mr. Kambeu revealed that “If you invest in an economic zone, you get a tax holiday. But if you look at local firms, how many can manage to invest in there because they have low capital, low investment capacity and cannot employ a lot of people at once?”
For an SME, having no tax holiday indirectly hinders the growth of their enterprises as their capital in the first place is small compared to firms that invest in MFEZ and yet have a tax holiday.
He cited the case of Ghana where tax holiday was announced as an example to follow as a way to promote SME growth.
Last year, the Ghanaian Business Development Minister Mohammed Ibrahim Awal said; “Government’s policy again is to continue to give some one-year tax holiday for startups. Because when you start a business it takes sometimes about three years to recover. So when you start and do it very well, we will give you tax holiday so that you can recoup this money, pour it back into the business and grow. Startups are very important for us”
SMEs play an important role in promoting development in any country. An environment that supports growth of SMEs in relation to investment policies is likely to boost SMEs growth and create room for development as well as employment.
In suggesting other policy changes to look at, Mr. Mawano proposed having a tax waiver to be raised to allow for some SME not to pay tax before the business grows. Further he highlighted reduction in the number of business registration procedures.
How favourable are investment policies in Zambia? Share your thoughts.