Start Up Company: Hurdles of Doing Business in Zimbabwe

Start Up Company: Hurdles of Doing Business in Zimbabwe

By Darlington Nyambiya Zimbabwe is currently going through an Economic Slowdown which has partly been blamed for the lack of

Source: Start Up Company: Hurdles of Doing Business in Zimbabwe – Local Solutions Council May 4, 2017

By Darlington Nyambiya

Zimbabwe is currently going through an Economic Slowdown which has partly been blamed for the lack of Foreign Direct Investment in the country. But countries like Botswana, Mauritius and Singapore continue to attract foreign direct investment which they are leveraging to achieve Economic growth.

However before the year 2000, Zimbabwe used to attract most of the foreign direct investment in the region but in recent years, it has fallen behind most of it peers. We shall take a closer look through The Ease of doing business index to assess some of the reasons why Zimbabwe is facing an uphill task to attract foreign direct investment and struggles to promote entrepreneurial activity at formalised level.

Ease of doing business index

The ease of doing business index is an index published by the World Bank. The ease of doing business index ranks economies on their ease of doing business, from a scale of 1 to 190, with 1 being the best. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each topic. Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

Zimbabwe

Starting a business – Procedures, time, cost and minimum capital to open a new business

The Ease of doing business index assesses the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm in country. It examines the procedures, time and cost involved in launching a commercial or industrial firm with between 10 and 50 employees and start-up capital of 10 times the economy’s per-capita gross national income.

As above and in line with the Ease of doing business index: we shall analyse the first sub-topic of Starting a Business. When you set up a company in Zimbabwe you utilise the following steps:

1)      Reserve a company name; all documents must be physically lodged at Companies and Deeds Registry. And this process takes 7 days at a cost of $5.

2)      Physical file a memorandum and articles of association with the Registrar of Companies. And this process takes 14 days at a cost of $100 depending on the shares issued.

3)      Open a bank account. And this process takes a day

4)      When you have a bank account, then you can register with the tax authorities for income tax, VAT, and PAYE. And this process takes 5 days.

5)      Register with the National Social Security Authority for pension and Accident Prevention and Compensation Scheme. And this process takes 14 days

6)      Register with the Manpower Development Fund for a day long process.

7)      Pick up the form of license application notice from the City Health Department at a cost of $20 and its takes 14days.

8)      Advertise the application for a trade and business license in a local newspaper at a cost of  $30 and the process takes up to 6 weeks.

9)      Submit an application form for the issuance of new licenses to the Licensing Office in Harare Municipality at a cost of $530 and the process takes 34 days

Singapore

According to The Ease of doing business index to set up a company in Singapore you utilise these steps:

1)      Registration on-line with ACRA including company name search and filing the company incorporation and tax number (GST)

  1. a) The Accounting and Corporate Regulatory Authority (ACRA) is the national regulator of businesses and public accountants in Singapore. Incorporation is done through Bizfile and since 2007 Bizfile has been providing one-stop business facilitation services to customers at the point of registration. These services include reserving domain names, goods and services tax (GST) registration, subscribing for the relevant e-newsletter and registering for e-service alerts on latest government procurement opportunities, activating Customs Account and application for a corporate bank account.
  2. b) Entrepreneurs registering a new business can purchase the Business Profile on line at the same time of registration, when filling up the incorporation forms. The processing time is about 15 minutes from the time of successful submission of all documents and all information, and the registration fee payable is SGD 300. The registration with the Inland Revenue Authority of Singapore (IRAS) for the goods and services tax (GST) when (a) its annual taxable turnover exceeds SGD 1 million can be done using the same online forms.

2)      Make a company seal

The company seal is generally obtained from the company seal manufacturers. Generally a market rate of SGD 40 will be charged if the seal is to be collected within 3 days or approximately SGD 70 if the seal is to be collected within 1 day

3)      Sign up for Employee Compensation Insurance at an insurance agency

Under Section 23(1) of the Work Injury Compensation Act (WICA), Chapter 354, of Singapore, every employer shall insure and maintain insurance under one or more approved policies with an insurer against all liabilities which the company may incur under the provisions of this Act in respect of any employee employed by the company. Time and cost may depend on the arrangement between the company and the insurance agency.

Comparison

A comparison of the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm between Zimbabwe and Singapore shows the following:

  1. To set up a company in Zimbabwe requires physical presentation while in Singapore most of the processes are done online.
  2. It is expensive to set up a company in Zimbabwe costing nearly US$700 while in Singapore it costs SGD370.

iii.            The process takes nearly six months to complete in Zimbabwe while in Singapore it takes 3days to 7 days to complete.

And on the subtopic of Starting a Company on The Ease of doing business index, Singapore has a  higher  ranking than Zimbabwe because the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm in Singapore are much more easier to navigate and  more conducive to the starting and operation of a local firm.

Conclusion

In conclusion, the first step Zimbabwe needs to take to attract foreign direct investment and encourage entrepreneurial activity is to improve its rating on the Ease of Doing Business Index by simplifying the setting up process of a start up company. Zimbabwe needs to set up an online one stop shop that will consolidate all the set up processes into a single online form.

And this online one stop shop will directly reduce the costs and lead-time of setting up a company in Zimbabwe. Lastly but not least, an investor friendly process in setting up a company in Zimbabwe will help in attracting foreign direct investment and encourage entrepreneurial activity.

The Writer: Darlington Nyambiya is the President of the Local Solutions Council (LSC) , a leading Zimbabwe Think Tank. The LSC is a Think Tank with members from diverse Zimbabwean communities in politics, business, religion and sports. He is also a Pro Democracy Activist, Political Strategist, Human Rights Defender, Social Media Commentator, Writer and a Business Executive. Contact Details ; Skype ID : darlington.nyambiya  , Twitter handle: D_Nyambiya,  Email : info@localsolutionscouncil.com , Corporate Twitter Handle : lsc_thinktank  For more information on  Strategic Views on Zimbabwe log onto our website on :Website : www.localsolutionscouncil.com. Copyright © 2017 All Rights Reserved. The Article may not be published or reproduced in any form without prior written permission

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