Source: ‘It’s now difficult to do business here in Zim’ – The Zimbabwe Independent August 23, 2019
IN recent years Chinese companies have made inroads into Zimbabwe. Today, there are 80 state-owned Chinese companies operating in the country under the Chamber of Chinese Enterprises in Zimbabwe. Zimbabwe Independent senior reporter Tinashe Kairiza (TK) this week spoke to Chamber of Chinese Enterprises chairman and Tian Ze Tobacco Company general manager Ye Hai (YH) about Chinese company operations in the country, opportunities and challenges as well as allegations of flouting labour laws and working conditions. Below are excerpts:
TK: Let us start by understanding the history of the organisation, when was it formed and for what reasons?
YH: The organisation is called the Chamber of Chinese Enterprises in Zimbabwe and it was formed in June 2006 under the leadership of the Chinese embassy and the business consular office. Its membership is constituted by all Chinese state-owned enterprises which are legally operating in Zimbabwe. Currently, we have about 80 members in the association. Initially the reason the chamber was formed was to share investment and policy information around Zimbabwe as an investment destination.
Secondly, under the leadership of the embassy we are trying to work together with the local government and departments to enhance business cooperation between the two countries.
TK: Tian Ze is a member of the chamber. Who are the other prominent members of the organisation?
YH: As I said, we have 80 members in the association who cover the broad spectrum of the industrial base in Zimbabwe ranging from mining, agriculture, Information Technology and logistics. Some of the big firms in the association include Tian Ze, Zimasco, Sino Steel, Sino Hydro — which is the firm which is doing the Kariba expansion project.
Currently they are working on Hwange Power Station. We also have the China Jiangsu International Economic and Technical Co-operation Group who undertook the Victoria Falls Airport construction project and now they are doing the Robert Mugabe International Airport.
TK: Zimbabwe is in the grip of an acute economic crisis. What do you think about the country as an investment destination?
YH: Currently, Zimbabwe is in a complex period and is facing a number of challenges in the economy. As an association, we do have confidence in Zimbabwe as an investment destination.
In the short term, we could be holding back a bit on investment, but we are not giving up on Zimbabwe. The country is endowed with vast fertile farmland; the country is very rich in terms of minerals and the people are also warm and friendly. So in the long term, we want to be here and help Zimbabwe to develop. We do want to work together with government, particularly around policies which protect investment.
In the case of Tian Ze, the cost of doing business and production in Zimbabwe is high compared to other countries in the region. Right now we are buying tobacco from Brazil where it is much cheaper than in Zimbabwe. In Zimbabwe, labour costs and input costs are high. So we are working together with government to make Zimbabwe a more competitive destination.
TK: Apart from high labour costs, what other factors are militating against business in Zimbabwe?
YH: The other problems we are facing are hinged around two areas, namely the tax policy and policy inconsistency. Sometimes government makes a policy and tomorrow the policy is changed. This makes it difficult to do business as it increases the cost of doing business.
The other issue relates to the exchange control regulations. We are an exporting company; we hope government can come up with stable policies around exchange regulations so that it becomes easier for us to plan. To put this in context, Zimra introduced new tax brackets which came into effect on August 1 under Pay As You Earn (PAYE).We noticed that using that tax regime, our staff is going to lose 25% of their salary compared to last month. For the company to keep the staff we need to pay more to our workers but this increases the cost of doing business in Zimbabwe. This applies to most companies doing business in the country.
TK: Earlier this year, government scrapped the multi-currency regime and reintroduced the Zimbabwean dollar as the sole legal tender. How has this impacted on the operations of your members?
YH: The re-introduction of the Zimbabwean dollar really affected our operations. For us (Tian Ze) as an exporting company we bring foreign currency into the country. When money comes in, it is changed into the Zimbabwean dollar. If you do not use that money in time, it loses its value by the day and this impacts on planning. The situation is worse for our members who are not exporting. With the exchange rate going up, most companies suffer from workers who are now demanding to be paid more. As a business, it is now difficult to survive here in Zimbabwe.
TK: Building on that question, Zimbabwe is also experiencing prolonged power cuts and an acute shortage of foreign currency. How are those twin challenges affecting your operations?
YH: In our case, we are currently doing processing and packaging of tobacco. Now, if there is no power we cannot process the tobacco so that we can export. It delays the whole process of exporting and this also affects the quality of the product. In general, when there are power cuts, you have to ask your workers to come when power is restored and this increases the cost of doing business. It is a problem for everyone.
TK: What measures have you put in place to stay afloat?
YH: We have been engaging government to make sure that there are guaranteed power supplies to exporting companies who are bringing foreign currency into the country. We have also been talking to government around the tax issue which I mentioned earlier so that the interests of business are protected as well as our employees.
As a chamber, the policies government introduces affect different business sectors. So each sector is organised in a special way to talk to government in light of the challenges it may be facing. In the tobacco industry, there are two main areas where government made some policy changes.
Firstly, it is around how farmers obtain inputs. They are now allowed to receive money in their nostro accounts so that they can procure inputs. The Reserve Bank of Zimbabwe (RBZ) also now allows merchants to pay directly to suppliers for inputs. This, in a way, has helped to reduce the cost of doing business.
TK: What are the obstacles for your members when they import raw materials given the foreign currency shortages?
YH: It is really a big challenge to members of the chamber, and government requires that you have to apply (for foreign currency if you want to import). It is really, really hard.
TK: Most businesses are struggling to secure fresh investment capital for retooling and expanding operations. Are you getting any credit support from Chinese banks?
YH: As far as I know, most member companies do have plans to expand their operations in Zimbabwe. But the problem with this new change of policy (around currency) which saw the return of the Zimbabwean dollar (is that) most investors are still holding back a bit to see where we are going.
But as I said earlier on, we do have immense hope for this country. If there are stable policies which protect investment, more investors will come.
TK: Let us talk about exports, which markets do you serve?
YH: Within the association, we are some of the major exporters along with Zimasco. For Tian Ze, we export most of our tobacco to China. Let’s put it this way, Zimbabwe is currently producing around 250 million kilogrammes of tobacco every year. Tian Ze buys between 90 and 95 million kilogrammes of that tobacco which we process before we export. After processing it, it comes to about 62 million kilogrammes. The value of that tobacco amounts to US$500 million. We also buy tobacco from other merchants locally.
TK: Many businesses have suggested that it is becoming difficult to repatriate dividends to their foreign shareholders. How much of a challenge is this?
YH: The policy in Zimbabwe is that all companies who are exporting have to apply to send back dividends after paying tax. The application process is quite lengthy; the process can take some months.
TK: There has been a general assumption that Chinese businesses in Africa, and Zimbabwe in particular, have not been adhering to laid down labour regulations, is this perception correct?
YH: Our member companies are state-owned companies and they operate within the confines of the law of Zimbabwe. We are also guided by our embassy.
We have heard about stories of people who don’t pay and underpay their workers, but in our case, we always stick to the stipulated labour regulations. We know that in Zimbabwe there are other privately-owned Chinese investors and as an association we hardly hear of stories of violations of labour regulations.
In our case, we are big investments in the country and our intention is to stay. We are here for a long time. We always make sure that we look after our staff well and do things properly. For a company like us, we have a workers’ committee and workers council to make sure that members of staff are always protected.
TK: How competitive is Zimbabwe as an investment destination in the region?
YH: When you go to Tanzania, Zambia and Malawi, you really do not know their policies but what you can tell is that when you go to those countries lots of economic activity is going on. You see lots of infrastructural projects, and by that you can tell the economy is growing faster compared to Zimbabwe. There is not much that is going on this side.
TK: In light of the economic and political crisis gripping the country, what would be your advice to politicians and business players on how best the country can resolve its challenges?
YH: I think government should consider putting in place foreign investment protection policies. Government should also be consistent in the policies it introduces. Changing policies all the time is costly to businesses and in most cases businesses will be forced to leave.
TK: Let us talk about your corporate social responsibility programme. What have you been doing around that area in terms of giving back to the communities you operate in?
YH: As Tian Ze, we built a school called Dunally worth US$1 million along Beatrice Road. Tian Ze is also sponsoring an orphanage in Highfield called Hupenyu Hutsva. The chamber also donated goods worth US$48 000 to victims of Cyclone Idai. The chamber is also offering scholarships to Zimbabwean students to pursue their education in China.
TK: To wrap it up, what lessons can Zimbabwe draw from their Chinese counterparts to grow local business?
YH: One thing that I have noticed is that some of the local businesses are not protected by government, for example, the agriculture and manufacturing sectors. If these sectors are supported, they will produce more goods for export. In short, government should support local businesses.