adminTaurai Changwa Business Forum —
THE optimism that drove many businesses after 2009 is dissipating as the economy becomes increasingly challenged. Companies, especially SMEs, were hit hardest.
Statistics from the National Social Security Authority are quite revealing. In 2014, the authority indicated that an average of 10 firms were closing shop every week. It also disclosed that between January and September this year 17 752 employee accounts stopped being funded.
To understand this phenomenon, it is very important to understand its roots. There is a dangerous tendency to discount the impact sanctions from the EU and the US have had on the economy, but the effects are real.
The risk of investing in an economy whose credit rating is not even graded should be viewed as exactly that — a huge risk. Where credit has been available for local companies, it has been very expensive. Ultimately, local companies have lost their competitiveness.
It is not only the private sector that has suffered, but the public sector as well. Though the re-engagement process is underway, the country might not directly control the outcome. What is, however, worthwhile is to focus on the internal challenges that local policymakers can easily influence.
There are a good many companies being dragged down by incompetent management, including other macro challenges such as policy inconsistency, red tape, corruption and the high cost of production.
Impunity has become the major driver of poor corporate governance and corruption as offenders know fully well that they can get away with it. In a sense, what ordinarily should be frowned upon is often celebrated.
The origins of poor corporate governance can be traced to times when boards, which are supposed to superintend over management at companies, are set.
Board members should be experienced, motivated and proactive. They should also have in-depth knowledge of the business, be good listeners and possess impeccable leadership qualities.
Are these the kind of board members we have? If the answer is no, then surely this is one of the reasons our companies are struggling. Board members should craft strategies that steer companies forward — not only turn up to claim board fees.
The reason they are roped in within the management structure of a business is so that they make meaningful contributions. Those that have the interest of the company at heart can only be the ones that are able to make telling contributions towards its growth and development. But it would appear that some board members are nominated to sit on boards through cronyism.
Put simply, board members should be appointed on merit. The board itself should be diverse, containing independent non-executive directors who, in essence, should be more than the executive directors on the board.
The need for policy consistency cannot be overemphasised. Though it has been raised over and over again, there seems to be no movement. Denial is one of the reasons companies get into trouble.
Policies should cater for the interest of potential investors, both domestic and foreign. Policies, therefore, should be consistent. Experts say risks are often high in an environment where policies constantly change as this breeds uncertainty.
Currently, many businesspeople are uncertain on what the future holds. This is a major reason why many companies are struggling. But it will also be naïve not to consider how the debts have taken a toll on both the economy and companies.
Many companies are laden by huge debts, which is not surprising considering that interest rates, even on US dollar debts, are as high as 18 percent per annum. It is nothing short of impossible for companies to operate profitably in such an environment.
The ZimAsset Management Company has tried its best to buy some of the debt that can be salvaged from the market, but the bottom line is someone will eventually have to repay them.
The Zimra and other creditors are not all that lenient and they will definitely charge penalties and interest on debts that are not paid on time. Some companies’ debts date as far back as 2009 when the multi-currency system was introduced.
Also, some bills owed to Zimra are so huge to the extent that it might seem they have no option but to close shop. Government really has to work expeditiously to improve the doing business environment because time is really of the essence.
Zimbabwe, as highlighted by its huge capital account deficit, is currently in need of FDI. But for investors to pour in money, there is need to ensure that they have assurances their money is safe.
Reforms that are currently underway have to be seen through. Chinese philosopher Lao Tse, who lived some 2 600 years ago, summed up the surest way to avoid these potential pitfalls.
“People in their handlings of affairs often fail when they are about to succeed,” he wrote. “If one remains as careful at the end as he was at the beginning, there will be no failure.”
Taurai Changwa is a member of the Institute of Chartered Accountants of Zimbabwe and an estate administrator with vast experience in tax, accounting, audit and corporate governance issues. He is MD of SAFIC Consultancy and writes in his personal capacity. Feedback: [email protected], Facebook page SAFIC Consultancy and WhatsApp +263772374784
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