Did you know that micro, small and medium manufacturing enterprises (MSMEs) can face up to as many as 20 licenses which cost over K50, 000 in obtaining statutory licences and permits within the Zambian economy? The many and costly manufacturing permits and licenses have an impact on the cost of doing business in Zambia serving to the detrimental growth of MSMEs.
With the country ranking 85 of 190 economies on the World Bank Doing Business report 2020, the Minister of Finance and National Development, Hon. Situmbeko Musokotwane on 29th October 2021 acknowledged and committed to rationalising the number of licenses and permits required for operation within the country in order to ease the harsh business environment.
While permits and licenses are beneficial in ensuring compliance to standards and ensuring the health of consumers is protected, the biggest challenge remains that most of the permits are duplicated between different institutions, thereby increasing the cost of production for the local companies, especially MSMEs. For instance, land rates are paid to both the municipal council and the Ministry of Lands where the name is simply changed to rents, yet the cost serves the same purpose.
Additionally, the fee structure of product certification by certain institutions such as the Zambia Compulsory Statutory Agency (ZCSA) significantly increases production costs for smaller manufacturing entities. The structure from the outset disadvantages lower income earners of K100 million and below where MSMEs belong. Higher fees at 0.15% of factory income are charged whilst higher income earners of K500 million and above are charged a lower fee of 0.05% of factory income. Putting MSMEs at a disadvantage and making their products less competitive by increasing their cost of production compared to larger enterprises.
Certainly, this remains a counterintuitive argument especially that large enterprises enjoy the benefits of mass production which lowers unit costs of production and aid the pricing of goods competitively. On the other hand, MSMEs do not enjoy the benefits of mass production and are clearly disadvantaged with increased costs of production, which in turn increase the prices of goods produced.
Despite the threats on MSMEs, their importance to Zambia’s economy cannot be overemphasized because they are the foundation of all businesses. The Financial Sector Deepening Zambia report in 2017 highlighted that SMEs account for 97% of businesses in Zambia. On the other hand, the International Trade Centre (ITC) confirm that SMEs represent 70% of the Gross Domestic Product in Zambia and 88% of employment.
Aside job creation, SMEs help diversify the economy as highlighted in the Zambia Competitiveness Survey. SMEs in the manufacturing sector are involved in various activities ranging from consumables to chemicals and spanning over 20 subsectors. Should the competitiveness of SMEs be enhanced, these growth engine drivers in the form of MSMEs would enjoy more opportunities to add value to raw materials and participate in regional and global production networks.
Notably, MSMEs are important to the growth agenda, MSMEs were behind China’s positive economic growth story when every other country was in recession. Thus, for Zambia to achieve its vision of transforming the economy in the new Government, a conducive business environment must be provided to help MSMEs thrive, a first step would be to level the playing field for the costs paid by MSME’s at ZCSA.
While aware that the submission has been on the discussion table, the Zambia Association of Manufacturers makes a resolute call for the revision of the percentage of fees charged to be expedited. Rationalising the number of permits and licenses obtained to operate will greatly reduce the cost associated with the acquisition of the same.
ZCSA should consider placing fixed fees according to different bands of income as opposed to charging a percentage which tends to be expensive for MSMEs, thereby, increasing their costs of production and highly priced products which are less competitive against imports.
Finally, the land rent fee structure paid to the Ministry of Lands and the rates to the Municipal council need to be revised and if possible the fee be paid to one institution. SMEs by nature are small and their turnover is usually low. Most of these costs prevent the emergence of new MSMEs and makes it difficult for already existing SMEs to stay competitive, therefore, shutting down.
