These sweet words sound so good but are nothing but a pack of lies. This happens in all countries, but Zimbabwe is particularly vulnerable because it has a predatory and greedy elite who will do anything to enrich themselves at the expense of the people and the country.
One of the most deceiving lies that has been going around for some time involves the ownership of businesses, both local and foreign. There are people who want to confuse you in order to enrich themselves immensely and at your cost, and the countrys cost without doing a stroke of work.
A case study
To explain what I mean I will give a worked-out example. Although it is an imaginary company the figures are representative of almost any business. Let us consider an agricultural business growing a product like cotton.
Let us say that the turnover of the company is US$100 million a year. Here are some figures to look at:
Turnover is US$100 million a year.
Profit is US$10 million a year.
Tax on profit at 40 per cent gives us US$4 million which goes directly into the national coffers.
Now let us say the profit is US$10 million or 10per cent. This is a reasonable average figure. Let us also say that the tax on the profit is 40 per cent, which is also reasonable to assume. So, the nation gets US$4 million directly out of a turnover of US$100 million
Now the shouting starts, Where has all the money gone? And how come we only get four per cent? We need to take over this company so that we get all the money! That is lie number one, and possibly the greatest falsehood of all.
Here are the figures for the above hypothetical company:
US$100 million total turnover of which US$10 million is profit
US$4 million in tax to government
US$6 million in profit to owners.
US$90 million left over. What happens to this?
Well, here is a typical split:
US$10 million in imports for parts, fertiliser, machinery and so on. Of this amount of course the government gets the Import Duty of say US$2.5 million, which adds to the US$4 million above making it US$6.5 million to the government (the nation). We now have US$80 million left. Heres how it could be split:
US$30 million for water, electricity, communications, rates etc.
US$30 million for salaries and wages
US$20 million for local purchases
What is always unsaid is that the US$80 million spent locally goes directly into the economy, paying wages, salaries, local purchases and so on. None of this US$80 million leaves the country. When you add in the taxes, the nation collects US$86.5 million and whoever the owners are get US$6 million. The missing US$10 million goes on imports, which cannot be changed.
Now we see that the owners make US$6 million or six per cent on their investment, which is in reality quite low and the nation benefits to the tune of US$86.5 million or 86.5 per cent of the turnover. Now you can see why all prosperous countries are so keen to encourage business and investment, whether local or foreign does not matter because the benefits to the economy are huge.
Local ownership
Now lets talk about local ownership which gets some of those people who have lied to you very excited indeed. Firstly, does it matter to the mangers and workers who actually owns the majority of the shares of any company? Does it make any difference to their income or their daily lives? The answer is, no of course not. The reason for all the shouting is that a number of already very rich individuals want to get control of the business at next to no cost to themselves, or preferably for free. What we have seen so tragically is that the business then usually winds down, assets are sold off and in the end all the Mangers and workers lose their jobs. And of course when the business closes the nation is now missing the US$86.5 million that was previously coming into the economy. Missing as well are all the taxes paid by those who used to work for the business.
Businesses of any sort are fragile and are easily destroyed by incompetent management. Whether agricultural, industrial, mining or commercial, in order to grow and prosper a business requires skilled and honest management with the long-term good of the business their number one concern.
Every developing country, and even developed countries, cry out for investment in order to make their economies grow and in order to provide jobs for the people. No business means no jobs, as we have so cruelly seen over the past years.
All business and investment should be encouraged. This is best done by openness and honesty and strictly sticking to the rule of law. The purpose of government is to facilitate business, not frustrate it. Existing businesses must be given the opportunity to grow, and new business ventures should be encouraged. It is totally destructive to try and change the ownership of existing businesses by force or by legislation; it will just cost jobs and further impoverish the nation.
Post published in: Economy