Crippling compliance costs stifle SME growth

ROBIN PHIRI

Small and medium enterprises (SMEs) in Zimbabwe are struggling to survive under the weight of exorbitant compliance costs, with some businesses required to fork out up to US$10,000 annually before they can even begin operations.

This financial burden is not only discouraging formalisation but also accelerating informalisation—now estimated to account for 65-70% of the national economy.

Findings from the National Competitiveness Commission (NCC) have revealed that Zimbabwe’s regulatory environment is overburdened with excessive red tape and high compliance costs, creating a major barrier to competitiveness in the SME sector. The cost of merely starting a business—estimated to exceed US$8,000 in some cases—is proving prohibitive for many entrepreneurs.

Sekai Kuvarika, Chief Executive Officer of the Confederation of Zimbabwe Industries (CZI), laid bare the plight of small businesses, particularly in the food manufacturing sector, where compliance-related expenses alone can reach US$8,000 annually.

“Most of these SMEs are not even capitalised to that extent,” Kuvarika said. “They don’t have that kind of turnover, they don’t have that kind of capital. So what exactly are we saying? We are saying they shouldn’t be there, because some of the violations would actually cause the SME to be closed.”

Kuvarika further criticised the lack of differentiation in compliance costs, noting that the current regulatory structure applies the same fees to all businesses, regardless of size or capacity.

“One of the challenges in our regulatory environment is that there isn’t a segmentation of the costs,” she said. “If you say ‘an SME’, the cost is what the entity charges, not what a certain size of business should be charged.”

The uniform application of regulatory fees—part of a one-size-fits-all model—is severely misaligned with the realities faced by SMEs. Many of these enterprises, which are often hailed as engines of growth and job creation, are pushed into the informal sector as a way of avoiding unaffordable compliance obligations.

This misalignment is not only stifling growth but also deterring new entrants into the market. Kuvarika warned that the system is discouraging innovation and competition.

“New entries will not be able to come in because they can’t pay US$10,000 in regulatory fees,” she said. “Does that encourage innovation and competition? We would be better able to promote both if we allowed more new entrants to participate—and that’s only possible if we address this level of regulation that we are charging uniformly across different business sizes and even across different regions.”

Currently, regulatory compliance accounts for just 18% of business overheads. Yet, businesses are further weighed down by policy inconsistencies, inefficiencies among regulatory authorities, and outdated laws—72% of which are more than 30 years old.

This reality calls for urgent reform. Experts argue for the streamlining of regulatory frameworks to eliminate redundancies, overlaps, and unnecessary complexity. The goal is to create a fit-for-purpose regulatory environment that fosters innovation and economic inclusivity.

Deputy Minister of Industry and Commerce Rajeshkumar Modi acknowledged the gravity of the problem, noting that despite Zimbabwe’s comparative advantages—natural resources, skilled labour, and strategic location—the country’s competitiveness remains hamstrung by regulatory burdens, high labour and energy costs, costly finance, and poor infrastructure.

“Government is committed to addressing those challenges,” Modi said. “It has cleared the way for NCC, CZI and NECF to undertake a Regulatory Impact Assessment initiative, where various policy intervention measures will be implemented to improve the country’s competitiveness across the board.”

Regulatory reform has since been elevated to a national economic priority. The Regulatory Impact Assessment (RIA), spearheaded by the NCC in collaboration with CZI and the National Economic Consultative Forum (NECF), aims to bring transparency, inclusivity, and evidence-based policymaking into the legislative processes affecting SMEs.

“The Regulatory Impact Assessment is a tool for improving the quality of regulation, and advising on inclusive and sustainable development,” Modi explained. “It systematically evaluates the costs, benefits, and unintended consequences of regulation. This is expected to go a long way in improving competitiveness through cost reduction and increased efficiencies.”

The RIA initiative emerged from a tripartite dialogue involving government, the private sector, and civil society, and represents a new collaborative model of policymaking. The recent RIA Stakeholder Dialogue brought together local policymakers and experts from South Africa to share insights and best practices in regulatory reform.

The event marked a critical turning point in Zimbabwe’s quest to create a more competitive and inclusive business environment. It also underscored government’s renewed commitment to working hand-in-hand with stakeholders to foster economic development.

As Zimbabwe aims to become a prosperous upper-middle-income society by 2030, experts agree that achieving this vision hinges significantly on the success of its regulatory reform agenda. Without it, SMEs—the backbone of the economy—will remain trapped in a cycle of informality, stunted growth, and lost potential.