11 June 2014

Tanzania: Red Tape Cripples Business Development

Zanzibar — ZANZIBAR's economy relies on three main sources of revenue: business, tourism, and agriculture (cloves, seaweed and spices), but the Islands Chamber of Commerce says authorities have not done enough to eliminate or minimize bureaucracy.

The Zanzibar National Chamber of Commerce, Industries, and Agriculture (ZNCCIA) says in its report on 'business environment in the Islands' that Zanzibar must fight bureaucracy should it want to move fast in development programmes.

It says research indicates that government reform of the laws and regulations for opening and running businesses do not seem to be improving even at the time when authorities in the islands have been encouraging foreign and local investors to open up business.

Academicians define bureaucracy as a system of administration distinguished by its clear hierarchy of authority, rigid division of labour, written and inflexible rules, regulations, and procedures, and impersonal relationships.

Once instituted, bureaucracies are difficult to dislodge or change. "Bureaucracy is obvious and arguably it has become part of the Islands' way of life, the government must act now to attract locals and foreigners into business for development," the brief report reads.

According to "Doing Business" survey, which evaluates the ease of starting a business, dealing with permits, registering property, and paying taxes, Zanzibar is ranked 155th out of 183 countries.

The chamber says that despite promises by authorities to improve business environment, people and companies who wish to start a business in Zanzibar are still discouraged by the level of bureaucracy embedded in almost all public institutions. It says further that "doing business" survey indicates Zanzibar is ranked 162nd to get started, 170th to register a property, 103rd to pay tax, and 105th for cross border or export.

"For example one requires to-follow ten procedures with unidentified number of days to register a property, this is four times above the international standard," Zanzibar Chamber says adding: "Registering a property cost 20.2 per cent of the value of the property to be registered, which is three times the standard average of six per cent.

This is caused by many tax bodies, and it is cumbersome for members of the business community including entrepreneurs in paying the Value Added Tax (VAT) in exporting products like seaweed, and it takes long." The most disturbing types of bureaucracies in Zanzibar are rigidity of laws and administration caused by unskilled labour, laxity even on applying the existing regulations, and corruption.

ZNCCIA observes that bureaucratic laws hamper development of business and stakeholders in business, including members of the business community, service providers and customers, remain unhappy with the most of the existing laws regarding business operations in the islands.

A senior ZNCCIA official says that it is high time stakeholders in business and the government take serious steps to end bureaucracy, "for sustainable business development."

She argues that laws, regulations, taxes, paperwork and time to fulfill the requirements when opening or running a business is one of the reasons why foreign investors are discouraged, and local entrepreneurs do not survive after opening a business.

Mr Ahmed Ali, an industrial manager in Zanzibar, says that someone starting a business has to get approval from no less than five government agencies, and that the final cost of the required documents is high.

"Zanzibar relies on business for its economy; therefore it is important to make Zanzibar meet the global standards. We are still very far away from it," Ali says, adding that such high level of bureaucracy creates an environment for corruption.

Backbenchers in the Zanzibar House of Representatives have for a long time repeatedly complained to the government that investors are unhappy with the business environment because of bureaucracy.

Mr Makame Mshimba Mbarouk (CCM-Kitope), Mr Hamza Hassan Juma (CCM Kwamtipura), and Ms Mwanajuma Faki Mdachi (CUFWomen) are some of the backbenchers who want the government to improve the business environment so that investors do not cross to Tanzania Mainland where it is less bulky to start a business.

A foreign investor who asked not to named says bureaucracy in Zanzibar is real: "I could have got my businesses running shortly when I first applied. I had to wait longer, and also tax by two different bodies: Tanzania Revenue Authority (TRA) and Zanzibar Revenue Board (ZRB) remains a headache."

Mr Omar Hassan, an economist, says Zanzibar has been changing gradually in improving business environment, but "bureaucracy is certainly an obstacle in business development including in micro and small businesses.

The attempt to establish one-stop-centre, a place where all the process would be done, has not solved the problem of bureaucracy. Bureaucracy can discourage creativity and innovation. Some of the effects of bureaucracy can be seen when attracting foreign investors, and when the young people start a business.

In Zanzibar there are many possibilities for developing business in areas such as agriculture and tourism should bureaucracy be controlled.

But these opportunities are of ten lost due to excessive bureaucracy that drives the investors away from these domains. Other negative effects created by the bureaucracy on business environment can also be found in tax payment.

The large number of taxes in conjunction with the time spent paying them; Time spent with obtaining information and documents required to open a business or to obtain some authorizations.

Other effects of bureaucracy are lack of transparency in the provision of public information by the public institutions; presence of the corruption in different forms in institutions; and behaviour of bureaucracy (employees of public institutions) that often hinder the activities of the entrepreneurs.

Lack of motivation, lack of education and training, conservatism (reluctance on everything new in the field), and selfinterest, which in many cases does not coincide with duties, are other problems of bureaucracy.


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