Zimbabwe: Exorbitant Rentals Push SMEs Out of Business

Small to Medium Enterprises (SMEs) in Zimbabwe are faced with a major operational challenge emanating from the high cost of commercial renting.

How commercial rentals are being increased on a monthly basis leaves one to wonder if the real estate sector is not an avenue being used to disrupt the Government's economic development agenda.

The following questions need to be asked:

  • Who owns most of the commercial properties in our cities and towns?
  • Why is it that there is no legal framework to regulate commercial renting?
  • Why is it that each time a statutory instrument governing the sector is gazetted, there is an outcry from some sections of the media that the government is interfering with property rights?
  • With the way commercial rentals are being increased willy-nilly, is this not going to affect the Government's ambitions of achieving an upper-middle-income economy by the year 2030?

There is need for the Government to move with speed and restore order in the real estate sector.

The exploitation by the real estates is not in sync with sustainable business principles and ethics.

During the colonial era, the colonial settlers were constructing building stock that were enough for the settler community.

As a result of stagnation in commercial urban development, unlike housing, there is inadequate space for current SMEs to operate from.

And invariably, the costs thereof due to market forces always become out of reach for the SMSs.

As a result, you find an SME operator moving around selling wares with his body operating as a warehouse, storeroom and showroom, or selling from a car boot, Whatsapp group, residential places and pavements.

The growth point models have contributed immensely to black empowerment as most of the properties are owned by indigenous Zimbabweans and the rentals in such semi-urban areas are within the reach of SMEs.

The argument being put across is that when most cities and towns were being established during the colonial era, they were developed according to statutory instruments that benefited few capitalists, hence segregation against the indigenous people in owning commercial properties in central business districts.

The poor urban planning and development model in most cities has hampered an opportunity for most indigenous people to construct commercial buildings in cities and towns.

This has maintained the foreign-based cartels that are controlling commercial buildings in our cities and towns.

Some real estates operating in Zimbabwe have taken advantage of the lapse in the enforcement of Statutory Instrument 33 of 2019 and the Monetary Policy Statement of 2021 which compels rental from commercial properties to be paid in both the Zimbabwe dollar and foreign currency using the official exchange rate.

In cities like Masvingo, Harare, Bulawayo, to mention a few, business commercial property rentals have been skyrocketing, putting more pressure on the businesses, hence resulting in a sharp increase of prices of basic commodities, as operators try to cover for the rentals.

The real estates are demanding rentals in United States dollars only from their tenants who are largely composed of small to medium enterprises.

Lease agreements do exist, but most of the SMEs are forced to sign them because there is no other better option to operate from.

Demanding commercial rentals in the United States dollars only and rejecting payments using the Zimbabwean dollar is illegal and a ploy to jeopardise government efforts in reviving the economy.

Such illegal practices by the real estates sector is increasing the demand of the US dollar on the market, therefore, putting more pressure on the Zimbabwe dollar, hence subsequently weakening its value.

It has been estimated that due to the high cost of commercial rentals, about 65 percent of small and medium businesses do not last beyond 12 months.

Those that are resilient are having their profits being eroded by the rentals.

If the SMEs fail to pay rentals in United States dollars mainly because they transact their goods in the Zimbabwe dollar, the real estates are quick to evict them, as well as confiscate their goods in compensation for the rentals.

The most pertinent question is: Who will protect the SMEs that are operating within the confines of the law?

Demanding payment in US dollar has had a huge negative impact on Zimbabwe's economic development as the small to medium scale enterprises are forced to channel working capital to meet the high cost of rental obligations.

Zimbabwe as a country is likely going to miss some of the United Nations Sustainable Development Goals if commercial rentals are not regulated.

The other effect is that the cost of goods is likely to rise as operators battle to raise funds to meet the rental obligations.

If commercial rentals are not regulated, Zimbabwe is mostly likely to witness a scaling down in business operations as operators are forced to shut down and try their hands elsewhere where conditions are favourable.

The described scenarios will hurt the economy of Zimbabwe as many SMEs operators are likely to go out of business, affecting their employees.

The Government will suffer losses in taxes too, as many SMEs are now paying presumptive taxes.

Yes, a free-market economy is attainable, but some economic sectors need a guided operation framework for the country to achieve a broader economic development spectrum.

It is good that the Government is encouraging a private sector led economy, but there are some areas that need regulation to ensure capitalists do not take advantage of the people.

The government's interests are about the people, yet the private sector is interested in exploiting the people for its benefits.

Even with a conducive business operating environment that was created by the New Dispensation, the business sector is still playing some hide and seek games.

A free-market economy needs a change of mindset among the captains of business in Zimbabwe, who appear more focused on lining their pockets more than enhancing the livelihoods of the people who are sustaining those businesses.

A free-market economy is never possible when we have less than six regional and international supermarkets that are controlling the whole food supply chain.

It's a story for another day!

The Government must move with speed to regulate commercial rentals to promote a sustainable and inclusive business environment, as people must be at the centre of economic development.

This can be a cocktail of measures that guide the real estate sector when it comes to charging rentals.

If the Government and financial institutions can avail loans SMEs as a financial inclusion mechanism, this can help uplift the small businesses.

But this has to be done together with measures to align commercial rentals, others the loans will be diverted towards the rentals.

Regulating commercial rentals will come as a relief to the business community and subsequently develop the small-medium enterprise sector.

In conclusion, it must be pointed out that there no justification for high commercial rentals, as they end up stifling the growth of small businesses.

The real estate sector is not justified at all in maintaining the restrictive rentals, and the only explanation for the actions is that the players are being pushed by greed and some hidden political agendas.

Happison Chikova is studying for an MSc in Global Food Security and Nutrition with the University of Edinburgh. He holds a BSc Honours Degree in Geography and Environmental Studies from Midlands State University. 

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