Another lesson in how not to expand the tax base.

The Micro Small and Medium Enterprise Order (2020) is being touted by some as a way for MSMEs to benefit from Government procurement.

But whats not being talked about are the far reaching effects that may result from the correct and totally lawful business registration which the order requires.

Isn’t it the case that as soon any MSME registers as a business, the taxman will at that point be entitled to show up, arms akimbo, sniffing for any tax kwachas that may be lurking around undeclared?

Jokes aside, my point is there’s no guarantee that every single business that registers will benefit from the order. This is why in some countries there is always an option to run micro businesses as sole traders where it is in fact the person running the business who is liable for any taxes that may be due.

Malawi currently has a small tax base, and a small private sector. And while on the surface it may appear like a good idea to try and bring into the formal economy as much as possible of the informal economy, in practice that only works when people do actually have significant resources, which is not the case now, for the majority of people in the informal economy – many of whom live hand to mouth. Already, many small businesses complain that they are overburdened by taxes.

What the Government should have done is to focus on the creation of new large corporate entities… beyond Public – Private Partnerships. I mean organisations that can process goods at scale and export large quantities abroad, at a profit.

You can only squeeze so much profit out of a starving donkey which the Malawian tax base currently is. If you push too hard, and burden the donkey with more than it can take, that donkey will crumble and faint. And you will lose out.

A wiser move is to bring additional resources from outside the country. Our leaders are not seeing the bigger picture in this whole equation. The money is not in asking Malawians to pay yet more taxes.

And for those of you saying it would kill local small enterprise, no it would not. Because those corporate entities can actually work with those small enterprises you mention, helping them in more ways than one, minimally, saving them money. Our leaders need to start thinking like business men/ women.

Let me give you a simple example. Suppose the Government of Malawi (GOM) started a shipping company, and bought 2 Cargo Ships. Instead of the local shipping companies paying British or Italian or Greek Ships, GOM can enter the market at attractive terms, so that those local companies instead use the GOM Cargo Ships, saving a bit of money that way. The insurance of the Ships will be provided by local companies. The trucks which collect the containers from the port will come from Malawi… the whole chain will employ Malawian staff … even some of the food, and generally provisions on the ships for the staff who will be working on deck in the weeks that the Ships navigate between the European / American/ Asian ports and African ports can be cooked or prepared by Malawian companies…

How can all that be a bad thing?

That’s just one example in the logistics field which would give GOM millions of dollars in additional revenue, if you consider the annual earnings of other shipping companies that operate between Europe / US and Africa.

It’s a model Ethiopia (and many other countries) uses quite successfully with their airline and their state owned telecom company. We can learn a lot from them.

Product Appeal: Winning hearts and minds

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Remember my post here, on Corporate Longevity?

Well, a friend recently talked about something similar. He suggested that one of the reasons why most African companies, and their products do not receive widespread appeal worldwide is because they make very little effort to win the hearts and minds of the consumers, or of potential customers. Their main focus is too narrow, and they do very little to win customers beyond the horizons.

“It’s as if they know the domestic customers are there to stay and have nowhere else to go get the product” he said

He cited a recent article(OP-ED) (I think I may even have sent this link to him) written in the New York Times,  titled The Romantic Advantage, by David Brooks, which argues that Americans are better than the Chinese at creating well-known brands because Americans put that little bit extra into their brands. Because most of the branding specialists are essentially romantics who see brands more as artistic creations (apparently some even see them as spiritual creations), and not just generic names of products.

“How can they find buyers here, if the product doesn’t look good? Consumers here are demanding, they are sophisticated and want more” he says, and adds  “Never mind what’s inside the can, if the outside is not convincing enough, how will buyers of retailers here or in America even consider it?”

I find myself agreeing with him, that essentially the branding of the product must look good to make it to the shelf. Over the last few years I have studied some of the packaging and products out of Africa, including some out of Malawi. Mainly, foodstuffs and other small commodities. I have compared these with some of the branding and packaging of products from Europe and Asia (for example South Korea, Malaysia) and other parts of the world. Not necessarily like-for-like products. To my dismay, most of the products out of Africa simply don’t look good enough, in comparison to those from elsewhere. The quality of branding is somewhat substandard, at times it’s as if it were done in a rush. Some even have spelling mistakes!!

I’m not saying that the branding on all products of African origin (or out of Malawi) is bad, or that the products themselves are no good. No, that’s not what I’m saying. What I’m saying is I think there is quite a lot of space for improvement in terms of the allure of the branding of some of these products.

And while in some cases a company’s cost-saving exercise dictates the amount of money that is spent on branding, such cost-saving can be ‘overdone’, with the consequence that you end up with a product whose appearance is bland and devoid of any appeal. One which does not attract customers, but instead repels them. Branding which will not sell, at least not in markets beyond the home market. Obviously, this is not an ideal situation as it limits the potential of the product. These manufacturers may be losing money simply because their products do not appeal to a wide range of customers, and this anomaly could ultimately dictate the success of the product (or even the company making it)

Below is a random collection of pictures of products from within African and those made outside Africa (which includes the ‘Malawi Mango‘ juice from Bai, an American company)

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