Demo

Demo Topics

HOW AND WHY GOVERNMENT AND tHE COMMUNITY INFLUENCE BUSINESS ACTIVITY

By the end of this subtopic learners should be able to:

Discuss why the State needs to regulate business activity.
Give reasons why the government assist business start-ups.
State and explain ways in which consumers are protected by the government and how they can protect themselves.
explain how government proctect the employees.

Government and community influence on businesses

Government and community are there so as to aid and control business activities.
The government must have role to play in aiding and influencing the business system approach.
The main objective of the government is to keep business growing for the benefit of the nation at large.

Government macro- economic objectives

Objectives are goal of government policy which is achieved through designed instruments.
Government instruments are the means by which these aims might be achieved.
Economic policies that are used by the government of Zimbabwe include: �

1. Monetary policy

The monetary policy in Zimbabwe is laid down by the central bank that is the Reserve Bank of Zimbabwe.
It deals with the management of money supply and interest rates to ensure price stability and general trust in the currency.
Objectives are changes in interest rate, supply of money, value of the exchange rate and credit policy.

2. Fiscal policy

Fiscal policy is a document drafted by the government as a watchdog on its spending levels, borrowing limits, tax rates and a measure of nation's economy.
Its main objectives are to monitor government taxation, spending and borrowing.

Objectives of Zimbabwe Macro-economic Policy

1. Making inflation rate lower

Inflation is the increase in the average price level of goods and services at a given period.
The government's inflation target approximately below 10% of the consumer price index.

Problems of increased inflation

Businesses fail to expand
High unemployment
Native products prices will be higher compared to other countries.(increased average cost of production)
Poor standard of living

2. Reducing unemployment rate

Unemployment is a situation where by more people are willing to work but not able to secure jobs.
Government wants to� increase employment.

Problems of unemployment

Give rise to the problem of poverty
Lower economic growth
Promotes deviances behavior on youths
Increase crime rates
Health issues

3. Increasing Gross Domestic Product (GDP)

GDP is an estimated value of goods and services produced within a country within a year.
It leads to economic growth which improves the standard of living.

Problems of reduced GDP

Reduce business growth and expansion
Increase unemployment
Lowers the standard of living

4. Balance of payment

It is where by country's exports are equal to imports.
Imports are services and goods bought in by one country from other country
Exports are services and good sold to other countries.
Positive balance of payment is where by export exceeds import.
If the balance of payment is negative, it means that there is deficit this means that imports are more than exports.

Problems of negative balance of payment��

Cash circulation shortages.
Fall in exchange rate.

5. Control of monopolies

Monopoly happens when one firm dominates a certain sector of business activity.
It is the government's mandate to control the buildup of monopolies.

If they are not controlled they:

Fix high prices since there is absence of competition.
Poor goods are produced.
They prevent entry of competitors.

6. Improving living standards

Government intervenes, regulates and protects business activity

This happens because they want:

To curb monopolies
To prevent unfair pricing practices
To reduce social cost for example air pollution and environmental degradation.
To promote indigenous business.
To source income used to fund national development and societal spending through tax collection.
To reduce unemployment and illegal employment practices.
To prevent unequal distribution of factors of production.
To prevent technology that destroys morale stratification.
To prevent gender imbalances.
To promote customer protection.
To create favourable balance of trade.

Why government support business start -ups

It reduces unemployment - new business creates jobs.
It creates competition, which gives consumer more choice and competes with already established business.
Increase output in the economy of the country.
Growth, all business starts small and become large, due supported by the government.

Type of support the goverment often gives to start-up business

Needs of business start-ups Goverment often gives support through: Idea and help In-service training and workshops for small start-ups. Premises Lower cost infrastructure Finance Loans for small business are offered at a lower interest rate , if the business locate in undeveloped areas, the government offer assistance through grants and subsidies. I n Zimbabwe, the goverment introduced department of SME's to cater for their needs. labour Grants to small business to train employees and help increase their productivity Research Encouraging educational institutions to make their research facilities available to new business founders.

Why government helps business

To encourage development of new ideas and entrepreneurship that assist in setting up and survival of new businesses.
They create employment, which raise the standard of living.
They bring infrastructure development (develops poor areas of the country).
The help to bring about balance of trade (the government support through offering subsidies and grants).
Reducing the corporate tax rate.
Offering tax credits for investment in training and education
Increase the deductions for investments.
Establishes laws that protect intellectual property (Any government that shield small business needs should produce laws that protect the innovations of entrepreneurs).
Create business incubators (research centre like University of Zimbabwe).

Forms of assistance the government offer to businesses:

Financial Schemes and Subsidies

Government subsidies and give grants to small firms to promote their growth.
Subsidies or tax reduction to exporting businesses.

In-service workshop

These are platform of acquiring what SMEs need for growth, modernisation and diversification.

SMEs Programme

Government establishes SMALL ENTERPRISE DEVELOPMENT CORPORATION (SEDCO) which:
Mobilising easily available capital for entrepreneurs.
It acquires from organisations such as NATIONAL SOCIAL SECURITY AUTHORITY (NSSA) and focus on lending to entrepreneurs.
It acts as guarantor of loans originating from banks.

Product Development Board

Board which helps and encourages the development of new products.
It facilitates funding for product development.

Training, Education, Research and Development Assistance

Introduction of indigenisation and economic empowerment programme which recognise investments in communities and training and education by companies.
It also used to push policy reform that promotes small business development.
They organize place which is used to market products within and internationally.

Default of payment from foreign customer.

The government guarantee for payment in case foreign customer fails / refuse to pay.

Creation of proper tax and Regulatory environment

There is need for the government to continuous reforms the tax policies so that they promote small business growth.
�Advancing policies that reduce the risk inherent in entrepreneurship by establishing a pool of government guaranteed loans, which form the foundation for small business sector.

Factors influencing the location of a business

Availability of raw materials in that area.
Rent cost- in some areas the cost of rent will be high whereas in other places it will be less, for example, in rural or urban areas.
Nearness of suppliers to reduce the cost.
Availability of labour
Technology- some services require the use of internet hence they need to set up a business where there is internet access.
Power and water supply - so that the production process is not disturbed by any shortages.
Transport and communication- for easy transportation of goods to customers.

How the government influence the location of a business

One of the objectives of the government policies is to improve economic growth.
The government may influence on where the business should locate as long as it encompasses their objectives.

How the government intervenes

Offer funds to a business to locate in a certain area, for example, a company that processes maize can be encouraged to locate near maize farmers so as to reduce transport cost and have a ready market for farmers.
The government can restrict business to locate in certain areas. This can be done to protect people in that area especially if the company is producing harmful products or waste, for example, air pollution.
They can reduce tax for companies to locate in a certain area, this can be done to develop that area and create employment, for example, the government can encourage companies to locate in rural areas.
Government can also increase tax levy to companies that wish to relocate.

Why government encourage businesses to export

To increase tax bracket of government.
Reduce unemployment by creating employment through international trade.
To acquire foreign currency through exportation.
To increase gross domestic product of the country.
Exporting improves economic growth

Reasons for state intervention in lending and providing capital

The state intervenes so that financial system is in line with the International Standards.
To examine books of accounts and records of the banks, so that they are in line with the state regulations.
To protect consumers against exploitation.
To ensure financial system stability.
To detect difficulties in the financial system and restore them to financial health whenever possible.
To ensure safety and soundness of the banking system.
To avoid discrimination.
To upkeep professionalism and integrity.
To raise revenue for government through taxation.

How the state intervene in lending and providing capital

The state passes a Microfinancing Act which consist of regulations which covers:
- Registration of lending institutions
- Minimum capital requirements
- Limits on lending
- Collateral security requirement
- Standard loan documentation requirements
- Consumer protection
- Preventing fraud and financial crimes
- Developing policies on interest rates
State offers subsidies to institutions with financial difficulties.
The state charges taxes to institutions.

Reasons for state intervention on exports

For quality assurance.
For national security.
To protect consumers.
To protect jobs and industries.
To promote economic growth.
To gain influence on other nations.

How the state intervene on exports

By giving subsidies to business organisations.
By imposing tariffs and important quotas.
By controlling currency.
By implementing administrative policies.

Cost - Benefit Analysis (CBA)

It is a process of weighing the advantages (benefits) and disadvantages (costs) of a project or business activity in order to make an informed decision giving different alternatives.
All the� benefits and costs of any project are quantified in monetary terms to get the correct estimates when conducting Cost Benefit Analysis

Any project brings social costs and social benefits

Social costs

These are the total cost (which is a combination of private costs and external costs) to the society.
Private costs are all expenses incurred in provision of products, for instance, cost of land, labour, transport, etc.
These are costs which are incurred by the producer.

External costs are costs incurred by the third party meaning the one who is not directly involved in the project, for example, noise, water and land pollution, health hazards and congestion on land.

Social benefits

�These are benefits (private benefits and external benefit) that are associated with provision of products to the society.
Private benefit is direct gains that an individual or firm derives from business activity, for example, profit made from sales.

External benefit is a gain incurred after consumption of goods and services, for instance, employment creation, infrastructural development and government tax revenue.

Procedures when making cost benefit analysis of a project

Step 1

List all the costs and benefits that are associated with the intended project.
All the costs and benefits should be identified before going to the next step.

Step 2

Put the monetary value on the costs and benefits identified in step 1.
Monetary value may help the assessors to calculate the cost benefit of the project to be carried out.

Step 3

Compare the value of value of cost and benefits inoder to make the sound decision.
If the benefits outweigh the costs of engaging in to a project the business should carry on with the project.
On the other hand, when costs outweigh the benefits the business should abandon that project.

From the diagram, costs are outweighing the benefits so the business should abandon the project.

Cost is the monetary value used in the production of goods and services.
Benefit is the advantage obtained after consumption of products measured in monetary value.

How the government protects the employees

The importance of employees' input in any organisation determines the success of any business.
�It is important for the government to protect the employees because some companies tend to exploit them for their own benefits.
It is the duty of the government to ensure good welfare of employees in any organisation.

Government laws in protecting the employees

Government passed labour laws that govern how the organisation should operate.
Known as the labour act.
The following are some of the laws passed by the government aimed at protecting the employees at work:

Law against discrimination

Employees are protected from unfair treatment at work.
Examples can include, gender based where the organisation may pay workers based on whether female or male.
It can also be against sick people, any organisation is not supposed to discriminate sick people especially those suffering from HIV/AIDS.

National minimum wage

�This is done to prevent the employer from paying workers less than they should earn.

Working hours

�In Zimbabwe normal working hours should be eight (8) hours, working overtime should be rewarded.

Prohibition on forced labour

Employees are not forced to do any work against their will unless if they have signed a contract with the employer which binds him/her to do the duties listed under that contract.
Every worker is entitled to paid leave days so that they get time to be with their families

Consumer Protection

These are measures that are put in place to ensure fair trade, competition and accurate information is passed to consumers.

Why consumers require protection

To reduce unfair trading practices by traders, for instance, overcharging, incorrect weights and measures and misleading advertisements.
Consumers are ignorant of their rights.
Unfair repossession of goods by traders on goods that have been bought on credit or hire purchase.
Inability of consumers to assess advertisers claims.
To protect consumers from unhygienic goods.
To avoid immoral advertisements that underrates culture of consumers.
Some goods are produced from inferior ingredients which are not known by consumers.
Some religious beliefs need to be safeguarded, for example, Muslims do not eat pork.

Ways to protect consumers

1. Consumer self-protection

Consumers should prepare a list of what they want to buy prior to buying.
Consumers ought to compare prices in different shops.
Advertisements should be read carefully, that is not in a hurry to avoid being misled.
Consumers should make a thorough inspection on the labels before buying.
Credit commitment should be entered when one is really aware of everything involved in the agreement.
Consumers should check on guarantees attached to products they want to buy.
Consumers should check for the seal of approval.
Consumers should be aware of their rights.

Consumer rights
The right to satisfaction of basic needs

All basics (commodities and services) should be made available for consumers. The basics include shelter, clothing, health care, education, public utilities and water.

The right to safety

Commodities and services should not harm consumers.

The right to be informed

Facts should be given to consumers so that they make decisions.

The right to choose

There must be availability of different products and services.

The right to be heard

Consumers' views must be taken into consideration.

The right to redress

Consumers must be treated fairly, for example, when being compensated.

The right to a healthy environment

They require protection from environmental hazards.

2. Protection by the government

The government put in place laws that control activities of traders.
These laws are passed by the parliament.

Hire Purchase Act

This act forbids unlawful repossession of goods that have been bought on credit.

Consumer Safety Act

The act is there to make sure that products sold are safe for consumption.

Fair Trading Act

Trading should be fair.

Sale of goods Act

It states that goods must be produced in such a way that it fits the purpose for which it is meant to.

Trade Measures Act

It also called weights and Measures Act.
It forbids under weighting and incorrect measures of goods and services.

Food and Drugs Act

It forbids improper labelling of goods.

Price Control Act

It forbids overpricing of products and services.

3. Protection by pressure groups

Pressure groups are individuals who share the same interest with a purpose of achieving a certain goal.

The Consumer Council of Zimbabwe (CCZ)

It is there to take consumers' complaints and investigate them.
It acts as a mediator amongst consumers and traders.
It teaches consumers specifically on their rights.
Spot-checks are conducted in order to maintain standards.
It also promotes quality manufacturing, labelling and creation of moral advertisement.
It recommends that goods must be tested and published the results.

The Standard Association of Zimbabwe (SAZ)

It gives guidelines on standards to be met by manufacturers.
It receives and adjusts global guidelines on quality.
Gives copies to producers which specify standards to be met.
They conduct spot-checks for products.
It gives permission to companies to use SAZ mark of approval.
It guarantees that quality products must be produced.
Encourages consistency in the manufacturing of products.

Advertising Media Association (ADMA) of Zimbabwe

It is a code of advertising practice.
It is there to set the standards of advertising that organisations should� follow.
ADMA make sure that all advertisements are legal, decent and truthful.
It promotes fair advertising competition among business organisations.
It does not allow adverse and misleading advertisements.