Legal Discussions with Vengai Madzima: Investing in Business and Knowledge Process Outsourcing

NewZimbabwe.com has invited Mr. Vengai Madzima, the Senior Partner at Madzima Chidyausiku Museta Legal Practitioners (MCM Legal), to discuss with us legal issues that affect Zimbabweans. The discussions are of a general nature and those seeking specific legal advice should contact their lawyer.

Reporter: Welcome back Mr. Madzima. This week, we want to discuss investing in Business and Knowledge Process Outsourcing in Zimbabwe. What exactly does this entail for a foreign company that is looking to outsource some of its services? 

VM: In general, business process outsourcing follows its literal meaning of outsourcing business processes to third-party vendors located in ‘appealing’ jurisdictions to enhance or increase business efficiency, which reduces operational costs and allows the business to focus on its core areas.

A lot of businesses in the Western world have managed to maintain high profit margins by outsourcing certain business processes.

The processes within a business that may be subject to such outsourcing include call centers, accounting work, data processing, research and other technical support services.

This list is not exhaustive; it is more subjective to individual businesses and really depends on what knowledge operating process a business considers to be costly or inefficient to run or operate from their operating country and therefore requires outsourcing.

You will discover that India earns around USD60 billion in foreign exchange earnings from business process outsourcing while benefiting from job creation, which is a natural consequence.

Reporter: Is Zimbabwe poised to benefit from such BKPO’s?

VM: Our investment laws have been amended to incorporate and attract business knowledge process outsourcing by including it in the special economic zone status framework. You will recall that we covered Special Economic zones in a previous interview and their benefits to businesses and the country as a whole.

I also highlighted that businesses operating within these zones benefit from various incentives, be it regulatory or tax incentives, which do not apply to the rest of the players operating within that particular sector.

The reason being to attract new foreign businesses or players operating within this services sector.

On whether Zimbabwe is poised to benefit from such outsourcing of work and processes, it may be prudent to give a brief of what is commonly sought by companies wanting to outsource certain operations and then establish whether Zimbabwe is suitable or ready.

Companies looking to outsource services look for countries with technical capacity. You will agree that Zimbabwe is renowned for its skilled talent pool, as the country boasts one of the highest literacy levels in Africa.

The other is linguistic compatibility, since English is still widely regarded as the international trade language, the majority of our population are able to articulate issues fluently in English and other widely spoken international languages.

Most companies also look at other commercially attractive issues for cost efficiency, example, the cost of labour et cetera, it is my view that labour in Zimbabwe is still very cheap compared to developed countries around the world. Energy efficiency is another consideration; our laws to mitigate this have put it as a condition for licensing that the building subject to a special economic zone must demonstrate how it will ensure constant electrical supply, including backup systems.

That being said, I dare say that Zimbabwe is a prime location to host outsourced services.

Reporter: What actual benefits will accrue to the country from incentivizing businesses to outsource their processes to Zimbabwe?

VM:  I think on this particular question, the benefits are very clear; we have a large, educated but unemployed youth base that in my view, will be the direct beneficiaries of such businesses. General macro development will be fast-tracked as developed companies transfer technologies, in this instance, ICT technologies and corresponding skills to our local market.

Outsourced process services result in significant foreign currency earnings if we are to look at India, which earns around USD60 billion annually and China around USD19 billion from such services.

Current world market value for business process outsourcing earnings are around USD350 billion.

It is a market that is ripe for growth.

Reporter: How may a foreign business obtain a special economic zone license when intending to outsource some of its services to Zimbabwe?

VM:  The applications for BKPO special economic zone status are made through the Zimbabwe Investment Development Agency (ZIDA). The main considerations are whether the outsourced activities are being physically actioned in Zimbabwe within a building designated for that purpose. The relevant permits, being developer, operator and investor licenses, are in place and incentives have been negotiated and agreed with the Ministry of Finance with regulators informed of such incentives.

Reporter: Thank you, Mr. Madzima, we have run out of time.

VM: Thank you.

You can contact Vengai Madzima on vengai@mcmlegal.co.zw or at www.mcmlegal.co.zw

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