SMEs: Why Zimbabwe’s most neglected ministry is exactly what it needs to solve the current economic crisis.

Since being sworn in, Zimbabwean President Emmerson Mnangagwa has lead with his iconic “Open for Business” mantra in a bid to lure foreign investors and revive the ailing economy. Immediately repealing the Indigenisation Act and putting in place other investor-friendly policies such as tax breaks, the current government has been busy at work. Although initially being aflush with talks of mega-deals, billion-dollar investors and more FDI than some of Africa’s first growing economy, it’s now 2 years down the line and there’s very little to show for it.

Was the government perhaps overfocused on looking outward for help?

Don’t get me wrong, a few billion-dollar investors could have gone a long way in solving the nation’s woes but maybe Zimbabwe’s problems can be solved by Zimbabweans themselves.

Since the inception of the new dispensation, we have seen 3 ministries taking lead in the development agenda, primarily the Ministry of Finance, headed by respected economist Prof Mthuli Ncube, Ministry of Mines, led by mining industry veteran Winston Chitando and the Ministry of Lands, Agriculture and Rural Resettlement under Retired Air Chief Marshall Perence Shiri. Although these 3 are key for development, it has also lead to the neglect of other key ministries which could help catapult Zimbabwe into emerging market status. These key ministries include the Ministry of ICT, Ministry of Tourism and Ministry of Women Affairs, Community, Small and Medium Enterprise Development. In this article, I highlight opportunities presented by Small and Medium Enterprises, how they could answer some of the challenges Zimbabwe is experiencing such as high unemployment and runaway inflation and what government through the Ministry of Women Affairs, Community, Small and Medium Enterprise Development can aid in this development.

Small to Medium Enterprises (SME’s)

Although many different definitions exist SME’s are usually taken to be small organisations with 0–100 employees. World over SME’s have been noted to be innovators and trailblazers in the respective fields as the lean structures allow for faster decision making and more experimentation than their larger more-traditional counterparts.

Although small in size, SME’s play an important role in the economy normally making up a majority of businesses in most countries. Statistical data estimates that 98.2 % of United States firms covered by the 2016 Census Burea report are SMEs. This estimate is in line with most developed countries with China having 97.9% and the UK having 99%.

Formalising the informal sector

Unemployment is rife in Zimbabwe, with some source putting figures as high as 95%. A huge segment is largely youth, some even with university degrees and pre-requisite skills for the job market but alas the formal sector has no room to accommodate them. As a result, the majority have turned to the informal sector as a lifeline, this sector now comprises the biggest chunk of the national economy. This, however, is unsustainable as the informal sector is outside regulation and outside taxation. This means there is little to no consumer protection on any goods bought in this sector, this is a huge risk to the consumer. Also, this sector doesn’t pay any direct tax meaning they get to enjoy all the benefits of national infrastructure (roads, electricity, water, etc) without contributing in any way. This is bad for any economy.

The government needs to find ways in which to incentivise business in the informal sector to formalise. This will not only increase the amount of tax the government can collect but has the indirect benefit of job creation thereby reducing unemployment. Increasing the number of businesses in the formal sector also encourages competition in the various fields the business are participating in.

How can the Government assist?

SME’s face a lot of challenges in starting up and carrying out day to day business, the government can step in and help ease some of these burdens. For example, one of the main challenges experienced by SMEs is funding, according to the World bank:

“SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises” — World Bank.

Government through the Ministry of Finance and the RBZ can help in drafting policies that offer Priority lending to SMEs making sure the SMEs are right equipped for growth. In addition to priority lending, banks could offer low interest or collateral-free loans (requiring monitored spending) to reduce the risk associated with starting a business and encourage and empower Zimbabweans to start their own businesses. Other policies might include subsidies, tax exemptions and rebates for SMEs in strategic fields such as transport, ICT and financial services which are crucial to the overall growth of the economy.

A major issue in formalising the informal sector in Zimbabwe is how hard it is to register a company, the process currently can only be done from Harare and even when you know what you’re doing the process takes at least 4 days, with 1–2 days being just for the name search process. This is a major huddle in the ease of doing business and the government needs to make the process of company registration as easy as possible. The process needs to be streamlined and migrated online so that anyone even a villager in Uzumba can register his business from home and have his business license by the next business day.

Businesses in the informal sector also cite high taxes as another impedance in their road towards formalisation. The current tax regime is incognizant of small businesses and was developed for a highly industrialised economy, as was the case pre-independence. Major industries and factories have since closed down and the economy is now largely supported by SMEs, as such tax structures should be revised accordingly.

Another area in which the government can promote SMEs is through promoting local business through platforms such as the BUY ZIMBABWE campaign, access to international fairs and local media coverage. Going a step further government can put up a policy which will see a significant percentage of tenders awarded to SMEs as a way to encourage growth in the sector.

SME’s offer an immense opportunity for development and job creation. During the recent budget announcement, Minister Ncube set aside 500 million Zimbabwean dollars towards a Venture Capital fund to help fund startups, while this is a positive step, the government needs to be more proactive in solving the challenges faced by small businesses and startups.