Can small businesses contribute meaningfully to Zimbabwe economy?

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Small businesses are increasingly receiving attention in Zimbabwe, as the sector is believed to be “an engine for economic growth.” World Bank reports indicate that Small and Medium Enterprises (SME’s) account for more than half of all formal jobs worldwide, and represent the majority of the business population in low income countries.

Several nice things are purported to be derived from SME’s; job creation, innovation and economic development. Locally, small businesses are viewed in some quarters as an untapped source of revenue.

What is a Small Business anyway?

Definitions and classifications of small businesses vary the world over. Loosely, these are privately-owned enterprises, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation.

The number of employees is the most widely used measure, albeit with large differences.

In the United States any enterprise with fewer than 5 000 employees makes the cut, versus the European upper limit of 50 employees and Australia’s 15.

The Zimbabwean scenario focuses on three bases, employment levels, annual turnover and gross value of assets, and the weighted combination of these points to a micro, small sized or medium sized enterprise. Many of what we call SME’s are in reality sole traders, self-employed individuals/professionals and start-ups.

The SME Association of Zimbabwe aptly puts it that “while there are several organisations that claim to represent SMEs, most of these, in reality, are focused on micro-enterprises.

“They have also failed to establish themselves visibly, and have also failed to roll out programmes that address the present nagging issues faced by the sector.

“At the other end of the scale, large business representative groups have likewise claimed to represent SMEs, but in reality have focused on the needs of big business.

“Their membership fees are also discriminatory in this respect, as small-scale enterprises cannot afford them.”

Their definition of small is businesses with turnover less than $240 000 or assets less than $100 000 and medium is enterprises with turnover and assets above the thresholds for small enterprises, but less than $1 million each.

In comparison, the Zimbabwe Revenue Authority suggests that SMEs can be defined as small or medium- sized business ventures in any sector of the economy.

These include small and medium companies, co-operatives, sole traders and informal traders. Activities include retail, informal traders, service provision, manufacturing and mining, among others.

According to their framework, a small company/business would have from 6 to 40 employees, annual turnover from $50 000 to $500 000 and assets from $50 000 to $1 000 000 in value.

Medium-sized companies would house 41-75 employees, and both annual turnover and assets of $1 000 000 to $2 000 000. We will defer to this definition, never mind the very wide ranges.

The “Ease of Doing Small

Business” In Zimbabwe

It has always been the intention of government to formalize small business; so that the sector can contribute to national revenue. This rhetoric is repeated at SME events, features on ministry of SMEs speeches and is highlighted in various media. The numbers suggest that this is feasible, a 2012 Finscope survey put forward that the SMEs sector in Zimbabwe has an estimated turnover standing at just over $7 billion circulating within the sector, with 2,8 million Micro, Small and Medium Enterprises (MSME) owners, owning 3,5 million MSMEs and employing 2,9 million people.

In response, institutions began to organize accordingly, adjusting to capture this sector that could easily sustain the annual national budget twice over.

Some years ago, I walked into the Zimbabwe Revenue Authority (ZIMRA) offices at Kurima House, enquiring about registering my company for tax. The serving officer thrust a white scrap of paper with typed details in my face and hastily explained the line items then went back to his work on his computer. I took no offence; it was a busy day, with many of us — small and big business owners alike, requiring his service at the front desk.

The requirements were within reach for my situation, but my internal motivation was strong because a small business tax advisor had convinced me of the virtues of being formally registered. I proceeded to do this in spite of the rushed experience I had on enquiry.

A few months ago, I was pleasantly surprised to walk into the same premises and realise that there was now a dedicated “small clients” section, and we even had assigned staff according to our company names arranged alphabetically. The issue of presumptive tax though, remains a poignant reminder that a “one size fits all approach” is still being applied and the focus is on collecting at all costs rather than adjusting to enable and encourage more small business to be tax compliant.

Similarly, most banks in Zimbabwe now have a dedicated “SME desk” manned by SME workers/specialists. Very often these are staff members that have been in the credit or corporate banking department, but are just dealing with a smaller threshold in financing.

One wonders (and worries) if they have had sufficient experience to enable them to empathize with small business owners — a general straw poll I conducted showed that many SME owners got the sense that banks (and bankers) were out of touch with their realities, whilst some micro-finance institutions were a little bit more flexible and willing to create products that match SME requirements.

Perhaps they would be better off stationed at the very centres of SME activity (rather than in posh offices) — “the field” and where possible hiring individuals that have run some enterprise and understand small scale enterprise development.

So do they contribute anything to the economy?

Without a doubt small business employ a notable number of people, often including their owners, but the quality of jobs is worth discussing. Very often they will not remunerate workers at the level that large corporates do and will quite likely stick to a basic salary with not much in the way of extras.

Employees will be willing to start of a career but the majority will happily move on to a bigger company that is viewed as secure. However, as more and more large companies fail, a job at a small business is welcome, buffeted by the next point.

In theory small businesses are said to be more likely sources of innovation than big businesses. The thinking is that small businesses tend to better understand their clients and do more to retain them such that they can completely overhaul their business models. They are more responsive and in need will iterate — closeness to customers spurs experimentation.

In an economy such as ours, fresh ideas, methods and approaches are welcome, these ensure the satisfaction of employees who remain motivated at work and by their employer staying competitive, thus continuing as a going concern.

The satisfaction of customers is guaranteed as well as they receive the specific products and services they require because the small businesses they patronize are more sensitive to their needs.

Because of the purported job creation role and innovation prowess of small businesses, creating an environment conducive to them is fast becoming a preferred economic development strategy. It is small businesses that are presently serving the communities on a day to day basis.

Over time, with the right support, they will grow to become big business. We will look into the state of small business policy in the coming week.

Feedback: Twitter @kumub,  email: kudzi@investorsaint.co.zw

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