eBusiness Weekly
Dr Sanderson Abel
The Micro, Small and Medium Enterprise (MSME) Sector has been identified as a key pillar of economic recovery for Zimbabwe and it is not surprising that a lot of healthy and inquisitive questions are being asked by stakeholders about this sector.
One of the key economic questions is the perceived financial resources circulating in the informal sector and methodology required to harness them for economic development.
Other key economic questions evolve around how the informal sector’s contribution to the overall economy can be better understood, measured and accounted for.
Whilst intuitively it is acknowledged that the MSME sector is contributing immensely to the overall economic lifeblood of the economy, providing livelihood through self-employment opportunities for many, with the larger SMEs creating employment for others beyond the immediate owners.
MSMEs also play an important role in providing those goods and services that would be unsuitable for large formal businesses such as hair salons and car wash parlors. In our case in Zimbabwe the major distribution networks for the largest companies in the telecoms and beverages sector consist largely of informal traders, highlighting the importance of the sector.
The debate therefore is no longer about whether or not MSMEs are important, but how their role in the economy can be enhanced.
In pursuit of some of the above answers one key thing that always sticks out is the fragmented and fractured structure of the MSME sector.
This attribute contributes to the fuzziness of the lens through which policy makers and other stakeholders view the sector. The apparent disorderliness that characterises MSME operations at the business level and the sector at large normally evokes negative emotions about the sector from the various stakeholders, be it the general public, government, local authorities, bankers and many others. The negative views solicited negate and cloud the important economic role the MSME sector plays in the economy.
The Power of Self Organisation
There is no better way of stating a well known truism, which says “There is strength in numbers”.
Part of the solution to the negative perception problem for informal sector players, lies in what we can call, “the power of self-organisation”.
Many formal sector players, particularly financial institutions, would like to encourage MSMEs to be organised in accordance with their specific sub-sector or product clusters, either by location or simply through association and membership to an organized voluntary self regulating body. Such bodies should typically be financed through regular members contributions or some other mechanism that creates and instils a sense of ownership, belonging and accountability in the members.
Admittedly there are some such bodies but more should be done in the MSME sector. This strategy would help MSMEs on a number of fronts.
Speaking with one voice
This is important when engaging other stakeholders. For example negotiating with local authorities for operating spaces and facilities becomes easier. Even lobbying for favourable changes in by-laws, or licensing conditions may become easier if MSMEs are speaking with a unified purposeful voice. A look at the Confederation of Zimbabwe industries and Zimbabwe National Chamber of Commerce is evidence enough of the strength of broad based advocacy as compared to disjointed ones.
Self Regulation
The ability to self regulate members according to a constitution of membership always results in stakeholders taking MSME enterprises seriously. Membership bodies that take exception to errant behaviour by members, encourage a sound business and moral code in their members, building a successful common basis for the success of individual enterprises and the collective whole.
Pooling and raising own resources
MSMSE clusters can pool and mobilize financial and entrepreneurial resources making them attractive partners for a variety of formal business service providers. A clear example in our midst is the local informal funeral insurance entities commonly known as burial societies. Some housing co-operatives also fall into this category. Members successfully mobilize resources to augments formal sources of finance.
Flow back of benefits
Naturally MSMEs would not want to join an organization from which benefits do not flow. They would have no incentive to make their contribution of the necessary levies that keep the associations going. There must be a very visible flow of tangible and goodwill benefits of belonging to such bodies. This could be in the form of access to finance, opportunities for growth, capacity building training and development, facilities to operate from and so on.
Development of market linkages
Well organised SME sector organisations not only improve accountability and order within the membership, but help it easier for stakeholders to identify opportunities for market linkages amongst players in the MSMSE sector itself and also between the MSMSE sector and the formal sectors.
For example, a well organised furniture making association at Glen View would be more likely to be able to clinch a large order to supply lounge suites to a large local furniture retailer than single members negotiating individually.
In short, if the MSME sector self organizes into strategic value clusters, it also becomes possible for formal businesses to quickly and easily identify potential areas of value chain linkages with other key stakeholders.
Banks will for example be able to structure more suitable and sustainable value chain financing tools necessary for the growth of the MSMSE sector.
The unified approach to problem solving and the pursuit of opportunities is strengthened through the increased bargaining power. In addition, members of well structured MSME entities will benefit from behavioural transformations as all members exhibit much higher commitment to the fulfilment of contracts.
Members also befit from the ability of the entities to mobilize resources internally and negotiate favourable terms of trade and finance with external partners.
In the long run MSMEs belonging to identifiable associations will be able to attract investors and other soft capital to the sector as the sector becomes organized and accountable.
The country will thus benefit from the increased contribution of the informal sector to direct and indirect taxes will enhance overall economic performance.
Overall it becomes easier for economists and policy makers to measure and accurately determine the contribution of the informal sector to the economy.
Dr Sanderson Abel is a researcher and economist. He writes in his personal capacity. For your valuable feedback and comments related to this article, he can be contacted on [email protected] <mailto:[email protected]> or on 0772463008.
