How govt can support SMEs

Mugove Hamadziripi

THERE are a number of reasons why the Government should help small businesses to ‘build back better’ in this pandemic.

Small businesses are being disproportionately impacted by the economic damage of Covid-19 – and the Government should maintain momentum to help with their survival including digitisation. Small businesses are estimated to employ about 70 per cent of the world’s workforce and contribute around half of the world’s Gross Domestic Product (GDP).

In Zimbabwe, small businesses are typically even more important to employment and GDP. But many SMEs face tough times as the pandemic continues to unravel. It is no secret that small and medium business enterprises play a major role in spurring economic development.

It is now about time the Government should check what it can do to encourage the growth of SMEs, thus enabling them to contribute to the national economy. There is quite a large gap, however, between the intentions of governments and their understanding of the needs and challenges SMEs face. Even before there is a business to support, when professionals are just considering whether or not to take the risk and embark on the journey, they are likely to back out if they are unsure whether the government will mitigate some risks and whether they will receive any support.

There is a lot the government can do to support SMEs. There are operational/ financial challenges as well as marketing/business challenges that SMEs face. It can be deduced that SMEs face operational/financial challenges.

Normally the challenges most felt when establishing and developing an SME are the financial ones.

Getting loans from financial institutions is a pipeline dream. To these financial institutions, these SMEs are a financial risk.

At this juncture, the government could assist in numerous ways, including providing collateral, creating and supporting specific loans to SMEs or grants to those that achieve certain goals, like improving productivity or hiring additional personnel. They could also favour them in their taxing policies.

Ironically, all governments under the sun often encourage doing business with SMEs, but they themselves do not do enough business with them. Most government tender requirements don’t favour SMEs, as they frequently demand financial requirements that are rarely realistic for most SMEs, leaving them out of the equation. At the end of day, well established companies win the day. Barriers could be in some specific cases. Additionally, governments often delay payments, which might be tolerable to big business but could be disastrous for most SMEs.

Another challenge needing government support is marketing. After addressing financial and operational challenges, an SME begins to face challenges concerning marketing and selling their products, and this is a very complex issue.

The biggest hurdle is the generation of revenue. Often there is an understanding among entrepreneurs of what needs to be done, but not of how to do it. The government and entrepreneurs themselves largely lack knowledge in this area and do not understand, for example, the difference between sales and marketing and their importance.

Many professionals have an impressive body of knowledge in their field of expertise, but do not necessarily know enough about marketing their products and services. Business consulting is expensive and an entrepreneur is not always sure who can be trusted. To address this challenge, the government, through the Ministry of Small and Medium Enterprises and Cooperative Development, should work on providing marketing consulting services for small and medium businesses, at a relatively low cost.

For small businesses to weather the storm, another critical aspect to look at is market exposure. At this juncture, the government can help organise and subsidise district or provincial networking, conferences and other collaboration events, as well as trade shows like ZITF, Harare Agriculture Shows, Mine Entra, etc where SMEs can participate at a much lower cost than a regular commercial event. Such government sponsored platforms, whether industry-specific or general, are very effective in helping SMEs attract customers and business partners.

Export is a critical area mostly SMEs are being elbowed out. The government should take extra steps to assist local SMEs enter export markets in order to expand and diversify, thereby help them weather the prevailing storm.

The Zimbabwean export space should not solely rely on one or just a few dominant and well-established companies.

The danger comes when one such well established company collapses, directly resulting in the export income hitting rock bottom.

In some countries, assistance is offered particularly to SMEs that have export potential. This includes offering opportunities for international exposure, enabling the businesses to enter other markets and expand their activity.

SMEs may be invited to join government delegations when travelling abroad in order to participate in events that attract media and partnership opportunities.

It should be noted that, when businesses move up the value chain, it tends to generate higher salaries, directly leading to even a higher GDP per capita, thereby directly leading to higher standard of living.

The objective is to motivate owners and managers to learn how to create revenue, how to be competitive and as a result more profitable.

For all SMEs, just like well-established companies, being competitive is the most complex task, as it calls for innovation, research, development and the protection of intellectual property, such as issuing patents.

It is in the interest of the government to offer grants for research and development relating to technologies and products with export potential.

Last but not least, there is need to support traditional businesses during this time. The government should create different programmes to update “traditional industries”, like the dormant textile industry. These traditional industries have to be supported to remain competitive and not dormant, thereby sustaining their market shares which has been nose diving for past years. The government can boost this industry by introducing modern and advanced machinery, processes or technologies (product or process technology), as well as inputs. As a duty bearer, the government can assist with the initial investment, enabling SMEs to improve their financial standing.

In a nutshell, the government must take an interest in the problems that SMEs face in this Covid-19 storm (and beyond).

As we conclude, the government in close partnership with Non-State Actors including UN Agencies and the private sectors, should emphasise and prioritise the importance of ‘going digital’ and they should, at all costs, explore more non-traditional partnerships – get out of their comfort-zones a little bit. Such programmes should make “low-cost, concessional credit” available to SMEs by working with private-sector lenders that would be unable to offer such terms without government support.

Mugove Hamadziripi consults on Development, Media, Urbanism, ERP, Communications, Community, Policy / Politics, Sustainability and the Environment. He consults with the Centre for Impact Evaluation and Research Design and Erongo Consulting Group. He can be reached [email protected], Twitter: @mhamadziripi.