Ashly Dhani
The Seventh SADC Industrialisation Week in Harare over the last few days has stressed the need for small and medium enterprises to be encouraged and grown and has come up with some ideas of how they can be incubated and nursed.
Almost any business, and any new industry in Zimbabwe, will start off small and it cannot just be dumped in the middle of the industrial sites fully grown and equipped, as might be the case with a foreign company coming to invest in Zimbabwe. The local concern needs to edge its way into the market.
This does not mean that a small local company cannot grow. Two major sets of companies on the Zimbabwean stock exchanges started off small. There are still those who remember when Econet Wireless-Ecocash Holdings was Strive Masiyiwa in a two-office suite in Fidelity Life Towers on the Kopje, and when the Innscor-Simbisa-Axia-Padenga set of companies was a single takeaway in Augustinho Neto Avenue in central Harare.
The point is that they started small and grew in Zimbabwe and generated their finance within Zimbabwe until they were able to spread a bit.
You can actually go back, right back to the start of industry in Harare, for another significant example. Charles Glass of Cape Town found the old small town of Salisbury was a useful market for his Castle beer. So he established a brewery in Cameron Street, now Joseph Musika Street, and that has grown into the Delta conglomerate. Everyone starts small.
Zimbabwean industry was for the first 60 years of colonialism never considered a serious part of the economy. The public school British men who formed the colonial elite saw the country as a primary producer, mining and large landed estates. Part of this reasoning was to keep the number of white immigrants low, and especially to make sure that working class British whites, with their trade unions, were not imported in large numbers. The railways had to be an exception of course, but for the rest industry was not really wanted.
This changed after the Second World War, along with the new system of opening a factory with black semi-skilled labour directed by a skilled white person, which again meant that the trade union problem was contained, and in any case the working class would not be able to form a Labour Party able to take over the Government. Cecil Rhodes’s old dictum of keeping potential class strife as a racial matter was still alive.
This industrial model tended to see large factories, often established by external and usually British investors. That continued after UDI, although local management took over, and there was quie a lot of addition, but this tended to be concentrated in expanding the older businesses. The dividends and profits could no longer go to Britain so there was a lot of local finance.
In some cases Ian Smith nationalised the local industries if the foreign investor wanted out, or at least tried to close down the business. This saw different approaches for the ownership of the two car assembly plants. The BMC, later Leyland, plant in Mutare existed under shadow ownership of Leyland, while Ford of Britain simply wanted to close its Willowvale plant, and that was taken over by the IDC.
The model continued into independence with the large factories seen as the norm, and light industry being dominated by service companies, panel beaters and the like, rather than manufacturers. Thus a trip around the major industrial sites of Harare and Bulawayo would see a remarkably small number of businesses occupying a large area of land.
The major changeover came with the era of hyperinflation followed by dollarisation, which first removed a lot of the underpinning finance, and then largely deindustrialised Zimbabwe by opening the doors to imports without local industry able to take advantage of local conditions, because of the use of the US dollar. The dollarisation might have been needed as an emergency measure when hyperinflation had wiped out the local currency, but it was the largest single set back to industry.
However, it did open some new doors, to the SMEs. Without the highly structured protection support of the UDI and post-independence years, which caused the decline of so many giants, there was room for competitive and innovative smaller companies to get a foothold in the markets, and some of this was in manufacturing, although most seemed to be in retail.
Several large factory complexes in the industrial sites were sub-divided into smaller units, and there was a flow of property investment into the new-look factory sites, a set of units rather than a single giant workshop. The growth of the new industries was fairly fast, with little spare property to rent, although there were still some large industrial complexes that were either unused or little used, but with owners hanging on.
Among the interventions this week was the useful programme to start looking at unused and underused industrial premises and zoned land and seeing if the owners would make this available for new industries, especially SMEs. Existing premises often need renovation and conversion before they are suitable, but usually have the expensive essentials, the water supply, bathrooms and electricity connections, especially the three-phase high power connections.
It is perhaps not that important at the moment, but premises in what are zoned as heavy industrial sites, also have access to railway siding at the back of the premises. These are not used at the moment, although as more heavy and primary industry is opened they will become important and motorists will once again have to keep an eye open when the shunting locomotives are moving waggons into the sidings.
These industrial premises will thus become a premium as engineering industries and other primary industries are recreated and modern ones are opened. Large trucks can take much of the burden these days, but there will still be need for rail traffic if the resulting products are to be competitive on price.
Finances are also a problem. But an SME can quite often use family and friends to help with the financing. At the very least owners can defer the purchase of fancy vehicles until they are seriously rich and use the consumption money for production, while just having basic transport. This deferring of consumption is important and will become ever more important.
Status symbols are not a mark of success, they are a mark of spending, often on unnecessary items. A problem among some new business people in Zimbabwe is a feeling that they need the status symbols, although they will find that the people who really matter among their business contacts are likely to be dubious about such spending, and would prefer their business contacts to be spending on production and quality of product.
Banks need to think how they should be lending to businesses, especially businesses in the early years when they really need money. Often the small new business will, however, have the equipment it needs, and for which it probably needs loan finance. This does mean that a loan can create the asset that can then be used to back the loan.
If it is possible for some SME premises to be on lease, rather than just monthly at-will rent, then again there is an asset that can be staked at a bank. Bankers obviously should not be lending for salaries or non-productive assets, such as status symbols, but should be willing to look at almost anything in the way of productive assets as collateral.
An ultimate service for SMEs would be a scheme where they were allocated adequate space, had some backing finance, and had someone who could advise on financial matters while they devoted their attention to creating the products. This sort of programme has been set up successfully in several countries.`
Online Reporter