SMEs can compliment companies in SEZs

• Calls for consideration of SMEs sector

• Need to restructure policies related to reality

• SMEs constitute 60 percent of businesses

Kudzanai Gerede
AS the establishment of the Special Economic Zones gather momentum with the Parliamentary Portfolio Committee on Budget and Finance conducting public hearings for the amendment of the Special Economic Zones Bill, analysts have called for consideration of the Small to Medium Enterprises sector participation in the proposed economic hotspots.

While the essence behind establishment of SEZs is to lure foreign direct investment with direct bias towards resuscitation of the country’s shrinking formal economy of big corporate, business stakeholders say the SMEs sector participation can help locals reap economic benefits from the SEZs outside just being employed there.

There is need for structuring policies that relate to the country’s economic realities, since the Small to Medium Enterprises constituting over 60 percent of businesses currently operating in the country.

The Special Economic Zones Bill which awaits debate in the August house soon after the completion of the public hearings input being carried across the country, currently has no provision put in place that can see participation of local emerging businesses.

Special Economic Zones are strategic economic areas identified within a country which are immune to business and trade laws which govern the rest of the country and special incentives offered to investors in these areas such as employer-flexible labor laws, tax holidays and reduced duty among other incentives.

These measures are put in place to increase an economy’s industrial output, increased trade, job creation and advancing a positive country balance of payments.

When setting up SEZs, Government’s motive is for foreign investors to inject massive capital in various sectors such as mining, hospitality, manufacturing and energy among others.

However, analysts have highlighted that since local emerging businesses cannot afford to operate there due to intensive capital requirements, SMEs can partake of the growth process by complementing the investors if they are accorded provisions to supplying raw materials to feed into these economic hotspots.

There is, however, widespread fears that discrimination of SMEs in this economic dispensation will shove the sector out of the mainstream economy as they will face viability challenges as it becomes hard to compete with companies in SEZs.

It is, however, imperative to note that while luring the much-needed foreign direct investment into the country enjoins extending favourable conditions for foreign investors in the SEZ on one end, there has to be thorough soul searching by fiscal authorities on how best can they strike a balance between propelling both foreign investment and SMEs growth on the other end.

“There should be acknowledgement and non denial to the fact that we have a ballooning informal sector that cannot be ignored,” Zimbabwe Chamber of Informal Economy Association president, Mrs Lorraine Ndlovu told Business Post.

“We are looking at our economic history and economic journey as a country, post independence and prior to that.

“We need to take policies relating to our own context as Zimbabwe and avoid the consequences of ESAP which ended up with massive job casualties in the mid 90s.

“If we talk of those zones (SEZs), they speak to large formal companies which we currently have few of them whilst the rest fall in the small to medium category.

“These form the bulk of the force sustaining the economy at present so we need to find ways for them to take part,” she added.

Companies operating in the SEZ will undoubtedly enjoy low cost build up of production for obvious reasons of modern technologies which are more cost effective and efficient, subsidised supplies and tax holidays among other factors which will lead to reduced prices of the final products which will have a negative bearing on the rest of the local emerging producers who still use antiquated machinery.

This will result in low competitiveness by these local emerging businesses putting many jobs at risks.

According to the FinScope Zimbabwe SME Survey 2012, an estimated total of 5,7 million jobs were created within the sector and there were over 1 million small to medium business owners in the country.

“While the whole idea is to develop the economy (setting of SEZs) but then it is also to say how we rope in our own people in building that economy.

“It can be developed with outsiders, but then how do they partner with SMEs so that the process of economic participation remains in the grasp of locals,” noted Mr Israel Mabhoo, director of Alternative Business Alliance, an organisation with focus on small and medium businesses.

“The informal economy is developing the economy right now so why don’t we give all these guys a role to play in the growth process.

“Let there be a provision for them in a form of quotas to supply large corporate in the SEZs for instance we might have a big shoe manufacturer who is then cajoled to procurer leather from SMEs or even transportation to the industrial site can be done by engaging SMEs in the transport sector,” he added.

Economic analysts have noted that the inclusion of the SMEs sector through setting up a SMEs quota in all supplies to SEZs companies supporting in procurement of raw materials among other roles of participation will motivate the formalisation of most players in the sector as there will be more to benefit in formalising operations than remaining informal.

Government is yet to find mechanisms to boost its revenue flows by tapping into the bourgeoning SMEs sector since most of them remain informal.

Analysts argue that while Government is seized with efforts to expand its revenue collection channels, policies crafted should encompass this sector such that formalization becomes attractive.

The huge recurrent expenditure account which consumes over 80 percent of the $4 billion national budget might not necessarily be a worthy point of reference attributing to government financial shortfalls for developmental initiatives, instead enlarging the diminutive economy through laying foundations that attract more businesses whether small or large, foreign or local that will yield VAT, corporate tax and income tax can be the answer.