Online Reporter
Favour Matenga
IN July last year, the Zimbabwe National Statistical Agency (ZimStat) revealed that 75 percent of the country’s economic activities took place in the informal sector. The national statistics body pointed out the downside of this scenario by indicating that this state of affairs was a huge disadvantage to the economy in that, while the informal sector supported many livelihoods, this did not match the sector’s compliance to statutory requirements like various taxes and social security obligations.
Estimated to be over 60 percent of the country’s gross domestic product (GDP), this sector is largely made up of people engaging in petty trade, food vending, and services like commuter transport. It also includes some small and medium enterprises (SMEs) which may be registered, but are equally struggling like the aforementioned individuals because of various challenges like capital, business management skills and decent places to operate from.
Since independence Government has initiated a number of interventions to mitigate informal sector and SME businesses challenges so that they can graduate from informal entities to registered SMEs and thriving corporations. In 1983 it formed the Small Enterprises Development Corporation (SEDCO), which was rebranded to SMEDCO in 2014. The entity provides funding, space from which small businesses can operate from and capacity building.
Government partnered the United Nations Development Programme (UNDP) to form Empretec in 1992 to kit businesses people with skills to run their businesses successfully. Outstanding beneficiaries of the programme include businesspeople, Divine Ndhlukula and Nigel Chanakira. In 2018 Government launched the Zimbabwe Women’s Microfinance Bank (ZWMB) and the Empower Bank to address the financial needs of both the youth and women who make up the majority of the country’s informal economy players.
In view of the enormity of the task of assisting informal entities and SMEs to grow their businesses, the matter requires all stakeholders to put their shoulders to the wheel and boots firmly on the ground to ensure that this economic sector outgrows its current status, contributes more meaningfully to Treasury and creates more jobs.
Following the 1990s post-Economic Structural Adjustment Programme (ESAP) period a number of local financial institutions set up SME Business Units to address the needs of a new crop of businesspeople that were created by the retrenchments which attended the programme. Although most of them were abandoned during the 2007/8 hyperinflationary era, their major shortcoming was the fact that most banks focused on the funding needs of these customers to the exclusion of other key success factors such as business skills, markets development and basic book keeping. They erroneously assumed that their new business customers also had in place business systems which the conglomerates of the time like Delta Corporation, Anglo American Corporation and Lonrho had.
The woefully poor repayment rate experienced by the financial institutions which administered the US$11 million Kurera/Ukondla Youth Fund of 2011 drove home the point that the financial sector and other stakeholders need to do more than just dispensing loans if the informal sector is to grow into successful businesses.
In view of the foregoing, financial institutions need to look beyond loan applications. An entrepreneur who thrived as an artisan during his time of employment may not readily understand his business’ accounts and tell apart a bank statement from a financial statement. Financial institutions should therefore come up with applications and systems that their informal business customers can use to come up with their financials, as it is from such documents that banks determine the suitability of such customers for financial assistance.
Financial institutions should also emphasise more on relevant products like debt factoring than traditional lending ones like loans and overdrafts. Debt factoring or invoice factoring is a financial service where a business sells its outstanding business to business accounts receivable to a third-party, known as a factor, for immediate cash.
Financial institutions should also contribute towards the success of their informal business customers by assisting them to secure markets for their products and services. For example, they could team up with ZimTrade and contribute towards the participation of some of their customers in regional exhibitions. They can also do the same for relevant local shows.
Banks and other stakeholders could carry out beyond banking initiatives like sponsoring capacity building programmes for their informal customers. They could also invest in initiatives that provide mentorship, financial literacy, and business advisory services. They could also team up with regulatory authorities like the Zimbabwe Revenue Authority (ZIMRA) or the National Social Security Authority (NSSA) in educating their customers on the importance and the modalities of compliance. Financial institutions could also sponsor the pairing of informal business leaders with their corporate counterparts for mentorship purposes.
While some local financial service sector players such as Old Mutual and BancABC have created spaces from which small and informal businesses can operate from, more still needs to be done. Some could invest in fully equipped workshops where technical businesses like those in carpentry and welding can operate from affordably.
Apart from players in the financial services sector, there is need for all the stakeholders in the informal sector to come together as often as possible to discuss issues affecting the sector, follow up on initiatives and exchange notes to ensure a sustained momentum.
