adminKudzanai Gerede Business Correspondent
The demise of the country’s once productive industrial base which culminated in massive job losses over the years and consequently leading to the advent of a vibrant non-formal small and medium enterprises (SMEs) industry left a huge void on the country’s export earnings. Despite creating massive employment locally, the SMEs have failed to grow into reputable business entities capable of penetrating external markets as production levels remains far from convincing.
For a sector whose genesis was propelled by high levels of joblessness and became principally anchored on the desperate attempt for economic survival in the wake of thinning employment opportunities, most SMEs have not awaken to the reality that the sector has become not only a past time preoccupation for the unemployed instead the sector has become an economic pillar and a channel for employment creation.
According to the FinScope Zimbabwe MSME Survey 2012, an estimated total of 5.7 million jobs were created within the sector and there were 2.8 million small business owners in the country despite the fact that a huge chunk is not formally recognized.
However , Zimbabwe’s Small and Medium Enterprises (SMEs) sector cannot afford to continue operating within a confined internal space in the wake of various external markets opportunities as provided by a plethora of regional and international trade agreements the country is signatory to.
Regional and international markets have tremendous benefits for local SMEs products as their uniqueness will provide diversity in outside markets and ultimate business growth.
Despite a lean and under-capacitated formal industry which has attributed to low industrial output, the scope of diversity within the largely informal SMEs sector is overwhelming hence the need to explore outside markets with the vision to boost export earning becomes a necessity.
Officially launching the Informal Sector Formalisation and Cooperative Policy Review Consultative processes, Minister of Small and Medium Enterprises and Cooperative Development emphasized the need for the formalization of the sector in order to harness external market benefits.
“The Ministry is aware that for our informal small and medium businesses to access regional and international markets and benefit from preferential trade agreements that we are party to there is need for registration processes as well as quality validation of products,” she said.
The country is signatory to many regional and international trade pacts including, Zimbabwe-Mozambique trade agreement (2005), Zimbabwe-South Africa trade agreement (1996) and plenty more with Namibia, Malawi and the European Union.
The recent Tripatite Free Trade Area (TFTA) signed in June 2015 is expected to be a huge boost for the country’s exporters. This is a union of Africa’s 3 sub regional economic blocs; Southern African Development Community (SADC), East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) formed with the aim of eliminating tarrifs and trade barriers for the facilitation of intra African trade.
The TFTA has 26 countries with a combined Gross Domestic Product of about US$ 1.3 trillion and a population of half a billion people.
“It (TFTA) has the potential to increase economies of scale (which are cost advantages that can be derived from size of a market and production) through integration, will increase demand for the region’s goods and services and make the region more attractive to foreign investment…it will yield more jobs and catalyse technology transfer,” Mr Jason Kapkirwok, senior director of TradeMark East Africa, was quoted in Africa Renewal December 2015 issue.
This entails that once member states start implementing the TFTA, the region will become more competitive than ever before as free trade will make it easier to export, boost product volumes and widen market space.
For Zimbabwe, the TFTA will be more harmful to the economy if SMEs do not compliment the few exporting industries by conforming and participating in this noble arrangement lest the domestic market becomes saturated with external products.
However overcoming this challenge faces several tests in light of the prevailing Zimbabwean context.
Most of the SMEs were created as desperate measures to ensure sustainability of livelihoods as employment efforts had proved futile. As such most small enterprise owners lack necessary business skills and they have no intention to expand their businesses as all profits generated are exhausted in consumption.
This has been more evident in communal areas were agriculture for example is still treated as a poverty reduction exercise and not as an economic venture. Communities still plough the same hectorage as they did decades ago; they have maintained the same methods and ultimately the same crop output not enough to cater for the constantly increasing cost of living hence the chronic reliance on government assistance for inputs every season.
“There is a disincentive policy that is an impediment to higher productivity in agriculture. This is particularly true if we continue to practice from the development aid perspective, food aid and poverty reduction as the only entry points to dealing with agriculture. I do have difficulties how we can pour about $ 1 billion (in Africa) into agriculture every year from development aid alone without any results. Because we still have the same yield per hector today that we had 20 years ago,” notes United Nations Economic Commission for Africa Executive Secretary Mr Carlos Lopes.
Another worrying trend is the high levels of informality in the SMEs sector. The FinScope Zimbabwe MSME Survey 2012 highlighted that of the 2.8 million small enterprises recorded; only 15 percent of them were legally registered. This has a negative bearing on the growth of these businesses as informality deprives them from enjoying the fruits of the regional and international trade agreements the country is signatory to or overlooked from getting government tenders.
The Zimbabwe-Mozambique trade agreement (2005) for example, would require any exporter wishing to exercise the privileges of the trade agreement when exporting to Mozambique to first apply at the ZIMRA offices with appropriate documents of registration and tax compliance, a requirement most SMEs will find difficult to comply.
The Ministry of Small and Medium Enterprises is however in the process of propelling formalization of small businesses through encouraging the formation of cooperatives at the same time reviewing the Cooperative Policy (2005) through a wide consultative process across the country.
Recently Minister Sithembiso Nyoni bemoaned the absence of policy support for registration of small businesses as curtailing efforts towards formalization.
“While my ministry encourages SMEs to register as companies and the Private Business Corporations (PBCs), currently there is no policy on the registration of companies in my ministry. As part of the formalization drive the ministry offers a facilitating role to SMEs in registering as companies or Private Business Corporations in terms of the Private Business Corporations Act, (24.11),” she recently said.
SMEs are therefore being urged to form cooperative as major steps toward formalization. Forming cooperatives have many benefits such as easy mobilization of funds to register the cooperatives, boosting production as the organization gets bigger and also enhanced chances of access to bank loans among other positives.
There has been however a major challenge in the SMEs sector, that of lack of training. Most of the SMEs particularly the youths and communal farmers will find it hard to sell their products either due to poor packaging of their goods and services or marketing skills.
Most small grain farmers particularly in marginalized areas cannot access better markets locally and externally as the cost of travelling to the market place is too high to bear. Modern technologies such as the social media platforms like Facebook and Whatsapp are critical in packaging one’s product and showcasing it for the world globe to see. Embracing these technologies can boost SMEs market share without necessarily globetrotting.
Another challenge that will impede small businesses from entering the regional markets is limited finance from the local finance institutions. Most SMEs are operating on a very small scale such that producing large volumes enough to sustain the economies of scale and export regionally will need intensive capital injection to acquire modern equipment and supplies to efficiently boost output.
Local small business owners should therefore endeavor to take part in the global economy by producing quality products and observe international standards if they are to contribute significantly to national development.
Online Reporter