Why are black-owned SMEs struggling?

Clifford Shambare
In my last week’s article on indigenisation, you may, or may not have noticed a certain pertinent assumption that I made. To quote myself I said, “Even thinking of doing away with the concept of indigenisation and its attendant SMEs is a misguided notion, to say the least”.

Now, the key point in this statement is the link that I deliberately assumed to exist between indigenisation and SMEs. That said, a closer scrutiny of the two reveals the fact that the former is a concept while the latter can be looked at in more ways than one.

Firstly, SMEs constitute a grouping of mainly small-scale industries. In this respect there is a whole range of these enterprises with all sorts of acronyms. In fact, like most similar situations in life, there is a continuum running through all these businesses, ranging from one man outfits, right up to large businesses.  And this “smallness” is contextual since the term does not necessarily mean the same in this country as elsewhere. This is particularly so in the OECD countries where a company of over 100 employees is regarded as an SME. In this case a reduction of employees due to technological advancement can complicate the situation further.

Secondly, SMEs are normally determined to be such, by their inherent structure, the scale of their operation(s) and their degree of sophistication. For example, one can hardly find a car assembly plant that is an SME, whereas in the retail sector (for example) one can easily find a sizeable percentage of it being made up of SMEs.

The same applies to the crafts industries such as those that are amenable to job shop type production systems as well as those found in the catering sector or the rural agricultural input supply sector, most of which are SMEs.

Going back to our subject of struggling black-owned SMEs, we come across quite a few easy answers to this challenge. And quite a few studies on the subject have come up with the conclusion that most of the challenges met by these businesses have to do with lack of financing as well as lack of management skills, and in quite a few cases, corruption.

But personally, I feel that so far, there has not been enough depth in such studies. And why do I feel this way, you may want to know? Here is why.

While I was mulling over this issue,  I came to one realisation — that is, in order not to lose focus and reduce confusion in analysing the matter, SMEs should be graded according to sophistication of the business that they are involved in. In this respect, imagine a Grade Seven (or lower) pupil starting a small retail shop in Chitungwiza to sell groceries or to operate a second-hand clothes shop. They pick up a few black plastic sheets and a few gum or munhondo tree poles cut from the bush, tie them together with old rope or even bark strips, and  throw in a couple of items. They have already become an entrepreneur, an SME, haven’t they?

Then consider a company like Brown Engineering, a well established Caucasian owned outfit — operating from a solid building or shed in the industrial site, producing high quality products in the form of boilers, water bowsers, trailers and the like and with all the attributes of successfully run SME — that is a compact management team, an accounting or bookkeeping system, workers and all. They  are an SME, aren’t they? In fact, in considering the history of this country, I came to the realisation that well over 90 percent of the companies were SMEs by OECD standards. And remember what I said in my last week’s article about America and Germany — two countries where the SME sector makes up 98,2 percent of those countries’ industries.

That said, Joseph Stieglitz, in his 2013 study, ranked Zimbabwe’s economic complexity index (ECI) in a category quite close to that of South Africa — a country the Americans have placed in the developed economy status.

In the same paper he said something to the effect that; “In order for Zimbabwe’s economy to start ticking again, its politics just need to be re-aligned”. (Our main issue aside, as far as this aspect of the matter is concerned, one can only make an educated guess that here, Stieglitz was alluding to the politics of regime change!)

Be that as it may, there is one aspect of this matter that we should not ignore — that is, under what can be regarded as normal circumstances, large sophisticated firms grow and develop from small and simple ones. In this case consider that Steve Jobs and Bill Gates started a whole ICT revolution from garage belonging to Steve’s father, who himself, happened to be a mechanic. What all this means is that for any economy to grow and become prosperous, there should be continuity between small and large firms in it.

Or put in another way, there should be a symbiotic relationship between the two extremes of organisational sizes. The Japanese system of just in time (JIT) production where large motor car assembly plants such as Mitsubishi, contract out their components/spare part production to surrounding small manufacturing firms, is a good example here. Following this line of reasoning, the relevance, effectiveness and success of the SME sector of any country, cannot be divorced from the degree of sophistication (or lack thereof) of the whole of that economy.

This implies that in order for Zimbabwe’s SMEs to make the necessary quantum leap in the development arena, there is a need for positive change in her citizens’ other aspects of life. The indicator for this aspect of human life is referred to as the human development index (HDI). This index, that was created by Mahbub ul Haq, a Pakistani economist in 1990, has been of considerable interest to economists and social scientists world-wide for quite some time now.

When considered in its totality this state of affairs implies that by leaving these social development changes to take place at a “natural” pace, it may need many years to achieve any meaningful progress. This implies that a drastic approach should be used here; one such an approach is the use of technology centres. (We shall address this subject in other articles).

Shambare is an agriculturist come economist and is reachable on 0774960934.