BIG FIRMS FEEL SMES COMPETITION:
AN ESTIMATED 74 percent of Zimbabwean firms are feeling the pressure from competition posed by the informal sector, according to findings of a World Bank survey.
The Enterprise Survey, Zimbabwe 2016 Profile, on local firms established that unregistered companies, composed of the emerging small to medium enterprises, posed a direct threat to the established companies, both large and small, a trend the bank said was prevalent in sub-Sahara Africa.
On average, 58 percent of established firms in the region have admitted that they faced strong competition from the informal sector, among other challenges.
“A large informal sector may represent a challenge to competing formal firms, as informal firms are able to engage in practices that can give an unfair advantage over formal firms that must comply with the prevailing rules and regulations,” the World Bank said.
Following a decade of economic downturn in Zimbabwe, many established businesses downsized operations when others eventually closed shop.
This, however, led to a boom in the SMEs sector, now estimated to be employing nearly 80 percent of the working population in Zimbabwe.
The survey noted that 57 percent of the surveyed enterprises in Zimbabwe were small, while 26 were medium. Only 15 percent constituted large companies.
However, some SMEs have been reluctant to formally register their businesses and continue to operate informally in order to dodge things such as being taxed.
“When firms are formally registered, they are required to abide by rules and regulations, which are commonly set by governments. Paying taxes is usually the most tangible consequence of becoming part of the formal private sector.
“Some firms try to avoid these consequences by not registering their business and thereby remaining in the informal sector,” said the World Bank survey report says.
The Ministry of Small to Medium Enterprises and Co-operative Development has also indicated most SMEs fail to access Government financing because they are informal.
The SMEs ministry has also said it would negotiate with the tax authority Zimbabwe Revenue Authority to come up with incentives to encourage SMEs to formalise.
The enterprise survey report also highlighted that the biggest constraints affecting large, small and medium enterprises are limited access to finance, corruption and “practices of the informal sector.”
Further, the World Bank survey also singled out factors such as customs and trade regulations, tax rates and administration, business licenses as well as permits.
However, Government, through the Office of the President and Cabinet, is spearheading the ease of doing business reforms through the Rapid Results Approach to improve the business environment, attract investment and boost economic growth.