SMEs can drive economic growth:
SMALL and Medium Enterprises are major drivers of economic growth in most countries across the world. The sector has made immense contribution in creating employment opportunities in Zimbabwe where the majority of the workforce is now in the informal sector.
They are also instrumental in poverty alleviation.
Government has acknowledged that “the mushrooming of informal markets is predominantly a response to the prevailing economic dynamics that have constrained investment into industrial value addition and beneficiation and, hence, growth of viable formal business.”
The sector is key to bringing the country’s economy back on track and attainment of the upper middle-income economy with high quality life for its citizens by 2030.
However, the revival of industry will take concerted efforts to create a vibrant value chain of which SMEs are a big part of.
It is no secret that SMEs can contribute to the achievement of Vision 2030, but for that to happen, there is need for targeted efforts to ensure that the sector is properly integrated into the value chain.
With this in mind, Government has espoused the Transitional Stabilisation Programme, which among other things, focuses on supporting sustainable SME growth and development through business linkages, market access, cluster development, business incubation and support services.
According to the TSP, there is need to focus on forward and backward linkages for SMEs with large businesses in various value chains.
However, the story of how SMEs struggle to access funding to grow their businesses is not new.
The sector is considered high risk, and banks are reluctant to give them long term finance.
Where SMEs qualify for such financing, they have failed to provide the required collateral security.
The other challenge the sector faces, over and above the lack of finance, is lack of clear business plans, which makes it difficult for financiers to trust them.
Government is also trying to address these challenges.
In the 2019 National Budget, Finance and Economic Development Minister Professor Mthuli Ncube allocated US$14.6 million to support capacity building initiatives on SMEs and women empowerment.
The allocation is expected to enhance SMEs’ capacity, thus improving their performance and contribution to the GDP.
The business linkages programme is another way to enhance the sector’s performance.
By facilitating business linkages between formal and informal business, Government will foster a relationship that will be mutually beneficial to both parties.
While the SMEs get access to funding to improve productivity, industry in return will get a constant supply of raw materials to boost productivity.
“Formal businesses that want to work with informal markets and vendors will be able to know the required volumes as well as absorptive capacity. This will inform planning for consistency in supply and introduction of such systems as warehouse receipt systems through which informal operators can access inputs if their commodities are already in the market pipeline,” reads part of the TSP.
The question, however is, will this be enough?
Probably not!
More needs to be done before Zimbabwe begins to count rich pickings from SMEs as part of the GDP.
Market watchers believe that more should be done for local SMEs to make a meaningful impact both on local and foreign markets.
In Europe SMEs have had major support and are now are major drivers of economic growth. It has been suggested that Government comes up with a Small Business Act that compels the setting up of an SME export agency to help grow the sector in the long term.
In the meantime, SMEs themselves need to change a few things if they are to get past the current operational challenges that have resulted in them surviving from hand to mouth.
They should to look beyond the ‘quick fix’ small short term loan schemes that cannot sustain them until profits start coming in.
Proper planning can also help SMEs grow their businesses from almost insignificant to small, but profit-making entities.
A plan alerts the owner to inconsistencies that need to be managed, including lack of capital or other resources needed to take the business to the next level.
Other interventions that can help SMEs overcome financing hurdles must include skills to evaluate their own financial status and conduct risk assessments before approaching financial institutions for funding. Constant education and incubation of SMEs by Government and the private sector will also help achieve this.
This is just the beginning, but a critical step towards transformation and growth of SMEs contribution to the fiscus.