SMEs can drive eco­nomic growth:

The Manica Post - - Front Page - Rumbidzayi Zinyuke Se­nior Busi­ness Re­porter

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.

Prof Mthuli Ncube

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