SMEs transition critical in steering the economy

Beaven Dhliwayo Features Writer
The International Small and Medium Enterprises (SMEs) Day is observed every year across the world on June 27 to celebrate the strong contribution of small businesses in growth and development of any economy. The day marks the importance of SMEs in the development of the country in terms of creating employment.

SME Day 2019 is dedicated to raising awareness of the need for greater investment into small- and mid-sized businesses in developing countries but it is also a celebration of the gigantic contribution smaller companies make to the global economy, often away from the spotlight.

Recognising the importance of SMEs in achieving sustainable development goals and in promoting innovation, creativity and sustainable work for all, the United Nations General Assembly in its 74th Plenary held on April 6, 2017 declared June 27 as SME Day.

There is no universally accepted definition of SMEs in the world but the World Bank defines SMEs as businesses that employ less than 300 people and have an annual turnover that does not exceed US$15 million.

In the UK, SMEs employ less than 250 people and in China or USA, the number can go up to 3 000 depending on the sector.

In Zimbabwe, ZIMRA classifies SMEs as businesses that employ between five and 40 people with annual turnover and assets from as low as $50 000 to $2 million.

According to the data provided by the International Council for Small Business (ICSB), formal and informal SMEs make up over 90 percent of all firms and account on average for 60-70 percent of total employment and 50 percent of GDP.

In Zimbabwe, SMEs make up more than 70 percent of all businesses; employ 60 percent of the country’s workforce while contributing above 50 percent to Zimbabwe’s GDP.

The impact of SMEs on the country’s economy cannot be overlooked.

They contribute largely, not just to the fiscus, but continue to fill the gap in providing services and products especially as the country is facing shortages of various commodities.

While the SMEs sector has carried the weight on themselves to sustain the country’s trade and industry, they are falling short of the necessary tools to fully engage in more meaningful business ventures.

In Zimbabwe, skilled trades have become a career for most people, exercising their proficiency in fields of weaving, sculpting, carpentry, plumbing, building, electronics, and metalwork, among others.

Furthermore, SMEs now make up over 70 percent of ZIMRA’s database of registered taxpayers while contributing only 20 percent in taxes.

However, despite this contribution, SMEs in the country continue to fail to transition to big businesses mainly due to their informal nature, and the lack of financial and business training, and failure to access financial support from banking institutions.

According to the central bank, only 3,78 percent of the total loans and advances by Zimbabwean banks go towards the SMEs sector.

The key challenge in the country is that only a few SMEs evolve to big businesses that can be accounted for in the formal economy.

The rest stay as SMEs and evolve from one specialty to the other till they die with the owner(s) or are taken over by new management.

For instance, progression of entities such as Nash Paints, Untu Capital, Road Angels, Pacific Tobacco, Gtel and Surface Wilmar in the last decade shows real cases of creativity that is rare in struggling economies the world over.

This implies that if the Government put in place the right policies, these success stories can be simulated across all industries in the economy.

Worth noting also is that all commercial banks and retail enterprises in Zimbabwe now have a dedicated SMEs Desk signifying the role small businesses are playing in the local market.

SMEs mainly lack capital to expand their operations in line with growth in product demand.

Various initiatives by the Small Enterprises Development Corporation (SEDCO), ZimTrade, local banks, corporates and RBZ (National Financial Inclusion Strategy) aimed at capacitating SMEs, women, the youth and rural businesses require Government support.

By supporting SMEs through sustainable policies, the country can improve on the much needed transition of the economy.

Far-reaching benefits such as poverty alleviation, financial inclusion, development of marginalised regions and growth in the tax base cannot be underestimated.

The UN Deputy Secretary-General’s SME Competiveness Outlook 2019 yesterday noted that SMEs are the first responders to societal needs as there are responsible for significant employment and income generation opportunities across the world and have been identified as a major driver of poverty alleviation and develop-                                                                                         ment.

“Micro, small and medium-sized businesses are key to creating the 600 million new jobs needed by 2030 to keep pace with the growth of the world’s working-age population.”

Registered and compliant SMEs should also be rewarded with supply contracts as a development strategy rather than import virtually all products and services from the developed coun-                                                                                                   tries.

All imports into Zimbabwe represent thousands of jobs lost at home and created in the exporting country.

Local banks should extend competitive interest rates to SMEs that can allow them to grow gradually and invest in their businesses.

Lessons should also be drawn from developed economies where cheap facilities exist for small businesses.

In the USA, India and China, tech hubs and export zones have been established.

In Ethiopia, the Hawassa Industrial Park stands out as a classic African model.

Basic infrastructure such as water, electricity and security are provided for at subsidised rates at these industrial                    parks.

The idea of housing SMEs undert one industrial park will earn Government billions in foreign currency through exports.

On top of Government support, SMEs should join hands and pool resources which they can deposit with financial institutions in the country.

These resources then can be used by members as collateral in exchange for loans to expand their businesses.

Source :

the herald

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