eBusiness Weekly
Elias Pacheso
Zimbabwe’s Small to Medium Enterprises (SMEs) have been hardest hit during the lockdown period and there is a risk that the poverty levels will rise after the lockdown is lifted.
SMEs are facing a plethora of challenges, a weak currency, the indefinite lockdown and lack of financing. Following an increase in the number of cases mainly as a result of returning residents, the situation has worsened and is looking grim.
Zimbabwe like many other African countries has thousands of SMEs many of whom go unregistered due to the high cost of compliance.
Inflation is over 700 and is rising causing a weakened currency.
With the country’s GDP expected to contract by between 7,5 to 20 percent, the situation is not looking good and begs for an urgent programme that takes into account the various challenges facing the economy.
Apart from the coronavirus induced challenges, SMEs were already facing other life threatening challenges such as shortage of raw materials, food and basic utilities such as water and electricity.
Under the lockdown rules, only registered SMEs operating essential sectors and meeting the Covid-19 WHO measures are permitted to open.
Without official data it is difficult to see how many SMEs are currently operating or how the pandemic has affected them.
What is clear to a casual observer moving around the major cities is that few have reopened and business is generally slow.
According to a study done by Finmark Trust in 2012, the last comprehensive study of SMEs in Zimbabwe, over 40 percent of the country’s employees are employed by SMEs and that number has climbed up over the years as larger businesses have failed owing to a deteriorating environment.
At the same time there were over 2,8m SME business owners according to the study. Sadly, there is no recent data to back some indications that over 90 percent of the country’s workers are now working in the informal sector.
It is important for the Government to collect data on SMEs in order to craft policies that are designed to ensure that problems facing SMEs are addressed and that the businesses grow and contribute to the fiscus.
Most SMEs are self-funded relying on family and friends and remain small as a result.
In as much as the economy has deteriorated when compared to 2012 when Finmark carried out its study, the main challenges facing SMEs today remain access to finance/sourcing money, lack of market access especially for Government projects, lack of raw materials, unaffordable or inaccessible financing as most SMEs have no financial records to open a bank account.
Most SMEs remain unregistered because of the high compliance costs imposed on them once they register with revenue collection authorities.
Simplifying the registration process and tax collection system will go a long way in ensuring that SMEs register their enterprises.
Access to financial resources remains one of the biggest challenges facing SMEs. However, a bigger often ignored challenge is financial literacy.
Most SMEs have never borrowed and do not know the importance of keeping financial records. Sadly, this means that in times of crises like now they are unable to access bank finance.
More importantly because they fund themselves from savings and friends many jobs will be lost and poverty will increase as these businesses fail.
The difference between this crisis and other crises is that the coronavirus is shifting business models towards digital and in some cases even shutting down industries such as tourism at least in the short to medium term.
This situation has not just affected Zimbabwe but other nations too.
Over the years, Zimbabwe has witnessed the sprouting up of small tourism establishments and its therefore worrying that such facilities have been affected and will remain closed in the foreseeable future.
Other sectors that have been particularly affected include the Education sector where both private and public schools remain shut down.
The Government has indicated that it is working on an $18 billion stimulus package for the Zimbabwean economy with $500 million set aside for SMEs.
This amount is only 3 percent of the proposed financial package and is too small to make a significant impact on SMEs.
While the country is struggling with high inflation and the need to maintain sound health infrastructure allowing small businesses to fail is an even bigger problem.
What then can the Government do under these difficult circumstances to help small businesses survive and help save jobs.
The starting point is to look at Government expenditure and say how much of the projected expenditure can be supplied by SMEs.
It is a fact that as the largest spender in any economy, the Government has the means and ability to transform its SME sector through supportive procurement rules.
By simply changing the rules to transparently allow small businesses to produce and supply products that are procured by the Government can save jobs.
Governments have also traditionally used guarantees to obtain foreign loans to assist in such crises, however, an attempt to get such funding from the IMF and World Bank did not go as planned with the Government only receiving a token amount.
Over the years the country has also relied on Africa focussed funders, however, most of the borrowing limits with these funders have been reached and so the country cannot rely on these to make funds available to SMEs.
Overall, the Government needs to take time to reform its policies on SMEs and allow them to play the role unimpeded by inconsistent policies on the currency and more importantly to encourage the growth of the sector, the Government must relook at its tax compliance laws which discourage SMEs from registering in the first place.
Collection of data is important for any policy formulation framework to be effective.
Relying on 2012 data to come up with policies to develop the sector is unreliable and misleading.
The SME sector is important and will play an even bigger role in the new economy post Covid-19 which places importance on domestic production of goods and services.
