SMEs hold key to economic growth

Business
BY JOHN KACHEMBERE ZIMBABWE’S small to medium size enterprises (SMEs) have the potential to turn around the country’s economy provided adequate funding, sound infrastructure and effective institutional structures are put in place, analysts have said.

Globally, SMEs are being hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development.

South Africa and India are notable examples of countries with vibrant SME sectors.

The Indian SME sector has grown over the last 60 years to become one of the most powerful sub-economic sectors.

Analysts who subscribe to the theory of promoting SMEs also argue that in terms of innovation, SMEs have a greater tolerance for higher-risk initiatives and the capacity to reap substantial market rewards in niche markets.

As small business entities, they are very flexible and move fast to adapt to any environment.

The SMEs sector in Zimbabwe, which now accounts for about 90% of the country’s employable population, is in dire need for government and private sector assistance to secure more funding.

Since the use of multi-currencies in 2009, most enterprises are struggling to survive due to lack of long-term financing.

The current liquidity constraints have also seen most banks failing to provide long-term loans.

Despite the dominance of the sector in the economy, most of the businesses have remained largely informal thereby limiting the sector’s contribution to the growth of the economy and revenue collection base.

It is against this background that Zimbabwe will host the first-ever SMEs International Expo from October 29-28. The expo would be hosted by a local publication.

In the USA and EU countries, it is estimated that SMEs contribute over 60% in employment, 40-60% to Gross Domestic Product (GDP) and 30-60% to exports.

The Asian Tigers such as India, Indonesia, China, Malaysia, Japan, and South Korea also have thriving sectors contributing between 70-90% in employment and an estimated 40% contribution to their respective GDPs.

In Africa, the SMEs sector in economic powerhouses such as South Africa, Egypt, Nigeria and Kenya, is estimated to contribute over 70% in employment and 30-40% contribution to GDP.

In recognition of the immense potential that the sector has, the Ministry of Small and Medium Enterprises and Co-operative Development has been on a drive to ensure that all businesses in the sector are registered.

Market watchers said the absence of a secondary stock exchange for SMEs to help raise working capital and allow participation of other investors has also made expansion of such firms difficult.

Plans to establish a secondary stock market for SMEs have been on the cards for the past five years but the stock market authorities and the government failed to agree on the size of businesses that should be classified as SMEs.

For instance, in Egypt a few years ago an SMEs stock exchange was commissioned to help the sector raise capital and improve quality of products thus bringing it into the main stream economic matrix allowing government to collect taxes.

Over the years, SMEs in Zimbabwe have been left out of the government incentive structures and this has forced them to avoid taxes because of lack of perceived benefits emanating from the fiscus.