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Local SMEs poised for growth

Small to medium enterprises (SMEs) are set to grow this year due to legislation restricting imports and the advancement of technology, experts have said.

BY TATIRA ZWINOIRA

The importance of SMEs is especially high in Zimbabwe where an estimated 80% to 90% of the economy is informal and the sector contributes 60% to the gross domestic product, according to the 2012 Finscope SME survey.

Currently, there are over 2,8 million SMEs in the country, employing 2,9 million people, which is over 50% of the country’s labour force.

One of the many entrepreneurs looking to tap into the ICT sector is Nanosoft, an IT solutions company.

Following 2016’s record breaking year of financial institutions creating mobile transactional applications including Brainworks with its GetCash, FBC Bank (FBC mobile application) and CBZ Bank (CBZ Touch), among others, Nanosoft managing director Simba Gwenzi hopes to kickstart his mobile application.

The application allows clients to purchase insurance products on an individual basis. It is designed in a way that facilitates direct purchase of insurance products in real time with no need to go through a broker or an agent.

“The insurance companies will have a direct interaction with clients without being blocked by intermediaries who sometimes short-change them in various ways, like poor representation of the insurer’s brand, withholding of premiums and even stealing premiums,” Gwenzi said.

“Insurers will reduce brokerage commissions as the charge of interacting through this application will be insignificant as compared to the 12,5% brokerage fees they pay to intermediaries.”

The mobile application is yet to be launched due to financing.

Gwenzi said he was working with his two other co-founders and the project was being funded from their company and personal finances.

To that effect, government has set aside about $42,1 million for the ICT sector, that is, a special $25 million fund for tech start-up companies and 2017 budget allocations of $17,1 million.

Jonah Mungoshi, a success coach specialising in assisting executive management of companies to build high performance teams, told Standardbusiness innovation was needed to set up technology-based companies.

“I would look at technology where the barriers of entry are very low. Wherever there is a problem there is an opportunity. The issue is to find a creative way of solving that problem creatively,” he said.

“Without innovation people will run really fast and hard but remain on the same spot.

“What most people want to hear is that ‘there is this opportunity and if you go there you will make a lot of money’ but unfortunately, it does not work like that in business.

“I think some of our youngsters have done well in ICT, some of the Zimbabweans have developed good mobile financial applications.”

He said entrepreneurs needed to get a realistic analysis of the economic situation.

Though ICT has opportunities, government is currently pegging its economic hopes on production, another area of opportunity for SMEs.

The thrust of the 2017 budget interventions was centred on sustaining an even playing field, re-kindling business confidence and enhancing competitiveness through lowering the cost of doing business in production.

SMEs and existing manufacturers have complained about high costs such as fuel, transport, electricity and water as major cost drivers. The World Bank says electricity costs of nearly 13 cents per kilowatt an hour is the highest in the region.

As such, the manufacturing sector’s contribution to GDP shrunk to 13, 1% from a peak of 32%, according to the Confederation of Zimbabwe Industries.

The low productivity has led to a high current account deficit estimated to be over $2 billion and a trade deficit estimated to be about $1,99 billion due to low revenue and exports.

Government responded by putting protectionist measures in the form of import restrictions, such as Statutory Instrument 64 which restricted importation of products that have local equivalents.

These protectionist measures led to capacity utilisation in the country growing to the current 47,4% from 34,3% at the start of 2016. As a result, nearly a tenth of manufacturers reported a 100% capacity utilisation.

SME Association of Zimbabwe founder and executive officer Farai Mutambanengwe told Standardbusiness that increased production made more sense for SMEs since there was a drive towards production.

“The one which makes more sense is the productive sector, be it in manufacturing or value addition because the fact that there is going to be shortages or restrictions on imports creates opportunities for local producers. My thinking is that this is where the opportunities will lie,” Mutambanengwe said.

However, going into production comes not just by choice as the import restrictions put a large number of entrepreneurs out of business, leaving them with few options.

Previously, SMEs benefitted from cheaper goods from the region, especially from South Africa due to its central bank keeping inflation between 5,9% and 7% in 2016.

Mutambanengwe said SMEs in 2017 must make use of micro finance institutions.

“In terms of financing, the exciting development is the emergence of the micro finance banks because these banks specifically mean to cater for the SME sector,” he said.

“There are some projects that are being gunned under the ease of doing business programme specifically coming up with a credit rating agency and a collateral registry which will allow collateral other than title deeds.”

According to the central bank, there are 167 micro finance institutions which give out small loans.

As the majority of companies earn an annual turnover of $5 000, experts say SMEs will find better luck from these institutions.

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