Dr Gift Mugano

Owners of survivalist businesses might not see the need for registering their business activities as the associated cost of registration and compliance might exceed the limited income.From 1998 to 2008 Zimbabwe’s economy was affected by severe challenges such as a period of hyperinflation, which resulted in a sharp decline in the value of the Zimbabwe dollar and its total demise. Other challenges included shortage of raw materials, low level of investment, inadequate delivery of public infrastructure and basic social services, and a decrease in formal sector employment. The adoption of a multi-currency system (especially US$) marked a significant shift in Zimbabwe’s economy.

A study carried out by FinScope in 2012 shows that 5,7 million people work in the micro small and medium enterprises (MSME) sector in Zimbabwe, including 2,8 million MSME owners (18 years and older) and about 2,9 million employees (any age). Only 22 percent of employees work full-time. Although paid employees are mainly male, unpaid workers are mainly female (many of them are spouses working in the business). The MSME owners are usually middle aged (73 percent are over the age of 30).

Basic demographics such as gender and location broadly reflect the distribution of the total adult population. As such, 53 percent of MSME owners are female (mainly individual entrepreneurs engaged in agricultural activities), and 66 percent of MSME owners are located in rural areas. MSME owners generally have good levels of education (71 percent some secondary education or more), and are usually heads of households (65 percent).

Often, income from entrepreneurial activity is supplemented by other sources of income such as another business or salaried job. The main motivation to start the business is driven by need, meaning the businesses are survivalist rather than opportunity based.

Although business owners have largely positive attitudes towards the business, many are worried about sustainability. MSME owners usually work long hours but have low levels of income.

The term “informal businesses” refers to enterprises that are not registered and/or licensed with any Government institution within Zimbabwe. Uncertainties, the scale of business activities, as well as the costs and complexities of registration affect the motivation to formalise the business.

The Zimbabwe National Competitiveness Report (2015) shows that Zimbabwe’s informal sector employs about 84 percent of the total labour force with the majority of the workers employed in the agricultural sector. The report shows that productivity is very low in agricultural sector that is, averaging around $420 per labourer.

This ties in with the observations by the FinScope study which alluded that incomes from formal employment tend to be low and hence secondary incomes are essential. Incomes from entrepreneurial activities provide an important opportunity to ‘top-up’ incomes, and they are often based on activities that can be fitted around a main job.

A quarter of MSME owners generate additional income from another job/business. As such, owners of “top-up” businesses might not see the need to register their entrepreneurial activities.

Another reason for resisting formalisation is that the processes and requirements of registration can be complex and expensive. This is a particular issue where educational levels are low and entrepreneurs have to engage help in completing the paperwork required (29 percent of MSME owners have primary education or less).

Owners of survivalist businesses might not see the need for registering their business activities as the associated cost of registration and compliance might exceed the limited income.

About 35 percent of MSME owners reported that they do not have the money to register their business activities, 26 percent don’t know how to register, and 10 percent reported that it is too complicated. Further, there are low levels of awareness as to what the benefits of registration are. To reduce complexities and travel costs, it might be useful to introduce a “one-stop-shop” model where MSME owners can register/license their activities in one go.

In addition, incentives such as support with writing a business plan, access to finance, operational space, and new customers (ie marketing) could be offered. There is need to ensure that MSME owners understand the importance and benefits of registering their businesses, that the process is transparent and easy, and that the cost is affordable.

There is an opportunity to come up with incentives and a formalisation model which would suit the needs of the sector while contributing towards their financial inclusion, the use of micro-franchising, loan booths, the advent of ninety-nine-year leases and the formation of SACCOs.

Zimbabwe also need to address labour informality. Although MSME owners do not perceive labour laws as a main constraint, policies affecting the hiring and firing of employees might contribute to the willingness/ability to employ full-time paid staff.

As found in this survey, the majority of MSME owners do not have any employees (72 percent) and only 4 percent of MSME owners employ more than 5 people. Often businesses are embedded in networks of family and kin and rely on people who work in the business without pay. In fact, only 22 percent are full-time paid employees.

There is therefore, a need to create an enabling environment for MSME owners which encourages quality employment across the sector. Labour policies that are positively perceived on macro-level, might affect MSME owners, in particular informal micro-businesses.

Need for operational space

The majority of MSME owners operate from residential premises, not only due to the nature of businesses but also due to the lack of operations space. The lack of operations space was reported as a key challenge when growing the business.

Although operational space is a challenge itself, there is also another challenge with the actual cost that is often associated with acquiring the space. Hence, there is need for intervention from different stakeholders on how to tackle the operational space issue with regard to availability and affordability.

Need for marketing and market linkages

Many MSME owners identified too many competitors. However, having enough customers/identifying prospective clients is a key challenge for business start-up, operation, management and business growth. The majority of entrepreneurs (82 percent) do not use sophisticated marketing practices, but rely on word-of-mouth to advertise their business. An additional 14 percent do not market their business at all.

This indicates the great need to support MSME owners in their venture to market their products and services. Common marketing techniques for small businesses include networking, customer referrals, local business directories, local radio, road-side billboards, and print (eg local newspapers).

Although internet marketing might seem to be a cost effective option (eg website, email marketing, as well as social media), only 3 percent have access to internet. SMS marketing could be utilised for marketing purposes as the majority of MSME owners have access to cell phones (80 percent in total, and 90 percent in major urban centres such as Harare and Bulawayo). However, that might not be feasible/affordable to all MSME owners.

Currently there are various institutions making efforts to transition from informality to formality. From a policy perspective, there is need for the development of a comprehensive integrated formalisation strategy. What is refreshing is that the Ministry of Small and Medium Enterprises and Cooperative Development is currently grappled with the formulation of the formalisation strategy.

This process must take into account various pillars of formalisation beyond registration like operating space, marketing and market linkages, access to finance in line with Reserve Bank’s financial inclusion strategy, labour informality and licensing fees.

As found in this survey, the majority of MSME owners do not have any employees (72 percent) and only 4 percent of MSME owners employ more than 5 people. Often businesses are embedded in networks of family and kin and rely on people who work in the business without pay. In fact, only 22 percent are full-time paid employees.

 

Dr Mugano is an author and an expert on Trade and Competitiveness. He is a Research Associate at Nelson Mandela Metropolitan University. Email: [email protected] , cell: +263 772 541 209

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