Small businesses are a big deal Many SMEs in Zimbabwe are into retail while others are into artisanal mining, but a good diversification into small-scale manufacturing is welcome for the betterment of the economy
Many SMEs in Zimbabwe are into retail while others are into artisanal mining, but a good diversification into small-scale manufacturing is welcome for the betterment of the economy

Many SMEs in Zimbabwe are into retail while others are into artisanal mining, but a good diversification into small-scale manufacturing is welcome for the betterment of the economy

Nick Mangwana : View from the Diaspora

Having a small business sometimes is not about choice. It is about passion. But in Zimbabwe it is about survival. It is about employment and creating value, but if it results in wealth creation for the entrepreneur, that is bonus. For the Government, small businesses are about the employment of local communities and the contribution that has to be made to the fiscus. It is about having them as the centrepiece of economic growth and poverty reduction.If Small and Medium Enterprises (SMEs) are this important to an economy, and in our case employ about 75 percent of our labour force, why then are we hearing phrases like “vendorised economy”? Does it have to do with the fact that our SMEs are focused very much on buying and selling and much less on small-scale manufacturing or other types of service delivery?

In other countries, SMEs are the major driver and source of new products and technological innovation.

Is it that our culture values the stability of a periodic pay cheque to the pursuit of one’s passion? Or is it just that the lack of start-up finances mean people just go for the easy pick, low hanging fruit; buying from one person and selling to the next?

A vendor economy, is what the Zimbabwean economy has pejoratively been called. This is only because many of the SMEs are into retail while others are into artisanal mining. A good diversification into small-scale manufacturing is welcome.

The virtues and vices of SI 64/2016 have been discussed on many occasions. It had this impact because the nation has been focused on retail. Those gifted with entrepreneurship have to start being creative and thinking outside the box.

Very few fiscal benefits have been received by the Government of Zimbabwe from the current SMEs as many do not pay taxes. Those that do are not happy as they find ZIMRA to be a large boulder on their necks, pushing them under water. They point to the fact that ZIMRA is charging a presumptive tax.

This means that every three months, a person is supposed to pay a fee as presumptive tax to the State. This is a tax liability assessed using an indirect method of assuming a baseline.

To many SMEs, ZIMRA is viewed as an enemy of progress. They have now earned such a bad stereotype as a retrogressive force. The recent widely reported scandals at the revenue authority have not been very helpful.

The money collected by ZIMRA is supposed to be used for developmental projects, pay for law and order and for the whole Government machinery to work.

Taxation is coercive by nature with most people and corporations trying to pay as minimum as possible.

SMEs are not different. In fact, to them every cent matters more. They cannot afford the cost of compliance, but taxes have to be paid. With the current situation in Zimbabwe however, a balance has to be struck as blood can’t be drawn from a stone.

In the UK SMEs employ about 14 million people. Nobody calls the UK a vendor economy because these SMEs are so widely spread in different sectors. It also has to be noted that British SMEs are those that employ 250 people or less.

In Zimbabwe, ZIMRA uses a loose definition that says a small company is one with six to 40 employees, annual turn-over of $50 000 to $500 000 and assets valued at between $50 000 to $1 million.

So possibly anything smaller is micro-business. These are just owner run, sole tradership and highly informalised.

A medium-sized company is one with 41 to 75 employees, annual turnover of between $1 million and $2 million and assets valued between $1 million and $2 million.

SMEs and informal traders employ approximately 5,7 million people. It means there is a possibility that with inefficient tax collection system, very few of these people would pay taxes.

A lot of people do not see the direct benefit of paying Government taxes and asking for example, the Diaspora to contribute a small figure even as little as 0,5 percent of their income in taxation to the home country can get you lynched.

SMEs feel worse as they believe that Government is siding with big businesses. They have a point as they are aware for example, that SI 64/2016 was crafted with a lot of input from industry and with little consultation with them.

Their biggest challenge is lack of capital and they don’t feel the State appreciates their role in the economy and have very little support from the banks. Of all the loans advanced by banks in Zimbabwe only 6 percent were given to SMEs.

The issue of collateral security, transaction costs and lack of supportive documents by the SMEs is understandable, but still this is simply not good enough. That is why some wrongly support the indigenisation of these banks.

While the indigenisation policy focuses on companies which are capitalised upwards of $500 000, the real indigenous entrepreneurship finds its conception and nursery in SMEs. And the best indigenisation approach to banking is simply for them to support SMEs.

This is not suggesting the doling out non-performing loans, but for Government to give technical support to SMEs so they can access finance. Banks in Africa are said to be some of the most profitable in the world giving return on equity between 15-25 percent, but they don’t bother with local interest.

The best indigenisation for banks is just for them to promote local interests by supporting SME businesses that energise the economy and make money out of it. For this to work though, everyone needs an attitude of paying their debts.

The artisanal miners for example, have a reputation of blowing away a good windfall on cars, women and alcohol instead of buying equipment. They are not alone in this. Others blow loans on the same ‘joys of life’ without using the money for the intended purpose. At least the miner is blowing away his/her money, but how about the vendor who blows away a borrowed $5 000?

Most developing countries have economies driven by SMEs. The difference between some of them and Zimbabwe is that they have benefited from general budget support from organisations such as the EU, World Bank and WHO.

Zimbabwe has not had the privilege in 15 years. Very few countries would have remained afloat. Zimbabwe is still afloat due to its resilience and fortitude, but has to learn from other countries as well.

This is not to say that Zimbabwe should transplant ideas from elsewhere as they are and implement them in Zimbabwe. That will be a classic display of lacking contextual intelligence. It is a country in a situation very few countries have ever been in, therefore struggles with fiscal space to support its SMEs, but that cannot be the whole explanation.

There is the issue of skewed priorities and fiscal haemorrhage as well as simple irresponsibility.

The State however, should never forget that SMEs bring about both political and social stability.

The problem of having policies that seem like knee jerk fire fighting or an emotional discourse should be rested.

Some say that kombis employ about 40 000 of our young people. Granted they are such a menace on the road and in the CBD.

But any policies that stop kombis and all the attendant menace they do cause on the roads should also take into account the employment they bring in. Let us never forget they are also SMEs.

In our economy, small business is a very big deal and whatever policies we implement, let us look at the impact it will have on such. The Government has to be the womb that nurtures, nourishes and protects this sector.

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