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A vibrant SME sector acts as a cushion in times of crisis

Kudzi Sharara, Business Correspondent
THE Zimbabwean economy is currently struggling for recovery from more than a decade of decline. Different policies have been crafted to try and revive the economic quagmire the country is in. Some of the policies that have been crafted include the Growth with Equity (1980-1990), Economic Structural Adjustment Programme (1991-1995), Zimbabwe Programme for Economic and Social Transformation (1996-2000), Zimbabwe Economic Millennium Recovery Programme (2000-2002), National Economic Recovery Programme (NERP,  2003), Macroeconomic Policy Framework (2005-2006), the National Economic Development Priority Programme and Short-Term Economic Recovery Programme, Medium Term Plan (2011-2015), Recently, we have heard of the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset).

Sadly, though, not much has been said about the role of Small to Medium Enterprises in Zimbabwe.

Yes, we have the ministry responsible for SMEs, but there seems to be limited scope of co-operation and linkages with other economic-related ministries like the Ministry of Finance, Ministry of Commerce and Industry, Ministry Economic Planning and Investment Promotion, and the Ministry of Indigenisation and Economic Empowerment.

It’s high time Government realises that growth, jobs, and innovation are largely driven by small and medium-sized enterprises and there is need to craft policies with SMEs in mind.

The “power of the small” is evident across the globe. They are major job creators and they tend to be efficient and innovative, and therefore prod large businesses to improve their own operations, making the economy work better overall.

And, of course, today’s small businesses are tomorrow’s corporate giants (think Facebook), so they offer a special set of opportunities for investors.

Thus, the performance of the SME sector of an economy is a good indicator of its overall strength and future prospects.

In the United States and other developed markets, SMEs commonly account for half or more of gross domestic product, as opposed to less than 30 percent elsewhere.

A recent study from the European Commission indicates that SMEs generated 85 percent of all new jobs in the European Union from 2002 to 2010.

In Germany, almost all of the 1,8 million new jobs created during the last five years came from SMEs. Economic growth in developed countries such as Japan, Korea, Taiwan and many others, was significantly generated by SME activities.

The percentage contribution of SMEs to GDP)/Total value added ranges from 60 percent in China, 57 percent in Germany, 55,3 percent in Japan and 50 percent in Korea. Closer to home, in South Africa it is estimated that 91 percent of the formal business entities are SMEs and they contribute between 52 to 57 percent to GDP and provide about 61 percent of employment.

In China, SMEs account for 99 percent of all enterprises, and create 75 percent of the new jobs in urban areas. Of the existing 20 500 000 companies in Europe in 2007, all but 43 000 were SMEs.

The other advantage of having a vibrant SME sector is that they can act as a cushion in times of crisis. This is so because a smaller share of SMEs is export oriented.

Contractions in global demand thus affect SMEs to a lesser extent than they affect larger enterprises.

Moreover, SMEs are more sensitive to local variations and medium-term development.  Innovations tend to start in SMEs.

As the economy becomes even more based on innovation, SMEs will continue to play a more significant role. This is evident enough that as we seek to revitalise the country’s economy, we must look to small and medium-sized businesses to drive a significant proportion of innovation to fuel growth. Government must start crafting policies that help SME growth.

There is need for Government to ease the procedures of accessing finance by SMEs, build human capacity base, and provide a long-term strategy, marketing assistance.

Other countries like South Africa are already implementing strategies to prop up SMEs. Recently, the country created a Small Enterprise Finance Agency, which intends to invest R2 billion over three years.

This is expected to offer some reprieve for small businesses which have been struggling to secure cash. Launched by the SA’s Minister of Economic Development Ebrahim Patel, SEFA falls in line with the stated ambitions of the government’s New Growth Path which seeks to bolster job creation through the support of the small and medium enterprise sector.

“In a lot of cases the banks don’t have the appetite for the risk,” to lend to small medium enterprises , according to SEFA’s acting MD, Willie Fourie, “that is why there is an institution like SEFA, to take on the risk that the banks don’t want”.

Access to finance is still regarded as the major obstacle to get into business and to finance businesses. In Zimbabwe it is a mountain to climb to get access to finance.

Hopefully, Government will put initiatives that will make it easier and open some doors for existing entrepreneurs and those that would like to get into the market.

To quote former RBZ Governor Gideon Gono: “It is high time we have one consolidated legislative piece that looks into the welfare of SME as well as the informal sector and ensure that the informal sector and interests of those are captured by all economic actors.”

The former central bank chief urged lawmakers to craft a harmonised law that encouraged growth of small enterprises after it emerged that only 5 percent of the US$2,8 billion loans advanced during 2012 went to SMEs.

Disclaimer: The writer is primarily responsible for this article and certifies that the opinion on the subject or any other views expressed herein reflects the writer’s personal views. The writer has taken all reasonable steps to ensure that the information in the article is correct and no liability is accepted for any loss arising on reliance on it. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of the writer.

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