SMEs should invest in capacity development

SMEs should invest in capacity development Demand side constraints point mostly to firm characteristics and owner perceptions which inhibit SMEs access to external finance
Capacity development is a key success factor for the realisation of the full economic potential of SMEs

Capacity development is a key success factor for the realisation of the full economic potential of SMEs

Sanderson Abel

Given that the Micro, Small and Medium-Sized Enterprises (MSME) sector now comprises a predominant share of private sector economic activities in the country, it is crucial for economists and policy makers to flesh out the specific characteristics and potentials that distinguish players in this sector from larger enterprises.

Special attention needs to be given to their role in the overall development of the private sector.

The Government, the financial services sector, the non-governmental sector and other relevant stakeholders, each need to play a role in the development of the sector given the centrality and prominence of the sector in the new economic dispensation in the country.

Essence of capacity development

The crucial gaps in the MSME sector manifest themselves in the form of human, capital and material deficiencies. As such, capacity development becomes a key success factor for the realisation of the full economic potential of the sector.

The main assets for any firm, especially MSMEs are their human capital assets. This is given that the operations of the majority of these MSMEs are labour intensive.

One of the major challenges that the MSMEs face is limited management and operational capacity, which has been shown to further slow the performance and growth potential of MSMEs.

Therefore, for any serious efforts at growing the economy by leveraging on the informal sector to bear fruit, there is need for a realisation that only through capacity development of players in the sector, is the economy likely to reap greater rewards through improved efficiency and productive capacity.

Some of the basic necessities that MSMEs need to be equipped with include affordable access to localised and customised business management information, interactive tools, and training.

SMEs often lack capabilities and infrastructure to make the most of their human capabilities — and as a consequence tend to have lower levels of training and skills development. A number of different factors drive the need for training activities for MSMEs. These factors can be pegged at different levels and some are outlined below:

For firms, it is the market, the need to remain competitive in what is offered to customers;

For employees, it is acquiring skills that can lead to better jobs and remuneration;

For communities, the driver is to create dynamic industrial and labour markets that survive economic downturns and provide a variety of employment opportunities and increased local development.

In Zimbabwe, access to training and the effective utilisation of skills in Micro, Small and Medium-Sized Enterprises (MSMEs) has long been an area of interest to the Government and some non-governmental organisations.

The problem that has been witnessed with the various interventions was that the processes were more preliminary due to the limited resources flowing from the Government and the NGO sector.

This results in MSMEs lagging behind in many facets of their operations hence limiting the potential of the sector to contribute to the development of the country. Organised structures for MSMEs have the capacity to resolve this challenge as the parties can contribute to their own training.

Fostering capacity development in the MSME sector will assist in ensuring the competitiveness and growth possibilities of already existing enterprises as well as supporting the creation of new ventures.

Government and other interested stakeholders should ensure that MSME managers are equipped with the skills they need to successfully run and develop their companies in a complex world and significantly transform them significantly into sustainable engines for growth.

For the country to benefit from the sector there is need for all stakeholders to pose certain questions and proffer solutions. Some of the most important questions that need to be put on the table are:

Can skills formation in MSMEs be increased through ways other than formal tertiary education and training?

How could business planning activities, for example, be used to reinforce a more systematic approach to skills development in MSMEs?

What are the appropriate roles of Government and industry associations in designing and delivering more flexible SME-centred business support, information, and training packages?

Solutions to the above questions are of utmost importance because they can assist in developing relevant capacity development initiative for the sector. It should be noted that:

Formal training programmes within firms, such as learning circles, and job rotation, exchanges or secondments have limited participation by MSMEs (probably due to their lack of critical mass), which suggests that these firms could benefit from a network approach to this type of learning, such as that more commonly utilised by large firms.

For example, several MSMEs could join together to organise learning circles or exchanges of personnel within an industry cluster or value-chain. This is mostly likely to be effective once MSMEs are able to become organised and form industry bodies for those in the same lines of trade. Such arrangements offer opportunities for the Government and other supporting institutions to come aboard and assist them.

The banking sector is also prepared and well equipped to chip in with training for the MSMEs. Not only are individual banks endowed with staff that can impart financial skills to the MSME sector, but structures such as the Institute of Bankers can be appropriately leveraged to conduct training seminars for participants in the MSME sector to upgrade basic financial skills. The banking sector thus can play a major role in driving financial and business literacy for this important sector.

The country can register improved development when capacity building is linked to MSME access to markets and access to finance (two other challenges faced by the sector).

There is need for the various stakeholders to come together and develop capacity development programmes that create linkages between MSMEs and large businesses. These linkages create powerful incentives for MSMEs to build managerial and operational capacity within their own operations.

By accessing new markets more effectively, MSMEs create opportunities for long-term financial sustainability which can lead to increased job creation.

The need to capacity develop MSMEs is very clear given they support the building of systemic productive capacities.

They help to absorb productive resources at all levels of the economy and contribute to the establishment of dynamic and resilient economic systems in which small and large firms are interlinked.

They also tend to be more widely dispersed geographically than larger enterprises, support the development and diffusion of entrepreneurial spirit and skills, and help to reduce economic disparities between urban and rural areas.


Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. BAZ expressly invites players in the MSME sector to give their valuable comments and feedback related to this article to him on [email protected] or on numbers 04-744686 and 0772463008

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