HomeEditorial CommentSME sector contributes to mainstream economy

SME sector contributes to mainstream economy

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NUMEROUS studies have been undertaken investigating the relative contribution of the small-to-medium enterprises (SME)s sector to the Zimbabwean economy.

– Ian Ndlovu

According to the government, World Bank and other sources, the level of unemployment in Zimbabwe is estimated at around 80% of the total labour-force implying that only 20% of the working population is formally employment.

This raises a crucial question which is: How is the 80% of the total labour force able to survive without work?

Unpacking this question entails a short discourse on the contributions of the SME sector (especially the informal sector) to economic activities in Zimbabwe.

Since no person can survive for long without a steady flow of income, this means that the “academically” unemployed must be employed somewhere for purposes of survival and general livelihood.

According to Antony Jongwe, an entrepreneurship specialist, SME sector in Zimbabwe became important over the past 16 years because of the economic melt-down which started in 1997.

Zimbabwe’s economy which grew at 1,7% in 1997 collapsed with negative 17,7% in 2008. This means majority of able-bodied population was thrown into the streets, some sought refuge in other countries.

It is against this backdrop that cross-border trading activities and the flea market economy gained prominence in Zimbabwe.

In 2008 this writer had the rare privilege of attending a conference on poverty alleviation, national debt and capacity building in Manzini, Swaziland with the then executive members of the Zimbabwean Cross Border Traders’ Association.

Interacting with those economic players revealed that small-scale players in the economy are needed by large-scale and established businesses and vice-versa.

The main reason for this is that the SME sector accounts for significant foreign currency inflows in Zimbabwe.

Wage and other types of remittances from the Zimbabwean Diaspora were (and still are) injected into the Zimbabwean economy through informal means owing to the previously stringent foreign exchange control regulations which were meant to boost foreign currency reserves.

In 2007, amount of foreign exchange which was attributable to the informal sector was around two billion United States dollars.

This partially explains why before the present multi-currency dispensation Bulawayo was arguably the foreign currency capital of Zimbabwe. The “world bank” used to operate (or still operates) near Tredgold Building in Bulawayo.

Recent studies have attempted to distinguish “survivalist SMEs” from development-oriented SMEs which are later grafted into the mainstream economy to provide jobs, improve infrastructure and enhance livelihoods in disadvantaged communities.

“Survivalist SMEs” are the private enterprise equivalent of subsistence or peasant farming in rural communities.

The main reason of being involved in such business activities is not entrepreneurial flair, but the need to keep body and soul together.

In recent times the entrepreneurial abilities of the small-to-medium scale entrepreneur have been greatly enhanced by the contributions of Econet Wireless through the Ecocash system of moving funds.

This has greatly improved financial inclusion of traders and other people who were previously at the periphery of mainstream economic activities.

A study last year (2012) revealed that the Ecocash system was a cashcow with a cashflow estimated at $300 million dollars for the first six months of its operation.

This implies that a sizeable fraction of the previously financially excluded population have been successfully annexed into the mainstream economy through electronic means.

Complementing Econet in promoting financial inclusion of especially the informal sector is Telecel through S’kwama and Netone’s OneWallet.

These telcos have contributed a lot in reducing financial exclusion.

The improved circulation of money in the economy has definitely accelerated economic activities and improved the viability of SMEs and their capacity to morph into bigger businesses with the passage of time.

The future viability and prosperity of the SME sector depends on the effectiveness of private-private sector partnerships as well as bridging the gap between lofty government policy making in Harare and implementation at the grassroots.

This requires policy makers and other stakeholders whose duty is to deploy resources to sectors which need them to develop their policy formulation and implementation skills through craft literacy and craft competence courses, seminars, symposia and workshops.

 Ian Ndlovu is an economics lecturer at the National University of Science and Technology. His research interests cover business, development, economic and e-commerce issues. He writes in his personal capacity.

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