16 January 2013

Zimbabwe: Small Growing Enterprises


Unemployment, liquidity crunch, low aggregate demand, low capacity utilisation, de-industrialisation and informalisation.

All these are familiar words in any discussion of Zimbabwe's economy. Much as the terms may seem unrelated, and this deplorable overall state of affairs is attributed to a lack of political leadership, the reality is that they are all part of one single cause which has less to do with politics, and more to do with our national psyche. At independence, Zimbabwe inherited an economy which was heavily government-controlled, led by a minority group of whites in several parastatals and large corporations, and powered by a large, suppressed but academically ambitious black workforce. The new leadership, conscious of the goals of the liberation struggle, immediately set about replacing the white bureaucrats with the black academic elite. This transition was also initiated in the private sector with blacks assuming more and more senior positions.

Outside of the formal sector, there were several black entrepreneurs, mostly in the rural transport, farming and the retail sector. These black entrepreneurs were self-made businessmen, often with minimal formal education but a natural eye for commerce. The previous regime allowed these entrepreneurs to operate unhindered, and they were left pretty much as was under the new dispensation. Government neither assisted nor discouraged them.

Going into the 1990s, government embarked on the Economic Structural Adjustment Program (ESAP), which was meant to turn the country into a free economy, moving away from the government-controlled model previously prevailing. It also sought to dis-invest from the many commercial enterprises that were its parastatals. The idea was that these were to be taken up and run by the educated black elite that Zimbabwe had managed to expand, thanks to a heavily subsidized educational system.

The miscalculation, however, was in terms of the ability of this educated workforce to assume an entrepreneurial role. The education system, as well as the previous political dispensation had inculcated a culture of formal education and employment as being the means to success. The system through which the black majority went through was supposed to create employees, while entrepreneurial ability was passed on from father to son outside of the formal education set-up within the white community.

While ESAP did see a number of entrepreneurs rise to the occasion and set up or take over large corporations, in the main it failed to realise several key milestones primarily because of the above shortcoming. Zimba-bweans as a people simply did not have the mindset of becoming independent employers. That scenario prevails even up to the present day.

This last statement may seem controversial, and will be met with many rebuttals particularly when one looks at the burgeoning informal sector, but a close examination of the facts will support this assertion. The simplest test is to ask how many of those in the informal sector would, given a chance, return to formal employment? How many would prefer the certainty of a monthly pay-cheque compared to the burden of paying one out?

The second pointer to the fact that we have survivalists in the informal sector, not entrepreneurs is the transitory nature of businesses that are set up. Prior to dollarisation, the informal sector players were engaged in foreign currency trading, importing and selling scarce commodities, car dealing, being "runners" for enterprises and persons who needed inputs and spares they could not legitimately acquire, and selling liquor. These "enterprises" were mostly one-man shows, or at best entities that employed unskilled, low wage-earning workers.

Post-dollarisation fads included clothes retailing, taxis (an offshoot of the car dealing industry), food outlets, hair salons and other such "cash cow" businesses meant to sustain livelihoods. Most of these "businesses" last a few months, and are shut down frequently as the owner pursues the latest money-making scheme. In short, we have a lot of wheeler-dealers, as opposed to people setting up businesses that have a long term vision behind them. While this scenario has been playing out on the micro to small end, the large corporations on the other end of the scale have been caught up in a battle to right-size in the face of hostile legislation as well as an onslaught of competition from outside. With several being led by managerial as opposed to entrepreneurial chief executives and managing directors, they have failed to negotiate the curve, and have found themselves on the brink of extinction, if not over the edge.

The net result of the above is that we find ourselves as a nation faced with the evils mentioned at the start of this article. The estimated 80 percent unemployment almost neatly coincides with our estimated imports that are said to take up to 70 percent of retail space. Low capacity utilisation is reciprocal to the high dependence on imports and the decentralisation results in further informalisation. All of these negatives are the reflection of each other. The solution to all of this lies in small growing enterprises. Businesses started up with an intention to grow them into large corporations, and most importantly, to substitute imports. One may ask "why small growing enterprises? Why not fix the large corporations and get them to employ more people?" The answer lies in effectiveness and speed of execution.

A small enterprise requires relatively little capital to set up, and will turn profitable very quickly if it is targeted at the right market. In this case the right market is imports substituting. What is more, such an enterprise would quickly need to grow its workforce as it meets more and more of the demand that was previously going to imports. Assuming it started with one person, and by the end of the year has five, that's a 400 percent increase in employment. No large corporation is going to match that even over five years.

Such a small growing enterprise would have made inroads into the problem of unemployment and the liquidity crunch, by reducing the balance of payments deficit. Multiply that by several such enterprises across the economy and you could have a radical transformation of the country's economic fortunes within a very short space of time; a few years, as opposed to decades.

Over and above this, such small growing enterprises would increase aggregate demand within the economy as this newly-employed workforce consumes more, and as more money is retained within the system, thus also increasing the market for the struggling large corporations. Hence even they too become viable, stop retrenching and start expanding their capacity utilisation. This would stop the rot of de-industrialisation and informalisation.

Countries such as Malaysia, Mauritius, India and even the great China have used this route to transform their countries into vibrant and thriving economies, and nothing but our own mindsets stops Zimbabwe from achieving the same. The last fifteen years have seen a collapse of the previously-existing economy, and we need to re-build. For this re-building to be successful, we need it to be locally-driven, and small growing indigenous enterprises are the logical and long-lasting solution.

Encouraging and supporting the emergence of small and medium sized growing enterprises is the Small to Medium Enterprises (SME) Association of Zimbabwe's primary goal. It should be the goal of government and the nation as a whole, if we are to see a new robust, forward-looking Zimbabwean economy. Our research so far has shown that access to markets, funding, training, infrastructure and an operating environment conducive to SME growth are the chief ingredients SMEs need to flourish.

Government's policies and efforts need to be complemented by the business sector's participation, business associations and chambers in particular to realize this turn-around. The value chain business linkages seminar to be held on January 29 2013, a collaborative effort between the SME Association of Zimbabwe and the Zimbabwe National Chamber of Commerce is one example of the complementary actions needed to achieve this transition.

Farai Mutambanengwe is the founder and Executive Officer of the SME Association of Zimbabwe. For details on the Association see www.smeaz.org.zw or e-mail

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