Zanzibar — ZANZIBAR'S slow economic growth and unemployment are a major challenge that can be dealt with by just promoting the Micro, Small and Medium Enterprises (MSMEs).
Members of the Zanzibar National Chamber of Commerce, Industries and Agriculture (ZNCCIA) are challenging the government to rethink the role of MSMEs in building the economy and in minimizing the current lack of job.
Discussing a report on the study "for developing incentives and better regulations of local business in Zanzibar", members of the ZNCCIA observed that there is a lot of untapped opportunities in private sector including developing emerging talents. Dr Mohammed Hafidh, economist and a member of ZNCCIA said at a workshop held at Bwawani Hotel in the stone town, "MSMEs are very important in the development of the country.
They can be a solution to unemployment and also talented people can emerge from the group." However, he said that the biggest challenge is the identification and developing the talents. Other members of the chamber including Mr Ahmed Awadhi, Mr Seif Saleh, and Mr Maalim Khamis drummed for concerted efforts to make sure that MSMEs are developed particularly by providing incentives and favourable environment that will enable them to be productive.
The study "for developing incentives and better regulations of local business in Zanzibar" was conducted by researchers Mr Ussi Hussein, and Mr Adolf Ndunguru, suggesting several steps that the government can take to develop MSMEs.
Presenting the report to members of the ZNCCIA, Hussein said that in most countries, the term MSMEs is not commonly used as compared to SMEs. "The argument behind is that microenterprises falls under the category of small enterprises." He explained that in most literatures, Small and Medium Enterprises (SMEs) refer to microenterprises as well but for policy purposes, nonetheless, microenterprises are differentiated from small enterprises for better management of the two.
The researchers indicated in their report that out of 86,196 businesses, 88 per cent (or 75,852 businesses) are informal while the remaining ones 12 percent or 10,344) are formal businesses. Classification by major categories shows that 55 per cent of the businesses falls under trade sector while 30 per cent under services.
The employment records show that the number employed by MSMEs in Zanzibar is 117,020 of which Unguja constitutes 70 per cent or 81,489 employees while Pemba has 35,531 employees or 30 per cent. It was established that MSMEs have a great contribution to the livelihood of many households as its total employment record constitutes about 10 percent of the population.
Having realized the importance of MSMEs for economic development, their contribution to the livelihood vulnerable population, and their spread over across the country, Hussein said that there is need for Government intervention to improve rural infrastructure to enable MSMEs to prosper in rural areas as well. This measure will reduce the MSMEs congestion in urban centre.
"Specific case reviews include going through relevant documents describing MSMEs development in Zanzibar, SMEs Development Policy, 2006, Zanzibar Investment Policy, 2000 and Zanzibar Investment Promotion and Protection Act, No, 11 of 2004 just to mention few," said Hussein.
The research is an attempt to develop incentives and better regulation guidelines that will assist policymakers, practitioners, support institutions, chambers of commerce and business associations in their efforts towards SME development. The interim report says there are basic requirements for a healthy business environment which are fundamental to enabling firms to emerge, survive and grow.
In Zanzibar the informal Sector is among the most buoyant sectors, but does not meaningfully contribute to revenue generation. According to the Zanzibar Employment Policy (2007) the informal sector provides employment to 80 per cent of the economically active population in Zanzibar, mainly in micro and small businesses. The Employment Policy estimates micro businesses accounts for 90 of the employment in the informal economy, with 10 per cent being small and medium businesses.
This implies that some of the informal activities are potentially profitable businesses. While in the formal sector women employment constitutes about 36 per cent, women are the majority in the informal sector like seaweed farming.
The Zanzibar SME Policy identifies a number of "legislation and implementing regulations at national, district and municipal level", affecting the growth and prosperity of SMEs in the Islands.
More specifically, the SME Policy singles out the following constraints: lengthy process of amending and modernizing legislation legislative process; business registration; cumbersome licencing procedures; very limited access to finance; taxation; and complicated taxation environment involving 2 tax authorities.
Trade regulations; management and scope of investment incentives; labour regulations review; difficulty to access public procurement opportunities; limited private business organization and lack of education and training institutions focusing on enterprise or entrepreneurship skills.
The report says that designing an incentive package that fosters growth of the MSMEs in Zanzibar needs to address all those variables holistically rather than specializing on one single factor. Zanzibar introduced incentives policy aimed at attracting huge investments from both foreign and local sources in order to address poverty problems of its citizens. This measure, however, did not address local investors problems related to their growth.
It was revealed by researchers that introducing conditions as prerequisite for granting incentives is essential, but in the case of Zanzibar, the prevailing conditions have automatically put aside local investors as the set up of the minimum capital requirement is unrealistic and also application for investment certificate requirements are not affordable for an average local investor in Zanzibar.
The long-term objectives of MSMEs in Zanzibar are clear - to build their capacity, enhance their competitiveness, attain global integration and be partners for progress in economic development, employment generation and the well-being of the vulnerable population in which the majority of local investor belong.
The report recommends actions for Incentives including developing Infrastructure, for SMEs prosperity the Government should aim at "Earmarking of specific areas and developing them for accommodation of small businesses currently operating without fixed abode in every district and enforce business registration on those centre; "Improving supply of utilities, more specifically reliable electricity to those centres, for smoother growth of the Entrepreneurship, the Government machineries and tax administration in particular need to prepare reading materials (including manuals) and launch outreach awareness and educational programmes on entrepreneurship.
Financing MSMEs: To afford credit finance to MSMEs the Government needs to support and strengthen mechanisms for development of micro finance institutions and community based saving schemes. While it is advisable to have an MSME window within the formalized financial services system, the main source of financing MSMEs needs is expected to be these microfinance institutions.
Introduce training course on cash flow management to raise MSMEs awareness, knowledge and skills on business financing methods and relevant instruments such as: Public credit guarantee schemes, collateral and property rights; SME loans; Trade finance; Loans for restructuring and cost saving initiatives; credit information sharing. Simplified accounting and taxation systems for SMEs; and Market access.
For the Zanzibar SMEs to be able to market their products, the following needs to be done: Strengthen the official educational, marketing and technical support providers to address the needs of key sectoral groups, Development of local industrial and agro processing clusters, warehousing, marketing and distribution centres, Improve standardization of the SMEs products through education programmes.
The Government, through its markets departments, avail the SMEs with product markets information, prepare some basic record keeping (simplified) and hence make it mandatory for all small taxpayers to keep some form of basic business records or documents showing the turnover and some specified expenses, through TRA supplied templates.