5 February 2014

Zimbabwe: Local Authorities Vital for SMEs

The importance of the informal sector in the development of towns and cities has been a controversial topic. Debate around the importance of the informal sector to local authority development presents both advantages and disadvantages that need to be taken into account when designing policies targeted at the sector.

The net sum, on a cost benefit analysis shows that the benefits of the informal sector development far outweigh the costs. One important aspect that needs to be recognised with respect to the informal sector is that they provide important, daily services for the smooth functioning of a city.

From laundry services and fresh vegetables, to fresh cut flowers and providing haircuts, informal enterprises (whether a one-man enterprise or a family enterprise) respond very quickly to market needs and consumer demands, much faster than formal enterprises.

Local policy frameworks and strategies aimed at the informal economy must be developed, without hampering the potential of the sector for economic growth.

For the informal sector to play an effective urban development role there is need for a review of policies and regulations and other constraints facing the operators. It is also through the organised efforts of the informal sector operators themselves participating in the development of the policies Governing them that lasting improvements can be realised.

How then can local authorities develop innovative, inclusive and supportive policies that recognise the value of the informal economy and the people working in this field?

There are various controls that militate against the success of the informal sector and very often the operators are harassed by the police for engaging in activities that are considered to be illegal. In view of the potential of the informal sector to expand employment opportunities in an environment where the formal sector is shrinking and thereby condemning thousands of people to joblessness, the sector needs to be promoted. Hence, local authorities become vital in the development of this sector as these informal sectors are domiciled within their jurisdictions.

Economic importance of the Informal sector

Studies done within the area of SME development, show that there are many different viewpoints from which one can observe the informal sector. It can be viewed in a positive way as a provider of employment and incomes to millions of people who would otherwise lack the means of survival. It can be viewed as a breeding ground of entrepreneurship which could flourish if only it were not encumbered by a litany of destructive regulations and bureaucracy.

On the negative side, the informal sector can be viewed more as a whole segment of society that escaped regulation and protection. It can be condemned as a vast sea of backwardness, poverty, crime and unsanitary conditions. The perception of the local authorities is very important in shaping the destiny of the informal sector in Zimbabwe. If they perceive them positively then there is great scope for the sector to support the Government's vision as enunciated in the Zimbabwe Agenda for Sustainable Socio-Economic Transformation.

The economic blueprint has identified that the economy has undergone tremendous transformation where the informal sector has become the new dominant force replacing the yester-year mega industries which were driving the economy. Currently the vast majority of the output produced in the country is being produced from this sector.

This realisation and identification of the significance of the sector calls forth for the need to develop mechanisms that will help players in this sector to make sure that the potential contribution of the sector is realised for the development of the country. The local authorities should play a role in assisting this sector to blossom.

Given the challenges outlined below which affect the SMEs in their operations, it gives great scope for local authority intervention;

Lack of premises to operate from;

Negative by-laws which lead to harassment of operators;

Poor marketing facilities ;

Spiralling prices (and sometimes unavailability) of raw materials;

Inadequate skills and lack of facilities to upgrade skills; and

Lack of tools and machinery.

The above challenges faced by the informal sector not only limit the economic success of the informal sector, but also perpetuate informality by increasing the cost of entering into formal sector activities. If the regulatory framework for business was improved and informal workers had better skill levels, legal working spaces, etc., there would be a much higher chance that their activities could gradually become legalised, generating more revenue for the local authorities .

Harnessing the full potential of the SME sector

It is important that local authorities' processes harness the potential of these informal sector activities, even if they are often invisible in official statistics, if revenue generation and employment creation objectives are to be achieved at the local level. One of the main factors that hinder a more developmental approach towards the informal economy is the very poor state of communication among the various stakeholders.

Very often informal sector operators have to be based at premises sanctioned by the relevant authorities. Such places are not necessarily strategic (in terms of customer traffic) for the operators and this affects their enterprises negatively. The process of obtaining a workplace is also frustrating and often cumbersome for regulations require that they be registered and that their proposed ventures be approved.

It is imperative that the local authorities be able to support the informal sector through the provision of informal sector friendly policy frameworks, organized marketing facilities and improved business amenities for them to do their work. The provision of such an enabling environment will allow the informal sector players to be easily recognised.

This would also provide opportunities for Banks; insurance companies and other service providers to provide the other critical ingredients for the operations of these players. A participatory, multi-sectoral and multi-stakeholder approach is vital in the whole equation for the successful contribution of the informal sector to local authority development.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. BAZ invites players in the SME sector to give their valuable comments and feedback related to this article to him on abel@baz.org.zw, abel@baz.org.zw or on numbers 04-744686, 04-744686, 0772463008 or 0772463008.

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