It is now estimated that 60 percent of the economy is composed of informal businesses. The need to formalize and strengthen SMEs is imperative for rapid and sustainable growth of the economy. Business associations like Confederation of Zimbabwe Industries have, in the past, been very active in the promotion of small and medium enterprises. The Confederation used to run the Business Linkages Programme, which allowed small and medium enterprises to be contracted by large corporations. Numerous SMEs benefited from the initiative, with some managing to grow into big corporations. However due to lack of funding the initiative died out.
Currently the SMEs face various challenges, with the investment climate posing the greatest threat. In order to boost the investment climate, there is need to introduce tax incentives. Broadening the tax base cannot be ruled out. There is also need to review the investment promotion schemes.
The RBZ has introduced a regulation that 30 percent of banks’ total loans has to go to SMEs. The RBZ will also conduct monthly assessments to monitor compliance and any institution found wanting will face severe penalties.
The issue of competitiveness is also a huge challenge. Most SMEs use antiquated tools and equipment while others have adopted ineffective cost structures and pricing models.
Bad governance is responsible for the failure of many SMEs. Success requires entrepreneurs who have the ability to manage change and enforce effective administration. An enabling legal framework is also indispensable for good governance. Laws regarding competition which are particularly relevant to the needs of SMEs must be enacted. Further the formalization requirements of SMEs must be simplified and made affordable.
A change on government policy and initiative on the part of SMEs will help to position and capacitate the SME sector.
Post published in: Business