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04/17/2012

Small Business Environment in Zimbabwe, Sub-Saharan Africa


Small Business Environment in Zimbabwe, Sub-Saharan Africa

 

Introduction

            According to OECD (2002) and Storey (1994), there is no single, distinct and uniformly acceptable definition of small firm. In qualitative manner, it can be defined as an independent business, being managed by its owner or part-owners and having a small share of the market[1]. Thus, in this paper, small business will be treated as small enterprise taken to organization which employs less than 250 employees, as adopted in the European Union[2].

            The primary reason why people had become interested in small business is because of the combination of its perceived desirability and vulnerability. Furthermore, small and medium-seized enterprises (SMEs) are considered as desirable because they help to promote competition and employment and because of the fact that a few innovate and grow into large firms that potentially generate even more of these things (Bannock 2005). Regarding this, it can be said that small businesses of SMEs are vital aspects in the improvement of nation’s economy. Therefore, it is important for the national government to focus on the different actions and strategies that will help in order to support the operations of SMEs. This is particularly important for those nations that are experiencing slow economic growth like Zimbabwe. This paper will focus on analyzing the small business environment, by focusing on the different macro-environmental factors and its impact on the growth of failure of SMEs. Furthermore, it will also present recommendations that will focus on how the government and other non-government organizations will help in order to improve the SMEs environment.

The Small Business Environment

            Small businesses are vital within the social and economic aspect of the modern society. This is because these enterprises helps to stabilize the economy, at the same time, offers employment on local, national, regional as well as international levels. Because this business sector is important in the global scale, it is vital to determine and support how small businesses will thrive to better operate in the business. This is because of the fact that compared with the larger and multinational companies, small businesses are all struggling to gain financial support and human resource. The absurdity is that financial resources are all available, however it’s the incompetence of the small business is the main reason why they are having difficulty in accessing financial support. This is the primary reason why hundreds of thousands of firms open and close each year in most of the countries[3].

            There is a study which shows that the smaller and younger the firm, the more likely it is to close: about 70% of closures take place within three years of start-up. Evidence of failure can be seen enough on the city streets, where hopeful entrepreneurs spend money in order to fit out new small shops and restaurants only to close again because their capital had been exhausted because they can no longer acquire financial help[4]. This shows that small businesses are indeed victim of lack of financial aid or help from the government and private sector. This is even the said sector offers greater benefits towards the economic condition of one nation. With this, it is important for the government, local and national to focus on looking for alternative actions or strategies that will open a new source of financial help that will help small business owners to develop their business, and continue supporting the economic growth of their respective country.

Small Businesses in Zimbabwe

            Zimbabwe is a country of about 10.8 million people with a land area of 391,000 square kilometers or about the size of Montana. It is located in southern Africa, and is bordered by Zambia, South Africa and Mozambique[5]. The economy of Zimbabwe is characterized by a highly dualistic structure. Alternatively, there is the modern sector which compromise the commercial agriculture, mining, manufacturing and service establishments and, on the other hand, there is the traditional sector that is being dominated by small scale enterprises, which is consists largely of communal farmers and other, informal, non-farm economic activity[6].

            In Zimbabwe, the government defines small enterprise as”a business enterprise with 100 or less employees, a capital base of less than Z$2 million and fixed assets valued at less than Z$3 million”[7]. Thus, this definition is different from what have presented in the first part of the paper. This shows that the nation has a different economic condition than the UK and the USA. Therefore, it is much more important for Zimbabwe to focus on the improvement of its small business environment, in order to ensure success and more development.

Small Business Environment in Zimbabwe

            It is important to focus on the factors in the business environment that affects the births and deaths of small firms, but which are to some extent beyond the control of the owners or the managers of the business. These factors are the combination of less controllable – external factors and more controllable – internal factors that arise due top the personal attributes, technical skills, management competencies as well as behaviors of the owner or managers of the business. All of which influence the starting up of the new firm and the chances of survival[8]. See Appendix A.

External Influences

            External influences can be grouped into macro- and micro-environmental factors. The macro-environmental factors include: political, economic, social and technological. On the other hand, the micro-environmental pertains on the local economy, market sector, competitors and the customers.

Macro- and Micro Environmental Influences

            The Zimbabwe Papers (2009) shows that for the past decade, virtually, every country in the world has already experienced economic growth. However, in the heart of the sub-Saharan Africa, the Zimbabweans have watched their per capita incomes to decline by more than 70%. As a result, the decline causes suffering for the people of Zimbabwe. More than 80% of the adults are unemployed, thus about half of the population are at risk of malnutrition and starvation. The poor economic performance of the country resulted to political instability. Protests have turned deadly; opposition activists were imprisoned and salvaged; and some of the most taken for granted freedoms have been curtailed with the partisan legislation. The inflation is considered as the only biggest contributor in the collapse of the economy of the country, this is because of the high spending and printing of money in the country. In addition, the taxes in the country are high and opaque, as well as its trade barriers. Even though the country started to move towards the Free Trade Areas (FTAs), it is still important to focus on the lowering of the trade barriers and improvement of the incentive system for the officials of custom. Thus, these situation shows that there are still lots of things to do in order to make the business environment in Zimbabwe more friendly towards the small businesses.

            In addition, small business sectors in the country is characterized by having a limited access to the different modern facilities and technologies and provide services including electricity, credit and even government services[9].

            Because of this economic and political condition, many of MSEs in the country were not able to access financial help from the government. As a matter of fact, tens of thousands of MSEs are still untouched by any assistance in the country. Furthermore, accumulation of the capital is being inhibited by the dearth of the financial institution in offering security for savings and the availability of deposits for the expenses of the business[10].

Internal Influences

            The internal influences pertain on the factors that are related with the capabilities and skills of the person or group handling the business. This is important because these factors directly influence the development of the business.

            In Zimbabwe, majority of the entrepreneurs lack formal education and business training. This is very important because, it takes knowledge and skills in business and management in order to expand the productivity and profitability of the business. As a result, it will cause fall in the real wages, where in the highly educated people will be forced to enter self-employed small-scale manufacturing. In connection, according to Grosh and Somolekae (1996), aside from the lack of access to capital for expansion and poor facilities, it is also important to consider that the lack of education and training of the owner can also limit the growth of small business.

Recommendation

            Based on the macro- and micro-environmental analysis presented, the following are the recommended strategies to be implemented in order to facilitate the development and success of small businesses in Zimbabwe:

Reduce Inflation

            The hyperinflation of Zimbabwe led to unrest of the political aspect of the country. This affect the overall living and spending process of individuals, which will affect the sales and profit of small business. With this, it is important for the country to implement the right policy changes in terms of hyperinflation that will help to stabilize the money flow in the country.

Tax Reform

            It is important for Zimbabwe to focus on the offering citizens incentives by adopting a less burdensome tax system. The country is experiencing lack of economic freedom because of the high rates of tax and complexity of the laws about tax. Furthermore, the burden of the citizens has been increasing because of the inappropriate spending of the government as well as hyperinflation. With this, it is important to focus on reducing the tax and simplifying the tax law.

Unemployment Reduction

            High level of unemployment affects the small businesses. This is because the spending or purchasing behavior of the people will be affected. With this, it is vital to focus on the improvement of the economy, in order to attract more investors. Furthermore, the increase in the number of successful small businesses can help in order to lessen the unemployment rate.

Provide Financial Support and Loosening of Restriction in Loans

            Immediate financial support towards the small businesses can help a lot in order to support expansion and future development. With this, it is important for the government to focus on making the access towards financial support easier and faster. It is also important to focus on loosening the restriction of loaning process. This is the main reason why many of small business owners cannot access financial help. It is also important to focus on offering loans with low interest rate in order to further help the business owners.

Education and Training

            The most important aspect to be considered is to improve the learning, capability and skills of the owners and managers of small businesses. This is because, it is important to acquire knowledge regarding handling the flow of money and handling the overall flow of value, in order to ensure high profit, at the same time, ensure the positioning in the market. With this, it is important to focus on establishing an organization that will handle on doing some mobile activities which will aim to inform the small business owners, particularly those that located in rural area in the country. Seminars and trainings can also be implemented in order to invite more people.

Conclusion

Small businesses also affect the economy. This is because it serves as an employment incubator for jobs which helped in order to lessen the income disparity, at the same time, increase the capacity of domestic consumption. Consequently, the rise in the level of the consumption helps to create an alternative demand for products and services which helped to increase the start-up or expansion of indigenous enterprises[11]. Therefore, it is important for Zimbabwe to focus on the different recommended actions, in order to further improve its economic development.

            Financial programs that will target small businesses may help some few firms, thus, more importantly, it is important to focus on the reformation of the macro-economics policies that will help to limit capital access by sustaining the high interest rates as well as focus on restrictions on lending process. With this, it can help in order to establish a business climate that will help to increase returns on savings and investments, which will consequently help businesses to accumulate capital[12].

 

References

 

Bannock, G. 2006. The economics and management of small business: An international perspective. New York: Routledge.

Bolton, J E 1971. Report of the Committee of Inquiry of Small Firms, London: HMSO.

Grosh, B and Somolekae, G 1996. “Mighty oaks from little acorns: Can microenterprise serve as the seedbed of industrialization?” World Development. 24 (12): 1879 – 1890.

Kapoor, K. 1997. Empowering enterprises in Zimbabwe, Parts 63 – 376. World Bank Publications.

McPherson, M. 1991. Micro and small-scale enterprises in Zimbabwe: Results of a country-wide survey. http://pdf.usaid.gov/pdf_docs/PNABK267.pdf (accessed April 13, 2010).

OECD 2002. The OECD small and medium enterprise outlook. Paris: Organization for Economic Co-operation and Development.

Spring, A. and McDade, B. (editors) 1998. African entrepreneurship: Theory and reality. Gainesville, FL: University Press of Florida.

Storey, D J 1994. Understanding the Small Business Sector, London: Routledge.

Strokes, D and Wilson, N 2006. Small business management and entrepreneurship. Cengage.

Zimbabwe Papers. 2009. http://freemarketfoundation.com/ (accessed April 13, 2010).

 

 

Appendices

 

Appendix A: Influences on Small Firm Formation and Survival

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Source: (Strokes and Wilson 2006)


 

[1] Bolton, J E 1971. Report of the Committee of Inquiry of Small Firms, London: HMSO.

 

[3] Bannock, G. 2006. The economics and management of small business: An international perspective. New York: Routledge.

 

[4] Bannock, G. 2006. The economics and management of small business: An international perspective. New York: Routledge.

 

[5] McPherson 1991 http://pdf.usaid.gov/pdf_docs/PNABK267.pdf [Accessed April 13, 2010]

 

[6] Kapoor, K. 1997. Empowering enterprises in Zimbabwe, Parts 63 – 376. World Bank Publications.

 

[7] Ibid.

 

[8] Kapoor, K. 1997. Empowering enterprises in Zimbabwe, Parts 63 – 376. World Bank Publications.

 

[9] Spring, A. and McDade, B. (editors) 1998. African entrepreneurship: Theory and reality. Gainesville, FL: University Press of Florida.

[10] Spring, A. and McDade, B. (editors) 1998. African entrepreneurship: Theory and reality. Gainesville, FL: University Press of Florida.

[11] Spring, A. and McDade, B. (editors) 1998. African entrepreneurship: Theory and reality. Gainesville, FL: University Press of Florida.

[12] Spring, A. and McDade, B. (editors) 1998. African entrepreneurship: Theory and reality. Gainesville, FL: University Press of Florida.

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