World Economy

SMEs Key to Lifting Zimbabwe Economy

SMEs Key to Lifting Zimbabwe Economy SMEs Key to Lifting Zimbabwe Economy

The transition of SMEs to big business or corporate is pivotal in any economy in the world. It is actually the relative measure of how well an economy is performing as SMEs are the seed-bed of business growth, innovation and pillars of employment creation. SMEs contribute half of the world’s economic output and employ two-thirds of the global workforce.

In Zimbabwe, SMEs contributed $8.58 billion to the country’s GDP in 2016 and employed more than 5.9 million people (over 75% of the total workforce of 7.8 million), Bulawayo24 reported.

Furthermore, SMEs now make up over 70% of Zimbabwe Revenue Authority database of registered tax payers while contributing only 20% in taxes.

All commercial banks and retail enterprises in Zimbabwe now have a dedicated SME desk signifying the role small businesses are playing in the local market. This is partly because only a sizeable chunk of yester-year corporate giants is still standing in the country’s economy.

There is no universally accepted definition of SMEs but the World Bank defines SMEs as businesses that employ less than 300 people and have an annual turnover that does not exceed $15 million.

In the UK, SMEs employ less than 250 people and in China or US, the number can go up to 3,000 depending on the sector. In Zimbabwe, ZIMRA classifies SMEs as businesses that employ between 5-40 people with annual turnover and assets from as low as $50,000 to $2 million.

The local tax net has been cast wide and can include literally any economic activity that brings income to the business owner. The key challenge with Zimbabwean SMEs, however, is that only a few transition to big businesses that can be accounted for in the formal economy.

As such they rarely create wealth that can be passed on to the next generation. Of the 15 (out of 100) small businesses that make it after five years of operation in Zimbabwe, only two become big businesses. The rest stay as SMEs and evolve from one specialty to the other till they die with the owner(s) or are taken over by new management.

According to information obtained from Reserve Bank of Zimbabwe, only 3.78% of the total loans and advances by Zimbabwean banks go towards the SME sector. Even though funding without clear business models and sufficient collateral can be counter-productive, the small size of financial advances leads to the huge challenge that is bedeviling most of the promising small businesses in the country.

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