The mischaracterization of SMEs is our Achilles heel!

ICWT Newsletter | Issue 60

By Prechard Mhako

In Zimbabwe, a micro enterprise is defined as any enterprise that has an annual turnover not exceeding US$30 000.00 per annum and employs between 1-5 people, whilst a small enterprise is defined as having between 6-30 employees and an annual turnover between US$30 001-$500 000.

Medium enterprises are defined as having between 31-75 employees and turnover of between US$500 001 – $1 Million. The exceptions are the mining and quarrying sectors which have thresholds of USD50,000 for micro enterprises, USD 1 million for small enterprises and USD 2 million for medium enterprises.

The SME Act does well to provide these thresholds, which are not bad, in as far as our context is concerned. The Act provides for the establishment of the MSME Fund and the Small and Medium Enterprises Development Corporation (SMEDCO) as well as the SMEDCO Board. The Act itself is not comprehensive, neither does it recognize startups, nor does it provide much guidance to the actors other than those defined above.

This probably is why there is an all-round misdiagnosis of SMEs and how they ought to be harnessed for greater economic impact. One gets the impression that when policy makers, the development community and other actors are referring to SMEs they are loosely referring to Micro Enterprises in the livelihoods space as well as in the informal quarters rather than high growth potential SMEs actively participating in the mainstream economy.

Everyone talks about SMEs and what SMEs need except for the SMEs themselves. The financial architecture in Zimbabwe is not optimized for innovation neither is it optimized for the growth of SMEs. We have seen the proliferation of Micro Lenders and Micro Banks that on paper are focused on youth, women and SMEs. However, these offer impatient and often expensive finance that by no means can enable growth.

In the absence of VCs, we expect a functional financial architecture to allow a pathway for MSMEs to emerge from micro lenders to banks, from banks to private equity and from private equity to going public.

Our tax regime does not discriminate, neither does it give breathing space to the vulnerable, underfunded and under supported SMEs and most recently startups. There are no tax incentives nor tax holidays for growth potential SMEs. Special Economic Zones enjoy the conditions that are earnestly desired by SMEs.

Our learning content and programs generally fall short of the bar, often assuming everyone is seeking to merely survive rather than create legacies. We have seen so many superficial programs that turn SMEs into idea replication factories, each one churning the exact same thing with little innovation and value created. None of these survive beyond the fads, whether its backyard chicken rearing, making dishwashing liquid soap, farming potatoes in sacks, rearing quails(zvihuta) or making masawu or baobab juices etc.

That SMEs are moving backwards into the informal sector is no secret, why is there an incentive for them to deformalize? Answering this, sets us on a path towards inclusive growth.

Competitions often feature SMEs pitching for very small investment tickets or grants. There are no tickets that match the needs of SMEs as defined by the thresholds, hence the entrepreneurs end up as the commodities in superficial ecosystems. Those who are able to compromise on their ideas in order to meet the ‘written in stone ‘requirements are often the ones who get the money, hence the term pitchpreneurship. Our solutions lie beyond the superficial.

We need to rethink how we view SMEs. We need vibrant entrepreneurship policies that appropriately characterize SMEs, support innovative entrepreneurship, foster participation and nourish high growth potential SMEs and Startups, after all SMEs already contribute over 50% to Zimbabwe GDP. Imagine what impact they would have if appropriate support measures were in place, we would really have a functional entrepreneurial ecosystem.

Prechard Mhako is an Emerging Board Leader, Entrepreneur, sought after strategist, coach & consultant who helps entrepreneurs & enterprises start, run and grow. chad@abiyedu.co.zw

In Conversation with Ted Makoni

Ted Makoni, pioneering Zimbabwe entrepreneur, provides a number of nuggets for aspiring entrepreneurs in this riveting episode. The former ZNCC President experienced racial prejudice in the banking sector and shares his struggle to persuade the government to take this organisation seriously. Watch his episode here..

Audience Responses

From the Ted Makoni episode, our community had this to say:

@talentmachiridza355:

Great conversation Ted! I grew up in Warren park and I still have vivid memories of our childhood doing most of our shopping in one of his retail outlets

@shepherddhlamini2310:

So much wisdom to glean from this legend. I thoroughly enjoyed this discussion.

@ngarurowakiriro5809:

Thank you for this invaluable piece sirs. Gold nuggets shared there especially on 1) supportive role of one’s spouse and 2) financial discipline.

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