The SIVIO Institute released a report on financial inclusion of micro, small and medium enterprises (MSMEs) in Zimbabwe and there are a lot of nuggets into the real situation on the ground in it.
One of the first things that caught my attention was the industry representation of the businesses surveyed.
We find that 22% of all MSMEs are in the retail and wholesale business whilst a further 21% are vending. Vending includes tuck-shops and flea markets.
That means 43% of MSMEs in Zimbabwe are selling stuff as opposed to making stuff. So, you ask, how many are actually making stuff? Only 3% are in manufacturing whilst 11% are in agriculture.
All this does not paint a good picture. See, it is these MSMEs that are the biggest employer in Zimbabwe. This means whatever these companies are doing is what most Zimbabweans are actually doing.
When we calculate our gross domestic product we include retail but that’s not really the kind of production we need to lift this country. We need more people to make the stuff that retailers sell.
On the ground we find that many such MSME retailers/vendors are selling imported goods. They are not villains for doing this, they would source their inventory locally if they could get the required quantities at the right prices.
However, each and every import means forex bleed. The official statistics say that we exported more than we imported in Q1 2022 but the fact remains we are importing way more than we should.
Worse still we mostly import goods ready for consumption rather than for production. Also, if we could account for the goods that are smuggled in, our imports would be much higher than the stats say.
How does this compare to the whole economy?
Manufacturing contributed 18.43% to Zimbabwe’s GDP in 2020. This means large companies are responsible for most of the manufacturing in this country as they should. Manufacturing is capital intensive after all.
Wholesale and retail contributed 19.24% that same year but bundled in that figure were repairs of motor vehicles and motorcycles. So, we can comfortably say that manufacturing contributed more than retail.
I know these are not like-for-like comparisons. I will hazard a guess that although manufacturing contributed 18.43% to GDP, the total number of companies in manufacturing is much less than 18% of all companies in the country.
This means the 3% of MSMEs in manufacturing may indeed contribute more to GDP than the 43% in retail. However, I still think 3% is too low. Not all manufacturing is capital intensive.
Especially when we consider that a medium sized company has at least 75 employees and an annual turnover of at least US$1 million. We need there to be more companies in manufacturing.
MSMEs in ICT
Only 2% of MSMEs are in the Information and Communication Technology sector whilst an additional 2% are in Graphics, Technical Design, Computer Software and Printing.
This does not reflect the amount of tech MSMEs are using in their operations. A manufacturer using high tech equipment would still count as a manufacturing company.
That doesn’t change the fact that only 2% of MSMEs are in ICT.
The government really should be using tools like tax breaks and the like to incentivise businesses to enter the ICT and manufacturing sectors.
Earlier this year we noted how the national budget does not prioritise ICT. Only 0.36% of the total national budget went to ICT. That shows how low the government’s hopes for ICT are.
I mentioned tax breaks when talking about what the govt could do to steer investment in certain sectors. There’s a whole lot more they can do, chief of which is radically transforming the regulatory framework to make it easy for entrepreneurs to ply their trade.
The financial services sector should also step up and start lending to entrepreneurs in the ICT and manufacturing sectors. Again, the govt should make it worthwhile for banks to lend more to these sectors.
The reason why most MSMEs enter the retail sector is that there is a low barrier to entry. Armed with only US$10, a vendor can get a few snacks and sweets and try to work from there. If that works the hope is to graduate to being able to go to South Africa for stocks.
For as long as half our companies are in the business of selling what they didn’t make our economy will not thrive.
ICT represents the opportunity to come up with solutions to Zim specific problems, whether it be in manufacturing, agriculture or even financial services.
ICT helps businesses improve efficiency and effectiveness and the situation on the ground right now is that businesses have to import ICT solutions or develop their own.
It is difficult for a business whose competencies are in say medicine manufacture to develop bespoke ICT solutions themselves.
We saw the Justice Service Commission award an American company a US$3 million tender for an electronic case management system. ZIMDEF was recently in the news over a scandalous million dollar tender for the supply of SAP software.
Are there no local solutions these organisations could have used instead? Maybe there aren’t but is the govt being proactive in making sure those solutions come from within our borders in the future? No.
What’s the biggest hurdle?
I know most of you love tech and have been acquiring skills over the years. What is the biggest hurdle preventing you from starting that ICT business that’s been in your heart all this time?
If you could sit down with the decision makers what would you ask them to look at if more of you are to run successful businesses?