Many, including the government, recognise that the micro, small and medium-sized enterprises (MSMEs) constitute a key element of the economy.
Column by Eric Bloch
This was recently evidenced by a survey undertaken by the Finmark Trust, aided by the Ministry of Small and Medium Enterprises and Cooperative Development, supported by the World Bank and the Zimbabwe Multi Donor Trust Fund.
In substance, the methodology of the survey was a tried and proven one, like others previously conducted in Zambia, South Africa, Tanzania and Malawi. Such a survey is also currently being conducted in Mozambique.
In Zimbabwe it focused on individual entrepreneurs, identifying the number of such enterprises, the size of population owning and employed therein, the volumes of their business, the nature of the operations, constraints impacting on them, and their development and financial needs.
Those sponsoring and conducting the MSMEs survey interacted with the Zimbabwe Statistical Agency (Zimstat) for statistical monitoring and quality control, a research service provider, Research Continental–Fonkom) and a local project coordinator, Africa Corporate Advisors.
They were guided by a comprehensive steering committee which included five of Zimbabwe’s governmental ministries, the Reserve Bank of Zimbabwe and six sectorial organisations.
The survey concluded that:
Zimbabwe has 3,5 million MSMEs, with an estimated turnover in 2012 of US$7,4 billion;
Owning those MSMEs are 2,8 million Zimbabweans, providing employment (exclusive of the owners) for 2,9 million people, which results in 5,7 million (owners and employees) attaining livelihood from the MSME operations;
Although as many as 2,9 million are engaged in MSME employment, only 29% of the MSMEs are providing that employment, the other 71% being wholly operated by their owners;
53% of the MSME owners are female;
60% of the MSMEs are primarily operational in rural areas;
40% of the MSMEs earn less than $200 per month, and only 22% of the employees receive a regular, full-time, wage;
85% of the MSMEs are not lawfully registered or licenced operations, and only 2% are registered with the Zimbabwean Revenue Authority (Zimra), and hence 98% are not paying any direct taxes;
The sources of the MSMEs gross revenues were US$3,3 billion from retail operations, US$1,9 billion from agricultural activities, US$564 million from manufacturing, US$539 million from the provision of services, US$234 million from mining, and US$811 million from other activities;
Only 3% of the MSMEs utilise banking services identified with the enterprises, while a further 11% indirectly use such services (generally through personal accounts of proprietors or related parties).
When, 10 days ago, President Robert Mugabe launched the survey report, he said that he derived much joy from the growth of the MSME sector. However, he also voiced concern at the minimal extent to which the sector banks its revenues, or avails itself of funding from the banking sector.
He attributed the insignificant recourse to the banks to fears of the entrepreneurs of losing their funds, amplifying thereon by condemning “rogue banks” for contributing to the waning confidence of MSMEs in the security of the banking sector, and also that the allegedly unreasonable charges of local banks were a deterrent to MSMEs.
In reality, the key reason for the informal sector’s reticence to banking services is their fear of taxation consequences. In order to establish a banking account, the enterprise has to lodge with the bank an Income Tax Clearance Certificate (ITF263), which is only available to those who are registered with Zimra and in complete compliance with all taxation obligations.
Thus, only 2% of the surveyed MSMEs would legitimately be able to interact with the banks, although incomprehensibly an additional 1% appear to have done so. Clearly, the key reason for failure to use the bank is naught but tax evasion. However, there are numerous other concerns which demotivate MSMEs from using the banks. These include that:
The majority of MSMEs generate such limited revenues that they need to use them almost immediately following receipt, and hence they see little purpose or benefit in routing their incomes and expenditures through banking accounts;
Many of those who would contemplate operating bank accounts are afraid Zimbabwe will suddenly abandon the multi-currency system and revert to the usage of a domestic currency which a majority of the populace anticipate would be as worthless as it was in 2008;
Many banks are often short of ready cash, precluding account holders from being able to access funds as timeously and expeditiously as they need to;
Many MSMEs operatives are using mobile telephone cash transfer systems, which operate very promptly and at much lesser cost than applicable to equivalent banking services;
A considerable number of MSMEs (and especially the small ones) find that they have to pay bribes in order to operate their enterprises, and such payments have to be effected in cash. Such bribes include payments, by unlawful commuter bus operators and taxi services, to traffic police, payments to municipal authorities, and the like;
With several banks having collapsed in the last five years, creating losses for account holders, and several banks still being under curatorship or in liquidation, many fear further collapses may follow.
If there were no MSMEs in Zimbabwe, poverty and hardship would be worse. Government should therefore smoothen operations in this sector and incentivise the entrepreneurs to formalise the same to benefit the fiscus and the economy.