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Sustainable emerging businesses strategic to economic recovery

RodneyNdamba
analyst

The Covid-19 pandemic reconfigured business and economic systems globally. It will be an illusion to believe that economic and business value chains will revert to where they were.  Many African countries continue to recalibrate their economic recovery. However, the strategic alignment of small and emerging businesses is critical. Small businesses were heavily impacted by the pandemic to the extent that very few will survive for long. However, the recent European Investment Bank (EIB) fund of €15 million (US$18,15 million) through CABS Bank provides hope for emerging businesses in Zimbabwe (Herald, 15 April 2021).

The model and values for disbursing these funds will be a defining factor to avoid history repeating itself. Experiences in Peru showed that small businesses that embedded sustainability (economic, environmental, social and governance) aspects in their business practices had greater chances in supply chains of large companies (GRI, 2021). In this regard, this article implores the need to build sustainable small and emerging businesses driven by positive economic, environmental, social and governance values and practices for the economic recovery of Zimbabwe.

Sustainable emerging business

In contemporary business science, the term small-to-medium enterprises or entities (SME) is increasingly being replaced by ‘emerging businesses’ (EB) in developing and competitive economies. The term ‘SME’ carries the notion of “born small”, “die small” synonymy to many SMEs in African countries. The concept of emerging businesses carry growth ambitions and appeal to investors. However, emerging businesses have been evolving to “sustainable emerging businesses” underpinned by the concept of integrating economic, environmental, social and governance in business practices.

The science of sustainable emerging businesses has been driven by the need to de-risk operations of small businesses participating in supply chains of large companies (Schaltegger et al, 2002; Hopwood et al, 2010). The approach requires small businesses to embed sustainable and ethical practices to qualify into supply chains of large companies. Countries like Rwanda, Vietnam, Singapore, Ghana, South Africa, Colombia and Peru have used the concept of sustainability reporting to build sustainable emerging businesses that have entered global markets and large company supply chains.   Corporate sustainability has great potential to reduce costs by managing economic, environmental and social impacts.

Impact financing

Impact financing is growing strongly to drive sustainable development in developing countries through sustainable emerging business. Impact financing resonates with the idea that a fund must be able to create opportunities while reducing negative impacts on the environment and society. Impact finance is increasingly being used to support small and emerging businesses in Africa, South America and Asia.

The funds come with conditions for job creation for youth or women or vulnerable groups like the disabled. Most impact funds distributed as loans to small businesses are being tied to sustainability conditions which includes job creation, income generation, reducing environmental impacts, climate change mitigation and eliminating human rights abuses (International Finance Corporation, 2021; European Investment Bank, 2016).

SME s governmentality

The governmentality of SMEs has been marred with confusion. The lack of legal status has created hesitance among international investors and local banks interested in financing small businesses in Zimbabwe (International Labour Organisation, 2017; USAID-SERA, 2016). In Rwanda and Algeria, they legally register all start-up, micro and small businesses. In Zimbabwe, the companies and other Business Entities Act (24:31) — Chapter IV: ‘Private Business Corporation and Other Entities’ provides the best instrument for legally institutionalising business activities. However, the Private Business Corporations (PBC) Act has been the less well known and utilised instrument for legalising entrepreneurship and micro-business activities in Zimbabwe.

The Act requires one to be 18 years (when they qualify for a National Identity Document) to register a small business. It requires a minimum of one director to a maximum of 20. The new Companies and other Business Entities Act (24:31) provides a framework for migrating from PBC to the full Companies Act.

However, if this legal instrument was being applied fully, the government should not be struggling with collecting taxes from SMEs in Zimbabwe. In developed economies, the legal registration of small businesses and entrepreneurs is linked to a bank account. This was instrumental in the US and UK to support small businesses during the Covid-19 pandemic because they were legally registered and paying taxes. Unlike in Zimbabwe, the majority of the micro-business activities are not legally registered.

Small  businesses in supply chains

Emerging businesses in Zimbabwe have opportunities to fill the gap in global supply chains disrupted by the Covid-19 pandemic. However, the government needs to speedily institutionalise micro-business activities by legally registering them under the Private Business Corporation and link them with bank accounts. This will allow de-risking the SME sector by eliminating illicit business activities which have been tainting the sector which is key to the National Development Strategy 1. In South Korea, Japan, Singapore, Malaysia, Germany, Japan, UK and US, they have incentivised large companies who incorporate small businesses into their supply chain. In Africa, South Africa, Kenya and Rwanda have been following a similar model. This model allows transfer of skills, technology and quality control support for emerging businesses.

This approach helped economies like China, South Korea, Germany, Japan and the US to be global players. FairTrade-Africa has been instrumental in supporting small agro-businesses to manage any unfair practices by large companies (FairTrade Africa, 2021). The rise of sustainable supply chain practices has forced many large companies to ensure small producers are screened on human rights and environmental impacts which is critical for accessing international markets (Fair Trade, 2021).

Building  sustainable businesses

Building sustainable emerging businesses present the greatest opportunity for economic recovery and sustainable development in Zimbabwe. The model for developing sustainable emerging businesses rests upon integrating economic, environmental and social considerations in all business practices.

The Competitive Business Programme implemented by the Global Reporting Initiatives (GRI) in Peru with funding support of the Swiss Confederation State Secretariat for Economic Affairs (SECO) provides a strong case study where small businesses built competitive advantages from sustainable practices gained from applying sustainability reporting (GRI, 2021). The programme was instrumental in de-risking small businesses to qualify into supply chains of large companies. A similar programme implemented in Ghana by GRI with support of SECO had positive results. As such, if the EIB fund through CABS Bank will achieve sustainable results, sustainable entrepreneurship should be a critical prerequisite. Sustainable Entrepreneurship is an emerging business model for small businesses designed to generate economic, social and environmental benefits (Schaltegger and Wagner, 2010).

Finally, sustainable emerging businesses will be instrumental in the economic recovery of Zimbabwe, whichever sector they belong to. However, the country needs to invest in developing sustainable models and programmes for developing small and emerging businesses whose practices and values should be driven by embedding economic, environmental, social and governance practices in their business operations to qualify into supply chains of large companies who are now under increased pressure for sustainable supply chains. Lastly, fostering sustainable entrepreneurship will be crucial for the sustainable recovery and competitiveness of Zimbabwe’s economy.

Ndamba is the chief executive/founder of the Institute for Sustainability Africa (INŚAF), an independent think tank and research institute ‘advancing sustainability initiatives for Africa’.  These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of ZES. — kadenge.zes@gmail.com or mobile +263 772 382 852

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