OPEN ECONOMY: Doing away with the ‘zhet’ culture

05 Apr, 2015 - 00:04 0 Views

The Sunday Mail

The truth is that the banking sector has been unable to adjust to the dynamics of the greater share of entrepreneurs who require financing. It has been slow to realign its business models towards a developmental agenda and the accompanying risk appetite of such a proposition.

Imagine the conception of your own business enterprise. You wish to pursue a business venture; it could be from an urge of passion, accumulated expertise or maybe even a gap in the market that you spot. How would you decide to structure your financing influenced by the choice between debt and equity?

You can go at it alone, retaining complete ownership of your business.

This option would lead you to seek out debt through the traditional route of bank loans. Banks, however, would expect you to show a track record of steady income and employment.

Collateral in the form of property is also necessary. Regrettably, the aforementioned is only relatable to a minority of Zimbabweans.

The truth is that the banking sector has been unable to adjust to the dynamics of the greater share of entrepreneurs who require financing. It has been slow to realign its business models towards a developmental agenda and the accompanying risk appetite of such a proposition.

Instead, banks have stuck to antiquated models and product offerings that resonate well in an already developed economy with a higher level of income than the reality of this market.

Moreover, crony capitalism has become evident in the sector as most banks give very high loans to a small group of people and companies, let alone insider loans.

Considering that over 70 percent of the economically active population earns less than US$500 a month, lending models consent to a small market. With high unemployment and little ownership of property, the majority of Zimbabweans do not fit standard lending criteria.

Most entrepreneurs or hopeful business owners are inherently pushed towards the micro-financing segment of the banking sector; a segment traditionally associated with subsistence activities and little hope of birthing significant economic players.

Nevertheless, this should not be a sombre state of reality for budding movers and shakers, rather a salvation from debt and an opportunity to explore alternative methods of financing.

I encourage entrepreneurs not to be disheartened at all, but to warm up to the potential of innovative means of capital accumulation.

All that is required is a bit of bravery and a lot of communal inter-dependence.

Particularly, equity crowd-funding is an efficient mechanism to find initial financing. Equity crowd-funding is the use of small amounts of capital from a large number of individuals to finance a new business venture in return for equity.

Basically, the main condition to access financing is the potential of the venture – little emphasis on the entrepreneur’s creditworthiness or collateral.

Also, the entrepreneur does not have to go into debt.

If the business succeeds, then its value goes up, as well as the value of the investors’ share in that business.

If the business fails, investors lose their investment and that’s the end of it. No debt obligation remains with the entrepreneur.

Moreover, equity crowd-funding enables entrepreneurs to maintain a personal safety net in that capital for business is separated from subsistence money used for day-to-day living. Many entrepreneurs are using personal money to finance their businesses.

I advise against this.

Equity crowd-funding can also be a competitive advantage as it uplifts the intangibles surrounding a business venture. It enables entrepreneurs of similar interests and compatible skills to team up in a business through shared ownership.

Likewise, the mutual enthusiasm will give energy to drive a competitive entity and push through the strains of running a business. If the business grows, entrepreneurs can then explore more professional and lucrative levels of equity financing, including engaging with venture capitalists and private equity investment firms.

However, it takes hard graft to develop an equity finance culture.

If our entrepreneurs are going to create a responsible equity culture, business ventures must be of a convincing standard to expect financier buy-in.

If financiers are going to take greater risk and commit to equity shareholding, then entrepreneurs must up the quality of their ventures to justify this elevated investor risk.

Pervasively, this could make our business environment much more competitive as overall ventures in the economy are raised to a higher standard; micro-responsibility leading to a better macro-economic outlook for the country as a whole.

This is very important!

The Zimbabwe economy is currently dry on capital inflows and the reason is distressing. The country is extremely deficient in competition, best business practices, long termism and technical approach. In other words, we don’t do business the right way.

We should be careful of making the mistake of perceiving FDI and indigenisation as two contradicting principles – they are not.

In fact, the two are co-dependent.

Indigenisation has been dreary thus far, and has made minimal impact on wealth creation because we are not churning out bona fide attractive business ventures of our own which investors are willing to put their money in. You cannot have FDI without properly run and sustainable indigenous enterprises.

The prevalent “zhet” culture amongst the youth only makes our ventures high risk investment propositions. Similarly, gross mismanagement and poor governance of the bigger, well-established corporations is really not enticing to any rational investor.

So, while we are focused on demanding greater equity ownership in our enterprises, we are yet to produce any enterprises which are actually worth investors buying in an ownership stake – even be it minority. It will take introspective honesty for us to embrace this shortcoming of ours.

If we are to extract the most out of indigenisation, we must take it upon ourselves to improve how we do business in this country. If we start approaching business the right way, capital will be drawn towards our market in the long run.

I have no doubt that it will soon dawn on Zimbabwe that equity capital is the best means of empowerment and more widespread economic growth.

It is a culture worth developing.

Share This:

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds