MSMEs overtake formal sector

Micro, small and medium enterprises (MSMEs) have overtaken the formal sector in being the biggest employers in Zimbabwe.
This has prompted Government to craft a comprehensive policy framework which offers massive incentives — including tax breaks — to companies that subcontract such enterprises, among other benefits.

Recent scientific studies show the MSME sector has helped cut down unemployment to less than 11 percent with over 5,7 million economically-productive Zimbabweans living off the burgeoning sector.

Figures gleaned from both the 2012 National Population Census Report and the FinScope MSME Zimbabwe Survey Report of 2012 show that an increasing number of Zimbabweans are shifting to the sector on the back of company closures and a sluggish economy.

According to the National Population Census Report, only 840 000 economically-active Zimbabweans are unemployed, as the bulk of the country’s 7,6 million workforce has turned to the fast-growing MSME sector.

The FinScope report shows that the sector comprises 2,8 million business-owners and 2,9 million employees. This leaves around 1,9 million Zimbabweans either working in the formal sector or unemployed.

Further calculations show that around 1,12 million people remain formally employed.
Of this figure, 230 000 are employed in the civil service.

In keeping with the “new economy” unveiled by Finance and Economic Development Minister Patrick Chinamasa in his 2014 National Budget presentation, Cabinet last week tabled and approved the Second National Micro, Small and Medium Enterprises Policy Framework (2014-2018), which will introduce comprehensive measures to support the sector.

Among such measures are tax holidays for “business angels” that provide funds to the sector.
MSMEs will also be given a lengthy tax-free grace period as work to regularise their operations progresses.

Government will also help MSMEs to benefit from regional and international trade through existing trade treaties.
Under the framework, Government also plans to review customs duty and tariff regimes to assist players in the sector to access affordable raw materials.

In addition, local authorities will also “plough back” part of revenue collected from the sector into activities that promote MSME development.

The Small and Medium Enterprises Development Corporation (SMEDCO) will be recapitalised to enable it to provide financial assistance to the sector.

“MSMEs should have a lower corporate and capital gains tax rate,” reads part of the policy.
“To widen the tax base, a flat rate tax or tax band system is recommended for use for the informal or micro and small enterprises.”

The FinScope report reveals that 46 percent of Zimbabwe’s adult population owns MSME businesses, the majority being women. Gross turnover from the sector in 2012 was estimated at US$7,4 billion as only 65 percent of business owners reported their earnings.

The figure represents 63,5 percent of the county’s nominal GDP.
The study was commissioned by Government and undertaken by FinScope with the assistance of the World Bank and its data was validated by Zimbabwe National Statistics Agency.

The findings dovetail with results from the 2011 Labour Force Survey which estimated that in 2011, 4,6 million economically active Zimbabweans worked in MSMEs while 606 000 were in formal employment.

However, the FinScope Survey, conducted a year later, shows a marginal jump in the number of people in MSMEs. Most of the enterprises are family-based and largely comprise beneficiaries of the land reform programme — including the over 100 000 tobacco farmers registered this year.

Agriculture is the largest employer, accounting for 43 percent of the workers in the sector. The wholesale and retail sector is second, accounting for 33 percent of the overall workforce.

“Mashonaland East has the highest proportion of MSME owners compared to the total adult population (56 percent of adults are MSME owners),” reads part of the report.

Harare has the lowest proportion of MSME owners (38 percent) — due to the availability of alternative salaried jobs.
However, according to the report, 85 percent of all the MSMEs are not registered.

Minister of Small and Medium Enterprises and Co-operative Development Sithembiso Nyoni said Government recognises MSMEs as the main drivers of the economy.

“Recent trends show an increasing number of people opting to live off the sector.
“This is a result of massive capital flight which has witnessed big industries closing down with the remainder struggling to survive.

“The sector has become the main driver of the economy.”

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