Recent policy research evidence from the Zambia Institute for Policy Analysis and Research (ZIPAR) has shown that current government policy in Zambia does not effectively exploit the potential of the self-employed micro enterprises to create more decent jobs. This is a particularly important issue in the context of Zambia’s current economic downturn.
In a report published today, ZIPAR argue that one critical reason for this is that a number of government policies to support growth of businesses do not seem to be tailored to the needs of ‘micro enterprises’ in Zambia – i.e., very small enterprises run mainly by people who employ themselves in their own businesses to save on wage costs. These businesses typically hire very few employees. They include agri-trading enterprises, very small retailers and very small financial service providers. Existing policy does not distinguish this group of businesses as a “special needs” group; they mainly address the needs of businesses in a general, often favouring medium and small enterprises at the expense of the micro self-employed businesses.
The report – which forms part of ZIPAR’s ongoing Flagship Project on ‘More and Better Jobs’ – highlights that 96% of self-employed persons are employed in their own micro enterprises and a significant number of these entrepreneurs aspire to grow their businesses. Harnessing this potential could play a role in moving towards the government’s goal of creating 1 million jobs by the end of 2016. However, existing government policy is not sufficiently supporting the realization of this potential. The official definition of micro-enterprises, which includes those with up to 10 employees and annual turnover of up to ZMW 150,000, is not consistent with the real-life experiences of the majority of the micro-enterprises whose turnover does not exceed ZMW 7,200 and whose average employment record is less than four people.
This mismatch most likely limits the ability of government policy and programmes to respond to and effectively reach self-employed enterprises. There are a lot of good government policies such as the ‘MSME Policy’ aimed, for example, at strengthening access to finance through programmes such as the Citizen Economic Empowerment Fund and the Youth Development Fund to provide grants and loans to vulnerable youths. But these will not reach the micro-enterprise sub-group because they are not tailored for easy access by this disadvantaged group.
ZIPAR’s research reveals that micro enterprises still face numerous problems that impede their growth, which makes them a unique and disadvantaged business sub-group. They include:
- 'Missing middle' in access to finance: Micro entrepreneurs, like many SMEs find it difficult to access finance from financial institutions, due to stringent requirements such as collateral. However, the problem is bigger for micro enterprises who often find the alternative amounts of finances offered by some NGOs and government too small in a number of instances.
- Unaffordable and unfair flat business charges: Micro entrepreneurs who want to formalize their business are subjected to the same business charges and fees as medium-scale enterprises. The fees and charges average ZMW5, 000 a year but given that micro enterprises earn very little (not more than ZMW7200 per year), these fees are unaffordable for many.
- Lack of training in Business Development such as financial management: while the Zambia Development Agency (ZDA) provides these services, participants in the study informed ZIPAR that the trainings are often too short and compressed, making it difficult to accumulate all the relevant material and stimulate learner’s interests.
- Poor policy co-ordination: Micro enterprises are also victims of an apparent lack of policy coordination among government institutions and regulatory agencies whose licensing processes are too segmented making it hard for micro businesses to obtain them. Thus, despite many attempts by government to streamline business licenses to one single business levy, the problem remains.
To help reduce the policy mismatches and inconsistencies, ZIPAR recommends adopting a 'Zambia relevant' definition of micro-enterprises: this definition should isolate self-employed enterprises from the broader group, which is currently known as ‘Micro Small and Medium Enterprises’. A more accurate understanding of real life experiences will help the government to address challenges such as creating appropriate fees, charges and incentives for micro enterprises and also help to bridge the gap that limits micro-enterprises’ access to finance.
ZIPAR is also recommending the creation of one-stop shops for micro enterprises especially at provincial or district levels to improve policy co-ordination: these should also act as centres that brings together support services for entrepreneurs through training, providing funding, infrastructure, equipment and market access.
Gibson Masumbu, Research Fellow at ZIPAR said:
Rightly the Government of the Republic of Zambia is focused on creating more jobs. This remains one of the biggest challenges we face as a nation. With 44% of the employed population in self-employment a big part of the solution will be supporting entrepreneurs to reach their potential. Yet our report is showing that major barriers remain. Whether it is improving access to finance or simplifying and reducing the fees and charges small businesses that need to pay, there is more we can do to help small businesses grow and employ more people.
Mr. Maybin Nsupila, Chief Executive Officer - Zambia Association of Manufacturers said:
ZIPAR is right to highlight the importance of harnessing Zambian entrepreneurship. In these difficult economic times government policy should help small businesses grow and become the wealth creators of the future.
Mr. Geoffrey Chongo, Head of Programme at the Jesuit Centre for Theological Reflection said:
JCTR works with the poorest Zambians - we see how they often struggle to earn a decent living through very small household enterprises. To reduce Zambia's scandalous levels of poverty a renewed focus on the needs of these small family enterprises will be vital.
Notes to Editors
1. This is based on a report titled “Unexploited potential: A critical review of policies supporting the self-employed in Zambia. The report is found here: http://tinyurl.com/hnep4cm
2. The report is part of ZIPAR’s Flagship Project on More and Better Jobs. For further information on this project see: http://tinyurl.com/ju8m4u4 forthcoming paper from this project will explore the impact of the recent economic challenges on the Zambian Labour market.
3. The research is based on key informant interviews and focus groups with entrepreneurs in Kabwe, Ndola, Choma, Livingstone and Chipata, the 2012 Labor Force Survey done by the Central Statistical Office and the Zambia Business survey by the World Bank.
4. ZIPAR is a socio-economic think-tank whose mandate is to conduct research and policy analysis. ZIPAR was established by the Government Republic of Zambia (GRZ) with the support of the African Capacity Building Foundation (ACBF).