11th March 2022
Start-ups! Side hustles! It is not uncommon nowadays to encounter these buzzwords in apparent partial reference to an essential part of our economy otherwise formally referred to as Micro, Small and Medium Enterprises (MSMEs). MSMEs are widely considered to be a source of growth and employment creation – they represent 97 percent of all businesses in Zambia, 70 percent of Gross Domestic Product and 88 percent of employment. The new dawn Government has put a glare of publicity on MSMEs through the establishment of the Ministry of Small and Medium Enterprise Development, signalling the importance that the Government has placed on them. In this piece, we discuss the constraints faced by MSMEs, the current support that the Government is providing to them, and how they can be helped to unlock their potential.
Innately, MSMEs in Zambia are constrained by several factors that limit their growth. In 2018, ZIPAR undertook an evaluation of the Youth Development Fund (YDF) in all the ten provinces of Zambia, involving youths (mostly MSMEs) who benefited from empowerment funds provided by the Government of the Republic of Zambia. The report indicated that the main challenges faced by the youths in business were lack of finance to run and expand their businesses, lack of permanent operating premises, lack of appropriate business management skills and lack of access to markets. Other challenges include lack of affordable sources for raw materials and lack of transport.
Other studies have also shown that in the quest to formalise their businesses, MSMEs in Zambia are limited by onerous business registration and licensing procedures. This manifests in the number of licenses that must be obtained from various Ministries and Government agencies, some of which are duplicated. Further, MSMEs are faced with other challenges such as inadequate infrastructure and energy, taxation problems, labour challenges among others which make it difficult for them to accomplish their full potential.
Over the years, the challenges faced by MSMEs as well as potential solutions to these challenges have habitually featured in various policy documents within the Government circles. More recently, the new dawn Government comprehensively pronounced itself on MSMEs with many support measures that were announced in the 2022 national budget. Empowerment funds, often an emotive subject in the political arena, were pegged at K330 million. The Government also allocated empowerment funds for youth and women-led businesses to the tune of K803 million. It is also envisaged that the increased allocation to the Constituency Development Fund will provide business opportunities with the potential to stimulate growth and employment through initiatives such as procurement of school desks which has been reserved for local manufacture and supply. The construction of teachers’ houses, primary school classrooms, rural clinics, staff houses, local courts and community boreholes has also been earmarked for local MSMEs from respective constituencies.
The Government has also signalled its intentions to supplement funding to MSMEs through collaboration with international institutions such as the UKAid and European Investment Bank. The youth are therefore being encouraged to establish cooperatives and tap into these opportunities. While it may be too early to provide a verdict on these measures – considering that the 2022 budget has just taken effect- the Government must be wary of the usual implementation and publicity challenges that beset what are usually good intentions on paper. As they say, “the proof is in the pudding.”
Beyond budgetary measures to support MSMEs, tailored interventions will be essential in helping them grow their contribution to the economy. To unlock the potential of MSMEs, the Government must rationalise the institutions that provide empowerment and financing for MSMEs by merging them to create efficiency and accountability. Recently, we have seen the proliferation of several empowerment funds run by different ministries and institutions often duplicated with overlaps in their mandates. As such, a streamlined empowerment system that is coordinated, transparent and well publicised will help MSMEs by providing an alternative source of financing.
As ZIPAR recommended in its evaluation of the YDF, the Government should also undertake to build capacity for youths in terms of business management services before they are provided with finance. Training could be provided using different approaches that will be appropriate including, where necessary, training subsidies for institutions that are willing to provide the relevant training to youths. Technical assistance must take the form of financial management skills, business know-how, innovation and incubation as well as mentoring. MSMEs must also be trained in sustainable business practices, market access information and market linkages.
The Government must craft a policy to facilitate joint ventures between MSMEs and larger firms. It is imperative for the Government to create a conducive environment by reducing the cost of doing business through streamlining of business registration and regulatory procedures.
By: Shimukunku Manchishi & Kalemba Mpandamwike
The authors are researchers at the Zambia Institute for Policy Analysis and Research (ZIPAR). For details contact: The Executive Director, ZIPAR, MNDP Complex, Cnr John Mbita & Nationalist Roads, P.O. Box 50782, Lusaka. Telephone: +260 211 252559. Email: firstname.lastname@example.org