SMEs to drive economic growth

Source: SMEs to drive economic growth | Sunday Mail (Business)

Business Reporter

SMALL and medium enterprises (SMEs) have become the engine for economic growth and are primed to play a crucial role towards attaining projected growths of 7.8 percent this year and 5 percent going forward.

Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya (pictured right) said in recognition of this, the bank made its single largest allocation of US$10.7 million to SMEs at its weekly auction system last Wednesday.

The disbursement, in a single session, was the first such large allotment to SMEs, Dr Mangudya said, with weekly allotments to the sector having previously averaged US$1.5 million to US$4 million.

The central bank chief said the SMEs auction, like its counterpart platform for large companies, had continued to be a dependable source of foreign exchange for both SMEs and individuals.

“The significance of this milestone is that SMEs, as the engine of economic growth, are ramping up production and increasing employment, which is critical in the attainment of the projected 7,8 percent economic growth for 2021 and above 5 percent thereafter,” he said.

Zimbabwe’s informal sector could be the sixth largest in the Sub-Saharan region, the International Monetary Fund said in 2017, contributing between 40 percent and 50 percent to economic growth — an estimated US$7 billion then.

A Fin Scope MSME (micro, small and medium enterprises) research conducted by the Ministry of Small and Medium Enterprises and Co-operative Development in conjunction with FinMark Trust and the World Bank in 2012 concluded that the turnover in the informal sector was more than $7,4 billion.

The number of SME beneficiaries, Dr Mangugya noted, had gone up from 50 bids per week to the current average of 650 bids per week, which the central bank believes provides wide coverage for access to forex.

Dr Mangudya said provision of foreign currency to the market through the formal system for bonafide transactions was critical for the country to continue to maintain prevailing price stability.

“This remarkable performance and coverage of the SMEs forex auction system and the fact that all allotments have been fully funded by the bank (meaning there is no backlog on backlog on the SMEs auction, suggest that there is no justification for SMEs to fund their forex requirements from the parallel market,” Dr Mangudya said.

The central bank governor said increased allocations of forex to the SMEs sector and recognition of the central place in growing the economy was a “game changer for economic growth and development”.

According to recent statistics from the RBZ, SMEs have been allocated US$173 million of the US$1.7 billion disbursed by the central bank on the auction system since its inception in June last year.

The transition of SMEs to big business or corporate is pivotal in any economy in the world. It is believed SMEs are a measure of how well an economy is performing as SMEs are the seed-bed of business growth, innovation and pillars of employment creation.

It is generally agreed that SMEs contribute half of the world’s economic output and employ two-thirds of the global workforce. Economies like Germany and India are perfect examples of the impact SMEs can have to growth.

In Zimbabwe, SMEs contributed $8.58 billion to the country’s GDP in 2016 and employed more than 5.9 million people (over 75 percent of the total workforce of 7,8 million), Bulawayo24 reported.

Furthermore, SMEs now make up over 70 percent of Zimbabwe Revenue Authority (Zimra’s) database of registered taxpayers while contributing only 20 percent in taxes.

All commercial banks and retail enterprises in Zimbabwe now have a dedicated SMEs desk signifying the growing role small businesses are playing in the local market.

There is no universally accepted definition of SMEs but the World Bank defines SMEs as businesses that employ less than 300 people and have an annual turnover that does not exceed $15 million.

Economist Persistence Gwanyanya said the allocation of the single largest chunk of forex on the auction system was consistent with the policy thrust of the central bank and central Government.

“What seems to be prioritisation of SMEs is consistent with the policy thrust of reducing the concentration of the economy in the hands of a few large corporate. Economies are driven by SMEs, Germany (being one of them),” he said.