While SMEs play a significant role in Zimbabwe, their full potential remains untapped (SMEAZ, 2015).
The sector is yet to live up to its desired impact on the Zimbabwean economy despite all the government effort (Bomani et al., 2015; Mamman et al., 2019). This underscores the belief that there exist fundamental challenges that confront SMEs (Muriithi, 2017) but which hitherto have either not been addressed at all or have not been wholesomely tackled (SMEAZ 2014; Mabenge et al., 2020). The subsections below discuss these challenges.
2.5.1 Inadequate funding
The growth of SMEs in Africa, Zimbabwe especially requires an adequate supply of financial capital (Shah, Nazir, Zaman & Shabir, 2013). Lack of finance has been termed as an obstacle to such growth (Fjose et al., 2015). Difficult in accessing finance or credit is a universally recognised problem facing SMEs (Maunganidze, 2013). The rampant challenge faced by most manufacturing SMEs in Zimbabwe is restricted access to funding from the formal sources (Chivasa, 2014). Admittedly, Magaisa (2017) observes that SMEs lack equity to finance their operations, and those registered invariably resort to
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borrowing from financial institutions at a cost to grow their businesses (Manyani, 2014; SMEAZ, 2014;
Bomani, 2015). This has resulted in SMEs being highly geared (Chadamoyo & Dumbu, 2012). The level of financial inclusion for this sector remains very low RBZ (2017). This confirms the findings of the FinScope survey carried in 2012: 86 % of SMEs were unbanked; 18 % were served by formal financial institutions; 39 % were served by informal financial service providers; and 43 % did not have access to financial services".
In this regard, SMEAZ (2014) bemoans the unwillingness by the traditional banks to set up specific products for the SMEs in Zimbabwe. Nyamwanza (2015) argues that the financial systems are shallow and expensive and have very limited outreach, thereby only benefiting few SMEs. This has forced many manufacturing SMEs to depend on their own financing and/or on colleagues and friends to provide capital for their businesses (Nyamwanza, 2012; Bomani, 2015).
SMEs are viewed by providers of finance as unprofessionally run, thus risky undertakings, which do not qualify for loans (Nyangara, 2013; Nyamwanza, 2015). Chikomba, Dube and Tsekea (2013) concur and adds that being unprofessionally run causes them to die prematurely. Thus, this makes it difficult for lenders to extend credit facilities. Besides, financial institutions lament the inability of SMEs to repay the borrowed funds and interests (Mago, 2013; ZEPARU, 2013).
Banks and other financial institutions are reluctant to fund SMEs as they also do not have collateral security (Chikomba et al., 2013), and the limited capacity to follow up on credit on the part of the lending institutions is a deterrent factor (Mugozhi & Hlabiso, 2017). However, Bomani (2017) notes that even if financial resources are provided, SMEs in Zimbabwe still perform poorly and end up in their death bed. This implies that there are many hurdles to the growth and development of the SME sector.
2.5.2 Poor management
Poor management is one of the major challenges faced by manufacturing SMEs in Zimbabwe (Chivasa, 2014; Mehta & Rajan, 2017). These enterprises lack managerial skills and competencies (Tinarwo, 2016; Muriithi, 2017) to contribute fully to national development. Manufacturing SMEs in Zimbabwe often lack the relevant technical expertise needed to run their business professionally (Nyanga et al., 2013; Musanzikwa, 2014). This lack of technical knowledge normally compromises the quality of many manufacturing SME's products and services in Zimbabwe (Karedza et al., 2014).
Nyamwanza (2013) concurs and adds that the enterprises' management style is essentially on trial and error and driven by short-term financial gains while paying little attention to strategy development.
Several studies highlight deficiencies in the following areas of management: finance, accounting knowledge, credit management, inventory, cash flow, marketing, and human resource (Sibanda, 2012;
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Maseko, 2014: Magaisa et al., 2013: Chivasa, 2014; Tinarwo, 2016; FinScope, 2012; Musanzikwa, 2014; RBZ, 2014). Manufacturing SMEs in Zimbabwe over-relies on the owner in every aspect of management and most of them use family labour (Maunganidze, 2013; Nyanga et al., 2013) of which most of the owners and managers do not have appropriate technical, conceptual, and entrepreneurial skills (Bomani et al., 2019; Maromo, 2015).
Low education levels coupled with a lack of management training amongst SMEs owner/managers leads to poor administration (Chipangura & Kaseke, 2012). Business failure, as a result, becomes a phenomenon when management does not pay special attention to crucial strategic issues (Nyanga et al., 2013; Nyamwanza et al., 2015). SMEs, usually, do not attend public workshops, they see them as irrelevant given their sheer size and informal way of doing business (Bomani (2015). Chipangura &
Kaseke (2012) concur and add that SMEs may not attend as they lack the financial resources to meet workshop expenses.
2.5.3 Inadequate government support
The role of government in facilitating and supporting the establishment of a vibrant SME sector remains critical worldwide (Muriithi, 2015; Kamunge et al., 2014; Muriithi, 2017). The role of the government is to create a conducive and desirable environment for business growth and sustainability (Muriithi, 2017). The SMEAZ (2014) observes that the level of government spending in supporting SMEs is low.
However this has been attributed to the constrained fiscal space (RBZ, 2017), but the aspect of a lack of deliberate policy to favour local procurement cannot be ignored (SMEAZ, 2014).
Currently, the regulatory framework in Zimbabwe has the potential to crush newly established SMEs and does not fully promote the small business economy (Kamunge et al., 2014). On the same note, Zimbabwe is at the bottom in terms of the "ease of doing business" index (Maromo, 2015).
Maunganidze (2013) concurs and adds that this is felt mainly by SMEs who do not have the connections or influence to get things done. The regulatory environment is complex and bureaucratic for SMEs to formalise their businesses (Magaisa, 2017; Tinarwo, 2016). For instance, SMEs express their worry on simple but important things such as company registration, and or clearing imports and exports that are costly and slow (Chingwaru, 2014; Dube, 2013).
In a letter addressed to The Portfolio Committee on Small and Medium Enterprises and Cooperative Development (PCSMECD) in 2014, the SMEAZ indicated that no incentives are being given to SMEs to grow their businesses. They claim that, as a result, many SMEs have closed their business and operate as one-man-shows to avoid problems with government agencies, labour laws, and a dispirited workforce. Since independence, there has not been a sustained, broad-based initiative to encourage
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SMEs to come into the formal sector (Majoni et al., 2016; Tinarwo, 2016). The sector has always been approached like the “illegitimate child” (SMEAZ, 2014).
2.5.4 Lack of adequate infrastructure
SMEs in Zimbabwe lack adequate infrastructure to realise growth in their operations (Bomani et al., 2015). SMEs in Zimbabwe are exposed to poor roads, buildings, and poor communication networks (Gombarume & Mavhundutse, 2014; Maromo, 2015). Most SMEs in Zimbabwe depend on government infrastructure (Chivasa, 2014). Chipangura and Kaseke (2012) concur and adds that in most cases the government has not refurbished or renovated the premises being used by SMEs, thus can not offer much-needed assistance in time.
Karedza et al. (2014) further lament access to transport facilities especially for those in the manufacturing sector that have to purchase raw materials from afar and distribute their products to the market. Manufacturing SMEs, especially in urban areas, lack basic sanitation infrastructure in their trading environment (Bomani, 2015). Maunganidze (2013) commends that at Siyaso, Mbare, and Magaba few toilets may fail to accommodate all the traders and their customers.
Coupled with these challenges is a lack of adequate shelter to protect their wares from unfavourable weather elements such as direct sunlight (Bomani, 2017). Chirisa et al. (2013) note that SMEs are often overcrowded, for instance at places such as Mupedzanhamo, Siyaso, and Glen View Furniture Complex (Bomani, 2015). In these places, disease outbreaks such as Cholera are common, hence customers would not want to patronise the areas (Maunganidze, 2013).
2.5.5 Competition from foreign products
Zimbabwean SMEs are affected by the influx of imports (Madavanhu, Mubata & Mudavanhu, 2014).
Cheap imports from nearby countries such as Mozambique, South Africa, Zambia and Botswana are of better quality than the locally produced products (Chipangura & Kaseke, 2012). Thus, customers opt to buy foreign products rather than locally produced commodities due to their modest quality and prices (Mapaure, 2014). In Harare, for instance, Chinese products are sold at less than a quarter of the price offered by local manufacturing SMEs (Mapaure, 2014). Hence, merchandises from Asian countries have taken the market by surprise in most urban areas.
RBZ (2014) observes that contrariwise, for a Zimbabwean manufacturing SME, it is difficult to gain entrance to the regional markets, consequently, the local market becomes the only option (Bomani, 2015). The manufacturing and processing sectors of SMEs are the hardest hit by imports as the bulk of
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imports are manufactured commodities (Bomani, 2017). However, the service sector is spared from stiff competition from international companies as the services are locally produced and consumed.
2.5.6 Unfriendly tax system
The Zimbabwean regulatory framework has failed to effectively support the growth of the SME sector.
In fact, the laws and policies tend to be stifling the development of SMEs (Nyanga et al., 2013). The regulatory and tax system are so punitive that they hinder the growth and development of the manufacturing enterprises (Karedza et al., 2014). Faced with the closure of big companies, the Government of Zimbabwe has turned to SMEs for tax collection (Maseko, 2014). This is because SMEs constitute about 90 % of all businesses in Zimbabwe (Maunganidze, 2013).
Thus, an unfavourable tax environment in Zimbabwe is forcing SMEs to remain small and invisible (Bomani, 2015). The growth and performance of SMEs in Zimbabwe is stifled by high taxes is cited as one of the biggest challenges that stifle SME growth in Zimbabwe (Chipangura & Kaseke, 2012).
Payment of taxes increases business expenditure (Maseko, 2014) and in Zimbabwe, the tax rate for large businesses is the same as those of SMEs (Bomani, 2017). This, according to Maseko (2014) explains why SMEs do not want to formalise their operations. By paying taxes they are being pushed into deep financial crisis.
The aforementioned discussion is a testimony that although SMEs play a key role in the economic development of Zimbabwe, they face various challenges. The need for a strong and vibrant SME sector the government of Zimbabwe set up institutions to address these challenges. This is discussed in the next section.