The National Policy and Strategy Framework for SMEs (2002:5) defines SMEs in reference to the number of employees, total net assets and legal structure. Reference to the number of employees and sales volumes seems to be a common criterion for defining SMEs as noted by Bennett (2014:9) who quotes sixty (60) definitions used across sixty-five (65) countries with the most common characteristics being employee numbers most common followed by sales volume.
This approach to defining SMEs is in line with Kushnir (2010:1); Sannajust (2014:8) and Kapaj (2015:73) who are of the view that the most common characteristics of the definition of SMEs are the number of employees, assets, turnover, capital and investment. Gangata and Matavire (2013:2) note that the commonly used criteria for defining SMEs are the number of employees, total employees, total net assets, sales and investment levels. However, Gibson and Van der Vaart (2008:3) are of the view that the turnover of a business is in general a more appropriate measure and an adoption of the more conventional measurements such employment should be scaled relative to the country’s base.
The definition offered in the Policy and Strategy Framework for SMEs (2002:5) is in line with Gibson and Van der Vaart (2008:3) showing that registered enterprises with employment levels ranging from thirty (30) to seventy (70) employees (depending on the type of industry) are referred to as a small or medium scale enterprise (National Policy and Strategy Framework for SMEs, 2002:5-6). The policy framework also classifies enterprises into different economic sectors and categorises them into either small or medium enterprise based on the asset base measured in Zimbabwean dollars. This is however challenging in that after the economic crisis Zimbabwe adopted a multi-currency system which therefore makes the figures in the policy which are in Zimbabwean dollars are unworkable as this currency was abandoned in 2009 (Nyangara, 2013:220). This renders the definition offered in the SME policy irrelevant and the need for a new SME policy that reflects the changes that Zimbabwe has gone through (Mutambanengwe, 2013). The use of this policy already presents a problem in the defining and categorising of SMEs. This classification also shows a predisposition towards the manufacturing industry, a position which neglects other crucial industries such as mining and agriculture
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(Zindiye et al., 2012:685). In this regards there is need for government to also incorporate other industries into either small or medium enterprise.
Mourougane (2012:7) observed that most SMEs in Indonesia operate in the informal sector.
Charman, Petersen, Pietersen, Piper, Liedeman and Legg (2015:2) notes that the informal enterprises could help address some of South Africa’s core challenges of creating employment and stimulating economic growth. Small businesses’ failure to register is common in other countries, although they contribute to the development and growth of the economy. This is shown by the fact that the percentage of firms that are run with formal registration is, as expected, lower for Indonesia Cambodia and Vietnam SMEs than for large firms (Mourougane, 2012:7). SMEs in Zimbabwe are also part of this global trend where a few small businesses are registered in comparison to larger firms.
For the purposes of this research the definition given by Small and Medium Enterprises Association of Zimbabwe will be used for the asset turnover as it is in US dollars which is a reflection of the current state of the economy, though the same thresholds would be regarded as limiting in other countries. Mutambanengwe (2013) makes note of another key distinguishing feature that makes up an SME which is the fact that SMEs are registered enterprises. Charman et al. (2015:73) classifies informal businesses as micro enterprises, however Autio and Fu (2015:68) argue that informal businesses trade legal products, yet do not apply for business registration or file any incorporation documents with government authorities. Mutambanengwe’s (2013) classification of SMEs as registered enterprise is a digression from Chigwenya and Mudzengerere (2013:4) who are of the view that the informal sector is part of SMEs. To this end Maunganidze (2013) argues that the reason that SMEs are sometimes viewed as informal traders is due to their reluctance to register.
Furthermore, Esselaar, Stork, Ndiwalana and Dee-Swarray (2007:87) argue that the negative return on investment can be attributed to the failure to distinguish between the formal and the informal sectors. Differentiating between the two sectors is therefore important in order to realise the most out of policies. The National Policy and Strategy Framework on SMEs (2002:6) shows
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that enterprises that fail to formalise through legal structures such as registration through the Companies Act or a Partnership Agreement should be referred to as micro-enterprises.
Ayyagari (2007:417) is of the view that SMEs are commonly defined as formal enterprises and are thus different from informal enterprises. Consequently, formalising an enterprise is important in determining whether or not it is an SME. The definition offered by the official policy will also be used in reference to the number of employees. For the purposes of this research classification of an enterprise into either small or medium in terms of employees will be referred to the National Policy and Strategy for SMEs. The classification into either small or medium enterprise will be determined by the asset and turnover as defined by SMEAZ. Table 2.3 and 2.4 show the working definition and classification of SMEs for this research.
Table 2. 3 Small Enterprises in Zimbabwe
Sector Turnover
($ US)
Asset Base
($ US)
No. of Employees Legal Structure
Manufacturing 240 000 100 000 Less than 50 Registered
Other 240 000 100 000 Less than 30 Registered
Adapted from National Policy and Strategy for SMEs (2002:6) and SMEAZ
25 Table 2. 4 Medium Enterprises in Zimbabwe
Adapted from National Policy and Strategy for SMEs (2002:6) and SMEAZ
Tables 2.3 and 2.4 show the working definition of an SME for this study. Turnover and asset base was given in Zimbabwean dollars in the National Policy and Strategy for SMEs in Zimbabwe so for these the definition from SMEAZ was used. The working definition is therefore a combination of the definition in the National Policy and Strategy for SMEs in Zimbabwe and that offered by SMEAZ.