LITERATURE REVIEW
2.5 Defining an SME in Zimbabwe
Accounts but are grossly underestimated or not measured at all, as a result of the informal businesses that are not known officially. It is made up of those economic activities which generate factor incomes, that is, salaries, wages and profits which arise from the production of goods and services which cannot be determined from statistical sources used to compute income measures of the GDP.
The term SME entails various types of enterprises, from fragile zero growth micro-firms to fast medium-sized growth firms (Fjose, Grunfeld and Green, 2010). Abor and Quartey (2010) conclude that there are various definitions and no consensus over what constitutes an SME with different definitions across industries and also across countries. In the USA the term small and medium businesses (SMB) is used for SMEs. The word ‘SMEs’ is extensively used in the EU with international organisations such as United Nations (UN), World Bank (WB) and the World Trade Organization (WTO) using it similarly. In Africa, the commonly used term is ‘MSME’ for micro-small and medium enterprises, with South Africa using the term ‘SMME’ for small, medium and micro-enterprises and Zimbabwe using the term ‘SME’ for small, medium enterprises. The researcher will now examine the definitions of SMEs given in the context of Zimbabwe.
Table 2-2: Definition of Enterprises in Zimbabwe
Indicative Parameters Sector Number of full time
paid employees
Gross Value Assets (excluding immovable property)
Legal Structure
Micro Enterprises
All Sub-sectors Less than 5 Between $1000 to $50 000 Informal
Small-scale Enterprises
Manufacturing Less than 40 Less than $500 000 Formal
Other Less than 40 $250 000 - $1000 000 Formal
Medium-scale Enterprises
Manufacturing 50-75 $500 000-$1000 000 Formal
Other 75 $50 000 - $2 000 000 Formal
Source: Small and Medium Enterprises Act: Chapter 24:12: Third Schedule (Section 5(1)(b)
The ‘working definition’ of an SME for this study is an enterprise that is informal with less than or equal to five (5) full time paid employees. The reason for its usage is that it is challenging to use capital base as most entrepreneurs are not willing to disclose information concerning their capital for fear of being victimised legally through the Zimbabwe Revenue Authority (ZIMRA) (Revenue Authority Act: 23.11) by having to pay relevant taxes.
However, the criteria for categorisation of the MSMEs in Zimbabwe has been done in terms of the economic sector, maximum total number of paid employees, size or class, maximum
revenue/turnover and maximum gross value of assets excluding immovable assets according to the Small and Medium Enterprises Act (Chapter 24:12).
Furthermore, according to the Companies Act (Chapter 190) and the Factory and Works Act (Chapter 283), an informal enterprise is one whose function is not legally registered in terms of these two Acts, and they do not pay taxes in terms of the Zimbabwe Income Tax Act (Chapter 181) and are not accounted for in official national statistics. Despite being unregistered or not formally recorded in national statistics, informal SMEs’ role in the national economy is important and noticeable (Ministry of Industry and Trade (1999); Mumbengegwi (1993).
The definition of the informal SMEs is guided by the Small and Medium Enterprises Act Chapter 24:12, which was a development from the Small, Medium and Enterprise Policy and Strategy document in 2002. This Act paved the way for the informal sector to participate in government tenders and contracts.
2.6 Informal SMEs’ Operations Taxonomisation in Urban Zimbabwe
Chirisa (2004) developed illustrative criteria that can be used to describe the nature of urban informal economy operations in Harare. Serious arguments have been advanced that a similar criterion can apply to other urban areas in Zimbabwe with some additional modifications. Paradza (1999), also identified five (5) categories of informal SMEs operations based on residences (carried out in the home), location (provided by local authorities), shop pavements, roadside operators and private sector residences. In 1997, a study carried out by the then Ministry of Local Government, Rural and Urban Development issued another classification of ISOs came up focusing on services offered at designated locations and these are iron and metal-work,
2.6.1.1 Spatial Location
There are three simple forms of the informal sector functions that can be identified; which are those actively involved in the Central Business District (CBD), those involved in the neighbourhood – called neighbourhood oriented – and those involved in industrial areas or their proximity.
Neighbourhood oriented informal functions take place near the residential homes and are residence-tied. In Zimbabwe, this entails women selling fruits and vegetables at the roadsides (in the streets) in many residential locations in the urban areas. In Zimbabwe, in the pre-economic reforms era, the local authority created market stalls in each urban centre where utilisation of the stalls was by way of licence from the local authorities.
With this informal sector becoming flooded in the post-economic reform period, many informal operators opted to leave the designated market stall for the roadsides which they considered viable and licence-free.
2.6.1.2 Supported-Engaged
In this category four (4) forms of ISOs have been identified, which are family-based, institutionally-supported, organisationally supported and social-alliance based (Chirisa, 2004).
Family-based ISOs in most cases rely on the hard-earned savings from the intermediate family members. Family members usually come to assist in various ways in the business. There is a desire for the business to make a significant difference to the family home and as a stop-gap tool to protect the family against poor cash-flows before the breadwinner and/or head of the family gets his next formal salary/income.
In Zimbabwe, there are many organisations and institutions that support SMEs: chief among them are the Small Enterprises Development Corporation (SEDCO) under the Ministry of Small and Medium Enterprises and Co-operative Development, Industrial Development Corporation (IDC) and various private institutions that include the banking sector. However, institutional support for informal SMEs remains theoretical given that the majority of these micro-enterprises falls outside the proposed frameworks of the support because of various reasons such as lack of collateral,
In the case of social alliances, operators work in good faith with social capital being their binding philosophy. In most cases, their designated place of enterprise activities are kinds of zones/areas that are protected. In this case, it is conventionally agreed that informal sector is characterised by easiness of entry by entrepreneurs. However, social alliances act like a tough barrier for new operators to come on board. Summarily, speaking in this form operator supports each other in the spirit of fraternity and company in the commonality of the space of the operations.
2.6.1.3 Value Addition
In Zimbabwe, value addition comes with the processing of raw materials into finished products.
This reflects typical peri-urban operations attributed to the desire for highly specialised equipment and machinery which in most cases are difficult to acquire for informal SMEs. Value-addition is seen as a prerogative of the elite operators by many who operate in the informal sector. Only a few lucky ones can manage to sail through to own machines like hair-salon kits, nut-crackers, soap-making machines, brick-moulding machines and peanut butter-making machines.
2.6.1.4 Services Offered
Under the services offered criteria ISOs included are catering and ripe and ready products and foods. With high economic decline in Zimbabwe, a new type of informal SMEs (food-sellers) developed and are part and parcel of the cross-border traders’ category.
In the majority of the cases, they source their items for resale in neighbouring countries such as Zambia, Mozambique, South Africa, Tanzania, Democratic Republic of Congo (DRC) and Botswana. Prices are usually in foreign currency or local currency equivalence. The majority of vendors in this category are professionals seeking to diversify and supplement the formal salaries and/or known formal incomes.
2.6.1.5 Operators’ Composition
With the composition of entrepreneurs, there are numerous compartments mainly consisting of sole-proprietors, employers and cooperatives. In most cases, the majorities of the sole-proprietors operate without any institutional support from banks or government and are often subjected to empty and false promises by politicians. In that regard, very few sole-proprietors go on to become successfully contributing business persons within their society. If successful in their economic activities the sole-traders become employers of others. In most cases, sole-traders have jobs elsewhere – sectorially or spatially – as evidenced by their absence from the location of the operations mostly. On the other hand, in the cooperative approach, operators share in the various activities done.
2.6.1.6 Returns Realised
In the context of ISOs, returns are categorised as either low, medium or high. The majority of the ISOs have very low-rewarding yields and returns, especially for the neighbourhood-oriented economic activities. Medium-reward ISOs regarding yields and returns are characterised by owners who sell second-hand goods like clothes, spare parts and furniture usually obtained from the second-hand auctions. High-reward ISOs are made up of artefacts of art and crafts, posh goods in flea markets or some high-valued second-hand goods from the auctions. In most cases, better locations with excellent strategies for marketing attracts massive and better profits than poor ones.