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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.
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and development of SMEs by addressing the challenges they faced (Bomani et al., 2015). Efforts to deal with SME challenges were ineffective as they were not properly coordinated (Zimbabwe Parliament Portfolio Committee on SMEs (ZPPCSMEs), 2010).
Today, the MIC promotes SMEs through generating access to both regional and international markets through negotiations for bilateral and multilateral agreements (Bomani et al., 2015), provision of information on foreign markets (Nyoni, 2012), and organizing international trade fairs for Zimbabwean SMEs (Tsarwe, 2014). Moreover, the ministry is involved in enhancing the competitiveness of SMEs involved in foreign trade by ensuring that their products and services meet quality international standards (Naicker & Saungweme, 2014). However, Bomani et al. (2015) claim that very few SMEs have benefited from such ministerial programs.
2.6.2 Small and Medium Enterprise Development Corporation (SMEDCO)
SMEDCO was set up in 1984 as a parastatal, by the Act of Parliament (Chapter 24:12) (Manyani, 2014).
SMEDCO was aimed at assisting SMEs in the form of training and provision of information and advice on business, financing the SMEs, and offering management and counselling (GoZ, 2015). SMEDCO played a major role in the creation of business incubations and availability of factory space for small businesses in areas such as Chitungwiza, Nyika (Masvingo Province), Gweru (Midlands Province), Bindura (Mashonaland Central Province), and Gazaland (Harare Province) (Mhuka, 2011).
The parastatal also provides entrepreneurs with access to machinery in Chitungwiza for metal fabrication, woodwork, and machinery (SMEDCO, 2015). Litefold Engineering, a company owned by SMEDCO, also trains personnel from SMEs (Mashanda & Kurebwa, 2013). In addition to that, SMEDCO facilitates the linking of SMEs with supply chain partners such as suppliers, and customers (SMEDCO 2015). In 2010, SMEDCO disbursed loans to 4 900 SMEs despite the high-interest rates (Moyo 2011). It is important to note that SMEDCO cannot assist financially all the SMEs in Zimbabwe due to budgetary constraints. However, its efforts in supporting the development of the SME sector is much appreciated (Nyoni, 2012).
SMEDCO still strives to avail both financial and technical support to SMEs (Bomani et al., 2015) even though it is in financial doldrums (Nyamwanza, 2015). However, since the parastatal is grossly underfunded, its assistance towards SMEs has been negatively affected.
2.6.3 Zimbabwe Development Bank (ZDB)
The bank was established in 1984 with the sole mandate to provide debt finance to SMEs (Nyangara, 2013). SMEs were required to provide collateral before being given any loan, this became a major
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obstacle to many as they did not have (Nyoni, 2012). Due to insufficient financial support from the government, the bank was incapacitated. Also, some of the SMEs who were given loans could not repay them. Consequently, the bank could not perform as anticipated (Bomani et al., 2015). In 2005, the bank was converted to the Infrastructure Development Bank of Zimbabwe (IDBZ) by the Act of Parliament, the IDBZ Act (Chapter 24:14). Thus, its mandate was widened to include the provision of funds to support companies in the transport and construction industries (Norsad Finance, 2015).
Today, the bank focusses much on infrastructure development such as houses, commercial banking activities, and large company offices at the detriment of SME support in the form of debt finance (Chenga, 2015). Thus, supporting SMEs is no longer its principal business. This is testimony that the SME sector has been neglected by the IDBZ (Bomani, 2015).
2.6.4 The Reserve Bank of Zimbabwe
In 2006, the RBZ availed Z$16 trillion to support the growth and development of the SME sector (RBZ, 2006). The loans had interest rates of at least 70.0 % per annum. This was in a bid to try and assist financially challenged SMEs to recover. The funds were distributed to provinces concerning the level of economic activity and population sizes (RBZ, 2006). The funds catered for SMEs projects such as construction, agro-processing, mining, poultry, and animal husbandry. However, SMEs lamented the high-interest rates attached to the loans (Bomani et al., 2015; Nyoni, 2012).
In 2013, the RBZ enunciated a policy program that required banks to design their offerings such that SMEs loans would constitute at least thirty percent of their total loans (RBZ, 2013). To ensure compliance, the central bank would conduct regular monthly audits, and failure to observe the regulations would attract severe fines (Naicker & Saungweme, 2014). This policy placed greater emphasis on funding at the expense of other important aspects such as the training of entrepreneurs.
Thus, it failed to recognise that the poor performance in SMEs is due to many underlying factors that needed to be addressed. Mudavanhu et al. (2011) claim that since 1991, SMEs have been receiving financial support but they still failed.
2.6.5 Ministry of Small and Medium Enterprises and Cooperative Development
The MSMECD was established in 2002 (Chivasa, 2014) to create and maintain a favourable environment for the growth of SMEs in Zimbabwe (Mushanyuri, 2014). Thus, the MSMECD was meant to deal with all the challenges and issues bedeviling the growth of the SMEs as well as developing a policy framework to enhance SMEs' development (Bomani, 2017). According to the ZPPCSMEs (2007), the MSMECD reported that they had done a lot in terms of assisting SMEs (including trade promotions, training workshops for SMEs, construction of SMEs infrastructure) which was not true.
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The majority of the purported achievements were on paper with no evidence on the ground (ZPPCSMEs, 2007). Only a few SMEs agreed to have benefited from the supporting activities of the MSMECD (ZPPSMEs, 2007), SMEs in the rural areas did not benefit from the services of the MSMECD as its officers were only found in urban areas (Bomani et al., 2015).
The ministry has two officers in a district; one responsible for cooperatives and the other for SMEs to assist the SMEs (MSMECD, 2018). This structure may not be effective in dealing with the challenges confronting SMEs as a district is too big to be under the responsibility of two officers. Apart from that, the ministry is grossly underfunded, hence its ineffectiveness in dealing with SMEs issues (Naicker &
Saungweme, 2014). For instance, in 2013, the MSMECD was allocated USD3, 605, 977 when it had budgeted for USD 9, 479, 000 (GoZ, 2014). Also in 2014, the ministry was given USD 8, 695, 000 when it required USD 81, 269, 937 (Makoshori, 2014).
This implies that the ministry is always underfunded evidence that it is taken as not very important a ministry (Maunganidze, 2013). This attitude stifles the ministry’s operations and effective support towards SMEs. Despite inadequate funding from the national budget, the MSMECD made significant achievements in 2013 (Bomani et al., 2015). The Ministry raised USD4 million with the support of development partners, trained 11,936 SMEs, provided shelter to 6,363 SMEs, and acquired buildings for business incubation (GoZ 2014). However, the performance could be better had if adequate funding was made available (Bomani et al., 2015).
The review of literature on institutions set up to assist SMEs revealed that the institutions were underfunded making it difficult for them to discharge their duties. Thus, Ndlovu (2013) concluded that the majority of government programs, since independence in 1980, have not been effective in promoting the sound development of the Zimbabwean SME sector.