INTRODUCTION
1.4 Informal SMEs in the Manufacturing Sector in Zimbabwe
1.4.2 Types of Informal Manufacturing SMEs in Zimbabwe
In Zimbabwe, unlike many African countries, the informal SMEs sector is largely dominated by manufacturing while in other African nations the informal sector is subjugated by retail (Rasmussen, 1992). Many governments in Africa have long recognised the need to promote informal sector development in an attempt to reduce poverty, reduce migration from rural to urban areas, generate employment, mobilise local resources, and disperse industrial enterprises evenly across the regions in a country. It is in this regard that this study is guided by the need to unlock the value of the informal SMEs in Zimbabwe by building a reliable and innovative business model to ensure growth and taking part in the Fourth Industrial Revolution. The manufacturing sector has been identified because, according to McPherson (1991), it is estimated that over 70% of SMEs in Zimbabwe are in manufacturing, with 23% in trading of commodities (retailing) and 7%
in the services sector.
Many scholars argue that the informal manufacturing sector, especially those operating in the urban segment, is a manifestation of the involuntary process. This is supported by the theoretical premises of the basic Todaro Model of the absorption of surplus labour into the urban informal sector (Todaro, 2015).
Charmes (1990) found evidence to the effect that, “the informal sector contributes to Gross Domestic Product over and above the minimum wage” and concluded that the informal sector within a larger economic environment is not wholly undesirable.
Several scholars have argued that the informal sector has potential to achieve high productivity levels. Todaro (1994) and Sookram and Watson (2008) observe that in developing countries the informal sector contributes between 20% to 70% to the country’s GDP, clearly indicating the expansion and flourishing of the informal sector in the developing world.
According to Soderbaum (2007:160), Africa is no exception as characterised by a myriad of informal and non-constitutional interactions and economic activities. Most African countries depend on their informal sector in driving their economies towards the achievement of many economic and social goals (Olawale and Garwe, 2010). In Zimbabwe, the size of the informal economy was 59.4% in 2004 (Schneider and Klingrnair, 2004).
Chen (2007) argues that because of the existence and perpetual growth of the informal sector government should rethink the value, importance and the important contributions this sector can make to the country’s industrial development in particular. The governments across the globe have realised the need for pro-active strategies to ensure that the informal sector’s value can be unlocked (Riddell Commission 1981; UNIDO, 1999; ZEPARU and BAZ, 2014).
In Zimbabwe, the informal sector is neglected by most planning systems in both urban and rural areas forcing the entrepreneurs’ in this sector to do their business activities in very hostile environmental conditions (Mkandawire, 1985; Dhemba, 1999; Chigwenya and Mudzengerere, 2013). However, SMEs are now believed to be so important in supporting economic development within a country, and globally most governments are giving attention to the development of SMEs (Bowale and Ilesanmi, 2014).
Since the informal sector is increasingly absorbing a great number of the active labour force, policy-makers are considering the formalisation of the informal economy in light of a shrinking revenue base from the formal tax base as a way of increasing the contribution of the informal sector to tax revenue; also supporting the informal sector to reduce poverty and improve the quality of life (ZEPARU and BAZ, 2014). The financial services sector is interested in promoting
financial inclusion and financial sector deepening and nurturing players in the informal sector to contribute towards savings mobilisation.
According to the ZIMSTAT Survey on Labour Force Report (2011), 84% of economic activity occurred in the informal sector, 11% occurred in the formal sector and 5% in other sectors which could not be classified. This survey indicated that the informal sector in Zimbabwe is significantly larger than the formal sector and has proved capable of significantly contributing towards the recovery, growth and development of the economy. These results are evidence of failed structural adjustment programmes of the past. However, the potential has to be nurtured and supported to get the majority of SMEs from informal activities to become formidable formal forces in the economy.
In addition, the Fin Scope Report (2012), asserted that out of 3.4 million SMEs in Zimbabwe, 85% are not formally registered or licensed and of the remaining 15%, individual entrepreneurs comprise only 10% of the total that are formally registered or licensed. Therefore, to formalise the operations of the informal SMEs to ensure that their full potential is realised is a high priority (Marunda and Marunda, 2014).
According to a study from the European Commission in 2007 and 2010, formal SMEs generated 85% of all new jobs in Europe from 2002 to 2010 (European Commission, 2007; 2010). Economic growth in countries such as Japan, Korea, Taiwan and many others were significantly contributed by SMEs. Apart from their role in GDP growth, SMEs have other significant socio-economic characteristics such as their contribution to new job creation and reduction of poverty and wealth creation (Kongolo, 2010; Karadag, 2015). On the other hand, informal SMEs also contribute a greater percentage towards the gross domestic product of their countries with an estimate of more than 50% in Zimbabwe (Government of Zimbabwe, 2002 as cited by Chigwenya and
and its commitment to the SME sector development is demonstrated by the establishment of the Ministry of Small and Medium Enterprises and Cooperative Development (Chivasa, 2014).
In conclusion, to the unlocking of potential for the informal manufacturing SMEs, Qotho Microfinance Advisory Limited (2009), highlights that the panacea to Zimbabwe’s economic problems is to support the informal sector since historically it employed and supported the majority of the people. All stakeholders must work towards achieving this crucial aim for the economy to grow.