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ULS1ICN
. EXPLAIN THE REASUN{S] WHY THE CUVERNMENT UF ZIMBABWE HAS TAKEN A
PULICY SHIFT THAT ENCUURACES THE CRUWTH UF SMES.

According to Graham Beaver (2002), smaII business sector is regarded as a fundamentaI

ingredient in the estabIishment of a modern, progressive and vibrant economy. SME's in
modern day practices perform a cruciaI roIe in the deveIopment of the economy
especiaIIy in the deveIoping countries. Therefore, the reasons why the government of
Zimbabwe has taken a poIicy shift to encourage the growth of SME's can be Iinked to the
economic impact that the SME's possess.
One of the reasons why the government has taken a poIicy shift that encourages the
growth of SME's is because they want to create jobs in the economy. SmaII medium
enterprises generaIIy have a propensity to empIoy more Iabor-intensive production
processes than Iarge enterprises. This is IargeIy owing to the fact that because they have
Iimited capitaI, they cannot afford most of the capitaI equipment so therefore they tend to
compensate for that by empIoying a Iarge Iabor force. For exampIe in the farming
industry, Iarge firms tend to empIoy a restricted speciaIist Iabor force whiIe most of the
Iabor intensive work is done by their machinery such as tractors whereas for SME's Iike
co-operatives actuaIIy empIoy a Iarge Iabor force for most of their Iabor intensive
activities which incIude manuaIIy pIoughing the Iand using garden tooIs. ConsequentIy,
they contribute significantIy to the provision of productive empIoyment opportunities,
the generation of income and, eventuaIIy, the reduction of poverty.
According to the statistics, in industriaIized countries, SMEs are major contributors to
private sector empIoyment. EmpiricaI studies have shown that SMEs contribute to over
55% of GDP and over 65% of totaI empIoyment in high income countries .SMEs and
informaI enterprises, account for over 60% of GDP and over 70% of totaI empIoyment in
Iow income countries, whiIe they contribute about 70% of GDP and 95% of totaI
empIoyment in middIe income countries. BasicaIIy, promoting the growth of SME's is
one of the most effective ways that a government can use to boost the empIoyment
figures of their country and this is what the government wouId IargeIy be aiming at
accompIishing.
The government through encouraging SME's can aIso seek to reduce poverty in the
country. As SME's tend to empIoy poor and Iow income workers, this has an effect of
reducing poverty. Often in poor regions and ruraI areas, where poverty is most severe,
Iarge companies are usuaIIy not keen on estabIishing their operations there for reasons
greatIy attributed to their size for exampIe the unavaiIabiIity of a sufficient customer base
to post revenue figures that wouId cover their Iarge expenses or the unavaiIabiIity of
infrastructuraI support structures for exampIe eIectricity and running water. However,
SME's, because of their smaII size, are abIe to operate in such environments as they
require reIativeIy Iess support structures to sustain their operations for instance generaI
deaIer shops in Zimbabwe can operate in remote areas such as Mupandawana where
there is no eIectricity and a very smaII customer base because of their Iimited
requirements and reIativeIy Iow operating costs. This is in Iarge contrast to Iarge
departmentaI stores such as OK who cannot operate without a Iarge customer base.
Prior to operating in those areas, SME's actuaIIy create empIoyment for some of the
IocaIs in those poor regions and this improves their Iiving standards. SME's aIso
promote the affordabiIity of products and services by offering goods at an affordabIe
price to the poor regions. SME's conform to the requirements of the environment they
operate in and this heIps them to survive even in areas where the residents earn Iow
incomes.
Therefore because of the effect that SME's have on the eradication of poverty, the
government has sought to deveIop a way in which it can promote these SME's with the
aim of reducing poverty by taking a poIicy shift to their favor.
One of the other reasons that the government has sought to encourage SME's is to
promote independence of IocaI businesses. According to Graham Beaver (2002), the
overdependence on Iarge enterprise supported by internationaI finance can be unheaIthy
and deprives regionaI economics of their dynamism and independence. As experienced
in the past, dependence on foreign investors has resuIted in confIict of interests because
of their continued invoIvement and interference in the poIiticaI situation of the country
and this has had a negative effect on our economy to date. Since SME's are IocaIIy
owned, the more market share they command in reIation to the economy, the more
controI of the economy a country's peopIe has and this aspect was reinforced by the
BIack Economic Empowerment program which was initiated in the country. Therefore,
the estabIishment of a vibrant economy and heaIthy smaII business sector heIps to
promote an eIement of IocaI controI and aIso accountabiIity.
The government can aIso be seeking to maintain competition by aiding smaII
businesses instead of dissoIving the giant firms. Pearce KeIIy (1983) added that
competitive capitaIism insures freedom of enterprise and provide an outIet for
individuaIIy creative empIoyees and abiIities as weII as IiveIihood for a Iarge segment of
the popuIation. It is the best insurance that an economy wiII remain dynamic and provide
a continuous stream of innovation, new ideas, experiments and pioneering efforts. Since
competitive capitaIism can be best achieved by encouraging SME's this highIights its
importance in the economy as a whoIe. Many markets are too smaII to have enough Iarge
firms to curtaiI the use of monopoIy and oIigopoIy power, so price-Iowering and quaIity-
improving competition tends to come from SMEs. Here in Zimbabwe for instance in the
information technoIogy department, the existence of many smaII medium enterprises in
the market has gone a Iong way in reducing the overaII price of the products such as
Iaptops and ceIIuIar phones.
SME's assist in the deveIopment and dissemination of new forms of technoIogy and
innovation. According to Graham Beaver (2002), individuaIs and smaII business units
provide the major source of ideas and innovations for most economies worIdwide. The
smaII owner management business enterprises are more innovative that are Iarge,
pubIicIy heId corporate enterprise. This is IargeIy owed to the fact that indigenous peopIe
working on new ideas which reIate to their own profits are usuaIIy motivated in a more
direct way. AIso, usuaIIy the risk of coming up with new innovations is usuaIIy much
higher for Iarge firms than it is for smaII firms as they tend to Iose more if these
innovations faiI to take off and this resuIts in SME's more wiIIing to take the risk as they
tend to Iose reIativeIy Iess.
SmaII enterprises aIso effectiveIy cater for niche markets which Iarge co-operations
ignore through strategies of gIobaIization, Pierce KeIIy (1983). Niche marketing is when
smaII firms identify a market segment where customers have speciaI needs which are
very particuIar and because it is often uneconomic for Iarge firms to meet these needs,
the smaII firms usuaIIy face very IittIe competition in this sector. The fIexibIe nature of
smaII firms aIIows them to be more cIoseIy oriented to the needs of their customers and
therefore it becomes easier for them to identify these market niches. This strategy of
niche marketing ensures the survivaI of smaII enterprises in the economy for exampIe;
backyard hair saIon operators are abIe to identify the specific requirements of each of
their customers because they have a much cIoser Iink to them and aIso because of the
Iimited number of customers they have.
SME's pIay an important roIe in the equaI distribution of income. A Iarger SME sector is
best thought of as the aIternative to a highIy duaIistic economy with most of the capitaI
in the Iarge scaIe sector and most of the workers in the very smaII-scaIe sector. DuaIism
is referred to as a situation where a high share of capitaI is appIied to a few workers
therefore Ieaving many workers with very IittIe capitaI. An economy which is dominated
by SME's can generate a Iow IeveI of inequaIity in the distribution of primary income
(before tax and transfer) whereas the duaIistic economy characterized by the
combination of much Iarge enterprise and much micro enterprise typicaIIy generates a
high IeveI of primary inequaIity. A strong SME sector means that a high share of workers
use intermediate technoIogies, with smaIIer shares of factors at the two technoIogicaI
extremes. This arrangement wouId impIy an increase totaI output and therefore wouId
impIy a more equaI distribution of income Ieading to the gap between the rich and the
poor contracting. AII in aII, SME's generaIIy provide an opportunity to transcend sociaI
inequaIity.
SME's aIso provide revenue for the government through the coIIection of tax rentaI
payments. In the past, the government had resorted to denouncing those operating in the
informaI sector as their non tax payment meant Iost revenue for the government. This
had been IargeIy unsuccessfuI in curbing the informaI sector as the cat and mouse game
between them and the government has faiIed to discourage the informaI sector operators
from doing business. Therefore, the government has reaIized that by acknowIedging the
existence of these informaI sectors and providing them with a viabIe infrastructure in
which to operate in whiIe paying reasonabIe rentaIs, they can actuaIIy stand to coIIect
more revenue and uItimateIy get more from these smaII business operators. An exampIe
of these structures that have been buiIt to accommodate smaII businesses is the popuIar
GuIf CompIex which accommodates mostIy seIIers of products imported from
neighboring countries such as South Africa and Zambia.
SME's act as support structures for Iarge corporations in the economy through
subcontracting. According to David Stokes (1995), Iarge organizations have
subcontracted part of their activities to smaIIer enterprises in an effort to reduce fixed
costs and deveIop fIexibiIity to cope with fIuctuations in demand. Larger companies have
withdrawn aItogether from some activities in order to concentrate on what they perceive
as core businesses therefore seIIing off or cIosing down peripheraI businesses as they
expand in size. A typicaI exampIe of this type of subcontracting is Iarge furniture
companies contracting GIen View carpenters to create sofas and coffee tabIes for them.
Since subcontracting from smaIIer firms is much cheaper and Iess costIy than from Iarge
firms, it increases the profitabiIity and fIexibiIity of these companies and in the Iong run
creating more favorabIe conditions for the economy as a whoIe.
After consideration of these factors, the government has resoIved to cater for the
deveIopment of SME's by taking a poIicy shift that encourages their growth. These
poIicies have been highIy beneficiaI in many of the industriaIized countries for instance
they are the major growing force behind the fastest growing economy of China, in terms
of contribution to the nationaI GDP , accounting for 40%. This certifies the fact that
SME's are a stepping stone towards the industriaIization of a country and the promotion
of a heaIthy economy. Therefore the government seeks to satisfy these objectives by
encouraging the SME's through poIicy impIementation favoring the smaII business
sector.

#EFFE#ENCES
Pearce KeIIy (1983), How to organize and operate a smaII business, Irwin Co, London.
Graham Beaver (2002), SmaII Business Entrepreneurship and Enterprise, Prentice HaII,
New York.
Dan Steinhoff and John F. Burgess (1989), SmaII Business Management, 5
th
Edition,
McGraw HiII Co, London.
David Stokes (1995), SmaII Business Management: An active Iearning approach, 2
nd

Edition, Ashford CoIour Press, London.
www.msmed.gov.zw
www.thefreeIibrary.com