SMEs solution to region’s unemployment woes

Lazarus Sauti

Southern Africa is struggling with high unemployment as a result of a shrinking economy in some countries as well as economic stagnation in others, widening social and economic inequalities as well as spawning poor social delivery.

Unemployment in most countries within the region continues to spiral upwards, and young people are mostly affected as they represent about 35 per cent or so of Africa’s working age population.

To heighten the problem, more young graduates in regional countries are coming onto the job market, but they are not being consumes as countries do not have functional industries.

Because of this and other reasons, political and business institutions as well as authorities believe that supporting small and medium enterprises (SMEs) as well as moving them into the mainstream economy is the best way of addressing high unemployment rates.

According to the World Bank – an international financial institution that provides loans to developing countries for capital programmes, the SME sector contribution to total employment creation varies from 57.24 per cent in high-income countries to 17.56 per cent in low-income countries.

Further, the financial institution asserts that the creation of an enabling environment for small and medium business is critical in averting the unemployment cancer that is ravaging citizens in Southern Africa, a fact shared by Emmerson Mnangagwa, Vice-President of Zimbabwe.

“Supporting SMEs is one of the best ways of addressing unemployment as well as accommodating retrenches from companies, school leavers, youth and people with disabilities,” said VP Mnangagwa.

Researcher Collence Chisita describes small and medium enterprise as the most realistic sector to consider for creating more than enough jobs for Africans now and future.

He added that the most important thing is to encourage small and medium businesses to enter the formal sector by creating tax breaks as well as related inducements.

“Formalisation of informal sector can go a long way into alleviating unemployment challenges, but governments need to offer tax breaks in addition to other incentives to support small businesses,” he said.    

Sharing VP Mnangagwa and Chisita’s sentiments, Matsi Modise of the South African Black Entrepreneurs Forum says moving SMEs into the mainstream economy creates employment as well as enables governments to nurture SMEs for young entrepreneurs.

Miriam Altman, who is part of the National Planning Commission in South Africa, however, warns:

“The expansion of the small and medium enterprise sector can be a growth drive; therefore, government sectors in Southern Africa should not fetishise small firms, but create the kind of ecosystem that is needed for them to thrive.”

Altman added: “Support is key, hence the need for political leaders to provide the right complement of services or funding or the right kind of innovation.”

Director of Interior Décor Company – a Zimbabwean SME entity, Sikhangezile Mathema, also says financial support enables players in the informal sector to overcome challenges such as capital constraints, poorly structured organisations, lack of management information systems as well as access to markets.

Nomvula Makgotlho, Chief Director of the Ministry of Small Business South Africa, argues that partnerships between governments and big businesses are critical to move small and medium enterprises into the mainstream economy as well as create employment for citizens.

“Partnerships between governments, SMEs and large corporations are key in alleviating unemployment over and above closing the divide that exists between large firms and their small-sized counterparts,” she said.

Anthony Jongwe, researcher with interest in entrepreneurship, says SME players in the economy are needed by large-scale and established businesses and vice-versa.

The main reason for this, asserts the entrepreneurship specialist, is that small and medium enterprises accounts for significant foreign currency inflows in Zimbabwe and other Southern African states.

Roy Ross, chief executive of Business Banking Africa at Barclays Africa, calls for improved relations between governments and private sectors in promoting enterprise development.

“Governments need to release entrepreneurs to be able to do what they do best and that is creating businesses, employing people and get on with making money,” he said, adding that private sector players need to support government efforts by availing financial as well as legal resources.

As for economist Ian Ndlovu, the future viability and prosperity of SME sectors also depends on the effectiveness of private-public sector partnerships, but this requires strong policies and strategies.

Describing SMEs as the ‘new economy’, Zimbabwe’s Finance Minister, Patrick Chinamasa, urges regional governments to put SMEs under special economic zones.

The objective of establishing special economic zones is not only to attract increased investment, but position small and medium business as the pillar of employment creation.

Small and medium enterprises provide one of the main engines of socio-economic growth in any healthy economy; thus, government sectors together with other stakeholders and development partners in Southern Africa need to recognise their importance and introduce programmes and policy initiatives that boost entrepreneurship, generate jobs and build prosperous societies.