For Zimbabwe to industrialise, its entrepreneurs need government policies that help their firms grow.
By KUDZAI GOREMUSANDU & PATSON CHAPEYAMA
Identifying binding constraints to growth is a key step before designing policies.
The constraints that entrepreneurs face when starting firms or upgrading their operations relate particularly to skills, infrastructure, the business environment and financing.
Upgrading skills is particularly important on how to better use the opportunities of new technologies for industrialisation.
Zimbabwean firms cite infrastructure, unreliable electricity supply, and access to finance as their most common operating constraints.
Numerous policy areas can impact enterprise performance and their contributions to industrialisation.
These include improving general economic conditions through sound fiscal and monetary policies that includes appropriate exchange rates, boosting the business environment, enforcing stable regulatory frameworks and ensuring fair trade relations.
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Reducing trade barriers will increase the size of markets that local entrepreneurs can tap into.
However, implementing such policies at the macroeconomic level alone is not sufficient.
Policies need to be tailored to the specific conditions, needs and capabilities of individual countries.
Infrastructure gaps reduce the growth potential of local entrepreneurs, and electricity in particular stands out as a major problem (Omidyar Network, 2016).
Infrastructure is a key component in promoting industrialisation, raising incomes, accumulating human capital and facilitating access to markets.
High-tech entrepreneurs, for example, suffer from unreliable electricity supplies and are often too small to afford efficient generators for themselves.
Informal firms represent over half of Africa’s economic activity.
Micro, small and medium-sized firms and sometimes even larger firms operate in the informal sector.
Informal firms tend to produce less than formal ones, due in part to lower levels of skills, a smaller size which prevents exploiting scale economies and a restricted use of government services and bank financing.
Hence, bringing more firms into the formal sector could increase productivity and promote growth.
Policymakers should consider the reasons why various types of firms operate in the informal sector and assess their ability to upgrade to the formal sector.
Simply forcing informal firms to register and comply with the rules for formal firms could be counterproductive, be reducing employment and increasing poverty.
Financial literacy and business training can help local entrepreneurs present their business cases to lenders.
Financial education can include identifying ways to fund startups using existing resources or external finance.
The consequences of constraints to private sector development often fall disproportionately on new entrepreneurs.
Start-ups are more subject to credit constraints and less resilient.
In Asian countries, policies that aim to lower risks, for example improving access to finance, tend to improve the entry and growth performance of start-ups.
It is also crucial to tackle policy failures that increase the costs of risks, for example poor contract enforcement.
Helping women entrepreneurs develop viable and productive firms requires an integrated strategy.
Many African countries need to improve women’s rights to make decisions about their own lives and enterprises with adequate, flexible and affordable financial services and business education.
Many female entrepreneurs find financial services inaccessible due to high interest-rates and inflexible repayment schemes.
They have difficulty complying with collateral requirements for credit and loans due to gender biases in land ownership.
Female entrepreneurs face additional constraints which affect their firms more than those of men.
Often women endure harassment and discrimination in the market place from government and financial institutions.
In Uganda, 28% of women own land compared to 53% of men; but only 10% of female landowners can use land as collateral compared to 95% of male.
Governments, companies, financial institutions and other key actors in the business environment should respect women’s rights to access and control resources.
Africa’s Grow Movement is a successful example of an organisation that offers innovative, inclusive and empowering business education services to women entrepreneurs.
