By Charles Zhuwau
ENTREPRENEURSHIP the world over is known for its catalytic role in fostering economic development. It is the magic behind the invention of new products, services, industries, and continuous improvement to existing ones.
This creates jobs for citizens, improves living standards of the populace, increases government revenue, and prevalence of peace in nations. However, entrepreneurship activity levels differ across countries, regions, and continents. So are the benefits of the practice to respective communities.
In that respect, developing countries tend to lag behind developed and emerging markets in entrepreneurship activity levels and enjoyment of its fruits. It is acknowledgement of this reality that nations can introspect and promptly implement strategies that harness the power of entrepreneurship.
Zimbabwe is not an exception on the need for self-scrutiny. In my opinion the country needs to self-study more than any country in the world considering her economy’s lack of creativity and innovation, informal sector dominance above 60%, youth unemployment around 80%, and a poverty-stricken citizenry.
To find herself, Zimbabwe must study successful entrepreneurial nations on the African continent like Kenya and Rwanda, as well as those from other regions such the United States, United Kingdom and China are able to answer the what, why and how questions to entrepreneurship.
The fortunate thing is that research has already been done to provide answers to these questions in contexts analogous and dissimilar to Zimbabwean milieu.
This article, therefore, focuses on answering “what” and “why” questions in introspecting the country’s entrepreneurship conditions, leaving the “how” question for another day.
This is a question of the state of entrepreneurship in the country. It can be responded to by describing entrepreneurship activities in a country in terms of type (formal, necessity or opportunity driven), quality (innovative, productive, high growth) and quantity.
Type of entrepreneurship
Entrepreneurship practices in the country are highly informal. Studies conducted by the International Labour Organisation (ILO) and International Monetary Fund (IMF) in 2018 and 2019 respectively profiles Zimbabwe among top informalised economies.
Another research by Medina and Schneider in 2018 showed that the Zimbabwean economy was 60,6% informal, ranking it above the global average of 32%, positioning it on number 1 in Africa, and falling behind Georgia (65%) and Bolivia (62,3%) globally.
Researchers concur with the notion that informal business activities reflect necessity driven entrepreneurship. It is a push factor driven entrepreneurship born out of the need for survival, especially when people are retrenched or cannot find job opportunities in an economy.
With no or limited choice of work, citizens are forced to set up unstructured businesses for livelihoods rather than out of opportunity recognition.
Most of these practices are prevalent in the retail sector, which is precisely the situation in Zimbabwe since the beginning of the new millennium.
Mass exodus of foreign companies due to an increase in political risk in the country following the “fast-track” land reform programme of 2000 and the subsequent Western human rights violation targeted sanctions regime rendered tens of thousands of workers jobless.
The remaining companies could not absorb both retrenched workers and graduates from local learning institutions, which left masses on the streets vending as the main option for upkeep.
Today a majority of urban dwellers are into informal retailing on the streets, recycling of metal and plastics, and manufacturing in home industries like Mbare-Magaba in Harare and Green Market in Mutare.
Quality-wise, shadow economic activity-dominated economies are said to be less innovative. Informal entrepreneurs’ products and their ways of producing in most cases are similar and less efficient.
This means that there is reduced productivity and a majority of firms are not growth oriented. In the Zimbabwean context, common entrepreneurship activities are less differentiated, inefficient, produce less and production is for subsistence.
Quantifying an informal entrepreneurship dominated economy is difficulty. It is impossible to know the exact number of businesses in the economy, those coming in and leaving, and their contribution to the economy.
This ultimately distorts economic figures in terms of the country’s GDP. Informal entrepreneurship problems go beyond enumerating economic activities, government failing to control activities of economic actors and comprehensively collect tax from business.
Today one of the greatest challenges facing the Finance and Economic Development ministry, and Zimbabwe Revenue Authority (Zimra) is to collect revenue from unregistered businesses in the economy.
Authorities and/or policy-makers of an underdeveloped entrepreneurship environment like Zimbabwe must ask themselves an intriguing question like: “Why the nation underperforms entrepreneurially?” Providing answers to this question helps in designing an entrepreneurship ecosystem that magically turn economic fortunes of the nation. Fortunately, answers to this question are already given in entrepreneurship literature.
They include among others institutional factors, social and cultural factors, infrastructure, political stability, education and training. Nevertheless, this paper will focus on institutional factors and leave other elements for another day.
The quality of institutions is the bedrock to functioning of markets. That is the ability of judicial arrangements to provide fair court systems, secure property rights, availability and fair pricing of debt and equity financing that support exchange of goods and services in an economy. How these institutional elements operate in the Zimbabwean context determines entrepreneurship activity level in the country.
When analysing the relationship between quality of institutions and productivity of entrepreneurship Sobel once argued that institutional environments with relatively fair judicial systems which provide balanced judgments, secure property rights, offer effective contract enforcements, and limit government power to transfer wealth through regulations and taxes nature high growth, opportunity-driven and formal entrepreneurship practices.
The opposite is true for their counterparts, and Zimbabwe is a good example. I would want to comment on fair judicial system, secure property rights, contract enforcement and government power in transferring wealth using the land in the country since Zimbabwe is a primary industry backed economy.
If managed well, land use, especially through agriculture can generate many small- to large-scale farmers who can contribute immensely to job creation, productivity, and government revenue.
Currently, farmers do not have any real property rights documents to the land they are using. This presents a dilemma to agricultural financiers such as banks, who are reluctant to capitalise farmers due to lack of collateral security.
Lack of financing which comes through absence of property rights in the land is hindering growth of entrepreneurship in the sector. With the State as the sole owner of land in Zimbabwe, government has more power to take and give land to whoever it deems necessary.
Such power has been controversial for a while with some sectors of society complaining that land is being used for political expediency. This in turn repels non-politically connected would-be agricultural entrepreneurs with the potential to grow the sector, create jobs, and increase government revenue base.
Looking at government’s power to transfer wealth through taxes and regulations, Zimbabwe is a typical example of nations that stifle entrepreneurship through taxes and regulations.
These are the responses which continue to be cited by majority of participants in a study I am currently conducting to ascertain reasons why Zimbabwean informal start-ups are reluctant to formalise. Most informal entrepreneurs at Harare’s Mbare-Magaba, Glen View Area 8 complex and Gazaland home industries view regularising their businesses as burdensome due to many regulations which must be followed when formalising.
They also cited that it will be the genesis of continuous submission of taxes to Zimbabwe Revenue Authority, which they deem to be unfair considering their capital and revenue sizes. Simplifying business formalisation processes and reducing taxes and allowing tax holiday to start-ups can go a long way in reducing shadow activities in the economy.
The importance of entrepreneurial funding cannot be underestimated if any country is to reap fruits of entrepreneurship development. Most entrepreneurial ideas which came to fruition had support of either equity or debt finance.
Even companies that make up the fortune 500 companies like Microsoft and Apple were not an exception in their gestation phases. For them to experience growth we see today, external funding had a role.
Entrepreneurial funding has for long been a missing piece of the entrepreneurship development puzzle in the country. If one is to look for venture capital register in the country, one will be surprised not to find any from anywhere. Availability and accessibility of venture capitalists’ names, the amounts they support businesses with, and their conditions should be open for entrepreneurs to explore.
When it comes to debt financing, microfinances, banks, and loan shacks are the main sources of business funding in the country. However, their loans are hardly accessible to start-ups due to prohibitive conditions and exorbitant interest rates. On one hand loans on offer are immovable property backed collateral debt, which is an unrealistic demand to young entrepreneurs that are just starting. On the hand the loans on the market will charge between 15% and 35% interest rates per annum. These interest rates are excessive for start-ups with a growth agenda.
Having exposed how our entrepreneurship activity level has been subject to the prevailing institutional environment in the country, there is need to examine other contributory factors before looking at “how” the situation can be corrected. The coming paper will focus on some of the factors hindering entrepreneurship growth this article left out.