Last Updated 10 Aug 2020

Major Constraints on Small Business in Zimbabwe

Category Small Business
Essay type Research
Words 1689 (6 pages)
Views 563

It is an undeniable fact that small business has become a crucial part of the business environment of any country. What is the small business? A small business is owned and operated privately, and it has a few employees and a small volume of sales. Depending on the countries and industry, the legal definition of "small" is usually different. In Australia, “a small business is defined by the Fair Work Act 2009 as one with fewer than 15 employees”( Fair Work Act 2009). Even thought individual small business only creates a small number of position for unemployed people, the quantity of various small businesses is enormous.

They together can provide a lot of positions and play a significant role in the economy. The small business can be fast and flexible, and close to their customers. They can also perform an essential substitution role. Additionally, the small business promotes the economic growth and also makes important contributions to our society. However, the developments of small business are constrained by many issues such as lack of management skills, lack of credit, corruption, inflation and the poor infrastructure. Not only is the small business limited by these internal factors, but also is limited by the external environment.

This report will discuss how the developments of small business is impacted by the social, political, and economical environment in Zimbabwe. Firstly, the corruption in Zimbabwe brings a great influence on the small business, which introduces nonscientific allocation of resources. Secondly, the hyper inflation in Zimbabwe also severely affects small businesses, which makes long-term budgeting and planning futile. Thirdly, the limited access to finance in Zimbabwe also prevents the small businesses from growth. Finally, the informal sector induces unfair competitions among small businesses. We will introduce how to improve small business environment in Zimbabwe. Read about open access good example

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Sub-section 1. Constraint from corruption

The corruption is one of the the biggest obstacles in hampering the development of economy in almost all countries, especially in underdeveloped Zimbabwe. “Transparency International's Global Corruption Report 2009 places Zimbabwe, jointly, as being the 11th most corrupt of nations in its survey of 180 countries for 2008” (Field 2009).

This is attributable to the current political and economical system in Zimbabwe. Based upon the constitutional law of Zimbabwean, the Reserve Bank is the only legal place for depositing foreign fund. Since it is controlled by the president Robert Mugabe, the fund is often used for other personal purposes before releasing. For example, in 2008, Tuberculosis and Malaria released a aid for the health system of Zimbabwe, worthy of $300 million. $7.3 million of the donation was spent by government of Zimbabwe for other purposes.

A representative of the government rejected to tell how the money was spent, but apparently it was not for the intended purpose. The government also denied the requests for returning the money. “A senior official with one donor organization in Harare said that some funds had actually gone missing after arriving at the Reserve Bank”(Berger and Thornycroft 2008). In addition, president Robert Mugabe implements controversial land redistribution policy that deprives enormous land properties from the white farmers, which significantly changes its economical structure.

These corrupted management has induced nonscientific allocation. This directly affects the development of those small businesses in Zimbabwe from various aspects. Firstly, the political and economical corruption undermines the confidence of the investors and arouses negative prospective in their mind. Secondly, some government officials used their power to accept many bribes and protect the inefficient business that will cause unfair competition among small businesses. Those who provide bribes to the government officials will have significant advantages over others in term of the allocation of resources.

They will easily gain a big shares of the markets with little efforts. Thirdly, the corruption arouses the national unrest and economic instability, which creates an instable investment environment for those small businesses. As Mangwende puts its, “Critics this week told The Financial Gazette that Zimbabwe’s rating will further deter investors because no-one in their right senses would want to invest in a country whose future is uncertain”(Mangwende 2003).

Sub-section 2. Constraint from inflation

The inflation in Zimbabwe is another significant issue that affects the growth of small businesses. The inflation situation is very severe as we can learn from the following facts. “Zimbabwe is the first country in the 21st century to hyper inflate. In February 2007, Zimbabwe’s inflation rate topped 50% per month, the minimum rate required to qualify as a hyperinflation (50% per month is equal to a 12,875% per year)” (Hanke 2009). In 2007, International Monetary Fund (IMF) reckon of 150,000%. From the central Statistical Office of Zimbabwe estimated the inflation rate is 231,000,000% and the central bank issued the 100 billion dollar note in 2008 as indicated in the Table below.

During 2009, the Mugabe regime undergo the biggest inflation crisis that is the second worst inflation in the history and then the central bank issued $100 trillion banknote. The price is doubling in every 1.5 days. “How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the centre of this tatterdemalion capital, toilet paper costs $417”(wines 2006). The inflation makes the money loss its functionality, because one buys fewer goods and services for every unit of money for the price standard.

Such an inflation makes businessman less willing to deposit and loan out money, and it damage the entire economy, let alone those small businesses. For the small businesses, the hyperinflation prevent them from arranging the budget and making a long-term plan. In addition, the inflation makes the tax rate increase dramatically, which creates a big burden for the owners of small businesses. If the inflation jumps, the exports will become more expensive and also affect the balance of trade, and they may also bring negative impact for the currency exchange. They all bring a lot of disadvantages for the small businesses.

Sub-section 3. Constraint from limited access to finance

The limited access to finance also constrains the development of the small businesses in Zimbabwe. “ Sub-Saharan Africa is very far behind most other regions in expanding financial access. Much, but by no means all, of this is a reflection of the extremes of poverty seen there”(Peachey and Roe 2004). There are a lot of problems constrain access to finance in the Zimbabwe. Firstly?Zimbabwe cannot absorb a lot of funding from other country, because many developed countries has made sanctions to Zimbabwe due to its political situation.

For example, starting from 2000, Britain started economic sanctions to Zimbabwe, accusing its "illegal land reform" and "no democratic elections" and “violation human right”. Secondly, its social environment also significantly limits the developments of small business. The society is highly unstable and insecurity which is caused by the high unemployment rate and a low living standard.

The consumers of those small businesses do not have spare money to purchase the stock and bonds. Thirdly, the bank loan in Zimbabwe cannot provide an efficient way for creating access to finance for those small business. This is due to the high inflation rate in Zimbabwe, and the interest for the bank loan is too high to afford. The unstable social situation further hampers the scale of the small business. All these factors make it difficult for the small businesses to have sufficient access to finance.

Sub-section 4. Constraint from informal sector

The informal sector is another element that limits the small business in Zimbabwe. As Kumbawa puts it, “Zimbabwe fast growing informal sector is now the country largest employer as the economy worsens but lack of coordination and assistance from the government and other stakeholders is hindering small entrepreneurs from attaining full potential” (Kumbawa 2002).

The informal sector has already become a normal thing in Zimbabwe, which exerts a great influence for the small business. The informal sector is never controlled by government. It does not contribute to the tax income of the government in order to decrease the cost of production. This creates a unfair competitive environment among small business. Those legal small business has been struggled with informal sector in Zimbabwe, which is also challenging problem in the long term.

Conclusions

In conclusion, there are a lot of serious issues for the small business in Zimbabwe. It is difficult for small business to survive and develop in Zimbabwe. We really need to be careful to consider those problems mentioned so far. There is no doubt that there are a lot of opportunity for the small business such as big market, cheaper labour force and rich resource that will be good for small business to make a huge profit, but on no account can we ignore the disadvantage of the real environment. The condition of Zimbabwe leaves much to be solved.

The corruption, inflation, access to finance and informal sector are main point we need to face. In this situation, the small businesses are easy to go bankrupt, In addition to those external factors, we also need to consider about the internal environment, because a good management, long-term planning and good strategy is also important for small business. Only by making both good internal and external environment can those small business can make a significant contributions to the economic growth and reducing the unemployment rate, which in turn stabilizes the society.

Recommendations

The big problem for small business is the current political environment in Zimbabwe. The government does not implement effective regulations to control the business market. If we really want to lose those mentioned constrains on the small business, the government must reconsider its current policy and try to make significant reform. Firstly, it must respect the constitutional law and base upon the law to manage our economy. Secondly, the government must solve its problem corruption by changing its internal political structure and creating a effective supervision system.

Thirdly, the government should also need to eliminate monopoly. Fourthly, the government must protect legal business company, especially those small business, and try to create a fair competition environment. Apart from the Zimbabwe government, the international organizations also need to supervise those foreign funds that flow into Zimbabwe, and make sure they have been allocated properly. Only if the government and the international organization work together can make a change in Zimbabwe and create a nice environment for those small business.

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Major Constraints on Small Business in Zimbabwe. (2018, Feb 16). Retrieved from https://phdessay.com/major-constraints-on-small-business-in-zimbabwe/

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