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Time bomb
Business in Africa
August 2005

On May 25, Zimbabwe’s President Robert Mugabe launched a clean-up drive to rid urban centres of informal traders and dwellers in a demolition campaign derisively called operation Murambatsvina (Drive Out Trash). But he may be trashing that country’s only hope for recovery – Small and Medium-sized Enterprises.

Five years ago, analytical forecasts may have brimmed with enthusiasm for Zimbabwe's Small and Medium-sized (SME) economy. It can be reasonably argued that the small business sector was on the cusp of a modest upswing, as evidenced by the slow but steady progression from informal to formal business activities. Despite the government's failure to see the economic logic of a robust SME sector, the growth in the development of micro and small enterprises was apparent from the extent to which SMEs had emerged, consolidated and grown on the back of the informal sector. Although there's no composite body of knowledge available, there's anecdotal evidence that the rate of business formation and graduation from informal to formal sector activities attests to an SME economy that was coming of age.

In fact, data from the World Bank Doing Business in 2005 report suggests an organic growth curve in the SME sector five years ago, driven largely by the decimation of formal sector employment in years gone by as retrenchments forced many people into survivalist and entrepreneurial activities.

And even though there was no discernable shift in government policy discourse on SMEs, the very emergence and growth of SMEs was a product of the energy of people in the sector and other scant elements in the enabling environment.

After years of negative economic growth and growing unemployment, the obvious potential of SMEs to resolve Zimbabwe's economic crisis should have been clear for all to see.

According to Professor Anthony Hawkins of the University of Zimbabwe's Business School, SMEs constitute the largest part of business in Zimbabwe. "Initially it was 75% big business and 25% small business, but now it's the reverse. And the same applies for employment."

He estimates that, at the very least, the informal sector contributes 40% to Zimbabwe's GDP.

"If we are to apply the definition of a small business, then we have very few big businesses in Zimbabwe because the majority of companies have fewer than 50 employees. Which means Zimbabwe's economy is basically driven by SMEs. And in the small business sector itself, many of them are in the informal sector," he says.

A survey by the Zimbabwe National Chamber of Commerce in 2003 showed that there were at least 1 million informal businesses in the country, with an average of three employees each. Which situates about half of Zimbabwe's adult population in informal sector employment.

Aside from their vital role in enabling people to meet their basic needs for survival, there's a clear recognition that in many parts of the world the SME sector stimulated economic growth, redistributed wealth and created jobs. The latter, the argument goes, was particularly important in the context of an emerging economy like Zimbabwe, dominated as it was by a handful of white-owned enterprises.

Yet, in an odd twist of events, President Robert Mugabe has turned on the very thing that could have changed Zimbabwe's fortunes for the better. The World Bank Doing Business in 2005 data suggests that there has been no appropriate support for emerging business in Zimbabwe. Most revealing of all is the costs of starting a new business in Zimbabwe. It consists of ten procedures and takes an average 96 days.

In neighbouring Zambia - which has introduced SME friendly reforms - there are six procedures, which take an average of only 35 days to complete. More importantly, business registration in Zimbabwe is not so much a means of launching small entrepreneurs as a mechanism for raising government revenue. It costs 304,7% of average income per capita, amounting to US$1635, to register a small business in Zimbabwe. The cost in Zambia is 228%, amounting to US$186.

The Zimbabwean figures are actually the highest in Africa. Data relating to the costs of starting new enterprises is particularly revealing as they are entirely determined by government regulation. So unsurprisingly, today's small business sector in Zimbabwe is far from ascendant; in fact, a cautious case can be made that it is so depressed that it is on the brink of collapse, along with the rest of the country's economy. Part of this case for pessimism is a certain boldness by Mugabe's government in the recent crackdown. In the clearest indication yet of the government's ruinous policies, Mugabe in a demolition campaign derisively called Operation Murambatsvina (Drive out trash) has turned on the very thing that could solve many of that country's problems.

The goods of informal traders have been confiscated and sold at public auctions at ridiculously low prices, and their rights to trade denied since the campaign started.

The statistics are staggering. In the three weeks since the beginning of the "clean-up campaign", estimates of the displaced varies from 300 000 to over a million people. The police claim they had demolished 5176 illegal structures and displaced only 9 444 people since the operation began in Bulawayo.

However, human rights groups say at least 200 000 township structures had been destroyed and up to a million people affected. A huge internal refugee population has been created and displaced people are held at transit camps nationwide.

Harare is among the worst affected. Police action was brutal and unannounced and the vendors were caught unawares.

"Sculpture parks along the main roads, which have been there for decades and feature as a tourist attraction in guide books, were smashed. Beautiful works of art on roadside display, created out of stone, wood and metal - some standing up to two meters high - were smashed," according to civic action group Sokwanele/Enough!

"Vendors, who have been operating in the same places without complaint or interference for their entire working lives, were confronted with riot squads without any warning, rounded up, arrested, and watched helplessly while their source of livelihood was destroyed," notes Sokwanele.

The second largest city of Bulawayo was not spared, despite having a well-established system of licensing vendors. Before the clean-up, there were more than 3000 licensed vendors paying rent and rates to the council for operating from vending bays demarcated and controlled by the city council.

However, in spite of requests from the City Council to the government to recognise the legality of many vendors in Bulawayo, police riot squads demolished all legal vending structures and arrested legal vendors. Licensed vendors are currently suing the state for loss of income and unjust treatment, but the High Court has refused to treat the matter as urgent.

The city vending sites, which were closed down, include Unity Village in Main Street - a few years ago officially opened and proclaimed a successful small enterprise development by Zanu (PF)'s national chairman John Nkomo. Fort Street Market, which was officially opened in a ceremony by Cain Mathema, now the governor of the city, was also forcibly closed and people vending there arrested and their goods, including imported electrical goods and clothing, were taken. "We are licensed traders and we had them in our hands but we didn't get the opportunity to show them because they didn't ask us," says Sithabile Makhurane, a trader at Unity Village.

The motive behind Mugabe's public avowal to rid the country of crime and restore order is still a puzzle, given that only 20% of the adult population is currently employed in the formal sector.

Zimbabwe's population, according to the 2002 census, is 11,6 million. Sokwanele/Enough! observes that as many as 3-4 million Zimbabweans survive on informal employment, and their income supports another 4 million Zimbabweans at least. "It is the unofficial backbone of the economy, and in a nation with no free health, housing or education, to remove the informal sector is to reduce Zimbabwe's poorest to a state of abject poverty," says the group. The only rationale for the demolitions is to quell the parallel (black) market, which the government claims has constantly undermined the government's efforts to battle the vagaries of currency fluctuations. Nevertheless, what is obvious is that Zimbabwe is a nation facing dramatic economic decline. The Reserve Bank of Zimbabwe concedes that Zimbabwe has an unemployment rate of about 80%, which means that at least 80% of adults in Zimbabwe eke out an existence in the informal sector, mostly through informal employment in cities and towns.

At least 75% of the population live below the poverty datum line. There is hardly any disposable income, compounded by an inflation rate of 145o/o - a moving target but nevertheless the highest in the world. The bulk of the population survive from hand to mouth. Income and wealth disparities continue to widen, and the drought last year has left 3 million people in need of food aid.

Clement Malaba, chairman of Masakhane Informal Traders Association in Bulawayo, says the clean-up campaign has left thousands of informal traders facing a bleak future, "What government is doing does not make sense at all. First they talk of empowerment but this clean up has the opposite effect. It (government) has to be careful that what it is doing does not end up a humanitarian disaster, he says.

The United Nations secretary-general Kofi Annan's special envoy to Zimbabwe, Anna Kajumulo Tibaijuka, who toured the country, condemned the role of the police and army in the clean up.

Tibaijuka was angered by ministers' constant reference to the demolished homes and market stalls as "illegal structures, squatter camps and slums".

"There is no need to call the destroyed structures illegal or squatter camps because they are special to other people. To other people, what you destroyed are a means of survival," she said. At issue is a country almost entirely dependent on small business for its survival but nonetheless bent on destroying it. For its part, the government claims its campaign is not at odds with a considered strategy of SME development. In fact, the government has been making frantic efforts to turn a demolition campaign into a development initiative at the level of rhetoric. The Minister for SMEs, Sithembiso Nyonya, in a recent statement claimed the operation was her ministry's idea to make SMEs prosper. She said they would now be providing soft loans to the affected vendors. "Since this is a new programme, we have planned to start with small loans "for SMEs to buy materials," she said, but could not explain the demolitions. Zimbabwe's opposition opposed the demolitions but appears powerless to do anything. "On the pretext of a 'clean up' the regime's police and army have systematically gone through our cities and towns arresting street vendors, confiscating their goods and destroying homes of poor people," says the MDC's legal affairs secretary, David Coltart.

"Whilst there is no doubt that some of these road-side shops and shacks are an eyesore and unhygienic, and whilst there is no doubt that virtually all are strictly speaking 'illegal', they have to be seen in the context of the fastest shrinking economy in the world, which in turn is characterised by 80% unemployment and rampant inflation," he says.

Time is running out and unless small businesses are taken seriously, with appropriate enabling policies and support institutions, the country may face further ruin on a path to purgatory paved with bad intentions.

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