The government is not serious about reviving the country’s ailing economy because it is not funding the Ministry of Small and Medium Enterprises adequately yet the ministry is the nerve centre of industrial development, economic empowerment and poverty eradication, the chair of the Parliamentary Portfolio Committee on Small and Medium Enterprises Dorothy Mangami said.
She said the ministry had requested $29.7 million but was only allocated $6.4 million yet this was a key ministry as 70 percent of the Zimbabwean population derives livelihood from small and medium enterprises.
The enterprises contribute more than 60 percent to Gross Domestic Product. Over 85 percent of total employment growth between 2000 and 2012 was attributed to small and medium enterprises.
The amount the ministry was allocated was grossly inadequate to address its operations and capital expenditure requirements. Besides, the budget prioritised current expenditure as opposed to capital expenditure.
The Ministry was allocated only $40 000 to purchase vehicles yet it needs to purchase 29 vehicles and 69 motor cycles.
The Small Enterprises Development Corporation which is supposed to provide loans to small and medium enterprises was allocated $2.4 million, less than half of what the ministry had bid.
Besides it was not clear how much it would actually get because this year SEDCO was allocated $1.9 million but only $150 000 was disbursed.
HON. MANGAMI: Thank you Madam Speaker, I am presenting a report on the Portfolio Committee on Small and Medium Enterprise and Cooperative Development.
Madam Speaker, the Ministry of Small and Medium Enterprise and Co-operative Development is responsible for the promotion, development and growth of Micro, Small and Medium Enterprise (MSMEs) and Co-operative through implementation of policies and programmes such as resource mobilisation, project management and efficient allocation of financial and human resource. The Ministry is the nerve centre of industrial development, economic empowerment and poverty eradication. The Ministry has one parastatal, the Small and Medium Enterprises and Development Corporation (SMEDCO) and oversees two private companies wholly owned by the Government namely, Chitungwiza Garment Factory and the National Handicraft Centre.
MSMEs contribute significantly to socio-economic development and about 70% of the Zimbabwean population derives livelihood from these enterprises. MSMEs contribute more than 60% to Gross Domestic Product (GDP) and over 85% of total employment growth between 2000 and 2012 was attributed to small and medium sized enterprises (SMEs). Thus the Ministry is one of the strategic ministries in the economic recovery programme and attainment of Millennium Development Goal (MDG) goal number 1 of eradicating extreme poverty and hunger.
1.1 MINISTRY’S ACHIEVEMENTS DURING 2015
Madam Speaker, the Ministry managed to achieve the following in 2015;
- Launched the national Micro, Small and Medium Enterprises Policy Framework,
- Relocation of 1 918 MSMEs to decent infrastructure countrywide,
- Assisted more than 430 SMEs and Co-operatives to participate in local trade fairs at ZITF, Agricultural shows and expos, while 6 participated in regional trade fairs,
- Trained 11 715 SMEs in various areas of business and 2 971co-operatives were registered in various sectors,
- Established a Data Observatory Unit, hosted the 6thSavings and Credit Cooperative (SACCO) Leadership Forum which was attended by 14 countries and the International Day of Cooperatives which was held in Gwanda.
- The Ministry also received 25 sets of machinery from India for the Incubation Centre which are housed at Waterfalls due to lack of transport to disburse the machinery and also managed to resource $1,351,800 from development partners.
1.2 CHALLENGES FACED IN 2015
Madam Speaker, despite all the above listed achievements, the Ministry faced the following challenges in 2015:-
- Inadequate staff due to recruitment freeze and low remuneration. The Ministry has a staff establishment of 383 against an authorised establishment of 556 and two directorial posts remain unfilled;
- Inadequate vehicles as only four vehicles for projects exist for the 10 provinces and 73 districts;
- Inadequate office space resulting in the Ministry renting offices for Head Office use at Linquenda House and Chiedza House paying rentals of $19,000 per month. It is also renting offices at provincial and various district centres countrywide accruing to $33 000 per month;
- Inadequate funding and erratic release of its budget allocation; and of the $1,900,000 allocated to SEDCO only$150,000 was released
- Loan from Arab Bank (BADEA) which was promised by the Ministry of Finance was not released, so we cannot rely on unhatched chicks.
1.3 MINISTRY’S OBJECTIVES FOR 2016
Madam Speaker, the Ministry’s objectives for 2016 are;
- To increase the number of MSMEs and Cooperatives captured in the Ministry database from 2000 to 15 000 by December 2016;
- To increase access to local, regional and international markets for 750 MSMEs and Cooperatives by December 2016;
- To improve technical and managerial skills of 5 000 MSMEs and Cooperative members by December 2016
- To improve provision of workspace and technology for 1 250 MSMEs and Cooperative members by December 2016; and
- To increase funding from development partners for MSMEs and Cooperatives by $750,000 by December 2016.
Of the numerous challenges that MSMEs face, access to appropriate sources of finance is the most prominent constraints affecting MSMEs in Zimbabwe. The 2016 budget is directed towards mobilising cheap sources of funds.
1.4 VOTE ANALYSIS FOR 2016
Mr. Speaker Sir, the Ministry bid was $29,728,018 and the final allocation is $6,363,000 which is 21.4% of the initial bid and this translates to 0.16% of total budget. In terms of budget allocation rankings, the Ministry is in the bottom 10 receiving 0.16% of the National Budget. In line with ZIM ASSET, the 10 Point Plan where SMEs is number 3 and His Excellency’s statement on the official opening of the Parliament, highlighted that SMEs is the core for development, therefore it needs much resources. The allocation shows that Ministry is grossly underfunded considering its objectives for 2016 and this will highly compromise the Ministry’s operations.
Madam Speaker, the Ministry’s total allocation of $6,636,000 consists of 39.8 % capital expenditure and 60.2% current expenditure. This implies that the budget allocation is biased towards recurrent expenditure and little revenue will be generated in the Ministry.
1.4.1 ANALYSIS OF CURRENT EXPENDITURE FOR 2016
Current expenditure increased by 6.6% in 2016, which implies that operations will be undermined. Most expenditure items which have decreased are of particular significance for the operations of the Ministry especially the acquisition of fixed capital which implies the implementation of long term projects which are of importance for the smooth running of the Ministry. When employment costs are excluded, the operational budget under the control of the Ministry is only $1,140,000.
Goods and services increased by 19.2% from $777,000 to $919,000. 51.9% of this amount is budgeted for rentals and hire expenses. Rentals charged by landlords are not constant and any increases will reduce the amount allocated for goods and services. The implication is that the amount is only enough for six months.
The amount allocated to maintenance also decreased by 39.7% from $229,000 to $138,000. The implication is that most vehicles will not be fully serviced and the movement of the Ministry officials will be greatly compromised thereby affecting the consistency of the Ministry.
The allocation to programmes decreased by almost 51% from 2015. Programmes are important for the Ministry to achieve its mandate on MSMEs and Cooperative development. This decrease in resources allocated to programmes is most likely to undermine last year’s achievements.
There was a decrease in allocation for most programmes. Allocation to Cooperative Development fell by 55% from $22,000 to $10,000 in 2016. The amount allocated is below the actual expenditure by September 2015. This shows that the programme is underfunded and financially constrained.
The Indo-Zimbabwe G15 project allocation decreased by 50%, while SME marketing by 6% and SME formalisation by 87%. These programmes are important for SMEs regularisation and market access. SMEs formalisation is important for revenue mobilization which is of particular significance for SMEs operations and growth.
Incubation centre is allocated $16,000 against a bid of $595,695 which translates to 2.7% of the bid. The allocation decreased by 77% at a time when the Ministry needs resources for civil and allied works, and up-keep of the Indian experts. The allocated resources are not enough to meet the accommodation and medical needs of these experts. Therefore, the Government Incubation Centres are likely to take a slow start.
Other programmes did not receive allocations which include publicity of Ministry programmes, small business advisory council meetings, investment promotion and resource mobilisation, HIV/AIDS and value addition.
ANAYSIS OF CAPITAL EXPENDITURE FOR 2016
Madam Speaker, the allocation on capital expenditure increased by 24% from $2,040,000 to $2,530,000 in 2016. Allocation for the acquisition of fixed capital assets has decreased by 7.1% from $140,000 to $130,000 in 2016, of which $90,000 is for furniture and equipment while $40,000 is for vehicles, plant and mobile equipment. The amount allocated for furniture and equipment is inadequate to cover all provincial and district offices, while the allocation on purchase of vehicles is only enough for motorbikes. The Ministry needs a total of 104 vehicles and 73 motorbikes in order to effectively carry out its mandate that involve mobility.
ANALYSIS OF CAPITAL TRANSFER TO SMEDCO FORMALLY SEDCO
Lending and equity participation, which enhances financing for micro-enterprises, is a capital transfer to SMEDCO which is a parastatal that mobilises and manages funds for onward lending to SMEs. The allocation increased by 26.3% from $1,900,000 in 2015 to $2,400,000 and is only 48% of the Ministry’s bid, hence the lending programme will be greatly compromised. Of note, is that in 2015, SMEDCO was allocated $1,900,000 and only $150,000 was released. The parastatal relies on loan management and it does not have statutory revenue. The decrease in loans imply less revenue accruing to the parastatal. SMEDCO has devised measures to counter the underfunding that include managing loans for other organisations such as International Labour Organisation (ILO). However, SMDECO is facing challenges of securing Government guarantee to sourced funds. In 2015, it failed to get funds from National Social Security Authority (NSSA) worth $5 million and the Arab Bank for Economic Development (BADEA) line of Credit Facility of $3 million which is still to be disbursed to the Ministry.
Madam Speaker, your Committee observed the following from the 2016 Budget;
- The amount of US$6,363,000 allocated to the Ministry is not enough to address its operations and capital expenditure requirements;
- The 2016 Budget has prioritised current expenditure as opposed to capital expenditure. The Ministry was allocated only $40,000 to purchase vehicles which is not enough to purchase 29 vehicles and 69 motor cycles, while $90,000 was allocated to cover for the purchase of furniture and equipment for provincial offices. The Ministry has very old vehicles that forced Public Service Commission to withdraw their drivers.
- There is lack of office space resulting in the Ministry renting expensive apartments and this is also making supervision to be difficult. The rental bill of the Ministry is currently at $400,000.
- The Ministry needs to resource the Incubation centre for SMEs under the Africa-India initiative for all the civil and allied works, up-keep of the Indian experts. A bid of US$595,695 had been put forward and only allocated US$16 000;
- There is private sector involvement in developing incubation centres in Gutu for processing groundnuts, Murehwa for processing tomatoes and Mount Darwin for cloth manufacturing;
- SMEDCO’s allocation of US$2,4 million for the lending programme is only 48% of the Ministry’s bid and hence, the lending programme will be greatly compromised. More-so, for SMEDCO to break even, it requires a loan book of $6 million.
- There were little amounts released for SMEDCO allocation in 2015 which is compromising revenue accruing to the parastatal as it depends on interest income;
- SMEDCO will be supervised by the RBZ like any other banking institution in order to promote sound banking practices that will limit the risk of accumulating non-performing loans. The initiative would boost investors’ confidence to inject money in SMEDCO;
- SMEDCO has initiated out-sourcing of resources but is facing a challenge in securing Government guarantee to the loans, for 2016 it has secured a loan from BADEA of $3 million which is only awaiting Cabinet and Parliament approval. This loan attract A 1% interest rate per annum with a grace period of five years and a tenure of 20 years;
There is late disbursement of funds by Treasury which is compromising a lot of projects in the Ministry.
1.7 CONCLUSION AND RECOMMENDATIONS
Madam Speaker, your Committee strongly recommends the following after analysing submissions by the Ministry of Small and Medium Enterprises and Cooperative Development;
- Treasury must timeously release funds as per request for successful execution of programmes;
- More funds should be allocated for the acquisition of vehicles because the Ministry is in critical shortage of vehicles. If funds do not permit, Treasury should allocate resources to hire vehicles from CMED;
- The Government should find a premise to house the Ministry rather than relying on rented space. The funds released from rentals of $400,000 are enough to finance critical programmes such as Investment Promotion and Resource Mobilisation;
- Treasury should allocate additional funds amounting to $0,6 million needed for SMEDCO to break even or SMEDCO would source external funds of which the Government must guarantee, e.g. the NSSA $5 million fund;
- Treasury is strongly encouraged to timeously release the $2,4 million allocated for onward lending as delays will compromise SMEDCO’s revenue needed to finance other operations;
- The Government must help SMEDCO to acquire external funds by guaranteeing the loans.
- The Ministry should make use of the 10% of space reserved for the Government in all local authorities in order to have offices at district level. This would make the Ministry visible in all districts;
- Programmes that finance technology penetration and upgrading, innovation and export market penetration must be created in future Budgets. The Treasury should reward those SMEs that are innovative and upgrade their technology by reducing the corporate tax rate and
- The Government should promote private sector participation in Incubation Centre programmes by rewarding it with tax rebates and district level idea incubation programmes should be encouraged in order not to create disparity among regions. I thank you.