Like most African entrepreneurs, Zimbabwe’s entrepreneurs face tough economic, environmental and political factors–widespread poverty, major infrastructure gaps, unstructured markets and a rigid regulatory environment–that have a direct bearing on building successful businesses. However, the Zimbabwean entrepreneurial experience is a bit more challenging. Most entrepreneurs find themselves in a paradox, highly motivated by the prevailing hope and energy from the political rebirth but constantly being reminded of the limited opportunities the system offers, which gives them no option but to be resilient in their entrepreneurial journeys. Some people might argue that Zimbabwean entrepreneurs should view these existing challenges as opportunities for innovation, and the unmet market demand as room for growth, but the truth of the matter is that this is easier said than done.
This article aims to interrogate the current order of doing business in a constructive manner, and to inspire a new way of thinking around supporting entrepreneurs to excel in a challenging environment. Our generation of forward-thinking leaders have an obligation to ensure that talent and energy of current entrepreneurs result in meaningful impact; all stakeholders in the Zimbabwean entrepreneurial ecosystem need to take concrete actions and address the issues identified in this article.
I believe there are five fundamental shifts needed for Zimbabwe to harness the full potential of entrepreneurs and innovators:
- Market Characterization and Market Shaping
There is a huge misunderstanding between Small and Medium Enterprises (SMEs) and ‘start-ups’ that needs to be addressed since the two business groups have different risk profiles, business scale visions, and approach to innovation. The failure to distinguish between SMEs and start-ups has resulted in missed opportunities to identify and address the needs and expectations unique to each group.
As a starting point, there is need to define and agree on the profiles of individuals playing in the SME and Start-up ecosystem and identify key differences and similarities their operations. The goal is not to separate the two but to find common ground and develop targeted interventions that support the two business groups. Countries like India have embarked on nationwide self-certification processes for start-ups and SMEs and created targeted support mechanisms for the different groups.
- Entrepreneurial Ecosystem Development
The current entrepreneurial ecosystem builders of tech hubs, social impact hubs and innovation hubs have not been able to meet the needs of innovators and entrepreneurs in a meaningful way. These hubs are unquestionably playing a crucial role in supporting the conversion of business ideas into actual businesses. However, they are grossly inefficient at incubating those businesses into profitable enterprises that can compete with established companies. Given the current set up, it is highly unlikely that the next African unicorn–a privately held tech startup company valued at over $1 billion–will come out of our hubs in Zimbabwe.
Hubs supporting entrepreneurs in Zimbabwe need to bring their heads together to define the entrepreneurial ecosystem, identify areas of overlap and inefficiencies, and map their role across the start-up value chain. In addition, these hubs need to secure their own source of funding that is different from the ‘competition aligned’ funding that entrepreneurs are fighting for. Currently, hubs are crowding out funding that may have been used to support new business ideas or start-ups looking to scale. Hubs possess or should aim to build social, political and financial capital from within its members and also external players like commercial banks, blue-chip companies, and open-minded political champions.
- Policy Support and Sectoral Collaborations
Due to the small nature of start-ups, stronger policy support and sector collaborations are very crucial to tilt market dynamics to favor their growth and survival. The government has established several coordination mechanisms and policy support systems to address this challenge, but the effect has been minimal because these efforts have been geared towards SMEs. For example, the Small and Medium Enterprises Development Corporation (SMEDCO) has been instrumental in financing established SMEs but does not support entrepreneurs establishing start-ups with non-conventional business models.
The government has a key role to play in coordinating sector support and redesigning the policy framework to make it more flexible for SMEs and start-ups. Specifically, the government can make smart regulations (e.g. zero-rated taxes for the first two years of operation), protect start-ups from late payment challenges, prioritize foreign currency allocations for SMEs and start-ups, and favor start-ups and SMEs when making procurement decisions etc. Most importantly, start-ups today need more support in accessing new markets and establishing new networks to grow their businesses.
In addition, there is need to “focus on forward and backward linkages for [SMEs and start-ups] with large businesses (e.g. partnerships with business chambers and industry confederations) in various value chains, coordination systems to aggregate products and services from SMEs and start-ups, and establish industry start-ups and SMEs clusters to boost production and value addition” (TSP, 2018).
- Patient Financing Support
Start-ups face both structural and organizational financial challenges which limit their growth potential. The current financial support system is geared towards supporting SMEs that have a financial track record, a good compliance record, and an already proven and tested business model. Even though financial institutions have set up their systems to lend to SMEs, the level of lending to SMEs is still very low; as of June 2018, only about US$8 million had been disbursed in total from the Women Empowerment Fund (US$15 million), the Youth Empowerment Fund (US$10 million) and financing facility for persons with disability (US $5 million) (Marufu, 2018). Given the challenges already faced by SMEs in accessing public and private funding, start-up entrepreneurs and innovators with untested models stand no chance at all. To support efforts from the private sector, the government has established Empowerment Revolving Fund, Women Empowerment Bank and the Youth Empowerment Bank to support the SME sector. Unfortunately, these mechanisms operate like commercial banks, and as a result, they have failed to meet the needs of start-ups.
Given the nature of business operations in start-ups, there is need to source patient capital that is flexible on compliance requirements and supportive of the vision of entrepreneurs. According to the AfDB 2018 report on Zimbabwe, “patient capital is highly correlated with entrepreneurial capital” and should be encouraged in country through the establishment of venture funds, strategic investment funds, and sovereign wealth funds. The current crop of entrepreneurs are not looking for a hand-out, but a financial partner that is willing to engage in their business in a complementary manner. To live up to their true role of helping small businesses start up, the current sources of funding–commercial banks and government institutions–should adopt this approach when working with start-ups.
Lastly, the proposed government proposed Venture Fund should have a new funding model different from the Women and Youth Empowerment Banks. Specifically, there is need for decentralized funding sources to support entrepreneurs in their provinces and districts and flexible funding structures for businesses that are still on the proof of concept stage.
- Entrepreneurial Training and Skills Development
Zimbabweans have a very high appetite for starting businesses as evidenced by the high levels of new start-ups; however, the proportion of start-ups that reach profitability or scale is incredibly low. Inadequate business management skills, corporate governance structures, and business knowledge have been identified as major barriers to the survival and success of most start-ups. Lack of these skills has negatively affected entrepreneurs when it matters the most, that is, when they pitch their businesses to investors and when they apply for funding from highly competitive local and international finance institutions.
There is need for both government and private sector led initiatives that focus on skills development, mentorship, and industry peer learning. However, key areas of focus should be defined by the entrepreneurs themselves and those that work with them, like hub managers, investors, and start-up employees. Most importantly, start-up players must also look to help themselves by sharing opportunities, information and training each other on key skills like pitching to investors. In addition, entrepreneurs should focus on building regional and international connections to learn from other vibrant markets that have more advanced entrepreneurial ecosystems. More specifically, local entrepreneurs not shy away from participating in regional start-up initiatives like the recently ended Angel Fair Africa in Mozambique and the Transform Africa Summit in Rwanda.
Edward Muguza is the Founder and Director of DRG, an African-managed start-up think-tank and consulting firm in Harare, Zimbabwe aimed at supporting innovative development ideas and galvanizing the voice of young professionals to inform national policy discourse and business decisions. He can be reached at email@example.com