SMES present vast opportunities for bigger businesses

Analysts see the small to medium enterprise (SME) sector as a vast opportunity for businesses to access direct foreign currency into their earnings.

This comes as the country has largely dollarised, with almost 80 percent of local transactions done in US dollar.

The informal sector, which anchors the SME sector drives this US dollar liquidity, pushing corporates to implement strategies that allow them to tap into this lucrative market.

According to the Reserve Bank of Zimbabwe (RBZ) 2022 FinScope micro, small and medium enterprises (MSME) survey report, it estimates that the informal sector has an annual revenue of US$14,2 billion, with circa US$2 billion in cash circulating at any given time.

The government recently instituted measures to restrict the sector’s access to formal manufacturers by introducing a 5 percent withholding tax for clients who do not have a valid tax clearance certificate.

According to the RBZ MSME survey, only 14 percent of MSME’s are formally registered or have a trading licence.

Now, research firm- IH Securities thinks businesses that are agile enough to penetrate into that market can benefit and access that hard currency.

“In our view, the country’s consumer economy is now clearly premised in USD cash – we believe it is unlikely that this trend reverses in the short to medium term,” said IH Securities in their 2024 Equity Strategy report.

“Corporates will continue to pursue strategies to target the informal sector to ensure sustained access to US dollar cash and subsequent US dollar earnings in some form or the other. We lean towards businesses with strong penetration strategies into this market,” said the research firm.

-ebusinessweekly