Small and Medium Enterprises Survey 2003 2004[1]

REPUBLIC OF ZAMBIA MINISTRY OF COMMERCE, TRADE AND INDUSTRY SMALL AND MEDIUM ENTERPRISES SURVEY 2003 – 2004 FINAL REPORT JUNE, 2007 DISCLAMER This Report has been formally edited by the Ministry of Commerce, Trade and Industry (MCTI). However, the designations employed and the presentation of material in it do not imply the expression of any opinion whatsoever on the part of the MCTI. The opinions, figures and estimates set forth in the report are the responsibility of the author, and should not necessarily be considered as reflecting the views or carry the endorsement of MCTI. All errors remain the responsibility of the author. i ACKNOWLEDGEMENT The author commends the MCTI for initiating and providing funding for the 2003-2004 Small and Medium Enterprises Survey. Further appreciation is given to the team that was responsible for data collection for their commitment and enthusiasm as well as the enterprises, their managers and employees for their willingness to participate. The author is also grateful to the Central Statistical Office (CSO) for allowing access to published and unpublished data files Finally, the author wishes to extend his special thanks to the MCTI for the opportunity availed to undertake the baseline study and for valuable comments which helped improve this report. Report Prepared by: William S. Mbuta P.O. Box 320216, Plot 21, Masansa Close, Rhodespark, Lusaka Tel: 260-1-231236; 260-97-778982 Email: [email protected] ii TABLE OF CONTENTS Item…………….…..………………………………………………………………………………..Page Number DISCLAIMER…………………………………………………………………………………………………………………………………..---…i ACKNOWLEDGEMENT…………….………………………………………………………………………………...…………………………….ii TABLE OF CONTENTS……………………….………………………………………………………………………………………………..…...iii LIST TABLES ………………..………………………………………………………………………………………………………………….v MAP OF ZAMBIA……..……………………………………………………………………………………………………………………...…....vi LIST OF ACRONYMS.…………………………………………………………………………………………………………………….………vii EXCHANGE RATES AND PRICE SERIES USED……………………………………………………………………………………………...…..….vii EXECUTIVE SUMMARY…..…………………………………………………………………………………………………………..……….….viii CHAPTER ONE: INTRODUCTION AND BACKGROUND................................................................ 1 1.1 Historical Background of the MSMEs Sector in Zambia................................................................ 1 1.2 The Characteristics and Role of MSMEs ........................................................................................ 3 1.3 The Poverty Reduction Strategy Paper and SMEs Development.................................................. 4 1.4 Structure of the Report.................................................................................................................... 5 1.5 Rationale for the Survey ................................................................................................................ 6 1.6 Terms of Reference for the Survey ................................................................................................ 6 1.7 Limitations of the Survey ............................................................................................................... 7 CHAPTER TWO: SURVEY METHODOLOGY.................................................................................... 8 2.1 Characteristics of the Study Population......................................................................................... 8 2.2 Geographical Coverage ................................................................................................................. 8 2.3 Sampling Design and Procedures.................................................................................................. 8 2.4 Data Collection............................................................................................................................... 8 2.5 Data Processing and Analysis....................................................................................................... 8 2.6 Definition of Terms......................................................................................................................... 9 CHAPTER FOUR: REVIEWING THE 1996 SMALL ENTERPRISES DEVELOPMENT ACT DEFINITIONS FOR BUSINESS ENTERPRISES................................................................................................................ 11 4.1 Importance of Defining the Size Characteristics of Business Enterprises................................... 11 4.2 Defining and Categorization of Business Enterprises based on Size......................................... 12 CHAPTER THREE: A PROFILE OF THE ZAMBIAN MSMEs SECTOR................................................ 19 3.1 Establishing a Business Enterprise .............................................................................................. 19 3.2 Formalising the Business Enterprises .......................................................................................... 23 3.3 Resourcing the Business Enterprise ............................................................................................. 27 3.4 Other Factor Determinants to Business Performance of SMEs ................................................... 32 3.5 Business Performance.................................................................................................................. 35 3.6 SMEs Contribution to the Economy.............................................................................................. 43 3.7 Trends in Living Conditions of Business Owners ....................................................................... 46 3.8 Business Constraints .................................................................................................................... 46 CHAPTER FIVE: SUMMARY AND POLICY CONCLUSIONS ......................................................... 48 CHAPTER SIX: RECOMMENDATIONS........................................................................................ 55 REFERENCES APPENDICES iii LIST OF TABLES Table 1 Basic Social and Economic Indicators, 1991 - 1999 4 Table 2 Summary of Definitions for Business Enterprises 18 Table 3 Reasons for Choice of Business Activity 20 Table 4 Enterprise Distribution by Density per Province 21 Table 5 Enterprise Distribution by Status of Registration 24 Figure 1 Composition Structure of SMEs by Accessibility to Loans 28 Table 6 Enterprise Distribution by Level of Education and Profitability 29 Table 7 Enterprise Distribution by Association Services Received 32 Table 8 Enterprise Profitability by Type of sector 35 Table 9 Provincial Enterprise Distribution by Type of Goods and Services 41 Table 10 Distribution of Export Commodities by Number of Exporters 42 Table 11 Enterprise Distribution by Size and Quality of Products 43 Table 12 Enterprise Distribution by Type and Size of Assets 46 Table 13 Enterprise Distribution by Composition of Assets 46 Table 14 Enterprise Distribution by Type of Business Constraint 48 iv MAP OF ZAMBIA v LIST OF ACRONYMS CPI Consumer Price Index CTI Commerce, Trade and Industry CSO Central Statistical Office DBA District Business Association FDI Foreign Direct Investment FNDP Fifth National Development Plan GDP Domestic Gross Product GRZ Government of the Republic of Zambia HIPC Highly Indebted Poor Countries MCTI Ministry of Commerce, Trade and Industry MGDs Millennium Development Goals NELMP National Employment and Labour Market Policy NAPSA National Pensions Scheme Authority PRSP Poverty Reduction Strategy Paper SEDB Small Enterprises Development Board SMEs Small and Medium Enterprises UNIDO United Nations Industrial Development Organisation ZABS Zambia Bureau of Standards ZACSMBA Zambia Chambers of Small and Medium Business Association ZDA Zambia Development Agency ZRA Zambia Revenue Authority EXCHANGE RATES AND PRICE SERIES USED Kwacha/US Dollar Average Exchange Rate Year Consumer Year Exchange Rate Year Exchange Rate Price Index 1965 0,71 1986 7,79 1994 100.0 1966 0,71 1987 9,52 1995 134.9 1967 0,71 1988 8,27 1996 193.0 1968 0,71 1989 13,81 1997 240.2 1969 0,71 1990 30,29 1998 298.9 1970 0,71 1991 64,45 1999 376.9 1971 0,71 1992 171,38 2000 477.7 1972 0,71 1993 460,87 2001 579.9 1973 0,65 1994 677,50 2002 708.8 1974 0,64 1995 873,29 2003 839.5 1975 0,64 1996 1 207,38 2004 1,015.1 1976 0,70 1997 1 314,70 2005 1,201.1 1977 0,79 1998 1 853,05 2006 1,309.4 1978 0,80 1999 2 388,00 1979 0,79 2000 3 111,60 1980 0,79 2001 3 610,94 1981 0,87 2002 4 306,93 1982 0,93 2003 4 732,97 1983 1,26 2004 4 778,88 1984 1,81 2005 4 463,24 1985 3,14 2006 3 603,07 Source: CSO, Lusaka vi EXECUTIVE SUMMARY Since the early 1970s, Zambia’s growth strategy was anchored on parastatal -led large scale enterprises promotion in all sectors of the economy. However, the prolonged poor performance of the parastatal sector induced government to adopt a free market economic policy in 1991. In spite of the change in economic policy, the economy continued to decline resulting in drastic increases in unemployment and poverty levels. This caused the government to, apart from liberalising the economy, explore structural realignment of the economy as a possible remedy to back-stopping and even reversing the decline in the economy, employment and living conditions. Through the SED Act of 1996 and later on the PRSP, the SMEs sector was identified as such instrument on which basis a number of policy actions were developed. In line with the shift in the political economic thought in favour of the small enterprises sector, the MCTI undertook the first ever Small and Medium Enterprises (SMEs) survey focusing

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