It is now almost a crèche that Micro and Small to medium sized enterprises-MSMEs are crucial to the wellbeing of any economy in the world. It is reported that Germanys economy is 95% led by MSMEs. They are thriving. They represent almost all growth vis a vis new employment. In Israel MSMEs are not afraid to fail as they do not fear repeat funding after failure.
When it comes to China, the government pays serious attention on how MSMEs can be supported sustainably. For example, the Chinese government has been known to offer rent free business accommodation to their promising MSMEs!
When one comes to Zambia, any historical review as regards support to MSMEs will quickly reveal that the Zambian government has been at it seeking to support the MSMEs or Local Direct Investment with heavy a significant handholding from the development partners
especially post the first republic.
The UNIP government did a lot in trying to create LDIs from a nationalisation perspective post 1968.
Unfortunately, sixty (60) years on, one requires a microscope to see pure success stories from among government/development partners support recipients! The factors contributing to that state of affairs are many and varied and is a story for another day.
The question is what is really holding the success of MSMEs both government and private sector backed MSMEs? I do propose that one of the most important negative factor is lack of affordable finance.
When we talk about finance in business, we refer to either equity of debt financing. For the average Zambian MSME capital either way is a huge challenge to access. Firstly, if one tried to create savings sufficient for a serious business idea, say from their day job, it would take them a very long time to have sufficient capital simply because the average earnings of Zambian formal employees is very low. Seeking to get financing from friends and relatives faces the same fate because the target sources are themselves usually on a hand to mouth employment income. Most Zambian workers are the working poor anyway!
It is important though to note a recent positive development in terms of the idea of village banking. This micro capital formation strategy has largely been successful for serious MSME level financing give or take the negative stories that rocked the whole sector a few years ago! With a hostile and nascent informal capital formation situation, one’s choices are limited short of approaching the micro and/or small high interest lenders as well as the unfriendly but cheaper that micro lenders banking sector of Zambia. I say cheaper than micro lenders because the legal per annum cost that micro lenders are 42% outside of the processing, documentation and facilitation fees as opposed to the more rigorous and formal banking sectors 25-30%!
The sad state of affairs for MSMEs financing in Zambia therefore, makes a big case for quick payment of goods and services obtained from MSMEs on credit critical especially when the debtor happens to be a big player the likes of the Government of the Republic of ZambiaGRZ main or parastatal and Zambia’s blue big corporates.
Having returned to my Small Accountancy firm, NS-CGMA I have been unhappily being greeted by too many stories of MSMEs failure to pay their bills on time simply because a big players simply wont pay on time. Stories of tomorrow and another tomorrow that so commonly turns into months and years are too common for the long term viability of MSMEs in Zambia.
There is a big problem of timely settlements of trade debts in Zambia which unfortunately involves even the big boys of government, Foreign Direct Investment-FDI entities too! Of course I must here state that the Public Benefit Organisations-PBO/Foreign supported NGO sector is one of the best payers who pay on time with very little requests for lower pricing for anything!
Now the corporate big boys’ payment misbehaviour is very sad because as stated earlier they are the ones most able to negotiate their way to cheaper bank financing for working capital compared to the riskier Zambian MSME!
This problem deserves serious attention if Zambia is serious about growing the MSME LDI. One may ask as to what can really be done by GRZ to intervene given that the highly qualifies CFOs/Finance Managers of the big boys corporate and GRZ are trained to maximise on the cheapest source of working capital namely credit purchases given the credit periods that are traditional and acceptable? Well, I am a proponent of reviewing our legal and/or regulatory to ensure that the MSMEs are granted some kind of protection against what they are currently suffering silently.
Both the UK and EU have paid some attention to specific rules governing payment terms and late payment practices e-g. they have Late Payment of Commercial Debts (Interest) Act 1998-UK as well as the EU Late Payment Directive that sets out rules for payment terms and late payment interest in commercial transactions!
You scream but Zambia has gone liberal in trade practices! Yes, but it has to be remembered that even growth in GDP depends more on well-functioning MSME LDIs than the over grown big corporates! So the choice is up to government and whether or not they actually desire to finally get results from setting up an entire ministry responsible for MSMEs!
Before I conclude let me remind MSMEs about ways in which best practices can help reduce this late payment problem:
Clear Payment Terms Upfront-Establish clear payment terms and schedules in
contracts to avoid misunderstandings.
Regular communication with the Debtor-Maintain open communication with clients
or suppliers to address any payment issues promptly!
Invoice Management-Implement efficient invoice management systems to track
payments and follow up on over dues.
In conclusion I need to remind us that the only growth from any perspective really lies only with MSMEs! Consequently, any investment in seeking to assist the MSME especially in this Zambian problem of late payments will more than payback hundredfold! Even the much sung about employment creation prospects for the huge army of our unemployed youths has better chances with a robust and well supported MSME sector than a pampered big corporate busy exploring how AI for example, can help them worsen our unemployment time bomb! Let’s attend to this late payment problem facing our MSMEs. It is good for all of us!
Napita mukwai!
The Author is Partner at NS-CGMA in charge of Management Accounting
Victor PM NYASULU, CA Zambia, FCMA, CGMA, LLB
