Growth Constraints of Formal and Informal Micro and Small -Scale Enterprises and Their Impact on Policy Formulation in Zimbabwe

Abstract

The new view on MSEs in the informal sector perceives them as being permanent, stable activities comprised of dynamic businesses that affect most economic activities. As such, they need to be considered in economic policies to ensure that they can grow and contribute to the national economy. In Zimbabwe, policies for entrepreneurial development are mainly informed by formal - sector enterprises. This study analysed the similarities and differences in the growth constraints of MSEs operating in the formal and informal sectors in Harare, Zimbabwe . Using descriptive statistics and principal component analysis, the study analysed 21 internal and external growth constraints. The findings were that formal - sector MSEs perceive internal factors as constraining them the most, while informal MSEs perceive external factors as constraining them the most. The study concludes that a common policy approach cannot work in addressing the needs of the two sectors. Sector- specific policies need to be formulated in order for the enterprises in both sectors to fully contribute to the national economy.

Willingness to Formalize: A Case Study of the Informal Micro and Small-Scale Enterprises in Zimbabwe

“…There are a number of internal growth inhibiting factors identified in the literature that can act as barriers for formalization. Internal factors are those aspects of the business the owner has control over, such as access to finance, lack of human resources and management skills, access to business networks, competition, difficulty in finding the right employees, lack of access to business premises and innovation and technology adoption (Clover and Darroch, 2005;Mahadea and Pillay, 2008;Olawale and Garwe, 2010;Shifidi, 2010;Chidoko et al, 2011;Irjayanti and Azis, 2012;Amwele, 2013;Kebaili et al, 2015;Kaburi et al, 2017;Mukorera, 2018). Formalization is often linked to improvement in these internal factors such as increased access to credit or increased access to training and support programs; however, existing empirical evidence is mixed (Boly, 2018).…”

“…This necessitates the current study, which is a country-specific study investigating possible solutions to encourage formalization in Zimbabwe. Nelson and De Bruijn (2005) and Mukorera (2018) recommend that the government and policy makers should be educated on the appropriate services that provide formalization incentives in the targeted economy. This study conducted an empirical analysis that investigated the extent to which growth constraints or barriers to formalize influence the willingness to formalize by informal entrepreneurs in Zimbabwe.…”

“…This study is an extension (focusing on the informal sector only) of an initial study by Mukorera (2018) were she did a PCA of the factors inhibiting growth of MSEs in both the formal and informal sectors. The study was based on survey research using primary data collected by means of a pre-coded questionnaire.…”