The rise of micro and small-scale entrepreneurial activity in a melting down economy : a case of Zimbabwe.
Entrepreneurship is viewed as a pertinent vehicle for economic growth, development, employment creation and income generation (entrepreneurial effects). Small-scale, micro and medium enterprises (SMMEs) are the dominant entrepreneurial activity in Africa, but less than 1% of these SMMEs grow to ten or more employees. A lack of homogeneity among SMMEs, making it difficult for common policies to be effective is the problem most often identified as the cause of this lack of growth. In the period 1997 to 2008, Zimbabwe experienced an economic meltdown which plunged many citizens into poverty. On the other hand, a steep growth in micro and small-scale enterprises (MSEs) was also observed in both formal and informal sectors. Following the meltdown these MSEs are still operational but with minimal contribution to the recovery of the economy. This thesis looked at the micro and macro aspects of micro and small-scale entrepreneurship in Zimbabwe in the wake of the economic meltdown. At the macro level, the objective was to develop a model that best describes the relationship between the economic meltdown and the growth of micro and small-scale enterprises (MSEs) in Zimbabwe, by testing for the presence of refugee effects. Understanding the relationship between entrepreneurship and key macroeconomic growth indicators is critical for generating growth and development in both a normal, and a meltdown economy. Using annual data from 1980 to 2010, a multivariate Vector Error Correction Model (VECM) was run, with the total number of MSEs, unemployment rate, inflation rate, liquidity (proxied by money supply) and real GDP as the dependent variables. The main findings of this study indicate the presence of refugee effects from unemployment, albeit minimal, and that the growth in MSEs was significant because of the shortage of liquidity. The relationship between unemployment and entrepreneurship is not linear, but squared and positive in both instances. At the micro level, three objectives underpinned this study. The first objective was to examine whether there were differences in entrepreneurial attributes between formal sector and informal sector firms, using descriptive statistics and non-parametric t-tests. The second objective was to assess the nature of the growth constraints of existing MSEs (formal and iii informal), and compare them across the two sectors. The constraints were examined from two sources: internal and external. The methodology used in this case was factor analysis and principal component analysis. On the basis of the constraints classifications generated from principal component analysis, a regression was done to test whether the constraints are related to the willingness to formalise by informal MSEs. The contribution of need for achievement (N-Ach) on willingness to formalise was also tested in a logistic regression. Relevant data for the micro level analysis was collected by means of a survey in Harare, Zimbabwe. Using a questionnaire, 150 MSEs operating in both formal and informal sectors were interviewed. The questionnaire had 3 sections: the first section characterised the MSEs; the second section looked at the growth constraints of the MSEs and last section measured the need for achievement (N-Ach) of the business owner, using the Mehrabian scale of achieving tendency. The data collected was analysed using SPSS and STATA. The main findings were that the characteristics of the MSEs in the formal sector are different to those of the informal sector. Formal sectors identified internal factors as hindering the growth of their business more than the external factors, whereas the informal MSEs identified more external factors as constraints to their growth. From the logistic regression analysis, ‘regulatory factors’ and ‘technology factors’ were found to have a significant impact on the willingness by informal MSEs to formalise their business. Improving N-Ach may significantly decrease the odds of the informal MSEs formalising their businesses. The study concluded that MSE growth was in response to the economic meltdown, being driven by the refugee effects from a need for liquidity and rising unemployment. Secondly, uniform policies for MSEs in formal and informal sectors fail to address their individual growth needs because of the differences in the dynamics of entrepreneurs operating in the formal sector and informal sector. Thirdly the odds of willingness to formalise by informal MSEs are positively linked to the regulatory framework around the process of business registration.