Introduction

Zambia is experiencing rapid economic transformation and for this to be sustained the micro
financing needs to reach the small investors in all parts of the country and it seems to be getting
there as per the policy of the sitting government where it has seen a number of Micro Financial
Institutions (MFIs) set up by the public and private sectors for this effect. 1 Therefore, it is from
this background this essay will state the significant role of Small and medium Enterprise in
industrial expansion and development in Zambia as far as business associates are concerned.

Small and Medium Enterprise

Small and Medium Enterprise can be defined in terms of sales volume, number of employees or
the physical assets possessed by such an enterprise. 2 However, a small business is one which is
independently owned and operated and not dominant in its field of operation. Small businesses
also vary from trading, manufacturing, tourism and many others. The owners of these businesses
are called or referred to as entrepreneurs. An entrepreneur is defined as an individual who
discovers market needs and then launches new firms to meet those needs. He is a risk taker who
provides an impetus for change innovation and progress in economic life. 3 From the given
definition of an entrepreneur, it is evident that entrepreneurship is the capacity for innovation,
investment and expansion into new markets, products and techniques.4

Significance of Small and Medium Enterprises

Small and medium enterprises (SMEs) are a tested tool in improving economic development of a
country. Countries continue to realize the pace of development will largely be dependent of the
development of SMEs; however, they continue to face a lot of funding challenges and in some
cases governments have not done enough to address the challenge leading to some SMEs not
surviving in the market.5 Quite a number of studies by different scholars have revealed that
1
BOZ, 2014
2
Goma Pearson(2019) The State and Contribution of SMEs to the Economy: A Case study of Chadiza District.
(Paper ID: CFP/1167/2019). Lusaka: Information and Communications University.
3
ibid
4
Gondwe M (2012), Importance of the SME sector in Zambia; BIS central bankers’ speeches
5
Kambone Musonda Stephen (2017) The Impact Of Small And Medium Scale Enterprises In Achieving Sustainable
Development Growth In Zambia Case Study Kasama District: Northern Province(Dissertation). Information and
Communication University.

1
shortage of financing of SMEs in developing countries is a major obstacle in the success of
SMEs and thus a potential for the SMEs in economic development have not been fully realized
and what this mean is that credit flow is a problem. African Blocs should strive hard to ensure
that development of SMEs in Africa becomes a top agenda item for all its gatherings and to
ensure that all the problems faced by SMEs are addressed as this is a sure way to accelerate
economic development thus proving employment for the people, increase revenue generation,
increased effective demand among other advantages for the states and the people.
Additionally, SMEs have played a big role in the social and economic transformation of the
country since its transition from a command economy to a market economy and they contribute
about 60 percent to the gross national product. 6 In the Tanzanian consideration, an SME is
viewed as one that employs at least 4 persons and with a capital of TZ Shillings 5 million and the
majority of the SMEs fall in the informal sector. It is however possible that you find some SMEs
with capital of between 200-800 million employing above 49 employees. From such examples,
Zambia as a country would look for ways of improving the SMEs market since it is evident from
other countries, that they can be a good source of jobs creation, taxes for the government among
other benefits. Small and Medium Enterprises (SMEs) play crucial roles in employment creation
and income generations. All over the world and Zambia in particular it is easy to establish
SME’s since their requirements in terms of capital and managements are not as demanding as it
is in the case for large enterprises.7 Small and Medium Enterprises both urban and rural have
been one of the major areas of concern to many policy makers in an attempt to accelerate the rate
of growth in low income countries. These enterprises have been recognized as the engines
through which the growth objectives of developing countries can be archived. They are potential
sources of employment and income in many developing countries.

Challenges Facing SME’s In Zambia

The major obstacles all to business expansion faced Small and Medium Enterprises (SMEs) all
over the world were the competitive environment, regulations and availability of a skilled

6
Ibid
7
Zambia Economic Bulletin 2009

2
workforce, the cost of finance, international expansion, lack of knowledge about markets,
bureaucracy, political and social instability. Despite the immense opportunities for developing
Micro, Small and Medium Enterprises, almost all have remained informal or semi-formal,
serving the low income segment of the population for which there is very stiff business
competition. Their access to formal market and incidence of upward mobility is quite limited.
There are many reasons for this state of affairs. This include limited awareness and capacity of
operators, limited access to financial and other support services and absence of enabling business
environment in terms of legal and regulatory frameworks. 8 The SMES face unique problems
including heavy cost of compliance resulting from their size, insufficient working premises and
limited access to finance.9 Business training, marketing, technology development and
information, Institutions and Associations supporting SMEs are weak, fragmented partly due to
lack of clear guidance and policy for the development of the sector.

My perspective for the new government on the expansion and development of SMEs in
Zambia
According to Dr Gondwe,10 Governor of the Bank of Zambia then, the role that SMEs play in the
provision of sustainable economic growth through job creation, development of entrepreneurial
skills and the potential to contribute significantly to export earnings cannot be over-emphasized.
Notwithstanding the challenge that still remains in the provision of finances to the SMEs sector
in Zambia.
The poor access to finances as a major impediment to investment and growth in Zambia is also
another challenge. Therefore, even though the cost of doing business has progressively improved
in recent years, access to finances has continued to feature among the key constraints to
investment and growth. This is a big area that the government of Zambia should explore to make
it possible for the operation of SMEs in the country. Therefore, government assistance to Small
and Medium Enterprises is important if businesses are to grow and contribute to economic
growth. The government being the major stakeholder in economic growth should ensure that the
private sector especially SMEs are given the much needed assistance to enable them survive.

8
Ibid
9
Zambian SME development policy (2008)
10
Supra (note 4)

3
Business owners require expertise support to enable them have capacity to successfully run
enterprises.
Furthermore, some business enterprises could do well if the government had a deliberate policy
to give new businesses favor in terms of tax as well as regulation, as it is clear that many
businesses do not receive expertise support neither from the government nor business
associations. However, the purpose for which the association exists should be clearly stated. In
addition to this, business associations should, in an effort to encourage entrepreneurs to join, also
state and make known to them how they will benefit from such associations. Despite substantial
information written about the vital role SMEs play in economic development in Zambia, there is
very limited evidence in literature to show the contributions of SMEs in economic growth
especially SMEs in the rural parts of Zambia. Therefore, without government support in this
area, has resulted into many business failures and this has negatively impacted on the country’s
economy.
In addition to this, businesses require loans especially in their start-up and expansion stages.
Those with the know how to run businesses; fail to take off with their business plans as a result
of having no start-up capital.
Since individuals have the interest as well as the necessary skills and education to enable them
establish, expand and grow their enterprises. It is important that the government revise the
operations of CEEC so that as many Zambian entrepreneurs will possible access the funds to
finance their undertakings.11 There is little impact in establishing a commission whose prime
responsibility is to help businesses with financing and then many entrepreneurs fail to access
funds as many do not know the procedure and necessary requirements needed to obtain such
funds. The government should also further revise the operations of the commission so that its
members can become mobile throughout the country to educate entrepreneurs, would be
entrepreneurs and potential borrowers of funds on the requirements needed for them to
successfully apply and obtain the loans to finance their business undertakings. In addition, there
are also alternative financing options that may be available to entrepreneurs. However, it is clear
that many SMEs do not know such available options which include banks as well as micro
finance institutions. Therefore, the provision of finance to the SMEs can be a leading conduit for

11
Ibid

4
transforming our economy by opening up business opportunities as well as channeling resources
more efficiently and effectively to the sectors that require it the most.

Globally, Small and Medium Scale Enterprises (SMEs) is a tool for empowering the citizens and
economic growth. SMEs are associated with rapid economic growth of countries. Among
developed countries such as the USA, SMEs still play enormous role in the country’s economy.
In Sub Sahara Africa, SMEs are considered very important propellers for obtaining national
development goals, such as poverty alleviation and economic growth.
Therefore, the role that SMEs play in the provision of sustainable economic growth through job
creation, development of entrepreneurial skills and the potential to contribute significantly to
export earnings cannot be over-emphasized. Notwithstanding the challenges alluded to the above
recommendations may be addressed if the measures are addressed.

CONCLUSION
The challenges which the enterprises are faced with which include lack of capital, lack of
adequate knowledge in business as well as lack of government support in terms of favor in tax
and regulation. SMEs can only contribute significantly to the economy and many more can grow
if only their various challenges are well addressed and their contributions acknowledged by the
concerned stakeholders such as the government and business associations as well as the Chamber
of commerce.

BIBLIOGRAPHY

5
Goma Pearson (2019) The State and Contribution of SMEs to the Economy: A Case study of
Chadiza District. (Paper ID: CFP/1167/2019). Lusaka: Information and Communications
University.

Gondwe, M (2012), Importance of the SME sector in Zambia; BIS central bankers’ speeches

Kambone Musonda Stephen (2017) The Impact Of Small And Medium Scale Enterprises In
Achieving Sustainable Development Growth In Zambia Case Study Kasama District: Northern
Province(Dissertation). Information and Communication University.

Zambia Economic Bulletin 2009

Zambian SME Development policy (2008)