**2. Background**

It is crucial for the economically active population segment to realise their aspirations in achieving economic independence as well as discovering their place in society. There is a global job crisis that has worsened the vulnerability of many in relation to lower job quality, high unemployment, higher job market inequalities, increased time to secure employment and high levels of uncertainty. Many African countries among other developing nations have been affected by this situation leading to many leaving their country of birth in search of greener pastures in neighbouring countries and other countries. There is urgent need to address the employment crisis using a multi-faceted approach towards business growth and job creation. One way is to improve or support the SMEs sector that employs a huge population and has potential to employ more. The SMEs sector faces a myriad of challenges across the continent and fails to live up to expectations. Zimbabwe has not been spared in this crisis as there are high business failures and unemployment levels. Several studies have been done on SMEs in different countries including Zimbabwe but the sector remains depressed or incapacitated. There are a number of areas that need attention for creation of value through the SME sectors that have not been addressed in the extant literature. This study contributes to literature by investigating the determinants of SMEs profitability in Zimbabwe.

In spite of the fact that 99% of business enterprises in developing countries are SMEs the sector is yet to exploit its potential in terms of growth and contribution to the economy. Despite of so much having been written on the importance of SMEs in developing economies the sector is still entangled in a myriad of challenges. SMEs are found in all sectors of the economy and represent a wide variety of information and communication technology (ICT) use, formality and firm sizes. SMEs contribute in different ways to economies in Africa. The SMEs differ from one country to another on the continent in terms of number (World Bank, 2016) and factors affecting growth or operations. It is also important to note that there are many things in common in the same sector and a policy implemented in one country or region may possibly work in others. However as variation between countries across the continent may be huge data uncertainty is high.

The number of SMEs in a country is not essentially correlated with the level of economic development. On the African continent activity is dispersed across the large number of more or less formal SMEs. For example in more developed economies economic activity is a large extent structured in larger entities, in the agriculture, manufacturing and services sector. Therefore the number of SMEs in developing economies is mainly determined by supply side (institutional) factors. The number of SMEs does not necessarily reflect their contribution to the overall economy. In a study on SMEs, Beck and Demirgüç-Kunt [1] state that the sectors impact on GDP and employment shows a strong positive relationship with GDP per capita. As a result the more developed a country is the greater is its importance to the entire economy. The study also revealed that there exists a significant negative correlation between employment and GDP contributed by the informal economy and GDP per capita. A large informal sector in Sub-Saharan Africa results in a

**215**

players.

*The Factors Influencing SMEs Growth in Africa: A Case of SMEs in Zimbabwe*

big number of SMEs but with low levels of GDP per capita. This may help explain the situation in many countries in Africa with people leaving for greener pastures

With a systematic development approach, SMEs play a role in driving the economy from an underdeveloped stage towards high growth and industrialisation. Studies have shown that SMEs start to play a crucial role at an early growth stage. The informal sector in African economies is still great, comprised of the majority of SMEs. The services sector is developed in two different ways [2]. Economic growth gives rise to both business and household sector demand for services such as utilities, transportation, trade, business and personal services. On the other hand, the growing economy also gives rise to incentives for business entities to graduate from the informal sector as local market growth potential improves. When the service sector grows substantially in proportion to overall production in society it is an indication of economies becoming more formalised and developed (Lake et al. 2010). This finding supports the view that SMEs play a pivotal role in service sector growth. Therefore industrial development can be attributed to improved investment, business environment and favourable raw material prices. Agriculture producers and other raw material providers have to hunt for improved production for increased competitiveness. Assisting African SMEs to develop is important for Africa for the global economy, following the creation of a growing middle class with disposable income, in line with market opportunities for new investors. The SMEs have created about 80% of the continent's employment, forming a new middle class

SMEs have become a force to reckon in the development Zimbabwe's economy. For the past two decades the Zimbabwe's economy has struggled to perform in comparison to other economies [3]. The period has continued to be characterised with firm closures and many people losing jobs through retrenchments (Nyathi et al. 2018). As more workers lost their jobs the number of SMEs was on the rise with many becoming entrepreneurs by default. The majority of the economically active citizens have survived through operation of small businesses (Nyathi et al. 2018). The high levels of unemployment in the country have ushered many in the area of business as the economic conditions of continue to deteriorate [4]. Though many enterprises are started, few have survived and grown phenomenally due to selfemployment desire and a myriad of challenges. In a study of SMEs survival Abduli (2013) argues that starting an enterprise is one thing and survival or sustainability is another. Profitability and sustainability have to be enhanced if more job opportu-

*DOI: http://dx.doi.org/10.5772/intechopen.87192*

though the number of SMEs recorded is high.

that fuels demand for more goods and services.

nities are to be created and business growth experienced.

The country of Zimbabwe has been hit by massive brain drain as many migrate to other countries for greener pastures. It is estimated that 3–4 million Zimbabweans live in the diaspora [5]. Running a profitable venture is critical and also considering the risks in business and understanding what influences the stability and health of the economy is crucial [6, 7]. Developing country governments, private sector and other development institutions, must ponder on SMEs and create opportunities for Africa's young people for economic growth and stability. All regional blocks, governments, banks and other development partners have to develop all-inclusive programmes and policies to consolidate SMEs if the region is to realise economic growth. This has motivated this study to investigate the determinants of SMEs growth in Africa with a special focus on Zimbabwe. The government of Zimbabwe has to take an aggressive approach to drive an inclusive and balanced growth through the SMEs because of the huge potential for industrialisation if entrepreneurial mode is fostered. There is need to research on factors influencing SMEs business operations for insight to policymakers and other development

#### *The Factors Influencing SMEs Growth in Africa: A Case of SMEs in Zimbabwe DOI: http://dx.doi.org/10.5772/intechopen.87192*

big number of SMEs but with low levels of GDP per capita. This may help explain the situation in many countries in Africa with people leaving for greener pastures though the number of SMEs recorded is high.

With a systematic development approach, SMEs play a role in driving the economy from an underdeveloped stage towards high growth and industrialisation. Studies have shown that SMEs start to play a crucial role at an early growth stage. The informal sector in African economies is still great, comprised of the majority of SMEs. The services sector is developed in two different ways [2]. Economic growth gives rise to both business and household sector demand for services such as utilities, transportation, trade, business and personal services. On the other hand, the growing economy also gives rise to incentives for business entities to graduate from the informal sector as local market growth potential improves. When the service sector grows substantially in proportion to overall production in society it is an indication of economies becoming more formalised and developed (Lake et al. 2010). This finding supports the view that SMEs play a pivotal role in service sector growth. Therefore industrial development can be attributed to improved investment, business environment and favourable raw material prices. Agriculture producers and other raw material providers have to hunt for improved production for increased competitiveness. Assisting African SMEs to develop is important for Africa for the global economy, following the creation of a growing middle class with disposable income, in line with market opportunities for new investors. The SMEs have created about 80% of the continent's employment, forming a new middle class that fuels demand for more goods and services.

SMEs have become a force to reckon in the development Zimbabwe's economy. For the past two decades the Zimbabwe's economy has struggled to perform in comparison to other economies [3]. The period has continued to be characterised with firm closures and many people losing jobs through retrenchments (Nyathi et al. 2018). As more workers lost their jobs the number of SMEs was on the rise with many becoming entrepreneurs by default. The majority of the economically active citizens have survived through operation of small businesses (Nyathi et al. 2018). The high levels of unemployment in the country have ushered many in the area of business as the economic conditions of continue to deteriorate [4]. Though many enterprises are started, few have survived and grown phenomenally due to selfemployment desire and a myriad of challenges. In a study of SMEs survival Abduli (2013) argues that starting an enterprise is one thing and survival or sustainability is another. Profitability and sustainability have to be enhanced if more job opportunities are to be created and business growth experienced.

The country of Zimbabwe has been hit by massive brain drain as many migrate to other countries for greener pastures. It is estimated that 3–4 million Zimbabweans live in the diaspora [5]. Running a profitable venture is critical and also considering the risks in business and understanding what influences the stability and health of the economy is crucial [6, 7]. Developing country governments, private sector and other development institutions, must ponder on SMEs and create opportunities for Africa's young people for economic growth and stability. All regional blocks, governments, banks and other development partners have to develop all-inclusive programmes and policies to consolidate SMEs if the region is to realise economic growth. This has motivated this study to investigate the determinants of SMEs growth in Africa with a special focus on Zimbabwe. The government of Zimbabwe has to take an aggressive approach to drive an inclusive and balanced growth through the SMEs because of the huge potential for industrialisation if entrepreneurial mode is fostered. There is need to research on factors influencing SMEs business operations for insight to policymakers and other development players.

*Regional Development in Africa*

**2. Background**

players need to craft policies and strategies that enhance the growth of the sector. What then should be done? There is need to understand the factors influencing the performance of SMEs in Africa. Though factors may differ from one country to another the gap remains to be filled. Small to medium enterprises (SMEs) has been defined as a venture with less than 75 employees. The chapter investigates the determinants of small to medium enterprises in Africa using Zimbabwe as a case study.

It is crucial for the economically active population segment to realise their aspirations in achieving economic independence as well as discovering their place in society. There is a global job crisis that has worsened the vulnerability of many in relation to lower job quality, high unemployment, higher job market inequalities, increased time to secure employment and high levels of uncertainty. Many African countries among other developing nations have been affected by this situation leading to many leaving their country of birth in search of greener pastures in neighbouring countries and other countries. There is urgent need to address the employment crisis using a multi-faceted approach towards business growth and job creation. One way is to improve or support the SMEs sector that employs a huge population and has potential to employ more. The SMEs sector faces a myriad of challenges across the continent and fails to live up to expectations. Zimbabwe has not been spared in this crisis as there are high business failures and unemployment levels. Several studies have been done on SMEs in different countries including Zimbabwe but the sector remains depressed or incapacitated. There are a number of areas that need attention for creation of value through the SME sectors that have not been addressed in the extant literature. This study contributes to literature by

investigating the determinants of SMEs profitability in Zimbabwe.

the continent may be huge data uncertainty is high.

In spite of the fact that 99% of business enterprises in developing countries are SMEs the sector is yet to exploit its potential in terms of growth and contribution to the economy. Despite of so much having been written on the importance of SMEs in developing economies the sector is still entangled in a myriad of challenges. SMEs are found in all sectors of the economy and represent a wide variety of information and communication technology (ICT) use, formality and firm sizes. SMEs contribute in different ways to economies in Africa. The SMEs differ from one country to another on the continent in terms of number (World Bank, 2016) and factors affecting growth or operations. It is also important to note that there are many things in common in the same sector and a policy implemented in one country or region may possibly work in others. However as variation between countries across

The number of SMEs in a country is not essentially correlated with the level of economic development. On the African continent activity is dispersed across the large number of more or less formal SMEs. For example in more developed economies economic activity is a large extent structured in larger entities, in the agriculture, manufacturing and services sector. Therefore the number of SMEs in developing economies is mainly determined by supply side (institutional) factors. The number of SMEs does not necessarily reflect their contribution to the overall economy. In a study on SMEs, Beck and Demirgüç-Kunt [1] state that the sectors impact on GDP and employment shows a strong positive relationship with GDP per capita. As a result the more developed a country is the greater is its importance to the entire economy. The study also revealed that there exists a significant negative correlation between employment and GDP contributed by the informal economy and GDP per capita. A large informal sector in Sub-Saharan Africa results in a

**214**

The rest of the chapter is arranged as follows: Section 3 presents Literature Review; Section 4 describes the data used; Section 5 outlines the research methods used; Section 6 reports, analyses and discusses the results; and Section 7 concludes.
