Micro,Small and Medium Enterprises (MSMEs) in Zanzibar

IntroductionSMEs all over the world are known to play a major role in social economic development. SMEs contribute significantly to employment creation, income generation and stimulation of growth in both urban and rural area.
There are formal and informal SMEs, the informal encompass a larger share of the two, and engaging more people in income generation activities. The sector sometimes referred to as micro, small and medium enterprises ( MSMEs)
Definition
Small and medium enterprises or SMEs are also known as small and medium sized enterprise referring to micro, small and medium business that produce goods or services for sale. However, there is no universally accepted definition of SMEs
Categories of SMEs
Different countries use various measures to categories SMEs. The commonly used yard sticks to categorize SMEs are total number of employees, total investment and sales turn over.
In Europe micro business refers to forms with fewer than 10 employees and small and medium enterprises have fewer than 250 employees and which are independent from large companies hence the reference to SMEs.
In the United State small business are those with less than 100 employees, while medium- sized business are those with less than 500 employees. In Tanzania micro enterprise are those with 1-5 employees mostly family members or employing capital amounting up to Tshs. 5.0 million. The majority of micro enterprise fall under the informal sector. Small enterprises are mostly formalized undertakings engaging between 5-49 employees or with capital investment ranging from Tshs 5 million to Tshs 200 million. Medium enterprises employ between 50 to 99 people and have capital investment ranging from Tshs. 200 million to Tshs. 800 million. Other criteria to categorize the sector are the annual turn over, assets, tax registration, business registration as independent businesses.

This paper will highlight the historical review of SMEs, empirical review, policy review, and end up with a conclusion
Theoretical Review
Literature for the promotion of SMEs date back to the twentieth century following the political –economy concern over lack of industrialization in developing countries. During the period, macroeconomic and sector policies were in favor of large enterprises, often leaving small enterprises at a disadvantage.
By 1970s the literature on development policy had yielded a new intellectual dichotomy between informal and formal sector firms. The result of this dualism was polarization of mainstream industrial development policy and small scale sector development, creating an environment in which formal and informal sector viewed each other as adversaries, preventing meaningful linkages and mutual beneficial synergies. This was reinforced by a variety of measures, ranging from separate institutional arrangements of business, associations and various forms of policy intervention.
In the early 1980s Tanzania’s Zanzibar is part of it economy was not doing well in many sectors including industries. By 1982, the recorded annual growth rate of GDP was 2%. To arrest this trend, deliberate efforts have been taken to review policies. These policies included the Economic and Social Economic Revival Programs I &II, (ERP-1989/90 and1991/92) and the 2nd Union Development Plan 1992/93, and the Rolling Plan and Forwarding Budget 1993/94-1995/96
Under these economic reforms the Government initiated private sector development through liberalization of the economy, market decontrolling measures, etc. The Central Government has pulled out of direct engagement in productive activities leaving the ground to the private sector to invest in these activities. These measures have had direct impact on SME development. However, the sector has not yet developed of a faster rate due to various bottlenecks such as weak financial infrastructure, poor communication, lack of entrepreneurial culture poor labor productivity etc
Analysis of SMEs
SME varies from country to country depending upon the level of development of a country. There is no common definition which is used by different institutions and sectors working with SMEs and private sector. Under some definitions, SME do not include agriculture activities, they consider economic activities mainly in manufacturing, commerce and services.

SMEs have a big contribution to the economic developed of developing and underdeveloped countries, it contributes in the generation of employment, and a breeding ground for entrepreneurs, center to investment generation and technological development. SMEs are also the sources of domestic and international trade.

Micro enterprises as a category of SME are usually very small businesses, often involving the owner or family members with a few paid staff. They usually lack formalities licensees, registration, formal business premises, operating through permit. Women are the main category engaged in micro enterprises.
Some banks are not willing to finance SMEs Bank legal and regulatory requirement such as collateral, excludes movable assets as mortgages, thereby putting smaller businesses that own more of these assets into disadvantaged position. Complex, bureaucratic and costly, legal, regulation and administrative environment are also hindrances to Small and medium enterprise. Due to such facts SMEs become easily adopted in the communities since their requirements in terms of capital, technology, are within the community outreach. Such enterprise can be easily established and thus add value to agro products and at the same time facilitate the dispersal of enterprises.
SME in communities, strengthens the promotion of economic development and are closely associated with more equitable distribution of income and thus important as regards to poverty reduction.
Women entrepreneurs in communities can be provided with small loans to start micro businesses with the ultimate goal of increasing their political and economic power and participation of poor women
.
SMEs have a significant role in economic development. They raise the capacity of communities in terms of knowledge, access to resources, poverty eradication, participation and accountability.
Recently the sector has faced a big challenge due to HIV/AIDS infection that has negatively impacted to economic development. The sector has been affected by reducing its contribution to the National economy and poverty reduction. The long illness of the effected entrepreneur consumes significant resources used for health care, funeral and care of orphans. This is so because the sector has no social protection of entrepreneurs facing problems.
Empirical Review
In Zanzibar before the revolution people were engaged in micro, small and medium enterprises as artisans and other activities in urban areas. In rural areas SMEs engaged people in agricultural activities and business involving agriculture products and other consumable.
After the 1964 revolution, the Government initiated a number of SMEs enterprises for the manufacture of nails, garment, cooking utensils, electrical wires, soaps and other products. The government initiated these small and medium industries. The SMEs in Zanzibar create job opportunities among the low skilled people and therefore hold the key to employment creation and income generation.
In the mid 1970s SMEs were engaged in cooperatives activities especially for women groups. The governments in collaboration with Cooperative Union promoted SME activities in the form of technical advice, training in management, book keeping, marketing skills, and offering soft loans and working tools at reasonable price
Nevertheless, the sector is constrained by limited management and technical skills, limited access to finance and is often unable to respond effectively to up coming business opportunities. In addition to that, the Government of Zanzibar experienced economic difficulties which led the Government in mid 80’s to pursue liberalization policies through trade and investment opportunities. These initiatives are currently the basis of SME development in Zanzibar.
SMEs have a vital role in the promotion of tourism in Zanzibar. Generally SMEs activities are in the form of batik making, antiques, handcraft works, medicine soap making, oil milling and other tourism articles.
People travel from different countries such Kenya, Uganda, Burundi, Comoro to engage themselves in SME activities in Zanzibar town as one of the tourist center which promote SME through traditional hand works
Micro, small and medium enterprises is a very important sector in the Zanzibar Economy and it is stipulated in the Zanzibar strategy for Growth and Poverty Reduction as a crucial towards addressing the concerns and aspiration of the Zanzibar vision 2020.

Policy Review
In the process of improving its social and economic development the Zanzibar government has adopted a long term development goal of the eradication of absolute poverty and the attainment of sustainable human development. The vision 2020. priorities include the promotion of sustainable industrialization including the development of SMEs ( Micro-Small and Medium Enterprises).
Hence” SMEs are given a vital role in the social economic development of Zanzibar. SMEs and the private sector are described as partners in combating poverty and to improve the well-being of the people” ( The final background report on Zanzibar SMEs development policy frame work by UNIDO @G 7 -2007 )
In relation to this, the Zanzibar growth strategy places a strong emphasis on strengthening public private partnership and a number of government policies give priority to the development of Micro, Small and Medium enterprises, these include the Zanzibar Strategy for growth and Poverty Reduction (ZSGRP) which provides for measures to reduce income poverty, to increase access to social services, to enhance the survival and well-being of the population and to contain extreme vulnerability. Support for SMEs takes on a central role towards the achievement of goals setout in ZSGRP (2007-2010)
The Zanzibar Industrial policy (1998-2008) is one of the first Government policy documents that has accorded priorities to the development of small and medium enterprises. The industrial policy clearly states that SME sector is the driving force for development and provide strategies for private sector promotion, including privatization of state owned enterprises.
The Zanzibar Investment policy also promotes SMEs (2004). Among its priority is manufacturing, especially with an export orientation and emphasis on SMEs.
Other policies promoting SMEs, are The Zanzibar trade policy (2006), The Zanzibar Agriculture policy (2002) .The Zanzibar Small and Medium enterprises policy (2005) etc.
In Tanzania Mainland there are a number of government policies that promote SMEs including the revised industrial policy namely Sustainable Industrial Development Policy (SIDP) (1996-2020) Gender and Women Development policy, The National Energy Policy Cooperative Development Policy, the National Environmental Policy, Rural Development Policy, the Small Industries Development Organization Act 1973 and others policy papers , Acts that have been prepared in favor of this sector include
Vice President’s Paper on poverty Eradication (2000), National Policy for Micro Enterprise and Informal Sector Promotion, Youth Policy, National Employment Policy are also focused toward SMEs development.
CONCLUSION
There is no definition of SME which is applicable globally. The criteria used vary from country to country, organization to organization, community to community as well as nationally and regionally..
In general SMEs can be used to represent all informal sector enterprises. This has been sited from the document commission of the European Communities (2003) micro-enterprises are categories of small enterprises particularly important for the development of entrepreneurship and job creation.

A clear and precise policy for SME is important for supporting the sector and to act as guidance for action for the government and other stakeholder .This is supported by the definition of SMEs given in the document Tanzania’s SME policy (2001) SME sector requires effective policies that can address the varieties of development issues involved. A good SME policy should act as guiding document and provide vision towards the sector development”

SME play a vital role in economic development of any country, it contributes to employment, it contribute to GDP, it is the source of government revenue. In Tanzania SME contribute about 50% of industrial GDP. “In Kenya SME is estimated to have 90,000 enterprises employing some 2 million people or nearly 25% 0f the total labor force” according to Enterprise Development news letter vol.2/issue 1 1995. According to Europe fact and figures “ 99% of all enterprise are SME providing over 100million jobs in Europe”

It is recognized that SME are key for poverty reduction and improvement of general social well-being. It is considered as among the main drivers of achieving a country’s target for growth, productivity and employment.
The success of SMEs is underlined by an elaborate policy of SMEs, an understandable program, acceptance and commitment from the Government, existence of a national SME strategy and a clear role of financial institutions in supporting SMEs.. SMEs can be effective agents of poverty reduction as stipulated in the Zanzibar Vision 2020 (2000) and the Zanzibar Strategy for Growth and Poverty Reduction (2005).

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