Production

Business environment

- A business environment consists of all those factors which interact with, and therefore
affect or influence, a business in its operations.
- It is classified into two broad categories, i.e. the internal and external environment.
- A business environment, therefore refers to the internal and external factors that influence
a company’s operations, performance and decisions.

Elements of a business environment

A business environment’s factors are grouped in two main categories which are:

1. The internal environment

2. The external environment

Internal environment
- The internal environment consists of all factors that influence a specific business directly.
- Internal factors will be different when comparing different businesses, but factors like owners
and managers will always be internal factors for all businesses.

The following are features of the internal environment:

- The internal environment consists of factors within or inside a business that directly
affect its activities, such as:
 Employees
 Owners
 Managers
 customers
 suppliers
- It consists of factors in an organization such as conditions, entities and events.
- These factors influence: activities, choices and employee’s behavior
- The internal environment is known as the Micro (small) environment.
 - The factors that are considered part of the internal environment of a business include:

 the mission statement

 corporate objectives,
 leadership styles,
 culture,
 structure
 resources

External environment
- The external environment of a business are things outside a business that affect its operations.
-It is made up of all the factors that have an impact on or influence a business.

The following are features of the external business environment:

-The external environment is influenced by outside forces that indirectly affect business
activities.
- It consists of conditions, entities, events and factors surrounding an organisation which
influence the business‟ activities and choices, and determine its opportunities and risks .
- The business has to adapt to and adopt the changes the external environment is known as the
Macro (large) environment, which consists of these environments: political, physical, economic,
social, technological and legal

External (macro) environment

# Political
# Physical
# Social
# Legal
# Economic
# Technological
Internal environment factors
The factors that influence the internal environment of a business include:

 Employees
 customers
 creditors or suppliers
 Employees

- Employees are group of people who sell their labour to the business and in return they
receive wages or salaries.
- These are workers who produce goods and provide services sold by a business in return
for:
-salaries or wages
-better working conditions
- job security
- job satisfaction
Employees influence the internal environment in the following ways:

- they ensure that products are manufactured and that goods or services are available for
the business to its customers.

- Some employees work directly with the business’s goods and or services, for example, in
production lines in factories. Others work indirectly with the business’s products and or
services, for example, in a marketing team, IT team or finance team.
- Employees spend most of their time and effort working for a business and have
influence on the quality of goods produced.

- Employees play an important part in the total business value chain. They ensure that
goods are produced at high quality, that the correct quantity is produced and that all the
expenses are paid on time to ensure that the business makes a profit.

- This results in business being able to provide an income for all the employees. (If their
working conditions are not satisfactory, they can go on strike or leave the firm).
Customers
- Customers are clients who buy the goods and services produced by the business.

- In any business there are internal and external customers.

- External customers also want to know how the business will make them feel as a
customer or what they may expect when they conduct business.

Customers influence the internal environment in the following ways:

- They influence the success or failure of a business, because they may take their custom
elsewhere if they are not satisfied.

- They are concerned about the prices of goods, product quality, product variations, after-
sales services, such as delivery and customer care.

- Businesses, therefore, must produce goods and provide services of good quality to satisfy
the customers‟ basic needs and the ever changing, unlimited human wants.

- Customers are an important factor within the business environment, because they can
bring about increased profits or losses.

Creditors
- A creditor, or supplier, is a person to whom the business owes money.

- The business takes goods and services at a specific time and makes a promise to pay for the
goods and services at a later stage.

Creditors or suppliers influence the internal environment in the following ways:

- Creditors are the suppliers of goods and services on credit to the business.
- The amounts owing (debts) to creditors a must be paid as they fall due, because creditors are
interested in prompt payment.
- A business’s financial health depends on how long it takes for a business to pay its debts.
- Creditors can refuse to supply more goods or withdraw their credit facilities if they are not paid
on time.

- Creditors can refuse to supply more goods or withdraw their credit facilities if they are not paid
on time.
- Creditors can force the company into liquidation if their debts are not paid. If a business does
not pay its debts promptly, legal actions may be taken against the business and it could even be
forced to close its doors.

- Both customers and creditors belong to the market environment.

External environment factors (P2ESTLEG)

P2ESTLEG. The 2 stands for two times, which means there are two Ps in this acronym –
Political and Physical.

PESTLEG stands for:

√ Political
√ Physical
√ Economic
√Social
√ Technological
√ Legal

[Link] environment

It influences the external; environment in these ways:

- It consists of government actions and policies that influence the operations of a business.
-These government actions include the course of a country‟s politics, especially political
pressure exerted by the ruling government (party) and its institutions in the business
environment.
-The political environment can present political risks to a business if a civil war should break out
in that country.

- Changes in government policies may also affect the business either positively or negatively.
-Trends in political opinions can be seen during the run-up to a general election when a lot of
changes occur that could affect business activity may occur. For example, the prospect of a
change in government creates uncertainty, especially if opposition parties are promising major
changes, which may be good or bad for the business.
-The political environment must be stable in order to create confidence in investors.

- Politically instability discourages foreign direct investment.

- Government bureaucracy, that is, structures and regulations put in place to control operations,
stifles business activities.
-Where there is political and economic stability, it is more likely that a country will have
employment for its citizens and stable prices for goods and services.

[Link] environment

The physical environment influences the external environment in the following ways:
- The physical environment consists of limited natural resources, such as forests, land and seas
(or oceans), from which an organisation extracts raw materials.
- It also includes climatic conditions that are of particular importance to the agricultural sector.
- It is subjected to pollution and global warming.
-Because businesses have a responsibility to make the environment clean and safe, it will impact
on business’s activities and decisions.
[Link] environment
The economic environment consists of the following factors:

- All the economic factors, such as employment, income, inflation, interest rates, productivity
and wealth that influence the buying behaviour of customers and businesses.
- It can be classified into:
-the macro (large) economic environment
-the micro (small) economic environment.

Macro-economic environment

The macro-economic environment influences the whole economy of a country to a large extent
and involves issues such as:

-Gross Domestic Product (GDP), which is a measure of the economic growth of a

country.
-employment
- Inflation

-fiscal and monetary policies of a government

-exchange rates
-interest rates
-taxes

Micro-economic environment

The micro-economic environment is affected by factors, such as:

- market size
-demand and supply, which influences a business’s actions and decisions
Economic factors can be:
- controllable
- uncontrollable

Both controllable and uncontrollable factors cause:

- changes in the market
- consumer demand
- the buying behaviour of consumers

Controllable factors are politically influenced and controlled. These factors include:

 processing methods of goods

 income
 interest rates.

Uncontrollable factors fluctuate and change, which makes it difficult to predict their effects and
influence on to the entire economy. They include:

 consumer wealth
 distribution of wealth
 pollution
 weather conditions.

[Link] environment
The social environment has influence over the external environment in these ways:

-the society, or world, in which businesses operate is constantly and rapidly changing.
-Businesses co-exist in an environment where they interact with many other environments (both
internal and external). They cannot operate or exist in isolation and this social co-existence is
necessary for a business’s survival.
-Employees, suppliers, community owners, the owners, the government, and even the weather,
all mutually interact with the business in one way or another.
The social environment includes factors such as:
 Customs

 traditions (cultures)

 values (ubuntu)

 beliefs (religions)

 poverty

 literacy

 life expectancy

 the community

Businesses have a social obligation to make the community a better place to live in.
Businesses are responsible for cleaning the air and water, which many of them use when carrying
out their operations.
They should get involved in community services, such as local charities, and provide jobs for
people, where possible.
Businesses should be interested in the following: job creation, impact on the environment, equal
opportunities, assistance to the disadvantaged and pollution (global warming).
Businesses must be aware of the culture, needs, preferences (tastes) and purchasing patterns
(trends) of consumers.

-Culture, traditions, values and beliefs provide people with a sense of identity and an
understanding of what is acceptable. These are not static, because the community values and
norms, expectations and way of life changes over time.
-These cultures, traditions, values and beliefs affect the products that people buy and the pool of
labour available. They also lead to a common pattern of behaviour.

-Management must be fully aware of the social composition of both employees and consumers in
order to cater for the needs of both.

[Link] environment
Technology is primarily responsible for the changes and innovations that have occurred in the
environment in the following ways:

-Business and government have invested a lot of money in research and development, which has
resulted in the invention of new products, new processing methods and new approaches to
management.
-Changes in the technological environment provide opportunities and sometimes threats to
businesses.
-Technological changes can be processes of creative destruction in which new products,
processes and working practices replace old ones.
-A business may have to change its operating strategy as a result of changes in the technological
environment. For example, a company that specialises in manual brick mounting may have to
retrench employees due to the introduction of new machinery r that cuts down on manual labour.
-Development in the field of technology affects business by introducing new inventions in
production by introducing new inventions in producing other improvements in techniques to
perform the business’s work.
-Some machinery, production processes and techniques have become obsolete due to new
technology.
The results or effects of these technological changes include the following:

- increased productivity and improved product quality

- declining cost of production, leading to lower prices
- manual labour being replaced by machines, leading to increased unemployment.
- a new range of services, such as, e-banking, e-bay, e-marking, e-tailing, e-mailing and e-
commerce.
-cleaner, easier and safer jobs for workers
- fast, more accurate and up-to-date communication.

[Link] environment
These are the factors that influence the legal environment:

- It is governed by the state, country or international laws.

-In the process of providing goods and services, businesses must operate ethically and legally.
-This includes laws concerning what can be sold, laws to protect consumers and employees,
financial laws and business ethics, such as paying taxes to government.
-The government influences businesses through legislation by:
restricting business activities encouraging them to behave in certain ways.

This influence can be positive, offering assistance in the form of:

- subsidies
- grants
- loans
- export incentives

The government is concerned about:

- trading practices
- the impact on the environment.

POSSIBLE REVISION QUESTIONS

1. Explain business environment. ( 5 )

2. Describe the external factors of a business environment. ( 10 )

3. Identify and explain how internal and external factors that affects a business. ( 10 )

3. Analyse the impact of internal and external factors. ( 8 )

5. Explain the following terms, giving examples:

a) Internal environment (3)

b) External environment (3)

Trade

-Trade is the buying of goods and services. It enables the exchange of goods and services in both
home and foreign markets.
-Goods and services can be exchanged for money or other goods and services.

BALANCE OF TRADE
Balance of payments
This is a summary of a country’s transactions with the rest of the world for a specific time, it is
also referred to as BOP. There are two different set of accounts namely:
 Capital account
 Current account

Capital account
 It is an account that relates to financial instruments.
 Records the purchase and sale of Assets
 Includes exports - borrowing from foreign countries + direct foreign investments by
foreign countries
 Includes imports - lending to foreign countries + direct investments in foreign
countries

Current account
 Transactions relating to goods
 Services investment income
 Current transfers
 Records trade in goods and services
 Includes Total exports [goods + service exports] - total imports [goods + service
exports]

Visible trade
This is trade for tangible items [goods] such as:
 Tobacco
 Maize
 Clothes
 Cars
 Machinery

Balance of trade
The visible balance is also known as balance of trade which is calculated by deducting visible
imports from visible exports. If exports are in excess of imports there is a favourable balance of
payments or surplus but if imports are in excess of exports we get an unfavourable balance of
trade or deficit
Zimbabwe as a country is involved in trade and produced the following data as trade figures
for 2018
Value of good s exported $200 billion
Value of gods imported $ 150 billion
Required
Calculate balance of trade for Zimbabwe

Tangible exports – tangible imports

200 billion – 150 billion
50 billion

Invisible trade
This is referred to as trade of intangible items such as services offered to other countries and
offered to a certain country by other countries, this is calculated by deducting intangible imports
from intangible exports. If exports are in excess of imports there is a favourable balance of
payments or surplus but if imports are in excess of exports we get an unfavourable balance of
trade or deficit
Zimbabwe as a country is involved in trade and produced the following data as trade figures for
2018
Value of tourism to Zimbabwe from other countries $60 billion
Value of tourist from Zimbabwe to other countries $80 billion
Value of insurance services provided by foreign to Zimbabwean companies $30 billion
Value of transport services provided to foreign companies by Zimbabwean companies $20
billion

NB// services to other countries are exports whilst services from other countries are imports

Intangible exports – intangible imports

[60+20] billion – [80+30] billion
80 billion – 110 billion
- 30 billion

Balance of payments [BOP]

This is the difference between total exports and total imports, where total exports is [tangible
+intangible exports] less total imports [tangible +intangible imports]
Total exports [tangible +intangible exports] - total imports [tangible +intangible imports]
[200+60+20] billion – [150+80+30]

280 billion – 260 billion

20 billion

There is an alternative method for calculating BOP, which is addition of visible trade and
invisible trade figures

50 billion + [- 30 billion]

20 billion

Exchange rates
 The foreign exchange rate is:
 The rate at which the currency of one country is exchanged for the currency of
another country
 The value of one country's currency in terms of another country's currency
 The price of one country's currency expressed in another country's currency.
 The exchange rate of the American dollar (US dollar) is the price (or charge) of the
dollar in terms of other currencies.
 The exchange rate:
 Tells you what a dollar is worth in relation to other foreign currencies
 Determines how much of one currency you can exchange for another.

Ways to correct a balance of payments deficit

The government of Zimbabwe may impose some measures to correct its balance of payment
position whenever a deficit occurs. The government should reduce its imports, in this way
reducing the outflow of foreign currency, by:
 substituting imports or replacing them with locally produced goods
 subsidising local industries
 devaluing the local currency, which makes imports more expensive
 Rationing or reducing foreign currency allocation to importers
 Controlling new import licences and refusing to renew expired licences, which
reduces the number of importers and consequently reduces imports
 Charging (high) customs duties, which make imports more expensive, discouraging
the consumption of imported goods
 Enforcing quotas, which limits the quantities of goods that may be imported
 Enforcing trade embargoes, which completely bans trade with other countries and
consequently reduces imports to zero.

The government should increase exports, to increase inflow of foreign currency by:
 introducing or increasing excise duties on specific products, such as tobacco or liquor,
which discourages domestic consumption and makes available more goods for export
 Devaluation of the local currency, which makes exporting cheaper
 subsidising exports to make local goods cheaper on foreign markets
 Attracting foreign buyers by inviting them to take part in trade fairs and exhibitions
 Attracting foreign direct investment to increase the inflow of foreign currency
 Negotiating debt cancellation with its creditors (the International Monetary Fund,
World Bank and African Development Bank) to reduce the outflow of foreign
currency
 Borrowing from the International Monetary Fund to pay off debts
 Giving tax concessions to exporters, which reduces export costs for the exporter; this
increases exports by making exporting cheaper
 Establishing export promotion programmes, such as the Zimbabwe Export Promotion
Programme (ZEPP), to assist exporters to take part in trade fairs by advertising locally
produced goods
 Establishing export processing zones (EPZs) to expedite the process of exporting
goods
 Running down the gold reserves at the Reserve Bank of Zimbabwe, such as selling
gold reserves in order to raise foreign currency

POSSIBLE QUESTIONS
[Link] and contrast Visible and Invisible trade
[Link] of trade transactions
[Link] exchange rates
[Link] ways of correcting Balance of Payments deficit

BUSINESS ORGANISATIONS

Traders' associations
✓ Traders' associations have a similar function to business membership
organisations
(BMOs). They stand together to achieve the same goals and objectives
✓ The functions of traders' associations are to:
➢ create change by building capacity among informal worker organisations
by
expanding their knowledge base and influencing local, national and
international policies relating to the informal working base
➢ allow workers to use their collective strength in an organised way to
negotiate
better wages and working conditions
➢ allow workers to receive better prices from those buying their products
➢ help workers pool their limited resources and increase their access to
financial
resources
➢ confer greater visibility and validity on informal workers, which in tum
gives
them influence in policy arenas
➢ allow informal workers to access existing social protection systems
➢ offer improved support systems for their members
➢ improve working conditions, including fostering occupational health and
safety approaches for informal workers
➢ promote both social and personal empowerment among informal workers,
which can lead to improved self-esteem.
Confederation of Zimbabwe Industries (CZI)
✓ Businesses operating in the secondary sectors are represented by the
Confederation of
Zimbabwe Industries (CZI).
✓ The functions of the CZI include the following:
➢ To represent and serve members in the manufacturing sector
➢ Help industries maintain sustainable growth and development
✓ Listed here are some advantages of belonging to the CZI:
➢ Membership is open to any manufacturing business organisation
➢ Members benefit by receiving updates on current issues in technology,
processing techniques and new innovations or discoveries.
➢ The CZI also lobbies the government on changes to the Acts that need
amendments or repeals

Chamber of Mines of Zimbabwe

✓ Membership is open to all mining industries that are interested in having
their
interests represented by this association. It promotes:
➢ the addition of value to minerals
➢ the use of local supplies and content to produce mineral products.
Zimbabwe National Chamber of Commerce (ZNCC)
✓ The Zimbabwe National Chamber of Commerce (ZNCC) is an association
that
provides services designed to promote its members in business
development.
✓ Some of the ZNCC's functions are to:
➢ represent its members through lobbying, collaborating and facilitating
members' interests
➢ lobby the government on pieces of legislation that the government may
want
to amend or repeal.
✓ ZNCC members benefit by:
✓ • interacting with other business organisations being updated on various
business
developments
✓ participating in international, regional and national business conferences
and
Symposia
Zimbabwe National Vendors Association (ZNVA)
✓ The Zimbabwe National Vendors Association (ZNVA)is an association
formed to
represent the interests of vendors.
✓ Vendors are people who sell their goods and services from the streets,
side roads,
marketplaces and gates of institutions, not from brick-and-mortar buildings.
✓ The functions of the ZNVA are to:
➢ represent vendors as an integral part of the economy
➢ promote vending as a viable employment avenue
➢ engage in research, lobbying and advocacy to improve the quality of
vendors'
lives
➢ uplift the standard of living of vendors
Zimbabwe Cross-Border Traders Association {ZCBTA}
✓ The Zimbabwe Cross-Border Traders Association (ZCBTA)was formed to:
➢ represent the interests of traders who import goods from several
neighbouring
countries
➢ export locally produced goods to these neighbouring countries.
✓ This area of trade has enabled a good number of people to become
entrepreneurs, in
this way reducing unemployment in the country.
✓ The functions of the ZCBTA are to:
➢ lobby the government on legislation that affect cross-border trade,
especially
on customs duties levied on imported goods
➢ provide technical assistance and training to cross-border traders.
✓ Other trade associations they can join and enjoy benefits from. These
associations
include:
➢ Zimbabwe Council for Tourism
➢ Hospitality Association of Zimbabwe
➢ Bankers' Association of Zimbabwe
➢ Construction Industry Federation of Zimbabwe
➢ Retail Association of Zimbabwe
➢ Master Bakers' Association.

Business membership organisations

✓ Importance of business membership organisations (BMOs):
✓ Aim to promote trade and industry in the Zimbabwean business world.
✓ Assist each Zimbabwean business within a specific sector or industry to be
more
successful as a business.
✓ Some of these BMOs include:
✓ Zimtrade
✓ Zimbabwean National Chamber of Commerce (ZNCC)
✓ Confederation of Zimbabwean Industries (CZI).
✓ Each of these BMOs fulfils a specific need, some focus on national trade
and others
on international trade.

Zimtrade
Zimtrade is a national trade development and promotion organisation, which
is a
joint-venture partnership between the private sector and the government of
Zimbabwe. The main purpose of Zimtrade is to:
➢ provide trade information to businesses that would like to expand locally,
regionally and internationally
➢ disseminate information on products, services and markets to the business
community
➢ assist foreign trading partners by providing information on Zimbabwean
products and manufacturing companies
➢ maintain computerised trade data on local companies, products and
services,
foreign companies, international trade fairs and trade statistics.
✓The functions of Zimtrade It promotes trade by:
➢ carrying out market and product research
➢ participating in regional, international and local trade fairs
➢ attracting foreign traders
➢ taking part in bilateral and multilateral trade negotiations and policy
formulation.
➢ It disseminates trade information by:
▪ maintaining library and documentation centres
providing annual trade directories and sectoral export directories
▪ issuing newsletters and bulletins
▪ receiving inquiries from foreign companies and also from local
companies on who to trade with.

Zimbabwean National Chamber of Commerce (ZNCC)

As mentioned above, the ZNCC is an apolitical, non-profit, membership-
based
business association that has a mandate to equip businesses with
development
opportunities. This is achieved through:
➢ Lobbying
➢ business advocacy
➢ economic research
➢ dissemination of information
➢ collaboration and facilitation with all stakeholders, government and
regional
counterparts in order to economically empower and revive corporate and
industrial Zimbabwe.
✓ The mission of the ZNCC is to be a leader in business development in the
national
Economy
✓ channel of communication between business and the various authorities in
Zimbabwe
who are growing the Zimbabwean economy.

The functions of the ZNCC

✓ The ZNCC was established to develop, promote and lobby for its members
and the
local business community. Therefore, the ZNCC functions as follows:
✓ • It advances economic progress through the creation of a good climate
for business.
✓ It develops and enhances business entrepreneurship.
✓ It identifies, promotes and services the interests and needs of its member.
✓ It represents the views of business to local and national authorities
authoritatively and
independently.
✓ It disseminates relevant information to members on local and international
markets.
✓ It collaborates with other national organisations with similar objectives,
such as trade
organisations, sister chambers, and other BMOs.

Reasons for joining the ZNCC

✓ Businesses join the ZNCC for the following reasons:
➢ The ZNCC represents the collective voice of businesses at local, national
and
international level
➢ Businesses network with one another at various seminars, social events
and
functions.
➢ The ZNCC arranges various training and development activities to ensure
that
businesses employ a well-trained workforce.
➢ Members receive advice and documentation on overseas markets and
participate in trade missions and attend export/import courses.
➢ Regular communication keeps members well informed about the business
world.
➢ Businesses have access to the ZNCC Annual Directories, which makes it
easier to contact other businesses.
➢ Members receive discounts on seminars, conferences and training
arranged by
the ZNCC.
➢ Members have privileged access to business sections on the ZNCC
website.
➢ Information regarding trade missions within the region, for example, SADC
and COMESA, is available to members.
➢ Secretarial services are offered to some members.
➢ Certificates of Origin are issued to companies that export products.

Confederation of Zimbabwean Industries (CZI)

✓ It is an independent, self-financed, legally constituted organisation
representing and
serving the interests of its members.
✓ The purpose of CZI is to:
➢ promote active business in Zimbabwe with minimal regulation, which
allows
the best development possible
➢ foster, encourage, promote, protect and advance sustainable growth and
development of the manufacturing industry and business to ensure
economic
prosperity in Zimbabwe.

Functions of the CZI

✓ It represents, advocates and lobbies on behalf of members to ensure that
both the
central and local governments enact laws that are conducive to optimum
business
operations.
✓ It provides broad, basic economic advice to members on a monthly basis.
✓ Government and the Central Bank regularly consult the CZI on key
economic issues.
✓ It disseminates general information to members according to their needs.

Small to medium enterprises (SMEs)

✓ The Small and Medium Enterprises Association of Zimbabwe (SMEA)
defines a small
business as one with a turnover of less than $240 000 or with assets worth
less than
$100000.
✓ SMEs can be described in relation to the following:
➢ number of employees
➢ size of capital
➢ turnover of business
➢ size of profits

Features of SMEs
✓ The businesses are small to medium in size.
✓ They have a simple business structure, which makes it easy to manage
them.
✓ They do not have a board of directors for decision-making.
✓ The number of employees are usually between 5 and 100 for small
enterprises and
100 to 250 people for medium businesses.
✓ The owner or owners, who are either sole proprietors or partners, invest
their personal
assets and time in the business.
✓ Owners have unlimited liability.
✓ Owners are responsible for the management of the business.
✓ The businesses focus on a small number of products or services, and a
niche market
for their products and services.
✓ Management has a strong relationship with business partners, such as
suppliers and
customers.
✓ Businesses are flexible in their operations and decision-making, and can
adapt to any
changes in the environment.

Importance of SMEs
✓These enterprises create employment and employ a large number of
people in all parts
of the country.
✓ They provide a diversity of goods and services in the economy.
✓ Businesses make a significant contribution to government in the form of
sales tax or
value added tax.
✓ They improve the standard of living in rural and remote areas by providing
income to
people, who also buy a variety of goods from them.
✓ These businesses bring appropriate technology to all areas of the country.
✓ They promote entrepreneurship among women and young people
✓ They respond very quickly to market changes.
✓ They are subcontracted by large companies for various business activities.
✓ They are a source of innovativeness and creativity.
✓ They create competition, which results in lower prices.
✓ Due to their size, SMEs are free from bureaucratic decision-making that
may delay
decisions on whether to take action or not.
Challenges facing SMEs
✓ They are limited in accessing capital and loans for expansion and growth.
Banks are
not always willing to provide loans or overdrafts without collateral security.
✓ Shortage of loans for SMEs due to underfunding of the Ministry of Small
and
Medium Enterprises
✓ The loans from SEDCO are granted at an exorbitant interest rate that
cripples the
performance of SMEs.
✓ SMEs lack relevant expertise and experience.
✓ They may not register the businesses due to the cost of legal formalities.
✓ Operating costs may be too high for businesses to operate viably due to
the lack of
economies of scale.
✓ Businesses evade paying taxes, which may result in trouble with the
Zimbabwe
Revenue Authority
✓ They suffer from unlimited liability.
✓ Mismanagement of the SMEs
✓ Many SMEs lack suitable or appropriate buildings for their operations.
✓ Some SMEs fail to properly market their Products.
✓ They face cut throat or stiff competition from large organisations
✓ They also lack government support through subsidies and grants and tax
holidays
✓ The Ministry has made efforts to:
➢ fund SMEs through the SEDCO
➢ facilitate entrepreneurship and management training
➢ provide business advisory and support services
➢ identify both local and external markets
➢ facilitate linkages between large enterprises and SMEs and cooperatives.
Public sector reforms
Public sector reforms is a process that is aimed at strengthening and
improving the
performance of the public sector. The purpose of public sector reforms is to:
➢ rehabilitate the public enterprises that were becoming a drain on state
money
due to high levels of mismanagement
➢ help make privatised and commercialised, former state enterprises
efficient,
effective, profit-focused and growth-oriented.
Nationalisation
✓ Nationalisation refers to the change of ownership from private or individual
owners to
the government, which takes over the ownership of the business
organisation
✓ Nationalisation occurs when the government wants to control strategic
resources, such
as:
➢ Water
➢ Electricity
➢ arms manufacturing
➢ strategic food storage

Privatisation
✓ Privatisation occurs when the government sells or transfers ownership of
previously
public sector owned businesses to private individuals.
✓ Ownership, control, decision-making, profit sharing and capital
contribution are all
transferred to the private sector. In Zimbabwe, the communication
organisation was
transferred to:
➢ Net-One for cellular services ➢ Tel-One for fixed telephone services ➢
Zimpost for post office services.
Commercialisation
✓ When commercialisation takes place, the government continues to own
the business
organisation, but transfers all the control, management and decision-making
to
professionals.
✓ They are employed by the organisation to make sure that it operates as a
private sector
business organisation.
✓ Management is expected to earn profits for the organisation and declare a
dividend for
the government. Dairibord Holdings is a commercialised business entity.
✓ The reasons for undertaking public sector reforms are:
➢ to reduce subsidies or government financial support to the privatised or
commercialised business organisations to ensure revenue to the government
➢ To improve their operational viability through the restructuring of these
privatised and commercialised business organisations
➢ To relax government control on the operation of these business
organisations
➢ To give the boards of these business organisations more autonomy with
regard
to price setting, making investments.
➢ To free the businesses from government interference
➢ To promote organisations' operational efficiency and effectiveness
➢ To promote indigenisation in privatised companies.
Reasons for public ownership
✓ • Public sector business organisations are better placed to produce
essential goods and
services compared to privately owned companies, if the price is not
profitable and
shortages may cause public riots.
✓ A natural resource, such as water, is better managed by a state enterprise
to ensure
equal distribution to all citizens.
✓ investment due to the fact that they may not bring quick returns to the
investors.
✓ Some products are of strategic importance and cannot be left to private
investors to
make decisions on due to the security risk.
✓ Duplication of services may be avoided when a state business organisation
produces
the goods and services for the nation.

REVISION QUESTIONS
*explain the functions of traders’ associations
* Discussing importance of BMOs
* Evaluate the contribution of Small to Medium Enterprises (SMEs) to
Zimbabwean
economy
* Outline challenges faced by Small to Medium Enterprises (SMEs)
* Discuss Government initiated programmes meant for Small to Medium
Enterprises
(SMEs)
* Discuss trends in Public sector businesses