Urban Informality and Small Scale Enterprise (SME) Development in Zambia: An Exploration of Theory and Practice

Abstract

This paper describes the evolution, dynamics and challenges of SMEs in Zambia’s informal economy. It also investigates the various government initiatives towards the promotion and development of Small-Scale Enterprises and their associated challenges. Additionally, it focuses on how entrepreneurs find ‘room to maneuver’ despite the challenges that they face while operating in the informal economy. The paper employed desk review methodology involving a review of secondary data which was qualitatively analysed. Situated within the Informalisation approach, the paper reveals that the process of informality in urban areas in Zambia was mainly driven by the implementation of Structural Adjustment Policies (SAPs) in the early 1990s. Thus, the changing political, economic and social arrangements following the implementation of SAPs with their associated effects such as increased poverty, destitution and reduced formal sector employment led to the growth of SMEs and the urban informal economy as people sought other sources of livelihoods. The paper also shows that informal SMEs in Zambia are heterogeneous, dealing with the production of goods and services whose prime objective is employment creation and the generation of income to individuals concerned. Though diverse, economic activities of SMEs are mainly distributed around the traditional economic sectors that rely on the use of low technology and social networks; whose orientation is towards the local and less prosperous segments of the market. Some of the challenges that SMEs in Zambia face include; financial, market and infrastructure constraints. Furthermore, SMEs also lack access to information; adequate management, entrepreneurial and technical skills. As a result, there have been government policy related efforts attempting to assist Small-Scale Enterprises such as through the Small Industries Development Act, The Commercial, Trade and Industrial Policy, Small Enterprises Development Act, and the Micro, Small and Medium Enterprise Development Policy. These aim(ed) at providing infrastructure, business development support services, training, capacity building through entrepreneurship development and access to finance, markets among others. However, government efforts have been hampered by challenges that include among them; corruption, lack of coordination, poor targeting, funding instability, lack of implementation systems and political interference. Despite inadequacies in government efforts, Small-Scale Enterprises have continued to function through the use of other means such as relying on social networks, collective means through local associations and cooperation as well as through the establishment of informal networks with politicians.