Why are indigenous Zambian owned SMEs failing?

By Kumbukilani Phiri

If there is something that I am so passionate about, it’s the development of more indigenous Zambian owned businesses in the country. My argument has always been that only few developed countries I know like the United States of America, Australia, Malaysia, etc has been developed by immigrants. All the other countries have been developed by locals who have owned and directed the economic development of their countries.

The recent years have seen a rise in the number of young Zambians who have taken interest in starting some form of business. This could be as a result of few employment opportunities in the country and perhaps the exposure that has been brought about by the advent of the internet and social media. I personally feel very proud every time I hear about any Zambian who is doing well in business and employing other Zambians.

Unfortunately, the rise in the interest to do business by Zambians more especially the young ones has also brought a debate about why the failure rate is very high. Firstly, if we are to be fair, we can argue that the failure rate looks high because there are now more people trying. However, there seems to also be other reasons that we can perhaps look at as contributing factors to the higher failure rate.

1. Bad economic environment.

Anyone who has been living and doing business in Zambia for the last 10 years will agree that the economic and business environment has been very bad. Firstly the Kwacha has lost value by more than 450% against major foreign currencies just in the last 10 years. The exchange rate moved from K6.70 to 1 dollar to the current K28.50 to 1 dollar. This has made international trade very difficult affecting many cross border traders and suppliers. Things have also been made very worse by the COVID 19 and the recent droughts which affected both the crop production and electricity generation. Many businesses have failed to survive including many owned by foreigners as well as big multinationals.

2. Unrealistic expectations.

As an entrepreneur and businessman myself, I know just how unrealistic many entrepreneurs and businessmen can be, myself included. Many of us forget to do the basic things like taking time to understand market gaps and needs, market size, competition, risks, etc. We focus more on the potential returns to make ourselves rich forgetting everything else. I have seen entrepreneurs promoting their businesses to investors with potential returns of over 1000% in a single year. This is beyond unrealistic and just plain madness. Unfortunately, many only come to realize that their assumptions were very wrong when it’s too late. By that time, the business will have already collapsed and both their money and that of the investors lost.

3. Quick and over diversification.

I have noticed with great sadness at how Zambian entrepreneurs rush to diversify their businesses. Instead of taking time to build one business until it becomes profitable, many rush to open or start many other businesses. They think diversification is growth forgetting that one can do one product and grow both the turnover and profitability. The rule has always been to diversify when your initial business has become stable both in production, sales and profitability. It’s not like today you are doing pigs, tomorrow you are selling airplanes, tomorrow you are opening a bank. It’s also important to diversify in related industries and not into completely unrelated sectors within a short time. This is a big recipe for failure.

4. Focusing on social media appeasement and fame.

On this one, maybe I am just old school and don’t know how things are done in the modern age. I have noticed that many young entrepreneurs focus so much on making people think they are running successful businesses online, yet the opposite is the case in reality. You would find them busy showing how their businesses are expanding today, only to hear that they are shutting down the following day. As an old school, I believe in doing the work in silence and only showing actual and real results to the world online later. You can’t register a business at PACRA today and tomorrow you are already going live on your page teaching other people how to become entrepreneurs and do business. Successful entrepreneurship requires a lot of work behind the scenes to make it work. You need a good product, good team and supportive customers. You shouldn’t rush to boast to the world just because you have a good product or service, you also need to establish a good team and build loyal and supportive customers and clients.

5.Understanding the difference between entrepreneurship and business management.

This one is actually very difficult for many to understand, but it’s important to distinguish between an entrepreneur and a businessman. An entrepreneur is simply an innovator, a strategist or an inventor who comes up with a unique product, service or model of how to deliver value to customers or clients. This person may not necessarily be a good manager themselves. Unfortunately, many entrepreneurs have misunderstood being entrepreneurs and being managers. Many lamentably fail at running businesses they create to sale their innovative products, inventions or models. What is important for them to understand is that their gift or talent ends at the innovation stage and it’s better for them to leave others to manage the business side of things while they focus on innovation and making others buy into their vision.

6. Depending on free money to run (grants, concession loans, etc).

In recent times, I have also noticed a rise in grant and loan funded entrepreneurs. These are entrepreneurs who are very good at putting up proposals for their businesses, unfortunately, once they get the grant or loan money, their businesses only survive as much as the grant or loan money can last. They have no innovative products or services to offer to the market or they are so bad at managing their businesses to generate any value and profit to survive beyond the grants or loans. So their businesses fail once the grant money runs out.
The author an entrepreneur owns Legacy Manufacturers