FNB Zambia: ‘SMEs Can Be Resilient Through Varying Economic Settings‘

(Image: Misheal Chibwe, Senior Manager of SME at FNB Zambia)

As the world grapples with slowdown in GDP and rising prices (stagflation), Zambia is not immune to the consequences of this economic pressure. As fuel and transport costs fluctuate, coupled with constrained cash flow and other challenges – all putting pressure on the profit margins of SMEs, FNB says the silver lining potentially lies in managing cash flow effectively and efficiently.

The cost of fuel globally has increased over the last year, and with the cost-reflective fuel prices we have in Zambia, we have seen small businesses experience a resultant increase in the cost of running their businesses. The Central Bank, Bank of Zambia anticipates that economic expansion will come in at 3.5% in 2022 and 3.6% the year after that indicating recovery of the Zambian economy. It goes without saying that all firms will eventually experience economic volatility at some point in the life of the business; it is anticipated that companies operating on a smaller scale would be more negatively impacted.

Misheal Chibwe, Senior Manager of SME at FNB Zambia, says SMEs have shown resilience by absorbing costs in the short-term, but the fluctuating pace of fuel and transport may lead to operating models being unstable, leaving some businesses with no choice but to pass on some of these costs to consumers. At the same time, we are likely going to see employees asking for increased monetary compensation as they seek to make ends meet.

Chibwe unpacks six simple strategies that SMEs can consider in managing these mounting pressures:

1. Every ngwee counts. Therefore, make use of the resources that are available to your company at no cost, such as bank accounts with minimal fees, point-of-Sale devices that do not require any upfront purchase costs or monthly rental fees, and free accounting and payroll solutions that save you money and time.

2. Since the cost of fuel, transportation, and other essential business inputs has increased, and reduced capability of small businesses to borrow and service their debt, businesses stand to benefit from unsecured lending and trade financing, which is currently available to businesses from a variety of lending institutions.

3. Eliminate any unnecessary vulnerabilities by cutting non-essentials, streamlining business processes, sharing costs with other businesses (e.g., truck hire/motorbike for deliveries) where possible, reduce redundant physical space you are occupying (especially if your business has a strong online/digital presence and your staff can work remotely).

4. Understand the direct costs that go into producing your business’ products and services. This helps to determine if the business can continue to make profit in the event of rising input costs. Know how much pressure your profit margins can take and push back where you can, to help you stay competitive.

5. The upfront cost may seem high, but there has never been a better time to pursue a green energy solution like solar where possible or a smaller utility vehicle. It will lower your future monthly electricity and fuel costs, limit downtime, not to mention the added benefit of protecting the environment.

6. Businesses need to devote some time and resources to improving their financial literacy in order to improve their general business acumen, which in turn will raise their capacity for borrowing money and their potential for expansion. The capacity of a firm to borrow money and expand can be improved by maintaining consistent record keeping and structure.

“There’s no doubt that increased input costs may continue putting significant pressure on the bottom line of SMEs. However, there are steps businesses can take that will make a big difference on how SMEs will emerge from current and future economic changes,” concludes Chibwe.

Source: FNB Zambia