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Economic Sustainability of Small to Medium Enterprises (SMEs) in Zimbabwe:

The Impact of Fiscal Incentives and Entrepreneur Work Engagement

Article · December 2019

DOI: 10.7176/PPAR/9-12-03

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Public Policy and Administration Research www.iiste.org
ISSN 2224-5731(Paper) ISSN 2225-0972(Online)
Vol.9, No.12, 2019

Economic Sustainability of Small to Medium Enterprises (SMEs)

in Zimbabwe: The Impact of Fiscal Incentives and Entrepreneur
Work Engagement
Moses Jachi* Nevermind Muchongwe
Manicaland State University of Applied Sciences P. Bag 7001, Mutare, Zimbabwe

Abstract
This study aimed at investigating the impact of fiscal incentives and work engagement on economic
sustainability of SMEs in Zimbabwe. The study adopted fiscal incentives, representing external factors, and
work engagement, representing factors internal to the organization, as independent variables and economic
sustainability assessed in terms of profitability through turnover and return on investment (ROI) as the dependent
variable. Survey data was obtained from 120 SMEs in Zimbabwe using semi-structured questionnaires. Research
participants were purposively selected to ensure the results are representative of all players within the SME sub-
sector in Zimbabwe. Correlation and regression analysis were used to test the hypotheses that fiscal incentives
and work engagement are positively associated with economic sustainability of SMEs in Zimbabwe. The study
established that there is a significant positive relationship between fiscal incentives & work engagement and
economic sustainability of SMEs in Zimbabwe. However, it was revealed that most entrepreneurs in Zimbabwe
were not aware of the availability of and their eligibility for fiscal incentives. As such, the study concluded that
economic sustainability of SMEs in Zimbabwe is mainly driven by internal people factors than the influence of
fiscal incentives. The study also revealed that majority of entrepreneurs in Zimbabwe were pushed into
establishing businesses by negative economic conditions such as unemployment than free-will and business
enthusiasm. This establishment therefore, confronts the self-determination theory as it proved limited insight into
the psychological mechanisms involved in driving entrepreneurial spirit. The study however further concluded
that if properly administered, fiscal incentives have the capacity to significantly impact economic sustainability
of SMEs in Zimbabwe. Study findings will contribute towards the development of a more satisfactory
descriptive theory for a broader approach to economic sustainability of SMEs in Zimbabwe
Keywords: Fiscal incentives, Work engagement, Economic sustainability
DOI: 10.7176/PPAR/9-12-03
Publication date: December 31st 2019

1. Introduction
Literature emphasises the importance of the role played by SMEs in the overall growth and development of both
developed and developing economies (Kirkby & Watson, 2003; Shar, 2006; Asikhia, 2010; Osim, 2010;
Dickinson, 2013). SMEs as popularly known for their ability to harness local resources, labour intensive nature,
dominant dependence on local sources of raw materials and components, and flexibility in creating linkages with
other sectors of the economy, have proved to be an important cog in the engine of economic growth (Shar, 2006;
Ishengoma & Kappel, 2006). This therefore entails that economic players including governments should focus
and further interests in the subsector in their endeavour to promote economic development. The Zimbabwean
economy, since the early eighties has been dependent largely on agriculture (Stoneman & Thompson, 1994), this
was a direct result of the enormity of revenues generated from the agricultural subsector. As a result, no
reasonable attention has been directed towards positioning SMEs on the economic development highway or the
development of the SME sub-sector.
Factors determining sustainability of SMEs can be broadly categorised into internal and external factors.
Internal factors are those factors intrinsic and embedded within the organisation, such as the influence of owner
entrepreneurs, whereas external factors entail factors pertaining to the external environment, including factors
such as government policy. The theory supporting sustainability as being driven by entrepreneur work
engagement as a key organizational internal sustainability driver was born out of an interest in the study of
intrinsic motivation, defined as doing something for its own sake, out of interest and enjoyment (Van den Broeck,
et al., 2011). In addition to showing how feelings of work engagement (locus of causality) influence the level of
innovation, research has found that innovation flourishes when people feel like they are married to their work
environment, which ultimately yields a feeling of competence. Key observations can be drawn from the
behaviors of entrepreneurs in their manifestation of intrinsically driven energies through expansion and growth
of their businesses.
Research confirm that there is a strong association between work engagement and overall business success
(Muntaha, et al., 2013). This belief resonates well with their earlier work on gendered engagement as they allude
that work engagement presents a positive psychological state of the mind capable of ploughing enormous

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benefits to the entity as a whole in the long run. Most SMEs in Zimbabwe are populated and manned by family
workers while of late this people performance indicator has never been interrogated through research to ascertain
its influence in driving overall performance and ultimate sustainability in the Zimbabwean context. In view of
the fact that Zimbabwe is currently struggling to survive the economic mayhem, SMEs have proved very useful
as the ‘new seed’ to industrialization and modernization, as the sector is richly endowed with enumerable levels
of innovation and creativity (Baregheh, et al., 2012; Salavou & Lioukas, 2003). Work engagement stands as one
construct that should never be left out in any innovation driven debate, SMEs included. SMEs’ economic
sustainability anchors heavily on the mix of; character, competencies, caliber, qualities and or work attitudes of
the people running the economic enterprises. Innovation and creativity stand as latent effects of work
engagement from which the so desired economic sustainability of SMEs is expected to accrue (Upasna, 2013).
Gaynor (2002) pronounces that entrepreneurial intensity is a manifestation and confirmation of an engaged
workforce. It is aptly rare to witness a scenario where work engagement and employee engagement being at
contrast owing to the strong marriage between the two constructs; they work hand in glove.
In Zimbabwe, the year 1991 marked the birth of economic reforms, and this heralded the possibility of a
complete turnaround on the central government’s attitude and view towards realisation of the importance of the
role played by private sector participants and Small and Medium Enterprises in fostering economic activity
(Kirkby & Watson, 2003), mainly focusing on the most wanted growth and development (Muvuma, et al., 2005).
Policy frameworks targeting the Small and Medium enterprises clearly demonstrated the government’s potential
realisation and appreciation of the economic subsection (Nyoni, 2002). In Zimbabwe, a number of economic
blue prints aimed at revitalising the economy have always been crafted, these include, the Zimbabwe Program
for Economic and Social Transformation – ZIMPREST (1996-2000), the Millennium Economic Recovery
Program – MERP (2000), the National Economic Revival Programme – NERP (2003), the Macroeconomic
Policy Framework (2005-2006), the Expansionary Monetary Policies (2003-2008), the National Economic
Development Priority Programme – NEDPP (2007), the Short-term Emergency Recovery Programme (2009),
the Zimbabwe Agenda for Sustainable Socio-economic Transformation (2015 - 2018) and the Ten-point Plan
(2015). These policy frameworks had great economic implications, however, with the exception of ZIMASET
and the subsequent ten-point plan, majority of them lacked emphasis on the need to fully integrate the SME
subsector into the economic development highway, and most of other programs targeting the SME subsector
lacked coordination (Nyoni, 2002).
There are a number of benefits associated with SME development; these include innovativeness, relatively
low initial capital requirements and growth potential (Asikhia, 2010). These enterprises can present a number of
solutions to a struggling nation like Zimbabwe. Considering the soaring unemployment challenges facing the
Zimbabwean economy, SMEs are playing a crucial role in enhancing livelihoods (Asikhia, 2010) since the
greatest percentage of the employed population are in the sector. SMEs however, face a number of problems the
majority of which can be addressed by the government through policy frameworks, taxation policy being one of
them (Nyoni, 2002; Dickinson, 2013). The importance of the role played by SMEs in the overall growth and
development of the economy has been greatly appreciated by a majority of both developed and developing
economies (Kirkby & Watson, 2003; Shar, 2006; Osim, 2010; Dickinson, 2013). SMEs promote sustainability in
the context of industrial dispersal and industrial diversification, and they account for more than half of economic
activity, thus employment and sales in a number of economies (Udechukwu, 2003).
In his book ‘The Wealthy of Nations’, Adam Smith (1976) presented his canons of taxation, one of which
emphasised on the need to design tax policy so as not to enrich the treasury of a nation at an unprecedented
expense to its citizens (Smith, 1976). However, taxation has failed to meet such requirements and it is found to
be so burdensome to people than it benefits the sovereign (Dickinson, 2013). It is therefore government’s
responsibility to create a legislative and fiscal climate that is pro-enterprising and encouraging investment,
growth and survival of sustainable enterprise (Poutziouris, et al., 1999; Asikhia, 2010; Dickinson, 2013). In a bid
to address problems faced by SMEs, enhance business growth, investment and economic development, nations
have increased interests in taxation policies that reduced cost of investment (Koves, 1992; Shar, 2006; Dickinson,
2013) and strengthen the link between effort and reward (Shar, 2006; Asikhia, 2010). The most common forms
of fiscal incentives being accelerated depreciation on capital investments, tax credits and tax holidays (Shar,
2006). Following results from a study by the World Bank, investment promotion has proved to be an important
objective of tax policy in a number of developing economies. This same notion was supported by Delong and
Summers (1991). Delong and Summers subscribed to the idea of incentivising capital investment and further
explored on how it positively impacts on socio-economic well-being of nations as a result of positive indirect
flow of benefits, thereby giving a proper justification for investment promotion. This same notion was also
supported by Scott (1989).
However, Boadway & Shar (2007) provided a somewhat solid argument on the implications that incentives
might have on investments. They argued that if incentives are provided to enterprising firms in an environment
characterised by perfect competition, they will not result in an equitable distribution of resources (Boadway &

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Shar, 2007), since it results in different pre-tax returns for different investments. This idea was supported by
Fisher (2010) when he also argued against tax breaks, viewing them as a waste of state resources which could in
turn be used to provide public service (Fisher, 2010). In his analysis of the three business tax breaks passed by
the California Legislature in 2008 and 2009, Fisher argued that it is clear that sustaining fiscal incentives would
result in substantive opportunity costs to the economy, considering the resources could have been successfully
applied to the provision of public services (Alan & Fisher, 2004; Fisher, 2010). The use of fiscal incentives to
enhance economic development, according to Fisher, cannot bring forth the intended results, given that a number
of the beneficiaries to such incentives are economic players who would have contributed nothing in line with the
government’s economic objectives (Alan & Fisher, 2004; Fisher, 2010).
King (1984) also pointed out the negative implications of fiscal incentives. He postulated that fiscally
incentivising investment is associated with equity violations which are usually overlooked (King & Don, 1984;
Zee, et al., 2002). In contrary to the above negative concerns about fiscal incentives, according to Lerner (1998),
there is “no proof that incentive programs for informal investors are not necessary” (Lerner, 1998). It can also be
observed from economic literature that an example of Keynesian solutions to problems of employment, which
can help a nation make considerable strides towards full employment, is making use of taxation policy (Lipsey,
2007). However, the efficacy of fiscal incentives in achieving their intended objectives in poor economic
systems associated with considerably reduced taxable earnings, high operational costs, and other structural
rigidities remains questionable. Furthermore, in environments associated with capacity underutilisation, availing
fiscal incentives may be unjustifiable. If, however, economic development is hindered by cost of investment,
fiscal incentives may play a paramount role in propelling growth.

2. Statement of the problem

The sustainability of SMEs world over, leverages heavily on factors external to the organization, thus public
policy and internal people factors. People factors as key internal drivers of sustainability, chief among them
entrepreneurial intensity summarized as innovation and creativity, have been noted as driving forces towards
attainment of economic sustenance (Upasna, 2013). Ideally, Peters & Waterman (1982) express this as
“productivity through people” which in this study is reckoned holistically as work engagement, do present
realistic justification for the potential existence of a strong link between work engagement and economic
sustainability of SMEs (Aleksandra , et al., 2017). On the other hand, as is the case with many other developing
nations, Zimbabwe offers fiscal incentives in various forms, including tax exemption periods, preferential rates
of taxation, as well as capital allowances as key external forces to aid entrepreneurial efforts and drive business
sustainability. These fiscal incentives are available to beneficiaries on the basis of economic sector, line of trade,
and location of the investment activity, (ZIMRA, 2014), and are mainly aimed at promoting investment and
economic sustainability of Small and Medium Enterprises. However, there is still little evidence on whether
these incentives do really promote the economic sustainability of local SMEs. Also, very few studies
contextualized in Zimbabwean experiences have interrogated the intensity of influence that work engagement
holds on economic sustainability of SMEs rampant across sectors of the Zimbabwean economy. This study seeks
to plug the research gap through theorizing work engagement as a key internal dimension and fiscal incentive as
the key external dimension fostering economic sustainability of Zimbabwean SMEs.

3. Literature review
3.1. The Self-Determination Theory (SDT)
The roots to the self-determination model can be traced from the idea that human beings have a natural tendency
to expend their energies, account for their actions, show originality to learning and understanding things, and the
consequential desire to do good at work and play (Robert & Ankli , 2012). Human strengths, motives, capacities
and optimal functioning are said to owe their origins to positive psychology, whose execution follows the
principles of natural free-will which then calls for autonomous regulation as the chief driving force. Catherine
(2015) agrees that the model proffers a strong theoretical basis to examine the relationship between human needs
satisfaction (e.g. autonomy, competence and relatedness) and entrepreneur’s behavior in the work context. Thus,
based on self- determination framework, the authors reasoned that when entrepreneurs have a sense of
competence, autonomy and relatedness, emotional bond between themselves and their work is possible. It is
prudent to treat the theory as a cognitive assessment and evaluation model, which illuminates the outcomes of
extrinsic motivators on intrinsic motivation.
Intrinsic motivation denotes self-drive towards spontaneous satisfaction and self-fulfillment of personal life
goals while extrinsic type points to external push forces to the individual work attitude as sourced from the
surrounding environment. The former appears closely related to the SD theory owing to the self being the
initiator and engine of work habits since people perform the given activity for its own sake out of enjoyment as
they make choices purely out of interest (Richa , et al., 2012). This whole idea about motivation is found slotted
on the self-actualization map as championed by Maslow’s needs hierarchy. Further, perception of the self as

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marked by one’s emotional and psychological needs, personal life goals and aspirations, culture, individual
dynamism, and the impact of social environments are some of the key issues that determine one’s ability to self-
actualize which is the focus of SDT. The success speeches and winning stories told of in organizations bolster
awareness on how both forms of motivation affect performance and influence work satisfaction and again is vital
when one considers the complex conduct of employees who in volatile labor-environment find themselves with
an ambivalent attitude towards their enterprise. Van, et al., (2011) mentioned that workaholism, loyalty behavior,
resilience, self-determination, brand ambassadorial attitude and commitment to success are some of the key
tenets that define the effects of self-determination which are expected to manifest in the entrepreneur.
The SDT is a motivation and personality theory that presents the role of self-motivation in influencing
behaviour and personality patterns (Ryan, et al., 1997). Through the application the theory in empirical processes,
literature establishes three main needs that are essential for the optimal functioning of the natural propensities of
growth and integration as well as for constructive social development and personal well-being. The identified
needs are competence (White, 1963; Harter, 1978), relatedness (Reis, 1994; Baumeister & Leary, 1995) and
autonomy (De Charms, 1968; Deci, 1975). Studies based on the self-determination theory also examined the
effects of environmental factors on personal behaviour motivation and well-being, whose findings mainly point
to the thwarting of the three identified competence, relatedness and autonomy needs. Majority of these studies
specified conditions which promote constructive behaviour as well as those that impede self-motivation.
The current study, through a review of previous studies guided by the self-determination theory seek to
assess and establish the main factors behind pro-enterprising behaviour of entrepreneurs within Zimbabwe’s
SME sub-sector. Motivation concerns all aspects of intention and activation. In the real world, the concept of
motivation is highly valued because of its consequences. It can therefore play an important role in assessing
behaviours of entrepreneurs as they in most cases play a double-fold role of a manager/leader and investor.
People are motivated to act in certain ways by different factors, ranging from their valuing of an activity to a
reaction to a strong external coercion. This contrast between internal motivation and a response to external
pressures is common in mankind, across all spheres of life. The idea of whether people behave in a certain
fashion out of their interest and values, or for reasons external to the self, is significant to understanding of
dynamics in every culture or trade (Johnson, 1993), representing dimensions through which actors can
understand their own behaviours and that of others (Heider, 1958; De Charms, 1968; Connell & Wellborn, 1991).
Contrasting between self-motivated individuals and those whose behaviour is driven by external factors
reveal that those self-motivated are more interested, committed and confident in their undertakings, which
elements manifest through enhanced performance, perseverance and creativity (Deci & Ryan, 1991; Sheldon, et
al., 1997), heightened vitality (Nix, et al., 1999), self-esteem (Deci & Ryan, 1995) and general well-being (Ryan,
et al., 1995). These disparities have been seen to exist even among people of similar competencies or self-
efficacy for their roles or trades. The self-determination theory managed to ascertain different forces behind
people’s actions, through the identification of different types of motivation and their specific consequences for
learning, performance, personal experience and well-being, and providing a set of principles guiding the
development and sustenance of each type of motivation. Thus, the self-determination theory recognises a
positive thrust to human nature and provides an account of passivity, alienation and psychopathology.
Knowledge concerning the nutrients essential for positive motivation and experience which open doors to
enhanced performance and well-being is of great significance. It can be of great relevance to policy makers
concerned with economic development through the promotion of pro-enterprising behaviour, because it speaks
to the conditions that promote behaviour regulation. It is also important to entrepreneurs, managers and leaders,
whose interests are to facilitate motivation and commitment on the job, because motivation is central in change
management. Thus, by attending to the relative presents and deprivation of support for basic psychological needs,
policy makers, managers and leaders are better able to understand the sources of entrepreneurial engagement and
what drives their own and others’ spirit, which facilitates both personal achievement and overall economic
development.

3.2. Fiscal incentives for economic development

Several governments have used taxation as a means of attaining policy objectives (Adair, et al., 1995). Fiscal
incentives are one of the most relied upon strategies available to governments who are in need of improving
economic activity and making the economic base attractive, especially in favour of the private sector (Adair, et
al., 1995). The effects of taxation to an enterprise investment and entrepreneurship does not only concerns the
evaluation of taxation policy and its design, but also impacts the thinking surrounding economic growth (De
Long & Summers, 1991; Barro & Xavier, 1992; Baumol, et al., 2007).
Davis and Henreckson (2005) pointed out that taxation issues might differently affect investment in
different sectors and can therefore influence the process of resource allocation between the formal and the
informal sectors of the economy, hence the need for taxation policy analysis. The same notion was supported by
Riding and Dunlop (2002) when they asserted that policymaking authorities are consistently working tirelessly

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to come up with ways to improve private investment (Riding & Dunlop, 2002). Some of the suggestions they put
forward as means of improving private investment include revisiting the existing taxation treatments of equity
investments, capital gains, capital loses as well as a considerable review of securities regulations. Further study
is however necessary to establish whether the suggested measures are warranted. Lerner (1998) however argued
that a considerable degree of uncertainty still exists on the feasibility of public efforts on investment
encouragement in new firms. It should therefore be appreciated that no considerable works have been carried out
on ascertaining how financing programmes have to be designed to ensure they are effective (Lerner, 1998;
Lerner, 2002).
Government intervention in the promotion of economic growth has remained a central element in taxation
laws (Manly, et al., 2006), as such, the responses of expenditure on fixed investment to changes in taxation
policy have been a subject of great debate. Chirinko (1986) argued that no sufficient empirical evidence is yet
available in connection with the relationship between investment particularly capital investment and changes in
taxation legislation (Chirinko, 1986). This same notion was upheld by Clark and Sichel (1993). However, Hasset
and Hubbard (1996) asserted that there is positive relationship between changes in marginal investment costs and
changes in taxation (Hasset & Hubbard, 1996). According to the United Nations Global Survey (2000) a number
of countries have resorted to fiscal incentives as a determinant for investment attraction, regardless of its efficacy
being questionable. “In terms of the types of fiscal incentives granted, there is clearly an increasing trend
towards offering full or partial tax holidays or tax rate reductions for specific types of activities” (UNCTAD
2000). It has also been noted that the other trend concerns increasing prevalence of accelerated allowances,
generally for investment in property, plant and machinery. A considerable number of nations use fiscal
incentives to ensure enterprise economic sustainability. The reasons behind incentivising enterprises are
considerably variable, and these range from employment creation and export promotion to domestic value
addition (UNCTAD 2000).
Incentive schemes for SMEs are a topical issue since it is highly characterised by information asymmetry, a
phenomenon described by Berger and Udell (1988) as “informational opacity”. As such, some scholars have
consistently argued that for incentives to be effective, they should be directed to small and growing firms. Small
and Medium Enterprises often face funding problems due to their inability to borrow from capital markets
(Berger & Udell, 1988). The funding of the small growing firms would benefit the nation through the broadening
of the tax base in the long run, which is a key intermediary stage of improving governance and political
development essential for improving the investment climate in developing countries. Table 1 below presents
advantages and disadvantages associated with different forms of fiscal incentives.
Table 1: Pros and cons to the government of different forms of fiscal incentives
ADVANTAGES DISADVANTAGES
Lower Tax Rate
 Simple to administer  Largest benefits go to high-return firms that are likely to have
 Revenue costs are invested even without incentives
more transparent  Invites tax avoidance through high-tax enterprises shifting profits
to low tax areas via transfer prising (intra-country and
internationally)
 Acts as windfalls to existing investments
 Unlike specific benefits, may not be tax spared by home country
tax authorities.
Tax Holidays
 Simple to administer  Attract short-run projects
 Allows taxpayers to  Invites tax avoidance through the indefinite extension of holidays
avoid contact with tax due via creative re-designation of existing investments as new
administration (which investments
may be important if it  Creates competitive distortions between old and new firms
is complex or corrupt)  Revenue costs are not transparent unless tax filling is required, in
which case administrative benefits are foregone.
Investment allowance and Tax credits
 Can be targeted to  Distorts choice of capital assets in favour of short-lived ones, since
certain types of a further allowance is available each time an asset is replaced
investments with  Qualified enterprises may attempt to abuse the system by selling
highest positive spill and purchasing the same assets to claim multiple allowances
overs  Greater administrative burden
 Revenue costs are  Discriminates against investments with delayed returns if loss
more transparent carry-forward provisions are inadequate.

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ADVANTAGES DISADVANTAGES
Accelerated Depreciation
 All of the benefits of  Some administrative burden
allowances and credits  Discriminates against investments with delayed returns if loss
 Does not generally carry-forward provisions are inadequate.
discriminate against
long-lived assets
 Moves the distortion
against investment
typically produced by
the regular income tax
Source: Fletcher (2002)

3.3. The work engagement model

The origins of the concept of work engagement can be traced to studies on the negatively framed concept of
burnout (Schaufeli, et al., 2002). The burnout concept which looks exclusively on the negative role of workers’
well-being, has since been rephrased as an erosion of engagement, following the emerged focus of positive
psychology, focusing on human strength and optimal functioning rather than on weaknesses and malfunctioning
(Seligman & Csikszentmihalyi, 2000). As such, work engagement can best be referred to as a positive antipode
of burnout (Schaufeli & Bakker, 2004). The work engagement model emerged as a response to calls for positive
constructs in occupational psychology (Cillier & M, 2010). Work engagement can be defined as “…a positive,
fulfilling, work-related state of mind that is characterised by vigour, dedication and absorption” (Schaufeli, et al.,
2002). Vigour is associated with high energy levels, willingness to work and persevere regardless of
circumstances, and dedication is associated with a sense of meaningfulness, a feeling of being challenged, a
feeling of pride and enthusiasm and inspiration, whereas absorption concerns the idea of being fully focused on
and immersed in one’s work to such an extent that one becomes passive to the passing of time and finding it
difficult to detach oneself from work (Schaufeli, et al., 2002; De Bruin, et al., 2013). Vigour and dedication are
considered core dimensions of work engagement (Schaufeli & Bakker, 2004), whereas absorption may be a
consequence of work engagement (Langelaan, et al., 2006; De Bruin, et al., 2013).

3.4. Economic sustainability of small to medium enterprises

The concept of sustainability can be perfectly expressed through its three main pillars of economic,
environmental and social effects (Goetz, 2010). Economic sustainability refers to the capability of an enterprise
to remain in business. It concerns the propensity to generate income for a considerable time period that is in
excess of operational costs. Economic sustainability concerns the idea of taking into consideration all the
components of the organisation and realigning them towards the central goal, which fosters proper management
of revenue and costs associated with the entity’s operations (Rich, 2001). Therefore, economic sustainability can
be said to be the epicentre of the business model concept (Pasmore, 1988). Considering it to be the central part of
the business model concept, it therefore means viability is a critical determinant factor (Emery, 1969). Economic
sustainability which is alternatively referred to as the business of staying in business (Doame & MacGillivray,
2001), represents one of the three components of the ‘triple bottom line’ of enterprise sustainability. Figure 1
below illustrates the three main dimensions of sustainability and examples of means through which each can be
attained.

Figure 1: The three main dimensions of sustainability

Source: Dyllick & Hockerts (2002)

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For an enterprise to be referred to as being economically sustainable, it should be able to manage the three
main forms of economic capital, thus, financial, tangible and intangible capital. This entails that, a holistic
management approach is central to economic sustainability (Found & Rich, 2004). Dyllick and Hockerts (2002)
postulated that, “A company ceases to exist once no economic capital is left, but in reality, a company will have
become unsustainable long before” (Dyllick & Hockerts, 2002). In the context of small to medium enterprises,
economic sustainability can be defined as the ability of a company to “guarantee at any time cash flow sufficient
to ensure liquidity while producing a persistent above average return to its shareholders” (Dyllick & Hockerts,
2002). Porter (1998) however argued that not all industries offer equal opportunities for sustained profitability
and the inherent profitability of the industry is one essential ingredient in determining the long-term profitability
of the firm (Porter, 1998). Secondly, in some industries some firms are much more profitable than others,
regardless of the average profitability of the industry. Sustainability demands that a firm’s competitive advantage
resists erosion by competitor or industry evolution. An economically sustainable entity should ensure its main
operational objectives are centred on generation and distribution of wealth, profitability, efficiency and
stakeholder value-addition. It is however important to consider that in this modern dynamic environment, the
traditional methods of generating profits which base dominantly on efficiency is no longer the most appropriate
in achieving economic sustainability. It is therefore necessary to consider both elements of efficiency and
effectiveness (Found & Rich, 2004). In 1995, Carnell differentiated efficiency from effectiveness when he
asserted that “efficiency comprises of achieving existing objectives with acceptable use of resources.
Effectiveness means efficiency plus adaptability… the effective organisation is both efficient and able to modify
its goals as circumstances change” (Carnell, 1995).

3.5. Small to Medium Enterprises in Zimbabwe

There are a number of varying definitions of Small to Medium Enterprises (SMEs) in business and economic
literature. SMEs can be defined on the basis of number of employees, asset base value or revenue (Gibson &
Van der Vaart, 2008). Table 2 below illustrates how SMEs are defined by various multilateral institutions.
Table 2: SME Definitions used by Multilateral Institutions
Institution Maximum number of Maximum Revenue Maximum Assets
Employees Turnover ($) Value ($)
World Bank 300 15000 000 15000 000
IMF – IADB 100 3000 000 (none)
African Development
50 (none) (none)
Bank
Asian Development No official definition. Use only definitions of individual national governments
Bank
UNDP 200 (none) (none)
Source: Gibson & Van der Vaart, (2008).
ZIMRA has defined an SME as any business enterprise that scored nine points or less in terms of its employment
levels, or turnover levels and or total net assets values (ZIMRA, 2014), these are determined in terms of section
2B of the Finance Act (Chapter 23:04) of the Republic of Zimbabwe. Points ranging from one to four are
substituted in the following formula:
A+B+C
Where:
A represents the average maximum total number of full-time employees during any calendar year of the
enterprise;
B represents maximum total turnover of a business enterprise; and
C represents maximum gross value of assets (excluding immovable property) of the enterprise.
The factors A, B and C are assigned a predetermined number of points, such that if the total sum of the formula
is nine points or less the business enterprise is an SME. Table 3 below illustrate how the points are determined.

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Table 3: Points to determine whether an enterprise is an SME

Base Range Points Factor
Up to 5 employees 1
6 up to 40 employees 2
Employment Levels A
41 up to 75 employees 3
76 and above 4
Up to $50 000 1
$50 001 to $500 000 2
Annual Turnover B
$500 001 to $1000 000 3
$1000 001 and above 4
Up to $50 000 1
50 001 to $1000 000 2
Gross Value of Assets C
$1000 001 to $2000 000 3
$2000 001 and above 4
Source: ZIMRA (2014)
A scale is established by adding the points of each factor. Based on the results of the formula A+B+C based on
table 3 above, any score of
 3 or 4 points means “micro enterprise”
 5,6 or 7 points means “small sized” enterprise
 8 or 9 points means “medium sized” enterprise.
A score of less than three points disqualifies a business or an enterprise as an SME and therefore removes
eligibility for claim to incentives such as Special Initial Allowance (ZIMRA 2014).

4. Conceptual framework
The conceptual framework was developed from a critical analysis of previous works by other researchers on the
variables. The current study is motivated by prior studies which establish that policy decisions in form of fiscal
incentives are critical pillars necessary in promoting economic sustainability of businesses. Also, literature
accentuates the importance of internal people factors in defining motivation and pro-enterprising behaviour
which can be used to explain and justify economic viability of small to medium enterprises even under poor and
anti-enterprising economic climate. As such, the study hypothesizes that fiscal incentives and entrepreneur work
engagement are positively associated with economic sustainability of SMEs in Zimbabwe. The relationship
between the independent variables, fiscal incentives and work engagement and the dependent variable, economic
sustainability as measured by profitability through turnover and return on investment, is illustrated in Fig 2
below;

Figure 2: Conceptual framework

Source: Researcher conceptualisation, 2019.

4.1. Measurement of variables

4.1.1. Measuring the independent variable – Fiscal incentives
Fiscal incentives were expressed in terms of the value of benefits enjoyed by an enterprise, which in turn
represents the opportunity cost to the government in terms of revenues foregone (Fisher 2010). This was
assessed through establishing the availability or unavailability of fiscal incentives to an enterprise. The study

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therefore assumes that if the entrepreneur has knowledge of fiscal incentives, it therefore means incentives are
available and if the entrepreneur possesses no knowledge of the incentives, it therefore means incentives are not
available to their respective organisations. This perspective was taken from the notion that the taxation authority
is responsible for collecting as much as it can in form of taxation for the benefit of the sovereign. As such, it is
upon the individual tax payers to arrange the affairs of their businesses so as to minimise this burden. It therefore
follows that, if an entrepreneur is not aware of tax incentive available or they are eligible to, the deemed benefits
cannot automatically accrue to their entities, so technically the incentives are not available to their businesses
and the pattern of activities for such an organisation can be explained by factors other than fiscal incentives.
4.1.2. Measuring the independent variable – Work engagement.
Work engagement for the purpose of this study was assessed using the Utrecht Work Engagement Scale (UWES)
(Schaufeli, et al., 2002), which measures engagement according to the three dimensions of vigour, dedication
and absorption. This scale has been validated and utilised extensively in a number of studies across national
boundaries (Bakker, et al., 2008; De Bruin, et al., 2013).
4.1.3. Measuring the dependent variable – Economic sustainability
Economic sustainability was measured in terms of enterprise profitability. Profit is usually the underlying
objective of every SME. It is attained when income of an enterprise surpasses operational costs. According to
Richard et al (2009), it is possible to measure enterprise performance for comparative purposes using only
profitability as a performance indicator. The table below summarises variables and their respective measures;
Table 4: Measurement of variables
Variable Measure Reference
Independent Fiscal Incentives Opportunity cost to the Billing, 2005; Fisher, 2010;
Variables - Tax holidays government (knowledge on Atikah, 2014
- Accelerated availability of, and eligibility
depreciation for incentives)
- Preferential tax
rates
Work Engagement Utrecht Work Engagement Schaufeli, et al., 2002;
- Vigour Scale (UWES) Bakker, et al., 2008; De
- Dedication Bruin, et al., 2013.
- Absorption
Dependent Economic Sustainability Secondary data on Hicks, 1990; Richard et al.,
variables profitability 2009
- Turnover
- Return on investment
Source: Researcher, 2019

5. Research methodology
The study adopted a quantitative research design, gathering survey data from 120 purposively selected
Zimbabwean entrepreneurs using semi-structured questionnaires. Quantitative research design was preferred
because one of its underlying tenets is a philosophical belief that the world is relatively stable and uniform, such
that we can measure and understand it as well as making generalisations about it. SME entrepreneurs were
targeted as subjects for the purpose of the current study due to the nature of their businesses. Majority of SMEs
in Zimbabwe are owner and micro-managed, hence the characteristics of the entrepreneurs, thus their knowledge
and commitment plays a paramount role in determining survival and growth of their businesses, particularly
given the current turbulent economic environment.

6. Research hypothesis
The study hypothesis was formulated from the basis of the prevailing operational environment and tax authority-
taxpayer relationship prevailing in Zimbabwe. The current situation which is characterized by low return on
investments as a result of high operational costs, is a thorn in flesh for emerging businesses. This, coupled with
an aggressive taxation administration system which is designed to maximize national treasury collections for the
sustenance of government business at the expense of the taxpayer has proved a major stumbling block in the way
of survival and growth of SMEs in Zimbabwe. In the context of business operators in Zimbabwe, the situation
entails that, it is upon the owners of businesses to have knowledge on availability of and their eligibility for tax
concessions, then apply the means necessary to benefit therefrom, thereby minimizing their tax burden.
Otherwise the taxation authority is aimed at collecting the maximum possible revenues, to an extent of
capitalizing on the ignorance and misinformation of tax payers. Hence, the onus is upon the taxpayers to arrange
their affairs so as to ease the tax burden.
Literature points it as a requirement for policy makers to design the taxation policy so as not to enrich the

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treasury of a nation at an unprecedented expense of its citizens (Smith, 1976). And notwithstanding the
availability of tax concessions and fiscal incentives aimed at benefiting particularly SMEs in Zimbabwe, taxation
policy seems to have failed to meet the requirement. It should be appreciated that the issue is not merely centered
on the crafting of policy frameworks and propagation of legislation, but rather the outcomes of these efforts.
That is, the existence of policy can only materialize following its successful implementation and
operationalization. Thus, after policy crafting, awareness campaigns should be held to inform potential
beneficiaries, and administrative premises for such frameworks should be properly defined to ensure successful
execution of the policy in line with its objectives. Specifically, Zimbabwe brag of having fiscal incentives
available to and aimed at benefitting SMEs, but the administrative premises for such concessions are ill-defined
and always treated in the dark. In fact, unlike other jurisdiction such as those within the Caribbean region which
have specifically dedicated fiscal incentives administrative statutes, Zimbabwe does not have a specific fiscal
incentives administrative framework or guideline in place to guarantee sanity when it comes to the
administration of fiscal incentives and plugging-off revenue leakages inherent to the fiscal incentives regime.
The study therefore sought to empirically review the status core, inform policy and emphasize that it is and
will always be government’s responsibility to create a fiscal and legislative climate that is pro-enterprising
(Asikhia, 2010; Dickinson, 2013). It therefore follows that, in the context of successfully operating SMEs in
Zimbabwe, if the business owners lack knowledge on availability of and their eligibility for fiscal incentives, it
can be interpreted that, ceteris paribus, the driving force behind their successful endeavors can be traced to
entrepreneur work engagement. Work engagement refers to “a positive fulfilling, work related state of mind that
is characterized by vigor, dedication and absorption” (Schaufeli & Bakker, 2004). A work engaged entrepreneur
is full of vitality, feels glued to his business and is well prepared to deal with the related business demands. It
refers to a persistent, pervasive effective-cognitive state that is not focused on any particular object, event,
individual or behavior (Schaufeli, et al., 2001). To assess the association between fiscal incentives and work
engagement as the independent variables, and economic sustainability of SMEs in Zimbabwe using related
variable measures as discussed above, the study hypothesis can be stated as:
H1: Fiscal incentives and work engagement are the key determinants of economic sustainability of SMEs
in Zimbabwe.
This hypothesis has other two sub-hypotheses stated here under:
H1(a): The availability of and eligibility for fiscal incentives determines the economic sustainability of
SMEs in Zimbabwe.
H1(b): Entrepreneur work engagement is the main driver of economic sustainability of SMEs in
Zimbabwe.

7. Research findings
7.1 Reliability and validity
Cronbach’s alpha as a measure of internal consistency, was used to assess scale reliability. Table 5 below
indicates a Cronbach’s alpha statistic of 0,744 (part 1) and 0.683 (part 2), part 1 statistic was above the 0.7
threshold indicating that items used in the study are closely related. Although part 2 statistic is slightly below the
0.7 threshold, the statistic is still deemed satisfactory for an exploratory study (Hair, et al 2010), hence, items
used in the study are internally consistent.
Table 5: Reliability statistics
Cronbach's Alpha Part 1 Value 0.744
N of Items 14a
Part 2 Value 0.683
N of Items 14b
Total N of Items 28
Source: Researcher, 2019

7.2. Categorization of respondents

To enhance representativeness of results, study participants were drawn from across the five main sectors of the
economy, being manufacturing, mining, education, agriculture and retail. Figure 3 below indicate that the retail
sector has a highest number of representatives comprising 40%, followed by manufacturing sector with 20%,
with the least being the education sector with 5% representation. These representations are prorated, this entails
that, in Zimbabwe a greater number of SMEs are in the retail industry, followed by manufacturing, agriculture,
mining and lastly the education sector.

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45%
40%
Number of participants

35%
30%
25%
20%
15%
10%
5%
0%
Manufacturing Mining Education Farming Retail
Figure 3: SME percentage representations
Source: Researcher, 2019

7.3. Hypothesis testing

We test the relationship between fiscal incentives & work engagement and economic sustainability of SMEs
using correlation and regression analysis. We re-state the hypotheses hereunder:
H1: Fiscal incentives and work engagement are negatively associated with economic sustainability of
SMEs in Zimbabwe.
We also test the sub hypotheses re-stated here under:
H1(a): The availability of and eligibility for fiscal incentives is negatively associated with economic
sustainability of SMEs in Zimbabwe.
H1(b): Entrepreneur work engagement is negatively associated with economic sustainability of SMEs in
Zimbabwe.
7.3.1. Correlation analysis
Correlation analysis was performed (Table 6) to show the relationship between the independent variables (Fiscal
incentives and Work engagement) and economic sustainability as the dependent variable, measured by
profitability, assessed through turnover and return on investment (ROI). The results indicate that there is a
significant positive correlation between fiscal incentives and ROI of 0.125 at 0.01 level of significance. The
results however show that there is no significant relationship between fiscal incentives and turnover. We
therefore, reject the null sub-hypothesis (H1(a): The availability of and eligibility for fiscal incentives is
negatively associated with economic sustainability of SMEs in Zimbabwe). Correlation results also indicate that
there is a significant positive correlation between turnover and work engagement dimension of vigour 0.013, a
significant positive correlation between turnover and work engagement dimension of dedication 0.003 and also a
significant positive correlation between turnover and work engagement dimension of absorption 0.007.
Correlation is significant at 0.01 level. Results further show that there is no significant relationship between
work engagement dimensions of vigour, dedication and absorption and ROI. We therefore, reject the null sub-
hypothesis (H1(b): Entrepreneur work engagement is negatively associated with economic sustainability of
SMEs in Zimbabwe).

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Table 6: Correlation Fiscal incentives; work engagement and economic sustainability of SMEs
Correlations Turnove ROI Vigor Dedicatio Absorptio Fiscal
r n n Incentive
Turnover Pearson 1.000
Correlation
ROI Pearson .347** 1.000
Correlation
Vigor Pearson 0.013** -0.020 1.000
Correlation
Dedication Pearson 0.003** 0.096 .318* 1.000
Correlation *
Absorption Pearson 0.007** 0.036 .551* .461** 1.000
Correlation *
Fiscal Pearson -0.005 0.125* 0.060 0.070 0.034 1.000
Incentive Correlation *
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Researcher, 2019
We can therefore conclude that there is a positive relationship between fiscal incentives and economic
sustainability of SMEs as measured by profitability expressed through ROI. We also conclude that there is a
positive relationship between work engagement and economic sustainability of SMEs as measured by
profitability expressed through turnover.
7.3.2. Regression analysis
Regression analysis table 7 (a) indicates that there is a negative relationship between fiscal incentives and
turnover, results being significant at 0.05 level of significance. Table 7 (b) indicates the existence of a significant
positive relationship between fiscal incentives and ROI at 0.05 level. This leads to the conclusion of rejecting the
null sub hypothesis H1 (a) that the availability of and eligibility for fiscal incentives is negatively associated with
economic sustainability of SMEs in Zimbabwe.
Table 7 (a): Regression: Fiscal incentives; work engagement and turnover
Estimate Std. Error t value Pr(>|t|) Sig.
(Intercept) 0.499467 0.245615 2.034 0.0429 *
Work Engagement 0.2163 0.002888 1.038 0.006 ***
Fiscal Incentive -0.31011 0.042953 -0.235 0.001 ***
Dependent variable: Turnover
Source: Researcher, 2019
Regression results table 7 (a) reveal the existence of a significant positive relationship between work
engagement as expressed through its dimensions of vigour, dedication and absorption and turnover at 0.05 level
of significance. Table 7 (b) also indicates the existence of a significant positive relationship between work
engagement and ROI. This leads to the conclusion of rejecting the null sub-hypothesis H1(b) that entrepreneur
work engagement is negatively associated with economic sustainability of SMEs in Zimbabwe.
Table 7(b): Regression: Fiscal incentives; work engagement and ROI
Estimate Std. Error t value Pr(>|t|) Sig.
(Intercept) 0.268231 0.224 1.195 0.000 ***
Work Engagement 0.2404 0.264 0.911 0.003 ***
Fiscal Incentive 0.2237 0.392 0.057 0.005 ***
Dependent variable: ROI
Source: Researcher, 2019
From the regression analysis results, it can be concluded that the existence of and eligibility for fiscal
incentives is positively associated with economic sustainability of SMEs in Zimbabwe as expressed by
profitability assessed through ROI. It can also be concluded that entrepreneur work engagement is positively
associated with economic sustainability of SMEs in Zimbabwe.

8. Discussion
The persistently prevailing negative economic conditions in Zimbabwe have rudely awakened the nation to
realisation of the importance of the role played by SMEs in enhancing livelihoods, poverty alleviation and
fostering economic growth. Hence, the need to map SMEs within the economic development highway, by
increasing attention towards the sub-sector. Yet the growing acrimony between SMEs and the taxation authority
(ZIMRA) over the years seem to parade lack of policy alignment, consistency and goal congruency. Of late,
Zimbabwe has seen an increase in the number of both artisanal and registered SMEs. This follows the continued

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economic meltdown whose results can be clearly seen through the ballooning rate of unemployment and the
increasing number of companies turning in to white elephants, which were formerly productive companies if not
‘industries’ in themselves, that the nation used to be reckoned with. This realisation of the importance of SMEs
has fostered the need to explore the main drivers behind the economic sustainability of SMEs in Zimbabwe.
Assessing specifically the impact of external public policy factors in terms of fiscal incentives and internal
people factors intrinsic to individual businesses in terms of entrepreneur work engagement. This study aimed at
informing policy direction through the establishment of a more satisfactory descriptive theory for a broader
approach to economic sustainability of SMEs in Zimbabwe.
The study findings reveal that there is a statistically significant positive relationship between fiscal
incentives and economic sustainability of SMEs in Zimbabwe, assessed through profitability as measured by
ROI. The study making use of performance measures of profitability also established the existence of a positive
relationship between entrepreneur work engagement and economic sustainability of SMEs in Zimbabwe,
assessed through profitability as measured by turnover. The study however established that most entrepreneurs in
Zimbabwe lack knowledge on availability of and their eligibility for fiscal incentives. It therefore follows that;
most thriving SMEs in Zimbabwe are sustained by internal people factors more than the effects of external
policy factors. This finding is in line with literature which demeans the role of fiscal incentives, viewing them as
a wastage of state resources which could have been used to provide public services, given that majority of the
beneficiaries of the incentives are likely to be economic players who would have contributed nothing in line with
the government’s objectives (Fisher, 2010) and who in actual fact would have done nothing differently and
nothing they could not have done without being incentivised. Results also confirm conclusions by some scholars
who advocated against fiscal incentives, pointing to the rampant nature of information opacity (Berger & Udell,
1988) associated with the regime and its preferential treatment nature (Fletcher, 2002), which results in equity
violations which are usually overlooked (King & Don, 1984), mainly the violation of horizontal equity (equal
treatment of equals).
The study also established that a considerable number of entrepreneurs in Zimbabwe were forced into
establishing businesses due to poor economic conditions, a typical case being of university graduates’ failure to
secure employment after completing their studies. This revelation therefore, confronts the SD theory which
points that entrepreneurs are in business because of their business enthusiasm driven by their natural sense of
competence, autonomy and relatedness which tent to emotionally bond them and their business endeavours. In
the light of such establishments, the SD theory proved a limited insight into the psychological mechanisms
involved in driving entrepreneurial spirit.

9. Conclusion
The study investigated the impact of fiscal incentives and work engagement on economic sustainability of SMEs
in Zimbabwe. The study established that there is a significant positive relationship between fiscal incentives and
work engagement and economic sustainability of SMEs in Zimbabwe. Internal people factors proved to have the
greatest contribution in defining the current state of thriving SMEs, when compared to the effects of fiscal
incentives thereto. The study concludes that if properly administered, fiscal incentives have the potential to
contribute more towards survival and growth of SMEs in Zimbabwe, a move that will benefit the nation through
broadening of the tax base in the long run, which is a key intermediary stage of improving governance and
political development essential for improving the investment climate in a developing country. The study
therefore recommends the establishment of clearly defined fiscal incentives administration grounds, a move that
can be easily facilitated by the promulgation of a specific fiscal incentive administrative statute, the Fiscal
Incentives Act.

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First Author - Moses Jachi

Moses Jachi is a Lecturer in the Department of Accounting at Manicaland State University of Applied Sciences.
He is the corresponding author

Second Author - Nevermind Muchongwe

Nevermind Muchongwe is a Lecturer in the Department of Human Resource Management at Manicaland State
University of Applied Sciences. He shares vested research interests in Performance Management, Industrial
Democracy, Knowledge Management and Employee Engagement.

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