The Business Landscape For MSMEs and Large Enterprises in Zambia - ZBS July 2010

The business landscape for
MSMEs and large enterprises

in Zambia
June 2010
George C. Clarke, Manju Kedia Shah and Roland V. Pearson, Jr.

About this publication
This report forms part of the findings of the Zambia Business Survey (ZBS). The ZBS comprised two
separate surveys. The MSME Survey was a nationally representative survey across all nine provinces
of individuals who owned and ran their own businesses and employed up to 50 individuals. The
supplementary Large Business Survey (LBS) was a survey of 161 large enterprises employing 51 or
more individuals.
The results of the ZBS are in the main summary report, The profile and productivity of Zambian
businesses. Analysis of the data resulted in four technical papers, including this one. The other
papers cover:
Productivity, which examines the productivity of Zambian enterprises (Whos productive in
Zambias private sector? Evidence from the Zambia Business Survey)
Access to finance, which explores the demand-side data relating to access to financial services
(Demand-side analysis of access to financial services for businesses in Zambia)
The Business Facilities Measure, a model that groups enterprises and divides the market into
more manageable segments (Segmenting the market into powerful pictures: Application of the
Business Facilities Measure - BFM)
These reports are available via the web or from the offices of the four partner agencies that
produced this work: Zambia Business Forum (www.zbf.org.zm, secretariat@zbf.org.zm); Private
Sector Development Reform Programme (www.psdrp.org.zm); FinMark Trust (www.finmark.org.za,
julietmunro@iconnect.zm); and World Bank Zambia Country Office (www.worldbank.org/Zambia,
Pyramid Plaza, Plot No 746 Church Road, Lusaka. Tel: 260-1 252 811).
Acknowledgements
The ZBS has been implemented in partnership with the Zambia Business Forum and the Government
of the Republic of Zambias Private Sector Development Reform Programme (PSDRP), housed within
the Ministry of Commerce Trade and Industry, which is co-funding the initiative. FinMark Trust and
the World Bank have also co-funded the survey, and jointly comprise the technical team responsible
for executing the ZBS. This report was written by George C. Clarke, Texas A&M International
University, Manju Kedia Shah, research economist and consultant at the World Bank in Washington
DC, and Roland V. Pearson, Jr. of Siana Strategic Advisors. The report was reviewed by Marie
Sheppard of the World Bank Group, Zambia, Juliet Munro of FinMark Trust and members of staff of
the Private Sector Development Reform Programme and the Zambia Business Forum.
2
The business landscape for MSMEs and large enterprises
in Zambia
The goal of the ZBS is to profile the private sector, assess business productivity and identify the
most binding constraints to private sector development and growth. The survey describes
businesses of all sizes, types and sectors operating in rural and urban areas across Zambias nine
provinces. It is hoped that the analysis will help to inform and build consensus amongst government
officials, businesses and other stakeholders about the private sector in Zambia, the key constraints
that private firms face, and policies and programs that could increase productivity and investment,
thereby enhancing growth, encouraging diversification and boosting employment.
Specifically, this paper describes the profile of Zambian businesses and the investment climate
within which they operate. In addition, the paper identifies constraints to business as perceived by
the people owning or operating a given business. By disaggregating businesses based on attributes,
such as location, gender or size, the paper compares constraints and highlights those perceived to be
the biggest problems to different groups of businesses.
1. The Zambia Business Survey

The Zambia Business Survey (ZBS) is the first comprehensive, demand-side, national survey of micro,
small, medium, and large enterprises in Zambia. The survey of close to 5,000 formal and informal
businesses was conducted between October and December 2008. It covered both urban and rural
areas across all nine provinces in the country. The survey instrument drew upon the methodologies
of both FinMark Trusts FinScope Small Business Survey and the World Bank Enterprise and Rural
Investment Climate Surveys.
Table 1: Geographical coverage of the MSME Zambia Business Survey (ZBS)
Province Number of enterprises
Central 570
Copperbelt 975
Eastern 525
Luapala 330
Lusaka 555
Northern 420
Northwestern 345
Southern 780
Western 300
4800
The ZBS covered micro, small and medium-sized enterprises (MSMEs), which are defined as
businesses with 50 employees or less.1 The sample was selected through rigorous area sampling,
using a methodology based on the ILOs 3-stage sampling method.2 In contrast to other methods
that target areas where businesses are normally located, use signs and advertisement, or locate
1
The definition of MSMEs was made after consulting key stakeholders and making a collective decision to designate any
business employing more than 50 people as a large enterprise. This is consistent with the Governments policy definition
at the time the survey was conducted and reflected a consensus view appropriate for the Zambian economy.
2
See Annex 3 and Steadman Group (2009b) for a more detailed description of the survey.
3
businesses through business directories, lists provided by government agencies, this approach
ensures that small, home-based and informal businesses are fairly represented in the final sample.
To ensure that the sample of MSMEs was representative of the entire population, the sampling was
conducted in the following way. First, 320 Enumeration Areas (EAs) were randomly selected from
the sampling frame, which was based upon the census. The sampling frame had been stratified
based upon province and whether the enumeration area was rural or urban. Once the EAs were
selected, the survey firm (The Steadman Group) updated the 2000 census data, using maps for
boundary identification, by creating an updated list of all households and buildings in the EA. For
each household, which is defined based upon the Central Statistical Offices definition as members
who live in the same or different structures but cook from one pot, the survey firm then gathered
information on all household members and determined whether the household contained any
individuals that ran their own business (including farms). Target respondents who owned and ran
their own businesses were then randomly selected from these lists and interviews were set up with
the eligible respondents.
As a supplement to the ZBS MSME survey, a small survey of 161 large enterprises with over 50
employees was conducted. Similar, although not identical, survey instruments were used for the
two surveys.3 In contrast to the MSME survey, firms were randomly selected from lists provided by
the Central Statistical Office and the Zambia Development Agency. Although random, the survey is
not nationally representative in the same way that the MSME survey is. In particular, it will only be
representative to the degree that the sampling frame that it was based upon is nationally
representative. Moreover, because the sampling methodologies were so different and because
nearly all of the large firms claimed to be registered meaning there is little variation in this survey,
we do not attempt to merge the two datasets in the econometric analysis below.
Another important difference between the two surveys is the characteristics of the respondents.
Whereas the respondents in the MSME survey were the owners of the MSMEs (i.e., the
entrepreneurs), the respondents in the large enterprise survey were mostly professional senior
managers that run the firm. For this reason, many psychographic questions were omitted from the
large enterprise survey.
3
See Steadman Group (2009a).
4
2. Characteristics of firms in the Zambia Business Survey
Before focusing on investment climate constraints, it is useful to describe the MSMEs in the ZBS.
This section presents some basic information on the firms including location, sector of operations,
firm size, firm age, participation in business networks and associations, and relationships with buyers
and suppliers.
How large are they?

Most of the firms in MSME survey are very small whether measured in terms of number of
employees or in terms of sales revenue.4 About 35 percent of firms have no employees of any type
(paid or unpaid, full- or part-time) other than owner (see Table 2) and fewer than one in 10 have
more than 10 employees.
Even this might exaggerate the size of the firms in the sample since many of these employees are
unpaid. Excluding unpaid workers who are often family or household members close to two
third of firms have no paid employees. Even fewer firms have any employees that are paid in cash
rather than in-kind only about one in five firms had any employees paid in cash and only one in
fifty have more than 10 employees paid in cash.5
Table 2: Distribution of firms based upon different definitions of employment
All paid and unpaid Only paid Only employees
employees employees paid in cash
No employees 35% 67% 79%
Micro (1 to 10 employees) 58% 30% 19%
Small and medium (11 to 50
7% 3% 2%
employees)
Total 100% 100% 100%
Source: Zambia Business Survey, MSME sample
Note: Each column shows firm-size based upon that classification of employees. For example, the first column
counts all unpaid and paid employees. So it says that 35 percent of firms have no paid or unpaid employees.
Similarly, column 2 shows that two-thirds of firms have no employees paid in cash or in-kind.
On balance, because many unpaid employees will be family members working on an informal basis,
the definition of employment based upon paid employees seems the most appropriate definition in
the Zambian context and will be used in this report. This is the definition that will be used to classify
firms by firm size throughout the report.
As well as being small in terms of number of employees, most of the firms are small in terms of sales
(see Figure 1). Of the firms that answered the question on sales, about 73 percent reported sales of
less than ZMK 500,000 per month.6 Using exchange rates from the time of the survey, this is about
$140 per month (about $1 680 per year).7 Only about three percent of the firms had sales of over
4
See Appendix 1 for further discussion of the definition of employees and firm size.
5
In general, results are similar when focusing only on full-time employees. See Appendix 1 for more
discussion.
6
About 20 percent of firms did not answer this question. For those who answered in estimated annual sales,
this was averaged over 12 months; For those who answered in dollar amounts the amount was converted to
ZMK using an exchange rate of 1 US Dollar = ZMK 3512.9 (2008 est.)
7
In early May 2009, the exchange rate was approximately ZMK 4,500 per $1. This amount then equals
approximately $110 per month or $1,320 per year.
5
ZMK5 million per month. Although sales data should be treated cautiously due to missing
observations and the difficulty of collecting accurate data from firms that do not keep detailed
accounts (only 27 percent claim to keep up-to-date financial records), this seems consistent with
results based upon enterprise size.
Figure 1: Most of the MSMEs are also small in terms of sales
Percent of firms, by monthly sales in ZMK

2-5 million 5 million and above
4% 3%
1-2 million
7%
500,000-1
million Less than 100,000
13% 32%
100,000 - 500,000
41%
Source: Zambia Business Survey, MSME Sample.

Note: These calculations exclude firms that either didnt know or refused to answer the question.
Keeping in mind that these numbers are gross turnover, not net profits, this suggests that most
MSMEs in Zambia make less than per capita gross national product (estimated at $770 per in 2007).8
This suggests that most MSMEs are survivalist or subsistence enterprises.9
Although it is difficult to extrapolate the data from the large business survey to the broader
population of large firms, most large enterprises appear to be on small side of the large enterprise
group, with close to half having between 51 and 70 employeesjust above the notional cut off of 50
employees for medium-sized enterprises. Only about one-third had more than 100 employees and
only 2.5 percent had more than 500 employees.
Overall, these comparisons emphasize several interesting points. First, regardless of the precise
definition of enterprise size, most businesses in Zambia are small, survivalist microenterprises. Even
under the broadest definition of employment, small and medium-sized enterprises make up only
about 7 percent of enterprises. Moreover, most of these microenterprises are very small indeed
many with no employees other than the owner-operator.
8
Data are from World Development Indicators (World Bank, 2009). Actual values are used rather than PPP
adjusted numbers because PPP adjusted exchange rates use a different exchange rate than the exchange rate
used in this report.
9
Interestingly, 16 percent of business owners who have at least one paid employee claim to generate less than
ZMK100,000 per month, but also a higher proportion of these owners do not disclose turnover. These latter
figures may indicate that enterprise owners who page wages to employees other than themselves may
perceive some reason to not fully disclose their turnover, which may mean that many enterprises may
generate more revenue than the survey can report.
6
Second, many firms have no workers that are paid either in-kind or in-cash. Excluding unpaid
workers increases the number of single person firms from 35 percent of MSMEs to 67 percent of
MSMEs. Combined with other information from the survey, this suggests a very close relationship
between tiny enterprises and familiesmany unpaid employees are probably family members.
Although the owners family members play some role in the enterprise, the enterprise owner does
not pay them a cash salary and often would not consider eating from the same pot as in-kind
remuneration for work done for the enterprise. In other words manyand arguably the majority
of Zambias MSMEs are more akin to home-based income-generating activities rather than clearly
structured businesses.
Finally, the tiny, cash-poor businesses in the sample are very reluctant to pay any form of
remuneration, especially cash remuneration. They are happy to have labor available, when needed,
but either lack the resource or desire to hire paid workerseven when the workers are paid in-kind
rather than in cash.
Where are they located?

Reflecting the size of the rural population in Zambia, most of the MSMEs in the sample (about 81
percent) are located in rural areas (see Figure 2). The firms are distributed across all nine provinces.
More MSMEs are in Eastern Province (about 21 percent) than in any other province (see the first
panel in Figure 2), while the fewest are in Northeastern Province (6 percent).
Figure 2: The sample covers the whole country and all types of firms
Distribution of MSMES, by provice Distribution of MSMEs, by business premises

Northwest
6%
Eastern Lusaka Informal Formal,

8% Copperbelt /Other, 10%
21%
8% 18%
Central Home,
Northern 9% 15%
14%
Luapala
Farm,
10%
Western 57%
14% Southern
11%
Emphasizing the informal nature of many of these businesses, only about 10 percent of the MSMEs
in the sample operate from formal business premises (see second panel in Figure 2). Given the
importance of agricultural and rural firms in the sample, it is not surprising that most of the
remainder operate from farms. A smaller number operate from the home of the owner (about 15
percent) or from other or informal premises (about 15 and 18 percent respectively).
For firms operating out of farms and home, most of the premises are owned by the owner of the
business, the owners family, or the business itself (See Figure 3). This is not true for firms operating
out of formal and informal premises. Most formal business rent their premises, while most informal
7
enterprises simply use or occupy the location without paying any rent. For firms that owned their
own land, about 18 percent reported that they had formal title deeds for the land. Most of the rest
(67 percent) reported that they have a written or oral agreement with the local headman/chief or
other regional authority.
Figure 3: Most MSMEs operating from farms and homes own their premises this is not
true for firms operating from formal and informal premises
Percent of firms, by location

100%
75%
50%
25%
0%
NR
Family members
Rent
Used or occupied
I/partner/business
own
owns
Farm Home Formal Informal
Eastern Province has the greatest number of single-person enterprises. Single person enterprises
with no additional employees make up 82 percent of MSMEs in that province compared to about 67
percent in the country as a whole. In contrast, Luapala Province seems to have larger enterprises.
Single person entities make up only about 38 percent of MSMEs in the province.
Neither Lusaka nor Copperbelt Provinces have particularly large MSMEs. About 36 percent of firms
in Lusaka were microenterprises, compared to 30 percent for the country as a whole. Copperbelt
had a slightly higher proportion of small enterprises (6 percent of MSMEs compared to about 2.5
percent for the country as a whole.
Table 3: Enterprise size by province
Micro Small and medium
No employees
(1 to 10 employees) (11 to 50 employees)
Central 63% 35% 2%
Copperbelt 71% 22% 6%
Eastern 82% 14% 3%
Luapula 38% 52% 10%
Lusaka 61% 36% 3%
Northern 62% 30% 8%
Northwest 64% 33% 3%
Southern 75% 23% 3%
Western 69% 29% 2%
Note: Only includes paid employees.
8
What do they do?
Firms were also asked about their sector of operations. Agriculture was, by far, the most important
sector for firms in the MSME survey about 70 percent of MSMEs said that they were involved with
agricultural production (see Figure 4). The next most important sector was wholesale and retail
tradeabout 21 percent of MSMEs operated in this sector. In contrast, there were relatively few
manufacturing firms (only about 3 percent of the sample), hotels or catering firms (2 percent) or
firms in other sectors (4 percent). The large number of MSMEs in primary production and retail
tradeand the very small number of manufacturing MSMemphasize the challenges facing Zambia
in raising income and reducing poverty. A breakdown by province is shown in Table 4.
Figure 4: Whereas most of the MSMEs are agricultural producers or traders, the large
firms operate in more diverse sectors
Hotels,
Distribution of MSMES, by sector Distribution of large enterprises, by sector
food and Hotels,
beverage food and
2% Other beverage
4% 9%
Retail or
Retail or wholesale
wholesale trade
trade 9%
21% Other
Manufact. 44%
3%
Manufact.
24%
Agriculture
70%
Agriculture
14%
Source: Zambia Business Survey, MSME and large enterprise samples
Table 4: Distribution of enterprises by sector for each province

Wholesale and Hotels, food
Agriculture Manufacturing Other
Retail Trade and beverage
Central 80.82 13.26 2.01 1.72 2.19
Copperbelt 34.06 50.52 5.71 2.57 7.14
Eastern 81.77 13.53 1.19 1.83 1.68
Luapula 68.68 27.04 3.09 0.38 0.81
Lusaka 21.63 40.57 5.75 5.28 26.77
Northern 84.12 13.05 1.94 0.17 0.72
Northwest 73.88 20.4 2.15 0.58 2.99
Southern 63.1 24.98 5.85 2.86 3.21
Western 84.15 13.29 0.77 0.88 0.91
Firm owners were also asked a more general question about What does the business do? The
responses to this question were consistent with the previous responses to the question about sector
of operations. About 69 percent of owners said that their businesses grow and sell; while 23
9
percent said that they buy and resell. These answers are broadly consistent with the previous
answers that indicated that about 70 percent of MSMEs were involved in agricultural production and
that about 21 percent were involved in wholesale or retail trade. Also consistent with the previous
results, which indicate very few firms in manufacturing, only about 5 percent said that they buy,
add value, and resell or make and sell.
In contrast to MSMEs, large enterprises are far less concentrated in agriculture and wholesale and
retail trade (see panel 2 in Figure 4). Moreover, many of these firms are in the manufacturing sector
(about 24 percent of firms). Furthermore, we find more diversity of sectors and industries
represented among large firmsabout 44 percent are in other sectors such as mining and
excavation (6 percent of the total), vehicle repair (5 percent), transportation and storage (6 percent),
education (4 percent), finance (4 percent), real estate (4 percent), electricity, gas and water (3
percent).
For agriculture, trade, manufacturing, and hotels and catering, single person entities make up at
least three-quarters of firms and MSMEs employing more than 10 employees make up less than 2
percent of firms (see Figure 5). For agricultural producers, over 80 percent of firms are single person
entities and less than 1 percent have more than 10 employees (i.e. are MSMEs). There are relatively
more MSMEs in the hotel, catering, and food and beverage industry (about 1.5 percent) than in the
other sectors (0.7 percent in agriculture and manufacturing and 1.1 percent in trade).
Figure 5: In most sectors, single person entities make up the majority of firms
Percent of firms, by firm size

100%
75%
50%
25%
0%
Trade
Agriculture
Hotels, catering
Manufacturing
Other
Single Person Micro SMEs
There were fewer single person firms in the residual other category. Within this broad category,
there were few single person firms in transportation and storage (23 percent), ICT (26 percent), and
construction (42 percent). There were also significant numbers of MSMEs in the transportation
sector (13 percent) suggesting that growth potential might be good in this sector. Although most of
the firms in the mining sector were single person firms (58 percent), a significant number are MSMEs
(3 percent).
10
How old are the businesses?
About 56 percent of the MSMEs started operating before 2001 and only about 10 percent started in
the past two years. Based on information on age of the enterprise, there was no observable recent
spike in enterprise formation. Although relatively recent lay-offs in the mines and a general
economic downturn might eventually lead to greater MSME formation, it is possible that the
economic contraction had not been deep or wide enough to generate any significant MSME counter-
response at the time of the survey (mostly in November and December 2008).10 This could be
because the relatively modest size of the formal sector and the large size of the microenterprise
sector means that it is difficult to observe changes in the microenterprise sector due to changes in
formal sector employment.
How are they owned?11

Not surprisingly, almost all of the very small firms in the MSME survey are sole proprietorships (88
percent) (see Figure 6). Most of the remaining firms are partnerships (12 percent). There are very
few limited liability companies in the sample of MSMEs less than 0.5 percent take any form other
than a sole proprietorship or partnership.
The most sophisticated business in the large enterprise survey take a broader variety of forms. Close
to three quarters of the firms are something other than a sole proprietorship or partnership, with
most being private limited companies. However, even for these firms, the second most popular
form of ownership is the single-owner / sole proprietorship.
Figure 6: Most MSMEs are sole proprietorships, while most large enterprises are
limited liability companies
Limited Dist. of large enterprises, by legal status

Dist. of MSMEs, by legal status
liability
0%
Partner
12% Partner
10%
Sole
Proprietor
15%
Sole Limited
Proprietor liability
ship 75%
88%
Source: Zambia Business Survey, MSME and large enterprise samples

Note: Limited liability firms include other
10
There is no discernible correlation between the two, with economic growth in Zambia generally on the rise
over the past 10 years, but relatively erratic enterprise formation over the same period, and indeed a decline
in the pace of MSME start-up over the past three years.
11
The possible ownership types were single owner/sole proprietor, partnership, cooperative, various types of
limited liability companies (privately held, close corporations and publicly listed).
11
Do they keep financial records?
Given the small size of the businesses, it is surprising that 27 percent of MSME owners claim to keep
up to date financial accounts. Of these, 23 percent say that have these financial records audited
every year. These figures, especially the latter, are suspicious, since other survey data seem to
indicate that most owners are not consistently familiar with financial terms (see separate paper on
Access to Finance). Nonetheless, the responses do go some way towards helping to distinguish
business owners that take their business seriously and shows awareness of basic business principles.
Almost all of the large business owners (99 percent) claim that they keep financial records. Of these,
about 90 percent claim that they have these accounts audited. This emphasizes the difference in
formality between these firms and the MSMEseven considering that it seems likely that MSME
owners overstate their record keeping.
3. Characteristics of the owners

As well as asking questions about the business, the surveys also ask various questions about the
owners themselves. This section examines several sets of questions that provide insight into the
nature of the business owners. This includes key demographic indicators, whether they own
multiple businesses as well as attitudinal information.
Key demographic indicators (i.e. gender and age)

Just under a third of MSMEs in the survey are headed by women, suggesting that about 1.3 million
MSMEs in Zambia are headed by women. Yet a closer look at the data shows some interesting age
and spatial characteristics.
The age profiles of male and female enterprise owners are similar. About two-thirds of MSME
owners say they are between 25 and 49 years old. However, nearly 30 percent of MSME owners are
over 50, making this the largest single age group. Given the age profiles of the MSMEs themselves,
this may give some insight to the subsistence nature of many enterprises and their apparent lack of
dynamism.
Two provinces, Copperbelt and Lusaka, show different gender profiles, with 46 percent and 50
percent of MSME owners being female in these provinces. As discussed in the Technical Paper on
Business Facilitation, there are relatively fewer MSMEs owned by women in the agricultural sector
and more of the urban enterprises are owned by women.
Very few of the MSMEs are foreign-owned only about 0.5 percent have any foreign ownership.
This suggests that most of the owners are Zambian. In contrast, a significant share of the large
enterprises is foreign-owned. About 39 percent have some foreign ownership and about 36 percent
are majority foreign-owned.
Why did they become business owners?

Business owners were also asked some questions about why they became business owners and
what the main problems were when becoming a new business owner. By far the most common
reason for becoming a new business owner was to supplement their income. Close to 85 percent of
owners said that this was the case (see Figure 7).
The next most common response was that they could not find any other jobabout 18 percent of
owners said that this was the case. Far fewer said that they did it because they want to try out a
12
business idea (only 11 percent) or that they could make more money running the business than they
could working for someone else (8 percent). Only a very small number (about 7 percent) said that
they did it when they were laid off.
Overall, this provides only mixed evidence on how entrepreneurial the owners are. On the one
hand, few MSME owners started businesses because they could not find employment or had been
laid off. Despite this, few believed that they could make more as a business owner than working for
someone else and few said that they did it to try out a new business owner.
Figure 7: Most MSME owners became business owners to supplement their income
Reasons started business
Make more money owning business
Try out business idea
Support self/family
Other
Could not find job
Supplement income
0% 25% 50% 75% 100%
Source: Zambia Business Survey, MSME Survey
Levels of education
The owners were also asked about the highest level of education that they had completed. Nearly
half of the MSME sample said that they had a 7th grade education or less. In many comparable
markets, this is assumed to be a threshold for functional literacy and numeracy.
There were some differences in education levels across sectors. For example, 5 percent of university
educated individuals were in the Hotels, catering, food and beverages sector (compared to less than
1 percent of those with less education). In contrast, only 47 percent of university educated
individuals owned firms in the agricultural sector (compared to 70 percent overall).
Individuals in the wholesale and retail trade sector are also better educated with 32 percent of such
individuals in this sector compared to only 14 percent of their lesser educated colleagues. Similarly,
although those with some tertiary education or better represent only 4 percent of the overall
sample, they are disproportionately represented in three key value-adding sectors, namely
electricity (18 percent), transportation (37 percent) and information communication technology (49
percent).12
12
All others in the ICT sector had at least upper secondary education (i.e. grades 10, 11, or 12).
13
Large business managers are much better educated than the owners of the MSMEs. None of the
managers had less than an upper secondary grade education (i.e. 10, 11, or 12). Moreover, close to
one fifth of managers had at least a graduate degree (e.g., at least a bachelors degree).
Full- and part-time involvement with the business

The owners are also asked whether they run their businesses on a full- or part-time basis. The
majority of MSMEs are run by their owners on a full-time basis (see Figure 8). Only about one fifth of
MSMEs are run part-time.
Figure 8: Most owners run their business on a full-time basis
Reasons for running business on part-time

Percent of owners, by employment status
basis
Products not available

Part- throughout year
time
Engaged in full-time
21% employment
Other sources of income
Other
Full-time Other business to run

79%
Family Commitments
0% 20% 40% 60% 80%
In cases where the MSME owner was running the business on only a part-time basis, they were
asked why this was the case. One common answer was that they were engaged in other full-time
employmentclose to one quarter of part-time owners said that this was the case. However, the
greatest common reason said that they ran in on a part-time basis because the MSMEs products
were only available part of the year (about 60 percent of owners running the business on a part-time
basis). This probably reflects the seasonal nature of businesses in the agriculture sector.
Consistent with this, there were some differences between responses of part-time owners in rural
and urban areas. Most notably, whereas over 70 percent of owners in rural areas running their
businesses on a part-time basis said this was because their products and services were not available
throughout the year, only 10 percent of part-time owners in urban areas said the same.
In contrast, other sources of income are more important for MSMEs in urban areas. Owners of
MSMEs in urban areas were, however, far more likely to say that they were engaged in full-time
employment (65 percent compared to 15 percent) and that they had other sources of income (21
percent compared to 10 percent). This shows the tendency for urban owners to be running their
business on the side. Other answers were relatively uncommon in both urban and rural areas.
14
Figure 9: Owners running their businesses in rural areas were most likely to say that their products
were only available on a part-time basis, whereas owners in urban areas were most likely to say
that they had a full-time job elsewhere
Reasons why part-time owners only run business on part-time basis, by location
Products not available throughout year
Engaged in full-time employment
Other sources of income
Other
Other business to run
Family Commitments
0% 25% 50% 75%
Urban Rural
Among those saying that they garner income from sources other than the enterprise, three sources
predominate: money from family and friends (17 percent); salary or income from other businesses
(11 percent); and salary or wage from someone else (7 percent). The importance of money from
family and friends provides more evidence of the close relationships between small enterprises and
households.
Number of businesses owned by the owner

The owners were also asked whether they owned businesses other than their main business that
was being asked about in the survey. About 85 percent of owners said that they only had one
business. Most of the remainder said that owned two business (an additional 14 percent) or three
businesses (1 percent). Less than one percent of owners reported that they had 4 or more
enterprises.
Overall, this points to the importance of MSMEs as a source of income for their owners. As noted
above, only about 21 percent of owners reported that they ran the enterprises on less than a part
time business. Since most do not have additional businesses and other sources of income are
relatively low, MSMEs are likely to be a significant source of their owners income.
15
Figure 10: Most owners own only a single business (i.e., the interviewed enterprise)
Number of business owned by the MSME owner

5 3
0% 1%
4
0% 2
14%
1
85%
Impact of health issues on the business

Health is not perceived to have a large impact on business performance in large businesses or
MSMEs. Among large business managers, 19 percent of them think that illness has a significant
impact on the turnover of employees of the business. leading mostly to disruption of day-to-day
operations. Only 9 percent of large business managers mention HIV/AIDS for workers directly and 5
percent mention needing to care for family or friends with HIV, as reasons for high absenteeism
among workers. Among large enterprises, over a third of those surveyed claimed to have
undertaken free condom distribution in the past twelve months, and over a quarter claimed to have
provided anonymous HIV testing.
However, for both small and large businesses, the specific malady most often mentioned as being
disruptive to the business was malaria. A quarter of the large businesses cited this ailment, while 14
percent of the MSMEs did so. It is important to keep in mind, however, that MSME owners might be
prone to underreport illnesses since many without employees would be commenting on themselves.
Indicators of entrepreneurship and commercial acumen

The questionnaire also included a series of question on how the owners say their businesses and
how they would define a successful business. These questions provide useful information on the
business acumen of the owners and on their perceptions about running a business.
More than 70 percent of MSME business owners say their businesses are growing or remaining the
same13. This is true both for firms that claim to measure performance (for example, by measuring
changes in turnover or profitability) and those that do not. Given the tiny size of most enterprises,
formal means of measurement may not be particularly relevant to the owner being able to say how
business is going they know by whether they and their families eat or not, and how well, and
whether overall they feel as if they are struggling or getting along.
13
This question was not asked among large businesses.
16
Figure 11: Most enterprise owners said their business was expanding or staying the same size
Don't
Owner measures performance Owner does not mesure performance
Know
3% Don't
Know, 7%
Declining
18% Declining, Growing,
19% 33%
Growing
44%
Remaining
the same Staying the
35% same, 41%
The MSME owners were also asked what they saw as the drivers of success for businesses once
again giving some information on how they see their business. By far the most common response
was being well-financed. Close to 68 percent of MSME owners said that this was the case. This, of
course, does not imply that they believed their firm was well financedonly that if their firm was
well-financed, they could be more successful. As discussed below, given the high level of concern
about access to finance, it seems likely that most were saying that they could be more successful if
they had access rather than that access to finance was good for their firm.
The next most common response was support from the government, which was cited by only 36
percent of firms. Relatively few cited infrastructural constraintsfor example, only 8 percent cited
good access to water or power and only two percent cited good access to communication systems
such as telephones and computers. Good administration and productive employees were also cited
by only about 6 percent of firms. About 19 percent cited having the right business skills and right
products.
In this respect, success is mainly defined in terms of getting access to outside resources (e.g., access
to finance and support from the government) rather than in terms of the internal performance or
processes of the firm (administration, skilled employees, reliable business partners, or right
equipment) or in terms of access to infrastructure.
17
Figure 12: Most of the MSME owners saw being well financed as one of the drivers of
success for their enterprise
Drivers of success
Good access to communication systems
Good administration
Good access to water/power
Good access to transportation
Right business skills
Reliable suppliers
Loyal customers
Being well-financed
0% 25% 50% 75%
% of owners
The MSME owners were also asked a series of question to see how optimistic they were about the
various aspects of the economy and their views on government. Overall, owners appear to be
relatively optimistic or content. Over three quarters said that they enjoyed the work that they did
and that they believed their business would be more successful in the future. Over half said that
Zambia had a stable political environment. On the other hand, only about one-third said that they
were satisfied with what they achieved in their business and only about four in ten said that they
believed that economic conditions were favorable.
Two questions on the perceived role of government also provide useful information. It is not clear
whether there is a connection between 36 percent saying that they think Government is creating
opportunities for small business, while 25 percent see no need to pay back a Government-granted
loan. At a minimum, these answers should give pause to those promoting Government-sponsored
financing schemes.
As noted above, many MSME owners reported that they ran the business to supplement their
income, but few thought they made more as a business owner than they could if working full time.
Consistent with this, manyalthough not the majorityof the MSME owners would take full-time
employment if they couldnecessarily restricting their participation in the business. Just over 44
percent of MSME business owners would take up a job offer for a full-time salary-paying job if they
were offered one. Overall, that number is driven by businesses started since 1991, where the
propensity is about 46 percent indicating that these newer businesses expect that they would do
better, financially, if they had a full time job. Those businesses with the lowest propensity to take up
a full time job, at 18 percent were started between 1951 and 1970. Overwhelmingly, those who
would prefer a full-time job would like to work in Government (see Figure 13). The most common
reasons for wanting a government job were better benefits and more secure future. In contrast,
people who would prefer to work for an NGO or private business were most likely to say that they
would do so to obtain a better salary.
18
Figure 13: Most people who would like to take a full-time job offer said that they would like a
government job
Preference of job type for people who said that they would take a full-time job offer
Other
2%
Public enterprise
4%
Other
private
10%
NGO
17%
Government
67%
4. Business relations with other businesses and the

Government
Before looking at the information about the investment climate, it is useful to look at relationships
between MSMEs, large firms and with the government. Understanding the inter-relationships
between businesses and between businesses and Government provides insights on levels of
formalization, markets for goods and services (as buyers and suppliers).
Business registration
One important aspect of relations with the government is whether the enterprise is formally
registered with any government agencies. MSMEs participating in the survey are asked three
questions about company registrations: (i) whether they are registered with the Patents and
Company Registrar (PACRO) or other government institution responsible for commercial
registration; (ii) whether the firm has an operating, trade or other business license with any local
government institutions; and (iii) whether the firm has a taxpayer identification number (TPIN) from
the Zambia Revenue Authority (ZRA). Firms that have done any of these things will be more visible
to government officials.
All firms in Zambia, whether sole proprietorships, partnerships, or limited liability companies are
required to register with PACRO unless they are sole proprietorships operating under the personal
name of their owner. Sole proprietorships that are operating under a trade name are required to
register as a business name under Section 3 of the Registration of Business Act Cap 389, while
limited liability companies are required to register as companies under Companies Act Cap 388.14
Because firms can operate under the personal name of their owner, however, firms could still
operate legally without registering with PACRO.
14
Patents and Companies Registration Office ( 2009a; 2009b)
19
Firms will also often have to get operating or trading licenses fromand pay license fees to
municipal or local governments. Requirements and fees will depend upon several things including
sector or operations, size of the firm, and by locality.15 Many firms need multiple licenses to
operate.16 Some studies noted that license fees for businesses are an important source of revenue
for local governments.17
As well as registering with PACRO, most businesses are required to get a TPIN from the Zambia
Revenue Authority. This applies to companies registered with PACRO under the Registration of
Businesses Act and the Companies Act and to individuals operating businesses that are not
registered as firms.18 After getting a TPIN, most of the firms (over 99 percent) in the sample will be
too small to have to register for either the value-added tax or the income tax, both of which apply
only to firms with turnover of more than K200 million (about $53,000 at the average exchange rate
for 2008). Many of these firms are, however, required to register to pay a presumptive three
percent tax on turnover.19
Only about one in 20 of MSMEs reported that they were registered with any of the three agencies
(see Table 5). They were most likely to report that they had an operating or trading license from a
local or municipal government (about 1 in 20 MSMEs). Fewer reported that they were registered
with PACRO (only about 1 in 30) or had a TPIN from the Zambia Revenue Authority (only about 1 in
50).
Table 5: Percent of MSMEs and large enterprises registered with each agency
% of MSMEs % of large enterprises
Registered with any agency 6% 100%
Registered with PACRO 3% 99%
Have operating license from local government 5% 98%
Have TPIN from Zambia Revenue Authority 2% 96%
Source: Authors calculations based upon data from the Zambia Business Survey MSME and large business
surveys.
Note: All variables are weighted means.
If anything, this is likely to overestimate the extent of company registration. Owners of firms that
are unregistered are probably more likely to claim that they are registered than owners of registered
15
For example, firms in the manufacturing sector and tourism sectors and pharmacies need to get licenses
from local municipalities (ACT Watch, 2008; United Nations Conference on Trade and Development, 2003;
Zambia Development Agency, 2009). Similarly, retail businesses also have to have trading licenses in many
areas. See, for example, Times of Zambia (2008). Foreign Investment Advisory Service (2004a) provides a list
of license fees for Lusaka in 2004. The list covers wholesale and retail trade, retail trade (including hawkers
and traders), and a long list of services. During field interviews in the fall of 2007 with small retail traders in
Lusaka, most claimed that they had trading licenses from the local government.
16
In some sectors, such as tourism, firms require multiple licenses (Economics Association of Zambia, 2009).
Foreign Investment Advisory Service (2004b) noted that some businesses needed as many as 54 separate
licenses from national, regional and local departments for administering licenses to operate.
17
See, for example, Economics Association of Zambia (2009). When license fees are increased, this often result in various
forms of legal and illegal protests in many areas. See, for example, Business Reporter, Times of Zambia (2009), which
reports on a legal case that the Kabwe Chamber of Commerce brought against the Kabwe council when it raised trading
license fees. Also, see, Lusaka Times (2008a; 2008b) for similar stories on Mpulunga and Mufulira.
18
Zambia Revenue Authority (2009a)
19
The turnover tax was introduced for MSMEs in 2004 (Zambia Revenue Authority, 2004). Firms with paid
employees should also register for PAYE (Zambia Revenue Authority, 2009b)
20
firms are to say that they unregistered. That is, if an owner of an unregistered firm is nervous about
being accused of tax evasion or avoiding regulatory requirements, she might tell the interviewer that
she is registered when she is not. In contrast, an owner of a registered firm does not have the same
incentive to lie about being unregistered.
Registered MSME firms were slightly larger than unregistered firms (about 4.1 employees on
average for registered firms compared to about 2.7 employees for unregistered firms) (see Table 6).
They were also more likely to be growing (32 percent compared to 26 percent) and were far more
likely to be located in urban areas (about 61 percent of registered firms compared to 16 percent of
unregistered firms). Agricultural firms made up a far smaller share of registered firms (about 30
percent compared to about 73 percent of unregistered firms), while other sectors made up a
correspondingly larger share.
Although the results from the MSME survey suggest that registration is relatively uncommon in
Zambia among MSMEs, larger enterprises are far more likely to be registered (see Table 5). All of
the firms claimed to be registered with at least one agency, with 99 percent claiming to be
registered with PACRO, 98 percent claiming to have an operating license from local government, and
95 percent claiming to have a TPIN. Of the large enterprises that were registered 8 percent reported
that they had operated in the past without being registered.
Table 6: Summary statistics for registered and unregistered MSMEs
All Registered Unregistered
Number of workers 2.8 4.1 2.7
Age of firm 11.1 7.7 11.3
Firm employment is growing (dummy) 26% 32% 26%
Firm is located in urban area (dummy) 19% 61% 16%
Capital intensity (index)a 2.2 2.2 2.2
Sector Manufacturing (dummy) 3% 8% 2%
Sector Agriculture (dummy) 70% 30% 73%
Sector Retail and Wholesale Trade (dummy) 22% 41% 21%
Sector Other Services (dummy) 4% 19% 3%
Sector Other (dummy) 0% 1% 0%
Source: Authors calculations based upon data from the ZBS MSME survey.
Note: All variables are weighted means. Registered means registered with any agency
a
The index variable is calculated as a sum of series of dummy variables indicating that the firm owns various
types of capital equipment. There are: (i) motor vehicle for company use; (ii) fax machine; (iii) photocopier;
(iv) cash register; (v) calculator; (vi) storage space for business; (vii) vault; (viii); credit card machine; (ix) factory
machinery; (x) tractor; (xi) hammer mill; (xii) treadle pump; (xiii) oxen; (xiv) ox-cart; (xv) plough; (xvi) hoe. We
experimented with various specifications including dropping some of the more minor pieces of equipment
(calculator, oxen, ox-cart, plough and hoe) and, dividing them into capital that was agricultural and non-
agricultural. Doing this did not appear to have a significant impact on either the statistical significance or sign
on this variable or on the other main variables included in the analysis.
Barriers to registration: Enterprises that were not registered with any of these agencies were asked
about their reasons for not registering. The most commonly cited reason was that the business does
not make enough money. This was noted by 37 percent of the respondents. Almost 30 percent of
firms reported that they did not need to be registered, while a quarter of firms reported that they
did not know how to register. This strongly suggests that the cost of registration and information on
registration procedures remain a barrier to formalization for some firms in Zambia. The two large
21
enterprises that were not registered with PACRO both reported that it was because it was so
complicated.
Figure 14: Reasons for not registering
Figure 15: Reasons for registering Businesses for MSME owners
Most business surveys focus on barriers to registration, and Governments seek to address these
constraints so that more firms will register. A different and complementary approach is to
22
understand why firms register, and then to use information about these incentives in marketing
campaigns that strive to boost registration. The information generated by the ZBS could be helpful
in this respect.
When registered firms were asked about their reasons for becoming registered (see Figure 15), the
most common reason was in order to pass assets through inheritance. About 25 percent of firms
reported that they did so to gain access to customers. This is particularly important for firms in
Zambia who want to supply to the Government. Less than 20 percent of firms reported that they
registered to gain access to finance and about 15 percent said that they did so because they had
become too large to remain unregistered. Only one percent reported that they registered because it
is a legal requirement.
Large business managers gave slightly different reasons (see Figure 16). In contrast to the MSME
owners that were registered, most responded that it was because it was a legal requirement (close
to four out of five large enterprise managers compared to 1 in 100 of MSME owners). In contrast,
the transmission of assets through inheritance was far less important (3 percent of large enterprise
managers compared to two thirds of MSME owners. About one-quarter of large enterprise
managers reported that they did so to gain access to financeslightly more than for MSME owners.
Getting access to customers was also important for both MSME owners and large enterprise owners.
Figure 16: Reason for registering business, large enterprise managers
Learned of the procedures required to register 1%
To transmit assets through inheritance 3%
Other 4%
Business grew too large to remain unregistered 8%
To gain access to aid programmes 10%
For moral/ethical considerations 12%
To obtain access to financing more easily 24%
To gain access to customers who would only deal with

29%
registered entities
Legal requirement 79%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Source: Zambia Business Survey, large enterprise sample
Relationship with the Government

MSME owners were asked a series of questions about their views on the how the government could
help their business. Of everything that Government could do to improve the business environment,
(see Figure 17), about 42 percent of MSME owners said that that providing access to finance would
be the most useful thing and about 38 percent said the same about donors. About one-quarter said
that donors could improve the investment climate most by improving skills and training and about
one fifth said that government could do so by improving infrastructure.
23
Figure 17: MSME owners would most like government and donors to improve access to finance
Provide
How could government help? How could NGOs help?
business
Provide
services,
business
11%
services,
Improve 13%
skills/
training,
13% Provide
Provide accces to
accces to finance,
finance, 38%
Provide 42%
better
Improve
health
skills/
services,
training,
15%
25% Provide
Provide or better Provide or
improve health improve
infrastruct. services, infrastruct.
, 18% 8% , 15%
It is interesting that providing finance ranks so highly for Government, and should raise some alarms,
when juxtaposed to the high percentages of MSMEs who think that Government issued loans should
not be paid back. It is less clear why donors, but not government, rank so highly in respect of
expectations about skills improvement and training. One might surmise that it reflects the relatively
high visibility of a number of donor-funded initiatives in this area. What seems evident from this
analysis is the need for Government, donors and others to contrast the perceptions of business
people, regarding constraints and services needed, to the results of productivity analysis that
identifies which items in the investment climate have the biggest impact on firm performance.
Business networks and associations

For the most part, MSME owners rely upon informal connections to find business connections and
sources of information. In particular, only a tiny number of MSME owners belong to any formal
businesses associations or networks. This is not because they do not belong to any formal
institutions. About 73 percent belong to non-business groups or organizations and about 97 percent
report that they belong to a church.
In the absence of ownership to formal business associations, MSME owners get information about
business opportunities, suppliers, and services from other sources. The most common ways for
MSME owners to obtain information about business is by talking to friends or family (85 percent)
and customers (44 percent). Taken together, this suggests something about the channels through
which information on markets, suppliers and business development services (if not specific services)
may be most effectively dispersed. That is, it may be more effective to exploit the social networks
that most MSMEs already use, rather than trying to force access through formal, solely businesses
oriented channels.
In contrast, most (59 percent) of the large businesses (or one or more of their senior management
team) are members of at least one business association. Furthermore, there seems to be a useful
connection between accessing information about training and actually providing training for
24
employees, in that nearly two-thirds of the large enterprises surveyed had run a training program in
the past 12 months for their full-time staff.
Figure 18: Large businesses believe that networking is the main benefit of belonging to
a business association
Benefits large businesses perceive about being in a business association
No benefit
Other
Information about training
Status/recognition of business
Information about suppliers/inputs
Information about technology
Information about customers/markets
Networking
0% 20% 40% 60%

Outside experts
Roughly 10 percent of MSME owners said that they had got expert advice to help them improve the
operations of their business (see Figure 19). Most of these over 90 percent reported that they
had paid for these services.
Figure 19: Most MSME did not use expert advice
% of firms using expert advice % paying for these services
Do not
Use expert pay
advice 7%
10%
Pay for
Do not advice
90% 93%
Source: Zambia Business Survey, MSME and large enterprise surveys
25
Advertising
About 20 percent of the MSMEs said that they advertised their products or services. Although this
suggests that a significant number of firms actively promote their products, it is important to note
that most of these use only very basic advertising. By far the most common method of advertising
was word of mouth. About 70 percent of the MSMEs that advertised their products did it in this
way. The next most common method was having a sign at their business premisesabout 40
percent of MSMEs said that they did this.
Other, more formal, forms of advertisements were very rare (see Figure 20). About four percent of
those that advertised said that they have a public billboard. Given that only about 20 percent did
any advertising, this means that fewer than 20 of the over 4800 MSMEs used this form of
advertising. Other methods were even less common with less than one percent of those firms that
advertised did so using the radio, TV, national newspapers, or a website.
Figure 20: Few MSMEs advertise thorough any method other than word of mouth
or signs on their premises
% of firms that advertise that did so in the following ways

Website
TV
Company Logo
Other publications
Flyers/Brochures
National newspapers
Radio
Business cards
Public billboard
Other
Signs at premises
Word of mouth
0% 20% 40% 60% 80%
Agricultural MSMEs were less likely to advertise than other firms only about 8 percent of
agricultural MSMEs advertised their products. Although retailers, hotels and restaurants, and
manufacturing firms were more likely to advertise, only between 20 and 30 percent of these firms
actually did so.
In contrast to the MSMEs, about three quarters of large enterprises advertise their products. In
contrast to the MSMEs that rely upon word-of-mouth and signs at their premises, 56 percent
advertised on the radio, 42 percent had public billboards, 38 percent had newspaper
advertisements, 25 percent used the television and 25 percent used the web.
Relationships with buyers and suppliers

The MSMEs serve domestic markets almost exclusivelyvery few export any part of their output.
Of the 4,800 firms in the survey, only 15 reported that they exported anything. Most of these 15
firms export to nearby countries only 2 reported exporting outside of Sub-Saharan Africa.
26
Even within Zambia, most MSMEs primarily served local markets. About 97 percent said that their
customers were most local, while 3 percent said that their customers were mostly located
throughout Zambia. Only 0.3 percent said that their main customers were outside of Zambia.
More of the large enterprises reported that they were involved in exportingabout 22 percent of
the large firms. Large firms were also more likely to export outside of Sub-Saharan Africa. Although
95 percent of the exporters exported to other countries in Sub-Saharan Africa, about one-third of
exporters exported outside of Sub-Saharan Africa. They were also more likely to say that their main
market was outside of their local market. About 9 percent said that they mostly served export
markets and about 47 percent said that they mostly served customers throughout Zambia.
Large enterprises also reported serving significantly more enterprises than MSMEs (see Figure 21).
Over 60 percent of large businesses have more than 50 customers each month. MSMEs, in contrast,
tend to have fewer customers and access to customers appears to be more of an issueabout 80
percent reported having fewer than 50 customers per month (i.e. barely 2 per work day). Of course,
the dearth of MSME clients may also reflect overcrowding and lack of competitive offerings in the
market, as well as the limited purchasing power of the majority of their, who are predominantly
individuals.
Figure 21: Large enterprises have more customers than MSMEs
Number of customers per month -- MSMEs Number of customers per month - Large
0-5
9%
50-500 0-5 6-10
21% 24% 6%
500 and up
30%
11-50
23%
6-10
16% 50-500
11-50 32%
39%
Source: Zambia Business Survey, MSME and large enterprise surveys
Whereas large businesses supply to a diverse range of customers, most MSMEs serve only
individuals. About 90 percent said that they had customers who were individuals. Only 30 percent
said that their customers included other businesses, 4 percent said that they sold to the
government, 10 percent of co-operatives and 4 percent said that they sold to out-grower schemes.
MSMEs were also asked about their suppliers (see Figure 22). About 95 percent said that their
suppliers were local, with the remaining 5 percent saying that their main supplies were national (see
Figure 22). Less than 0.5 percent said that their main suppliers were international. Most MSMEs
had suppliers who were individuals (close to 60 percent) or other businesses (over 50 percent).
About 10 percent reported that they had suppliers were co-operatives.
27
Figure 22: MSMEs purchase most supplies locally mostly from individuals and other businesses
% of MSME using suppliers, by suuplier type Location of Main Suppliers

Other
National
Countries
Co-operatives 5%
0%
Government
Other businesses
Individuals Locally
95%
0% 20% 40% 60%
Source: Zambia Business Survey, MSME surveys
A more detailed look at the large business data set provides some potentially positive news for
MSMEs. Almost half of the large businesses surveyed indicated that they trade regularly with micro
firms. The data did not reveal any particularly strong value-chain linkages within specific linkages,
but even the widely dispersed linkages with smaller firms may hold some potential for better
economic functioning and firm growth.
Figure 23: Almost half of the large enterprises in the large enterprise survey report that they trade
with microenterprisesand more trade with SMEs
Percent of large enterprises trading with various entities
Large private businesses ( more than 50 workers)
Individuals
Small private firms (11-30 workers)
Medium private firms (31-50 workers)
Government agencies and SOEs
Microenterprises (less than 10 workers)
Parent company or affiliated businesses
Other
0% 25% 50% 75% 100%

28
5. Perceptions about the investment climate20
The ZBS collects detailed information on the investment climate in Zambia. The questions on the
investment climate, which are on topics such as infrastructure, access to finance, taxes, competition
from the informal sector and corruption, include: (i) subjective questions about what the owners
(MSME survey) and managers (large enterprise survey) see as the major obstacles that their firm
faces; and (ii) quantitative questions such as the percent of production lost due to power outages,
whether the firm has a loan or overdraft facility, and the amount of time managers spend dealing
with government regulations.
Perception-based questions have several advantages and disadvantages over other types of
question. Among the disadvantages are: (i) it is difficult to make cross-country comparisons using
perception-based data because cultural or other differences might mean owners or managers from
different countries answer these questions differently;21 (ii) firm owners and managers might adapt
to the situation in a country by modifying their business to overcome constraints and, in turn, might
underestimate the problems associated with a given constraint because they have adapted to it;22
and (iii) it is difficult to aggregate data on constraints across firms. That is, it is not clear whether a
constraint that one firm says is very severe and another says is a minor problem is a greater or worse
problem overall than a constraint that two firms say is a moderate problem.
An additional concern is that the answers provided by MSME owners reflect their actual experience.
In some cases this might affect how they respond to some of the questions. For example, managers
with no experience using the Internet or cellular phone service might not realize all the ways that
they could improve their business. As discussed elsewhere in this background paper and in the
background paper on firm productivity in Zambia, this might affect perceptions about infrastructure
given that so few businesses have had access to basic services such as power, water and ICT.
It is also important to remember that there are concerns about quantitative data as wellespecially
for sensitive and difficult questions.23 Compared to many quantitative questions, the perception
20
Clarke (2009b) provides greater detail on the analysis, including on the problems with perception-based
data.
21
One problem is that overall business confidence appears to affect responses about specific areas of the
investment climate. For example, Clarke (2009a) found that business owners in South Africa complained more
about all areas of the investment climatenot just powerduring a power crisis in South Africa. For example,
firm managers might be more willing to complain in countries with well established laws protecting freedom of
speech. Jensen et al (2008) show that non-response patterns and lying reduce measured corruption in
politically repressive environments. But similar patterns also appear for less sensitive questions. For example,
Clarke et al (2006) show that firms appear to complain more about access to finance in countries that are more
free politically than in other countries after controlling for other country and firm characteristics. Several
recent studies show that although preferences do not line up perfectly with objective data, they do appear to
line up fairly well. See, for example, Hellman and others (1999), Fries and others (2007), Hallward-Driemeier
and Alterido (2009) and Gelb and others (Gelb and others, 2006).
22
Hausmann and Velasco (2005) illustrate this point with an analogy to camel and hippos. They note that the
few animals that you find in the Sahara will be camels, which have adapted to life in the desert, rather than
hippos, which depend heavily upon water. Asking the camels about problems associated with life in the desert
might not adequately represent the views of the missing hippos.
23
For example, some work has shown that managers in Africa appear to find it difficult to answer questions
that involve calculating percentages. Clarke (2008) shows that managers that report bribes as a percentage of
29
questions are easy to answer no implicit or explicit calculations are needed. In addition, broad
questions about perceptions are probably less sensitive than more direct questions, especially about
sensitive topics such as corruption. For example, on the issue of corruption, firm managers can say
that corruption is a problem without admitting that they have paid any bribes or broken any laws.24
Main perceived constraints for MSME owners

The Zambia Business Survey asks firm owners in the MSME survey and firm managers in the large
enterprise survey how great an obstacle 15 areas of the investment climate are to the current
operations of their business. They rate each on a five-point scale between no obstacle and a very
severe obstacle. If firm owners or managers rate an obstacle as major or very severe (i.e., if they
rate it as a 3 or 4 on the 0 to 4 scale), we will say that the firm owner or manager describes it is a
serious obstacle or problem.
The mostly small enterprises in the Zambia Business Survey were most likely to say that access to
finance was a serious problem about 55 percent of the firms in the survey said that access to
finance was a serious constraint (see Figure 24). About 39 percent of firms said that transportation
was a serious problem, about 34 percent said that the cost of financing was a serious problem, and
about 32 percent said that access to land was a serious problem.25 Although fewer firms rated
corruption, crime and macroeconomic instability as serious problemsabout one-quarter did
suggesting that these are serious problems for relatively large number of firms.
Fewer firms said that other areas of the investment climate were serious problems. Fewer than one
in five said that electricity, political instability, telecommunications and tax rates were a serious
problem and fewer than one in ten said trade regulation, worker education, labor regulation or tax
administration were serious problems.
sales report bribe payments that are between four and fifteen times higher when they report them in
monetary terms. This does not appear to be due to outliers, differences between firms that report bribes in
monetary terms and firms that report them as a percent of sales, and the sensitivity of the corruption
question. Lying is also a problem. Azfar and Murrell (2009) show that even broad questions about corruption,
including questions about firm like yours, suffer from serious problems with lying and non-response that can
lead to substantial underestimates of the extent of corruption.
24
That is, corruption might be an especially large problem for firms that refuse to pay bribes because they are
unable to complete important transactions or get licenses or utility connections. Anecdotally, during pilot
interviews, we have noted that although firm managers are often uncomfortable when asked this question
during interviews, they appear to be more uncomfortable when asked more direct questions about whether
bribes were requested for specific transaction or how much bribes cost a firm like yours.
25
A simple t-test of means suggests that the differences between the percentages of firms that said each of
these constraint was a serious problem is statistically significant at a 5 percent level or higher for each of these
pairs of constraints.
30
Figure 24:: MSMEs in Zambia were most likely to say that access to finance, transportation,
transportation, the
cost of finance and access to land were serious obstacles to
to their firms operation in 2008
% of MSMEs that say area is serious obstacle
60%
% of firms
40%
20%
0%
Source: Zambia Business Survey,, MSME sample
Firm owners are also asked what they see is the biggest problem they face. In theory, responses to
this question can be quite different from responses to the questions about whether certain areas of
the investment climate are serious problems. For example, suppose there is a large group of firms
(say 20 percent of firms) that is very concerned about a single issue while others are not concerned
at all. If the firms that are very concerned all ranked it as the biggest problem they faced, then it
would rank among the top constraints based upon the percent of firms that said it was the biggest
problem. However,
owever, if few of the remaining firms thought it was a serious constraint, then it would
not rank among the very top concerns (i.e., for the top obstacles 35-40
35 40 percent of firms said it was a
serious problem). That is, the first question measures something
something closer to the breadth of a problem
(i.e., how many firms said it was a serious problem), while the second measures the depth of the
problem (i.e., how many firm said it was the biggest problem that they faced).
31
Figure 25: Access to finance, transportation and access to land were also among the areas of the
investment climate that firm owners were most likely to say were the biggest problem that they
faced
% of MSMEs that say area is biggest obstacle

Other
19% Access to finance
27%
Cost of finance
8%
Crime
9%
Transportation
23%
Access to land
14%
In practice the results for the

he two questions are fairly similar. In particular, three of the top four
constraints based upon the percent of MSME owners that said each constraint was the biggest
problem that they faced were the same as the percent of firms that said whether the constraints
const
were serious problems. Just over one quarter of firm owners said access to finance was the biggest
constraint that they faced while just less than one quarter said the same about transportation. A
significant number of MSME owners14
owners percentalso said that access to land was the biggest
problem that they faced. Finally, although relatively few MSME owners said that corruption and
macroeconomic instability were the biggest problem that their firm faced (about 4 percent), they
still ranked above the other constraints based upon this measure as well.
There
here were, however, some differences. The cost of finance was the third greatest constraint based
upon the percent of firms that said it was a serious problem, but only the fifth greatest constraint
based
ed upon the percent of firms that said it was the biggest problem that they faced. In contrast,
crime rated as only the sixth greatest constraint based on the percent of firms that said it was a
serious problem but as the fourth greatest constraint based on the percent that said it was the
biggest problem that they faced.
In summary, although there were some differences between the two measures, the overall picture
that they present is relatively consistent. MSME owners appear to be most concerned about access
to finance, transportation and access to land. There is also a relatively broad level of concern about
the cost of finance, although it did not rank among the very top constraints based upon the number
of firms that said it was the biggest constraint
constraint that they faced. Although they did not rate among the
very top constraints based upon either the percent of firms that said they were serious problems or
the percent of firms that said they were the biggest problem, crime, corruption, and macroeconomic
instability ranked above the other possible constraints (for example, power, telecommunications
and taxes) on both measures.
32
Main perceived constraints
onstraints for large enterprise managers
Large enterprises were more likely to be located in urban areas and were larger than the mostly
microenterprises in the MSME survey. It is not surprising, therefore, that managers of these
enterprises had very different views about the investment climate than MSME owners.
Managers of the large enterprises were most likely to say
say that electricity, macroeconomic instability,
the cost of finance, tax rates, and access to finance were the biggest constraints to enterprise
operations (see Figure 26).
). About 38 percent of large enterprise managers said that electricity was a
serious problem, about 34 percent said that macroeconomic instability and the cost of finance were
serious problems, and about 24 percent said tax rates were a serious problem. Significant numbers
also said that access to finance (23 percent) and corruption (19 percent)
percent) were serious problems.
Fewer firms said that other areas of the investment climate were serious problems (less than 15
percent).
Figure 26:: Large firms in Zambia were most likely to say that electricity, macroeconomic instability,
inst
finance and tax rates were serious problems
% of large firms that say area is serious obstacle
40%
% of firms
20%
0%
Clearly, the concerns of large enterprise managers are quite different from the concerns of the
MSME owners. MSME owners were most likely to say that access to finance (55 percent),
transportation (39 percent), the cost of finance (34 percent) and access to land (32 percent) were
serious constraints. Except for the cost of finance, none of these ranked among the top concerns of
large enterprise managers.
anagers. Moreover, few large enterprise managers said that either access to land
or transportation was a serious concern (10 percent of fewer of large enterprises). Similarly, few
MSME owners ranked tax rates (11 percent) or electricity (16 percent), two of the top concerns, as
serious concerns.
So how much of these differences are due to differences in observable characteristics (e.g., size,
sector, registration status, place of operations)? For the most part, the differences in perceptions
appear to be due to differences in the two samples in terms of observable characteristics of the
firms (i.e., the coefficients on the dummy variables indicating that firm is in the large firm sample is
statistically insignificant in most cases). Most notably, for several
several of the variables where the ranking
33
is very difference (e.g., macroeconomic environment, tax rates and electricity, which firms in the
large firm sample were more likely to say were constraints and access to finance and transportation,
which small firms were more likely to say were constraints), the differences appear to be mostly due
to observable characteristics.26
There were, however, some notable differences between the views of MSME owners and large
enterprise managers. One significant difference is that MSME owners were about 24 percentage
points more likely to say that access to land was a serious problem than large enterprise manager
after controlling for observable characteristics that might affect perceptions (e.g., size, sector, and
location). This might be because the large, more formal firms in the large firm sample are more
likely to have full title to their land and so are less concerned about access or that they have better
access to the courts or to policymakers to help them enforce their rights.
A second significant difference is with respect to corruptionmanagers of large firms were about 21
percentage points less likely to say that corruption was a serious problem than MSME owners. Again
this could reflect that large firms in the large firm sample have more political power and so are less
vulnerable to requests for bribes than MSME owners.
Comparisons with the 2007 Enterprise Survey

In late 2007, the World Bank conducted an Enterprise Survey. The Enterprise Survey covered
enterprises with five or more employees in manufacturing, retail trade and other services located in
Lusaka, Kitwe, Ndola and Livingstone. The sample was drawn from a list of enterprises provided by
the Central Statistical Office and so will mostly be relatively formal enterprises. Although the sample
for the Enterprise Survey is very different from the sample for the MSME survey, it is more similar to
the sample of large enterprises.27
Although the Enterprise Survey had very different coverage and a different survey instrument, it did
ask similar questions with respect to firm perceptions as the 2008 ZBS large firm survey. In
particular, the firms were asked to rate obstacles on an identical five point scale and many of the
constraints were identical. There were, however, some differences. One important difference is
that some constraints were omitted (cost of finance) and some were added (competition with
26
To test whether observable differences in firm characteristics drive the differences between the two
samples, we pool the two samples into a single dataset and re-run the base regressions explaining differences
in perceptions with both sets of observations included. In addition a dummy variable is added indicating that
the firm is in the large firm sample (see Appendix for more details). If the coefficient on this dummy variable is
statistically insignificant, this suggests that differences in perceptions can mostly be explained by observable
differences between the firms in the two samples for that area of the investment climate. If the coefficient is
statistically significant this suggests that other unobservable characteristics might explain the difference. For
the most part, adding the additional variables does not affect the coefficients on the explanatory variables
(i.e., the coefficients that are statistically significant at a 5 percent level or higher mostly remain statistically
significant and those that are not remain statistically insignificant). In particular, even though there is a large
difference between the two samples in terms of size, adding the large firm sample does not generally have a
large impact on the coefficients on this variable. The biggest difference is that the coefficient on firm size
becomes statistically significant at a 10 percent level in the regression for crime. The size and sign of the
coefficient, however, remains similar even in this case.
27
Indeed, one of the main advantages of the MSME survey over previous surveys such as the Enterprise
Survey, is that it includes the microenterprises and small informal enterprises that have been excluded from
the previous surveys.
34
informal sector and courts). Another is that access to finance explicitly included both access and
cost in the
he 2007 survey, while access to finance does not cover costs in the ZBS survey. In this
respect, it is hard to compare access to finance in the two surveys.
For the most part, the percent of firms that said each areas were significant problems were similar
si in
the two surveys. For 6 of the 16 constraints that were asked about in both surveys, the difference in
the percent of firms that said that each areas was a significant problem was one percent of less and
for 13 of the constraints the difference was
was less than 5 percent. Given the small number of large
firms in the ZBS survey, this suggests that perceptions appear similar in the two surveys. For the
final area, corruption, the difference was about 8 percent.
There were, however, two significant differences
differences between the 2007 enterprise survey and the 2008
ZBS survey of large businesses. First, whereas 34 percent of firms in the ZBS survey said
macroeconomic instability was a serious problem, only 14 percent said the same in the 2007
Enterprise Survey.. Second, whereas 39 percent of large firms said that electricity was a serious
problem in the 2008 survey, only 12 percent of firms in the Enterprise Survey said the same.
Figure 27:: Firms in the 2007 Enterprise Survey ranked tax rates, competition with informal firms
and access to finance
ce as the most serious problems
% of firms inthe 2007 Enterprise Survey that say area is serious obstacle
40%
% of firms
20%
0%
Source:: World Bank Enterprise Surveys
It is possible that changes in perceptions reflect changes in the external environment. Most notably,
between the two surveys (late 2007 and late 2008), the external environment deteriorated
considerably. In particular, the worldwide financial crisis might have had a significant impact on
managers views about the macroeconomic environment. Given that the crisis had not reached its
peak until even after the ZBS survey, it is possible that this understates the full impact of the crisis on
businesses
Differences in perceptions for different types of MSMEs

Investment climate constraints affect different firms to different degrees.
degrees. Moreover, constraints
often vary across regions, sectors, and for firms of different sizes. Because of the large sample in the
MSME survey, it is possible to compare the perceptions of owners of different types of MSMEs.
35
This section describes the most statistically significant and important differences in perceptions
between different types of firms. The econometric analysis underlying the descriptions is described
in detail in Appendix 2. This section focuses on these differences that are significantly
significantly different in
both a statistical sense (i.e., that the differences are not due to sampling variation) and an economic
sense (i.e., that the differences are large in absolute terms).
Before discussing the differences, it is useful to note that there
there were some consistent results across
all types of firms. One important point is that there was widespread agreement about access to
finance. Firms of all typesurban
urban and rural MSMEs; single person firms, microenterprises, and
SMEs; manufacturing, agricultural,
icultural, retail and other firmsall
firms all were more likely to say that it was a
serious problem than other areas of the investment climate
Although there was broad agreement that access to finance was a serious problem, some firms are
more affected by it than others. For example, growing firms and single-person
single person firms were more
likely to say it was a problem than other firms (see Figure 28).
). However, these differences did not
affect the general conclusion that more firms of all types were more likely to see access
a to finance as
a serious problem than they were to see the same about any other area of the investment climate.
Moreover, apart from SMEs, at least half of the firms in each group said that access to finance was a
serious problem. This emphasizes the
the broad levels of concern about these areas.
Figure 28:: There was widespread concern about access to finance
f
% of MSMEs saying access to finance is a serious obstacle
60%
% of MSMEs
40%
20%
0%
Similarly, there were some areas of the investment climate that few firms of any type said were a
serious problem. Few MSMEs of any type (less than one fifth) complained about the political
environment, telecommunications, tax rates, trade regulation, worker education, labor regulation,
or tax administration. Again there were some
some differences in the number of firms saying these areas
were concerns for different types of firms (see Appendix 2).28 But because few firms of any type said
they were a problem, this section will focus on other areas (i.e., areas where significant numbers
number of
firms of some kind said that the area was a significant problem.
28
Although these differences were sometimes statistically
statistically significant, it did not change the rankings of
constraints significantly.
36
Urban and rural firms: Some of the most noticeable differences are between urban and rural
MSMEs. The most significant differences after controlling for other differences between urban and
rural MSMEs (see Appendix 2) were that urban firms were more concerned about corruption,
corruptio crime
and macroeconomic stability and that rural firms were more concerned about transportation and
access to land (see Figure 29).
). Other than access to finance, urban MSMEs were more likely to say
that macroeconomic instability was a serious problem than
than they were to say the same about any
other area of the investment climate. Similarly, transportation and access to land ranked second
and fourth for rural MSMEs based upon the percent of MSMEs that said they were serious problems,
compared to sixth and seventh for urban MSMEs.
Figure 29:: Firms in urban areas were more concerned about macroeconomic instability, corruption
and crime and less concerned about access to land and transportation than firms in rural areas

60%
Urban Rural
% of firms
40%
20%
0%
Source: World Bank Enterprise Surveys,

Surveys MSME sample
The difference between urban and rural firms with respect to views about access to land appear to
be driven almost entirely by differences between farm-
farm and non-farm
farm based businesses. Whereas
many firms in rural areas, even those that were not farms (e.g., traders) were based on farms,
relatively few firms in urban areas are based on farms. About 37 percent of farm-based
farm rural
businesses said access to land was a problem compared to 27 percent of urban firms and 25 percent
of non-farm
farm based rural businesses. In this respect, the difference in perceptions about access to
land appears to be primarily due to differences between farms and non-farm
non farm businesses.
It is probably not surprising that firms in urban areas are
are far less likely (close to 10 percent) to say
that transportation was a serious problem than rural firms. Infrastructure in rural areas is typically
poor and, as noted below, many MSMEs report spending long times delivering their product to the
market. Although this large difference is not surprising, it emphasizes that transport is a far more
binding constraint in rural areas than it is in urban areas.
After controlling for other things, firms in urban areas were about 14 percentage points more likely
to say that macroeconomic instability was a serious problem than firms in rural areas. This result is
more puzzling than the previous results given that it is not clear why macroeconomic instability (e.g.,
inflation or exchange instability) would be more of a problem in urban areas than in rural areas.
37
Perhaps the most reasonable explanation is that firms in urban areas might be: (i) more likely to be
in the monetized economy (and so more concerned about inflation); (ii) more dependent upon
imported goods and exports (and so more concerned about exchange rates); or (iii) owners of urban
firms are more educated and potentially more familiar with the impact of macroeconomic instability.
Business location: Other aspects of business location are also important.
important. As noted above, farm-
farm
based businesses were far more likely (see Figure 30)) to say that access to finance was a serious
problem than other enterprises. But firms operating out of informal premises (e.g., informal
marketplace, street, footpath, open space,
space, or no fixed location) were also more likely to complain
about access to land. This is also not surprising given that these firms are probably most
disadvantaged by problems with access to land.
Figure 30:: Perceptions were mostly similar for firms operating out of different business locations

60%
Farms Formal locations Informal locations Home
% of firms
40%
20%
0%

Surveys MSME sample
Crime was also a greater concern for firms operating out of informal locations (see Figure 30).
Indeed, crime wass ranked among the top five concerns for these firms. This further emphasizes the
special challenges that these firms face.
Business registration: Registered firms were more likely to say that most areas of regulation and
taxation were serious constraints than other firms. This suggests that the low level of concern about
the burden of regulation and taxation probably reflects a very low level of compliance. In this
respect the burden of regulation and taxation is probably a more significant deterrent to
formalization than the raw data would suggest.
The most notable difference in this respect is related to business regulations. Registered firms were
far more likely to say that business licensing and registration is a serious problem. This is particularly
particul
interesting since it suggests that registration is a burden for MSMEswhich
MSMEs which many firms in the survey
avoid by not registering. It is, however, important to keep in mind that business registration and
licensing did not rank among the top concerns of even e registered firmsabout
about 24 percent of
registered firms said it was a serious problem compared to about 12 percent of unregistered firms.
38
Figure 31:: Registered firm were more concerned about regulation and taxation in general and
a
business licensing and registration in particular
par than unregistered firms
40% Registered Unregistered

% of firms
20%
0%

Surveys MSME sample
Firm growth: One notable difference between firms that are growing and those that are not is that
firms that are growing were less likely to say that financeboth
finance both access and costwas
cost a serious
problem. After controlling for other things, growing firms were about 5 percent
percent less likely to say
that access was a problem and about 7 percent less likely to say that the cost of finance was a
serious problem. Although this might indicate that growing firms are able to get financing, it is also
possible that causation might run in the opposite direction. That is, this could reflect that firms that
have the greatest problems with getting finance are unable to grow. If this is the case, then this
might suggest that access to finance is a constraint on firm growth in Zambia.
Other
ther differences (e.g., in size and sector) were more modest after controlling for other things (e.g.,
those things listed above). These results are presented in more detail in Appendix 2, which also
describes the methodology.
6. Objective information from the survey on investment

climate
Although the perception-based
based data are useful for providing context, it is also useful to compare the
results from the perception-based
based data with objective data from the survey and with information
from other sources. This section looks at some of this evidence to provide context for the previous
results and to confirm that owners perceptions are consistent with other evidence. Where there
are differences, these are discussed.
Infrastructure
Most MSMEs lack basic infrastructure
rastructure such as electricity and water. Although large enterprises in
Zambia have good access to infrastructureall
infrastructure have electricity connections and public water
supplythey
they were far more likely to say that electricity was a serious problem than MSMEs were.
Whereas 38 percent of large enterprises said electricity was a serious problem, only 16 percent of
MSMEs said the same.
39
This difference in perceptions, however, hides an important difference between large enterprises
and MSMEs. Whereas, the problem
problem that large enterprises face with respect to power is reliability,
most MSMEs do not even have basic access. Only six percent of MSMEs in rural areas are connected
to the public grid, while only 24 percent of urban MSMEs have such access (see Figure 32).
32 Similarly,
27 percent of rural MSMEs report having access to water-primarily
water primarily through shared pumps or
boreholes; 30 percent of urban MSMES report having a water connection, mainly through municipal
pipeline. Given the strong link between enterprise performance
performance and access to infrastructure (see
background paper on firm productivity), this suggests that there would be significant benefits to
expanding service to cover more MSMEs.
Figure 32:: Most MSMEs do not have access to electricity
electricity and piped water even in urban
areas along the line of rail
Percentage of firms with electricity and water
40%
31.30% 32.40%
30% 25.20% 25.60%
16.10% 17.80%
20%
6.50%
10%
1.10%
0%
Line of Rail Other Provinces Line of Rail Other Provinces
Electricity Water
Rural Urban
Source: Zambia Business Survey
Transportation and access to markets. The area of infrastructure that MSME owners, especially in
rural areas, were most likely to say was a serious problem was transportation. MSME owners in
rural areas were more likely to say that transportation was a serious problem than any area of the
investment climate other than access to finance. Although owners in urban areas were less likely to
say it was a serious problem, they also saw it as a serious concern.
concern
The objective information on the survey also suggests that poor infrastructure might have a serious
impact on MSMEs in Zambia. About 41 percent of MSME owners say that they take their products
or services
ervices to their customers or markets. This raises further questions about how much time and
money this activity requires. Over half of the respondents indicated that they spend between 1 hour
and 1 day transporting goods to customers. At the same time, 41 percent said that they pay nothing
for transport. This would seem to confirm the very low opportunity cost of peoples time, but also
the potential for marginally better and relatively cheap transport alternatives to leverage better
returns for many MSMEs.
40
Figure 33: MSMEs spend a lot of time but little money transporting products to
markets
More
Average time taken Average cost
than one
0-10 Over
day, 3% Don't minutes, Don't
Know, 2% 2% K500,000, know, 3%
K100,000- 2%
K500,000,
13%
11-30
minutes,
13%
Nothing,
41%
1 hour to 1 31 minutes
day, 52% to 1 hour,
28% K50,001-
K100,000, K10,000-
18% K50,000,
16%
K1-
K10,000,
7%
Firms that delivered their products to customers or markets were asked about the method of
transportation that the mostly used (see Table 7). The most common types of transportation were
bicycles (28 percent); cart, horses or donkeys (25 percent); and trucks (22 percent). Relatively few
reported that their main mode of transportation was on foot (only about 8 percent).
There were some difference between urban and rural MSMEs. Most notably, urban MSME owners
were more likely to deliver their products on foot or using a minibus and were less likely to use
bicycles and carts, horses or donkeys.
Table 7: Method of transportation, by urban/rural
All Urban Rural
On foot 8 19 6
Bicycle 28 14 31
Cart /horse /donkey 25 5 28
Boat 5 0 5
Minibus 5 20 2
Taxi 1 5 1
Train 0 1 0
Private /business car 5 6 5
Airplane 0 0 0
Truck 22 25 21
Other 2 4 1
Owners of rural MSMEs were far more concerned about transportation than owners of urban
MSMEs were. Consistent with this, owners of rural MSMEs reported that they spent more time
taking their products to customers or markets (see Table 8). Close to one third (31 percent) of urban
firms reported that it took them less than half an hour to deliver their products to market and only
about 35 percent said it took them more than one hour. In contrast, only 12 percent or rural firm
owners said it took them less than 30 minutes and 59 percent said it took them more than one hour.
41
Table 8: Time delivering products for urban and rural firms
All Urban Rural
0-10 minutes 2 5 1
11-30 minutes 13 26 11
31 minutes to one hour 28 31 27
1 hour - 1 day 52 32 56
more than one day 3 3 3
don't know 2 3 2
Role and usage of ICT and infrastructure: Similarly, very few firms have access to most types of
information and communications infrastructure. Less than one percent of MSMEs have an
operational landline telephone, only three percent have access to a computer, and only two percent
have access to the Internet. The one exception is cellphones about 44 percent own or have access
to a cellphone.
Even when MSME owners have access to ICT infrastructure, most state that they do not use it for
business purposes. For those who do have cellphones, Internet access, or a computer, only between
56 percent and 73 percent of those business owners say that they do not use those tools for
business. Given the importance of these for modern business methods, this is perplexing.
In contrast, nearly every large business reported ownership of or access to a computer for the
business. Meanwhile, in further stark contrast to their MSMEs counterparts, virtually all (99%) use a
computer for businesses purposes. Large enterprise managers report high usage patterns for
functions such as keeping business records (e.g. financial accounts), business correspondence (e.g.
write letters), and accessing the internet generally, among others.
Taxation and regulation

Relatively few MSMEs complained about tax rates, tax administration, or about any areas of
regulation. This probably reflects the high level of informality in the countryvery few of the
MSMEs in the survey were registered. However, although tax rates in particular ranked relatively
higher for large enterprises compared to other constraints, relatively few large enterprises (less than
25 percent) complained about tax rates, tax administration, or any area of regulation in either the
large enterprise survey in the ZBS. Similarly, in the 2007 Enterprise Survey, although more
enterprise managers complained about tax rates than any other area of the investment climate, less
than 25 percent said it was a serious problem.
To see whether this relatively optimistic view of regulation and taxation reflects objective data on
taxation and regulation, it is useful to look at objective indicators of the regulatory environment
looking at data from the Doing Business (DB) report (see Table 9). Zambia is ranked 100 out of the
173 countries surveyedalthough better than many other nearby countries, this still suggests that
regulation is a concern. For example, labor laws appear particularly onerous- Zambia ranks 135th on
this indicator. The disconnect between the objective indicators from the DB report and the
perceptions of managers suggests a disconnect between the laws that are on the books and how
they are enforced. Alternatively, the disconnect could represent the relative inexperience of
Zambian businesses with many of the variables measured in the DB report. In other words, some
variables are deemed less important due to the lack of use (e.g. most MSMEs are informal and do
not have paid employees, they are not familiar with the labor laws, which from the DB perspective,
are onerous.) At the same time, other constraints which are severe, from the firms perspective
42
such as access to finance, the cost of finance, macroeconomic instability and corruption) are not
measured by the DB report, but are priorities for Zambian firms.
Another view of the taxation structure, specifically towards small firms, is presented in a report
prepared by the Foreign Investment Advisory Service (FIAS) in 2005 which examines the tax regimes
between South Africa, Zambia and Rwanda, and finds: 29
The Zambian SBT (Small Business Tax) is the most business unfriendly regime of the three
countries surveyed. Not surprisingly, the Zambian government estimates that around 80%
of all economic activity occurs in the informal sector. First, it is completely inflexible, in
that it does not allow firms under the relatively high turnover threshold enter the general
tax net under any circumstances. Second, the turnover tax for small business is
presumptive, which means that even new firms must pay a part of their estimated tax
burden up front, even before sales Third, this restriction, combined with a relatively high
tax burden borne by small businesses because of the flat tax with no deductions places a
high financial burden on firms in this system Finally, given resource and mandate
constraints, the ZRA does not engage in education and outreach activities to reduce the
number of non-registered small business operators.
Table 9: Doing Business Indicators
Economy Zambia
Year 2009
Ease of Doing Business Rank 100
Rank 71
Procedures (number) 6
Starting a Business Time (days) 18
Cost (% of income per capita) 28.6
Min. capital (% of income per capita) 1.5
Rank 146
Dealing with Procedures (number) 17
Construction Permits Time (days) 254
Cost (% of income per capita) 1,023.10
Rank 135
Difficulty of Hiring Index 22
Rigidity of Hours Index 60
Employing Workers
Difficulty of Firing Index 20
Rigidity of Employment Index 34
Firing costs (weeks of wages) 178
Rank 38
Payments (number) 37
Time (hours) 132
Paying Taxes Profit tax (%) 1.7
Labor tax and contributions (%) 10.4
Other taxes (%) 4
Total tax rate (% profit) 16.1
Source: World Bank (2008a; 2008b)
29
Richard Stern and Paul Barbour, FIAS 2005
43
Corruption
Although corruption did not rank among the very top concerns of either MSME owners or large
enterprise managers, about 20 percent of each said it was a serious obstacle for their business.
Objective indicators confirm this finding, suggesting that corruption is a moderate concern.
Although few MSMEs got utility connections or were inspected by the tax authorities, between 16
and 24 percent of MSMEs that did reported that bribes were requested or expected during the
transaction. Because managers are often unwilling to report bribes, this is likely to underestimate
the extent of corruption associated with these transactions.
Table 10: Percent of MSMEs completing transactions
Percent of firms that attempt to Percent that report bribe request
complete transaction during transaction
Get fixed line telephone 0.1% 17%
Get power connection 0.3% 16%
Get public water connection 0.7% 34%
Have tax inspection 1.8% 21%
Source: Authors calculations based upon data from the Zambia Business Survey MSME survey.
Note: All variables are weighted means. Utility connections are within past two years before survey. Tax
inspections were in previous fiscal year.
Zambia also ranks relatively poorly in corruption when benchmarked against other countries in
international studies. Transparency International ranks Zambia 99th out of 180 countries surveyed in
the Corruption Perceptions Index in 2009. Rankings of governance indicators, presented in the chart
below show that Zambia ranks in the bottom third of all 179 countries surveyed in all measures of
governance, including government effectiveness (31).
Figure 34: Zambia does not perform very well with respect to control of corruption
44
7. Summary
This technical paper describes the firms in the MSME and large enterprise surveys, looks at what
MSME owners and large enterprise managers said are the major constraints that they face, and
looks at some objective data on the investment climate in Zambia. The firms in the MSME survey
are most small, survivalist enterprises, mostly in the agricultural and wholesale and retail trade
sectors. Most have no paid employees and only about one-fifth have any employees that are paid in
cash. Many of the firms have unpaid employeesprobably mostly family members. Very few of the
MSMEs are registered with any government agency and most do not have access to infrastructure.
Among MSMEs, firm owners were most likely to say that access to finance was a serious constraint
to their operations. This was also true for most types of MSMEsurban and rural; registered and
unregistered, and MSMEs operating out of formal premises, farms, their owners homes and with
informal business locations. They were also most likely to say it was the biggest problem they faced.
Other than access to finance, the areas of the investment climate that MSME owners were most
likely to say were problems were transportation, the cost of finance, and access to land. Significant
numbers also said that corruption, crime and macroeconomic instability were problems. Fewer
MSMEs rated other areas of the investment climateincluding other aspects of infrastructure, most
areas of regulation, worker education, political instability and taxes as serious problems.
Firm managers in the large firm survey had very different concerns from firm owners in the MSME
survey. Although relatively large numbers of managers of large enterprises said that the cost of
finance and access to finance were serious constraints, they did not rank among the very top
concerns of managers of large firms. Managers of these firms were most likely to say that electricity
and macroeconomic instability were serious problems and more managers said that tax rates were a
serious concern than said the same about access to finance. Few managers of large enterprises said
that access to land or transportation were serious problems.
45
Appendix 1: Defining MSMEs and employment
Although micro-small and medium-sized enterprises (MSMEs) are commonly used as a unit of
analysis, there is no fixed consistent definition in the policy literature of what an MSME is. It was
decided that for the purpose of the survey, MSMEs would be designated as any business employing
less than 50 employees. This was decided after consultation with other stakeholders and was
consistent with the definitions used at the time the survey was being designed. This does, however,
differ somewhat from the current (2009) official government definitions from the Micro, Small and
Medium Enterprise Development Policy (see Table 11).
Table 11: Current definitions of MSMEs
Informal Micro Small Medium
Registered with NO YES YES YES
Registrar of
Companies
Investment K50,000,000 K80,000,000 K80,000,000- K200,000,000-
(excluding land and K200,000,000 K500,000,000
buildings)
Investment-Services K50,000,000 K80,000,000 K150,000,000 K151,000,000-
and Trading K300,000,000
Turnover Unspecified K150,000,000 K150,000,000- K300,000,000-
K250,000,000 K800,000,000
Employment 1-9 workers 1-10 workers 11-49 workers 51-100
workers
Source: The Micro, Small and Medium Enterprise Development Policy, MCTI January 2009
For the purpose of the analysis, this broad group will sometimes be divided into smaller sub-groups:
single-person businesses, microenterprises, small enterprises, and medium-sized enterprises. The
group single person businesses, where there are no employees other than owner, is useful given
that many enterprises have no employees even under relatively loose definitions of employment.
The following cutoffs, based upon employment, are therefore used:
Single person businesses: No employees
Microenterprises: 1 to 10 employees
Small: 11 to 30 employees
Medium-sized: 31 to 50 employees.
The reason that employment is used rather than other information such as turnover or assets
other variables upon which these classifications are often based is that these other variables are
more difficult to measure accurately for firms that do not keep detailed accounts and that value are
missing for many firms in the sample.
Even after deciding upon these size categories, it is necessary to define employees rigorously. The
survey contains several questions on employment at the time of the survey (questions 2a through 2f
in Section D of the survey). The categories are based upon whether the workers are full or part-time
and how they are paid (in cash, in-kind, or not paid). The categories are therefore:
2a Permanent full-time paid employees
2b Part-time paid employees
46
2c Full-time employees paid in kind (e.g. food, rent, etc.)
2d Part-time employees paid in kind (e.g. food, rent, etc.)
2e Full-time unpaid employees
2f Part-time unpaid employees
Employment could be defined in various ways. Some may argue that unpaid employees are not
really employees. That is, if the main goal of enterprise activity is to reduce poverty or to increase
cash income, then narrow definitions of employment based upon only paid employees or only
employees paid in cash might be appropriate. If, in contrast, the goal is to provide citizens with an
opportunity to contribute to output or society then a broader definition might be more useful.
Under a very broad definition of employment that includes all workers whether they are full- or part-
time and whether they are paid in cash, paid in kind, or not paid at all, close to two thirds of the
MSMEs in the survey had at least one employee other than the owner (see Table 12). Most of these,
however, were quite smallonly about 7 percent had more than 10 employees.
Table 12: Distribution of firms based upon different definitions of employment
All paid and unpaid Only paid Only employees
employees employees paid in cash
No employees 35% 67% 79%
Micro (1 to 10 employees) 58% 30% 19%
Small and medium (11 to 50
7% 3% 2%
employees)
Source: Zambia Business Survey
Excluding unpaid employees changes the picture quite significantly. Once these workers are
excluded, close to two thirds of enterprises have no paid employees. An additional 30 percent have
10 or fewer employees and only about 3 percent have more than 10 employees.
When employees paid only in cash (whether full or part-time), the number of single-person entities
jumps from 67 percent to 79 percent and the percentage of microenterprises drops from 30 percent
to 19 percent. Making further adjustments for full or part-time employment does not have a
significant impact on the distribution.30
On balance, the definition of employment based upon paid employees seems the most appropriate
definition in the Zambian context and will be used in this report. This definition excludes unpaid
workers, many of whom are probably family, or extended family, members.31
Overall, these comparisons of enterprises based upon definitions of workers emphasize several
interesting points. First, regardless of the precise definition of enterprise size, most businesses in
Zambia are microenterprises. Even under the broadest definition of employment, small and
medium-sized enterprises make up only about 7 percent of enterprises. Moreover, most of these
30
The data suggest that the notion of full or part-time employment may not be a very useful measure in such
agriculturally oriented environments.
31
If the wide definition of household is shared by the survey respondents, then differentiating workforce from
family may be difficult. Some noise in the data (e.g. indicating fewer family members than those cited as being
part of the workforce) indicates some inconsistency and perhaps lack of understanding about remuneration
and tenure, as well as concepts of workforce, versus family members.
47
microenterprises are very small indeed. Even when unpaid employees are included, about one-third
of MSMEs have no employees.
Second, many firms have no workers that are paid either in-kind or in-cash. Excluding unpaid
workers increases the number of single person firms from 35 percent of MSMEs to 67 percent of
MSMEs. Combined with other information on the survey, this suggests a very close relationship
between tiny enterprises and familiesmany of these unpaid employees are probably family
members. Although the owners family members play some role in the enterprise, the enterprise
owner does not pay them a cash salary and often would not consider eating from the same pot as
in-kind remuneration for work done for the enterprise. In other words manyand arguably the
majorityof Zambias MSMEs are more akin to home-based income-generating activities rather
than clearly structured businesses.
Finally, the overall picture that this data suggests is that tiny, cash-poor businesses are very reluctant
to pay any form of remuneration, especially cash remuneration. They are happy to have labor
available, when needed, but either lacks the resource or desire to hire paid workers even paid in-
kind workers.
48
Appendix 2: Econometric analysis of perceptions data
Managers of different types of firms often have very different views about the investment climate
and the major constraints that they face. These differences can be due to differences in
expectations (e.g., foreign-owned firms might have expectations based upon their experience in
their home countries), differences in experiences (e.g., large firms might find it easier to get loans
due to having better connections or better access to collateral) or differences in firms abilities to
cope with problems (e.g., large firms with generators will be affected by power outages to a lesser
extent than small firms that cannot afford generators). This appendix describes the econometric
analysis that underlies the analysis of differences in perceptions across different types of firm in the
main chapter.
One way of assessing whether there were differences in perceptions across different types of firms
would be simply to compare average responses across firms of different types. For example, it
would be possible to look at how many firms of a certain type rated a particular investment climate
issue as their biggest constraint or how many firms rated it as a major or very severe constraint and
see whether this is different from other types of firm.
Although this approach is intuitive, it has at least two problems associated with it. First, even in
large samples such as the Zambia Business Survey (4801), sub-samples of different types of firms are
often relatively small. For example, there are only 15 exporters, only 29 foreign-owned firms in the
sample and only 234 firms that claim to be registered with PACRO. This makes it difficult to assess
whether differences are due to random variation in responses or due to actual systematic
differences in perceptions.
Second, there are also systematic differences in other firm characteristics across types of firms. For
example, foreign-owned firms are slightly larger on average than domestic firms (4.8 compared to
4.5 employees on average) and are more likely to report being registered with PACRO (8.2 percent
compared to 3.3 percent). Differences in perceptions between foreign and domestic firms might
therefore reflect differences in size or registration rather than differences in ownership.
To deal with this, this section presents econometric results that deal with both these issues. First, by
using a multivariate regression approach, it is possible to look at differences in perceptions after
controlling for other systematic differences between firms. Second, it is possible to look at the
statistical significance of the results (i.e., to see whether the probability that differences are likely to
be due to random variation in responses is high or not).
Methodology
The methodology is similar to the methodology used in a recent paper by Gelb, Ramachandran, Shah
and Turner (2006). Because of concerns about pooling the data from the large enterprise and
microenterprise surveys, the results focus on differences among the microenterprises in the sample.
The question of how different factors, including ownership, affect perceptions about the investment
climate is examined by estimating different versions of the equation below:
Perception s about IC i = 1 + 2 Firm Characteri stics i + 3 Sector + 4 Region + i (3.1)
The dependent variables are dummy variables indicating whether the manager of firm i rates that
area of the investment climate as a major or very severe obstacle. The independent variables are: (i)
size and age of the firm; (ii) whether the firm is growing and how capital intensive it is; (iii) whether
49
the firm is registered with any government agencies or not; (iv) whether the firm exports; (v)
whether the firm is foreign owned; (vi) type of premises; (vii) sector of operations; and (viii) region
where firm is located. The error term is assumed to be normally distributed. Because the
dependent variable is a dummy variable, the model is estimated using standard maximum likelihood
estimation. Results from the Probit regressions for each of the obstacles are shown in
The econometric results are presented in Table 13 and Table 14. Additional results comparing
perceptions of large enterprises and MSMEs are shown in Table 15 and Table 16.
Results
Urban/rural: Urban and rural firms had very different views about investment climate related
constraints (see Table 13 and Table 14). In general, firms in urban areas were more concerned about
taxation and regulation, macroeconomic stability, crime, access to finance and worker skills and
education and less concerned about transportation, telecommunications, and the political
environment after controlling for other things that might affect perceptions (e.g., sector, where the
firm operates from, size, and registration status).
In practice, some of these differences, although statistically significant, were small after controlling
for other things. For example, they were only about 2.6 percentage points less likely to say that
telecommunications was a serious problem, 2.2 percentage points more likely to say that worker
education was a serious problem and 2.6 percentage points less likely to say that the political
environment was a serious problem. As a result, none of these issues rank among the top concerns
of either urban or rural firms (see Figure 34). Similarly, although the difference in perceptions about
access to finance is slightly larger after controlling for other factors that might affect them (4.6
percentage points), it is still the area of the investment climate that owners of both urban and rural
firms were likely to say was a serious problem.
Firm in urban areas were also more likely to say that tax rates, tax administration, trade regulation,
labor regulation, and business registration were serious problems. This could be because taxes and
regulation are better enforced in urban areas. Other evidence is consistent with thisfirm owners
in urban areas were more likely to say that their firm had been inspected by tax officials (about 6
percent of firms in urban areas compared to less than 0.5 percent of firms in rural areas). Also
consistent with this, firms in urban areas were also more likely to say that corruptiona common
symptom of heavy taxation and regulationwas a serious problem.32
The four most significant differences between the perceptions of owners of rural and urban firms
in terms of the magnitude of the differences were perceptions about corruption, crime,
macroeconomic instability, transportation and access to land. Firms in urban areas were about 7.6
percentage points more likely to say that corruption was a serious problem after controlling for
other things that might affect perceptions. As discussed above, this might reflect that taxation and
regulation were more serious concerns for firms in urban areas and that both have been linked to
corruption. The greater concern about crime (7.5 percentage point difference after controlling for
32
Both corruption and informality can be seen as symptoms of other problems in the investment climate and
many studies have found that both are linked to burdensome regulations, red-tape and taxation. See
Friedman and others (2000), Djankov and others (2002a), Djankov (2002b), Johnson and others (1998),
Schneider (2000), Schneider and Klinglmair (2004), Shleifer and Vishny (1993), Svensson (2005) and World
Bank (2003).
50
other things) is also probably not surprising and possibly reflects that crime is a greater problem in
urban areas.
Figure 35:: Firms in urban areas were more concerned about macroeconomic instability, corruption
and crime
ime and less concerned about access to land and transportation
transportation than firms in rural areas

60%
Urban Rural
% of firms
40%
20%
0%
The other three differences are more interesting. First, firms in urban areas were far less likely
(close to 10 percentage points less likely) to say that transportation was a serious problem. Whereas
firms in rural areas were more likely to say that transport was a serious problem than any other area
of the investment climate other than access to finance, it ranked below six other areas for urban
firms. Although this large difference is probably not surprising, it emphasizes that transport is a far
more binding constraint in rural areas than it is in urban areas.
Second, firms in urban areas were far more likely to say that macroeconomic instability was a
serious problem than firms in rural areas were. After controlling for other things, firms in urban
areas were about 14 percentage points more likely to say that macroeconomic instability was a
serious problem than firms in rural areas. Moreover, based upon the percentage of firms that said
that macroeconomic instability was a problem, it ranked as the second greatest constraint for urban
firms compared to the seventh for rural firms. This result is more puzzling that the previous
p results
given that it is not clear why macroeconomic instability (e.g., inflation or exchange instability) would
be more of a problem in urban areas than in rural areas. Perhaps the most reasonable explanation is
that firms in urban areas might be:
be: (i) more likely to be in the monetized economy (and so more
concerned about inflation) or (ii) more dependent upon imported goods and exports (and so more
concerned about exchange rates).
Finally, after controlling for other things, firms in urban areas were about seven percentage points
more likely to say that access to land was a problem. In itself, this might not be surprising. Rents
and land costs are generally higher in urban areas and so it might not be surprising that urban firms
are more concerned ed about access to land. It is, however, important to note something very
interesting. That is, although firms in urban areas were more likely to say that access to land was a
problem than rural firms after controlling for other things, the same is not true
true before controlling for
other things. In fact, whereas access to land ranks as the fourth greatest concern (based upon the
51
percent of firms that said it was a serious problem) for rural firms, it only ranked as the sixth greatest
concern for urban firms. s. Moreover, before controlling for other things, rural firms were more likely
to say it was a serious problem than urban firms were (see Figure 35).
The difference appears to primarily be because of other differences between firms. Most notably,
firms that
hat operated from farms were far more likely (about 22 percentage points more likely) to say
that access to land was a serious problem than firms that operated from other business locations.
Whereas most firms in areas that were classified as rural operated
operated out of a farm, relatively few firms
in urban areas reported the same. After accounting for this, urban firms appear to be more, not less,
likely to say that access to land is a serious problem than rural firms.
Looking at the percent of urban and rural firms that said each area was the biggest problem that
they faced gives similar, although not identical, results. First, more firms said that access to finance
was the biggest problem that they faced than any other area of the investment climate for both
urban and rural firms (see Figure 35).
35). Second, although a significant number of urban firms said
transportation was the biggest constraint that they faced (14 percent), rural firms were more likely
to say that it was the biggest constraint. Third, rural firms were far more likely to say that access to
land was a problem14 14 percent said it was a serious problem compared to less than 6 percent of
urban firms. Finally, with one exception for urban firms, fewer than 10 percent of firms said that any
other area
ea of the investment climate was the biggest constraint that they faced. The one exception
for urban firms was that 10 percent said that electricity was the biggest constraint on operations.
Figure 36:: Access to finance and transportation

transportation were among the areas of the investment climate
that firm owners were most likely to say were the biggest problem that they faced in both urban
and rural areas
% of urban MSMEs that say area is % of rural MSMEs that say area is
biggest obstacle biggest obstacle
Other
Access to
Other 19%
Access to Cost of finance
29% 27%
finance finance
34% 8%
Macro
instab.
6% Crime
Crime 9% Transport
7% Transport Access to 23%
14% land
Electricity
10% 14%
Business location: There are also several important differences in perceptions based upon the main
business location. The four options in the survey are owners home, farm, formal business premises
(e.g., office business complex, factory, plan, industrial estate, formal market)
market) and informal premises
(e.g., informal market-place,
place, street, footpath, open space, vehicle, container, no fixed location).
52
There were some similarities across firms operating in different locations. One important similarity
is that access to finance
ce consistently ranked as the largest constraint for firms operating out of all
types of location. Although firms whose main business location was a farm were about ten
percentage points more likely to say access to finance was a serious problem after controlling
con for
other things that might affect perception, access to finance was a also a serious constraint for other
firms. Indeed, firms operating from all locations were more likely to say that access to finance was a
serious problem than they were to say
say the same about any other type of constraints.
Similarly, although firms operating out of informal premises were more likely to say that labor
regulation and business registration were serious problems, firms operating out of informal locations
and the owners
wners home were more likely to say that worker education was a problem, and firms
operating out of informal locations were more likely to say that political instability was a serious
problem, none of these issues ranked among the top concerns for any enterprises
enterprises (see Figure 37).
There were, however, some differences. One notable difference was that after controlling for other
things that might affect perceptions, firms that were located on farms were far more likely to say
that access to land was a problem
problem (almost 20 percentage points more likely) than other firms were.
Firms operating out of informal premises were also slightly more likely to say that access to land was
a serious problem after controlling for other thingsalthough
things although the difference (about 5 percentage
points) between these firms and firms with formal premises was more modest.
Figure 37:: Perceptions were mostly similar for firms operating out of different business locations

60%
Farms Formal Informal Home
% of firms
40%
20%
0%
Another
er difference is that crime is a far more important constraint for firms operating out of
informal premises. After controlling for other things that might affect perceptions, firms operating
out of informal premises were about 13 percentage points more likely
likely to say crime was a serious
obstacle than firms with formal premises were. Based upon the percentage of firms that said that
crime was a serious problem, crime was ranked in the top five constraints for firms operating out of
informal premises.
Finally,
y, firms operating out informal premises were far more likely to say that power was a serious
problem than other firms were. After controlling for other things, they were about 7 percentage
53
points more likely to say that power was a problemalthough it still didnt rank among the very top
concerns for these firms either.
Registration: Firms that were registered with any government agencies were more likely to say that
a range of areas of the investment climate were more serious problems than unregistered firms.
After controlling for other things, they were more likely to say that power (8 percentage points more
likely), access to land (7 percentage points more likely), worker education (7 percentage points),
macroeconomic instability (6 percentage points), and crime (6 percentage points) were serious
problems.
They were also more likely to say that most areas of taxation and regulation were serious problems
than non-registered firms. As could be expected, this might reflect that registered firms are more
affected by regulation than unregistered firms. The most notable difference in this area, however, is
that they were about 11 percentage points more likely to say that business registration and licensing
is a serious problem. This last result is particularly interesting since it suggests that registration is a
burden for small firmswhich many of the firms in the survey have managed to avoid by not
registering. In this respect, the raw data might underestimate the burden of business registration
and licensing. It is, however, important to keep in mind that business registration and licensing did
not rank among the top constraints for even registered firmsabout 24 percent of registered firms
said it was a problem compared to about 12 percent of unregistered firms.
Firm size: In general, the coefficients on number of workers are not statistically significant at
conventional significance levels. The coefficients are significant in a number of regressions. In
general, large firms were more likely to say that infrastructure is a serious problem and more likely
to say that macroeconomic instability is a serious problem.
Firm age: Overall, there were relatively minor differences between young and old firm after
controlling for other things that might affect firms views about the investment climate. The most
notable difference is that even after controlling for other factors, owners of older firms were more
likely to say that taxesboth rates and administrationwere a serious problem than younger firms
were. This might be because these firms are more visible to the tax authorities than younger firms
are. That is, simply by existing they might be more visible to the tax authorities. It is, however,
important to note that older firms were no more likely to be registered with the tax authorities than
younger firms. About 2.7 percent of firms under 5 years old reported being registered with the tax
authorities compared to 1.3 percent of firms over 10 years old.33
Firm growth: Differences in perceptions between growing firms and other firms were mostly small
and statistically insignificant. Moreover, even when statistically significant, the differences were
small. After controlling for other things, growing firms were about 4 percentage points more likely
to say that access to land was a problem and three percentage points less likely to say that the
political environment was a serious obstacle than firms that were not growing.
A more notable difference is that firms that are growing were less likely to say that financeboth
access and costwas a serious problem. After controlling for other things, growing firms were
about 5 percentage points less likely to say that access was a problem and about 7 percentage points
less likely to say that the cost of finance was a serious problem. Although this might indicate that
growing firms are able to get financing, it is also possible that causation might run in the opposite
direction. That is, this could reflect that firms that have the greatest problems with getting finance
33
The difference is not statistically significant (p-value for t-test for equality of means is 0.24).
54
and unable to grow. If this is the case, then this might suggest that access to finance is a constraint
on firm growth in Zambia.
Sector: After controlling for other things including location (urban/rural), business premises
(informal, formal, farm or owners home), and size, sectoral differences appear relatively modest.
That is not to say, for example, that there are no differences in concerns between agricultural and
manufacturing firms in terms of perceptions about the investment climate. So, for example,
agricultural producerswho are mainly operating on farms in rural areaare more concerned
about transportation and access to land than manufacturing enterpriseswho are mainly operating
from other types of premises and are more likely to be in urban areas. Rather the issue is that these
differences appear to be due to other things. That is, agricultural producers in rural areas views
about the investment climate appear to be closer to the perceptions of manufacturing or service
firms in rural areas than they are to agricultural producers in peri-urban areas.
There are some differences, however. Most notably, firms in the service sector are more likely to be
concerned about worker education than other firms (about 10 percentage points more likely), les
likely to be concerned about transport, more likely to be concerned about power, and more likely to
be concerned about labor regulation. For power and transportation, this appears to have a
significant impact on rankings of constraints for service firms. Transportation ranked 6th overall for
service firms based upon the percent of firms that said each area was a serious constraint and 7th
based upon the percent of firms that said it was the biggest constraint that they faced. This is far
lower its overall ranking for all firms (second in both cases). Similarly, power ranked as the fourth
most serious constraint based upon the percent of firms that said it was a serious problem and
second based upon the percent of firms that said it was the biggest constraint (compared to 8th
overall for all firms).
Summary
This Technical Paper describes the firms in the MSME and large enterprise surveys, looks at what
MSME owners and large enterprise managers said are the major constraints that they face, and
looks at some objective data on the investment climate in Zambia. The firms in the MSME survey
are most small, survivalist enterprises, mostly in the agricultural and wholesale and retail trade
sectors. Most have no paid employees and only about one-fifth have any employees that are paid in
cash. Many of the firms have unpaid employeesprobably mostly family members. Very few of the
MSMEs are registered with any government agency and most do not have access to infrastructure.
Among MSMEs, firm owners were most likely to say that access to finance was a serious constraint
to their operations. This was also true for most types of MSMEsurban and rural; registered and
unregistered, and MSMEs operating out of formal premises, farms, their owners homes and with
informal business locations. They were also most likely to say that it was the biggest problem that
they faced.
Other than access to finance, the areas of the investment climate that MSME owners were most
likely to say were problems were transportation, the cost of finance, and access to land. Significant
numbers also said that corruption, crime and macroeconomic instability were problems. Fewer
MSMEs rated other areas of the investment climateincluding other aspects of infrastructure, most
areas of regulation, worker education, political instability and taxes as serious problems.
Firm managers in the large firm survey had very different concerns from firm owners in the MSME
survey. Although relatively large numbers of managers of large enterprises said that the cost of
55
finance and access to finance were serious constraints, they did not rank among the very top
concerns of managers of large firms. Managers of these firms were most likely to say that electricity
and macroeconomic instability were serious problems and more managers said that tax rates were a
serious concern than said the same about access to finance. Few managers of large enterprises said
that access to land or transportation were serious problems.
Although access to finance was a serious concern for all types of MSMEs, there were some
differences in perceptions regarding other aspects of the investment climate. Rural enterprises were
far more likely to say that transportation was a serious problem and were more likely to say the
same about corruption, crime and macroeconomic instability. It is probably not surprising that crime
and corruption are bigger problems for urban-based enterprisesfirms in urban areas are probably
more observable to both government officials and criminals.
It is more surprising that owners of urban firms are more likely to say that macroeconomic instability
is a serious problem. That is, inflation and exchange rate instability would seem to affect all firms. It
is possible that the higher level of concern among urban enterprise owners reflects that these firms
are more likely to be in monetarized parts of the economy.
Farm-based enterprises were especially likely to be concerned about access to landeven compared
to non-farm based businesses. Firms operating out of informal premises (e.g., streets, footpaths,
open spaces or informal markets) were also more likely to say that access to land was a serious
problem. Firms operating out of informal premises were also, not surprisingly, more likely to say
that crime was a serious problem than other firms.
Although business registration did not generally rank among the biggest concerns of MSME owners
or large enterprise managers that were registered were far more likely to say that registration was a
problem than owners of unregistered enterprises. This emphasized two important points. First,
probably part of the reason that MSME owners were unconcerned about regulation in general and
business registration in particular is that most are not registered. It is, however, a burden for those
that have to deal with business registration and licensing. Second, managers of large enterprises
which are mostly registeredwere unconcerned about registration despite the fact that most were
registered. This suggests that the time and cost of registering is a greater burden on small
enterprises who have less capacity to deal with these barriers.
Comparisons with the 2007 enterprise survey suggest some additional interesting observations. In
general, perceptions about the investment climate were fairly similar for the mostly large
enterprises in the 2007 Enterprise Survey and the 2008 ZBS large enterprise survey. There were,
however, two notable differences. Firms in the 2008 survey were far more likely to say that
electricity and macroeconomic instability were serious problems. This might reflect changes in the
external environment between the two surveys.
56
Table 13: Differences in perceptions by firm type for infrastructure, land, finance, skills, and macroeconomic environment.
Infrastructure Land Finance Skills Macroeconomic Environment
Access to Access to Cost of Worker Political Macro
Telecom Power Transport
Land Finance Finance Education environment Instability
Observations 2857 2685 3836 3594 3818 3161 2780 3337 2841
Firm Characteristics
Firm is in urban area -0.026** 0.007 -0.096*** 0.069*** 0.046** 0.030 0.022* -0.026** 0.135***
(dummy) (-2.33) (0.46) (-4.89) (3.36) (2.22) (1.41) (1.84) (-2.03) (6.29)
Workers 0.002 0.017** 0.030*** 0.001 -0.018* 0.014 0.006 0.012* 0.033***
(natural log) (0.34) (2.19) (3.30) (0.06) (-1.81) (1.41) (1.18) (1.86) (3.23)
Age of firm 0.001 0.011 -0.004 -0.002 0.016* -0.004 -0.001 -0.020*** 0.009
(years, natural log) (0.27) (1.49) (-0.53) (-0.23) (1.77) (-0.45) (-0.26) (-3.51) (1.04)
Firm is growing 0.003 0.008 0.028 0.037* -0.054** -0.078*** 0.006 -0.029** -0.031
(dummy) (0.25) (0.48) (1.46) (1.94) (-2.57) (-3.89) (0.59) (-2.31) (-1.51)
Registered with any government entity -0.004 0.082*** 0.038 0.072** 0.043 0.046 0.065*** 0.027 0.057*
(dummy) (-0.26) (3.41) (1.25) (2.40) (1.39) (1.46) (3.37) (1.28) (1.85)
Capital Intensity 0.009*** 0.005 0.001 0.035*** -0.018*** 0.022*** 0.008*** 0.008** 0.002
(Index - high values mean more capital) (2.86) (1.13) (0.25) (6.46) (-3.05) (3.65) (2.70) (2.09) (0.34)
Firm exports -0.013 -0.085 0.130 -0.118 0.225 0.232 0.058 -0.118
(dummy) (-0.18) (-0.86) (0.75) (-0.74) (1.28) (1.22) (0.58) (-0.73)
Firm is foreign-owned 0.020 0.037 0.168 0.127 -0.001 -0.045 0.059 0.020 -0.039
(dummy) (0.32) (0.41) (1.52) (1.17) (-0.00) (-0.44) (1.02) (0.27) (-0.37)
Location (omitted is formal premises)
Informal business location 0.024 0.070*** 0.062** 0.051* 0.028 0.054* 0.057*** 0.044** 0.046
(dummy) (1.31) (2.83) (2.13) (1.68) (0.94) (1.68) (2.72) (2.04) (1.47)
Business location is owners home -0.004 0.031 0.010 0.037 0.005 0.058* 0.056*** 0.012 0.052*
(dummy) (-0.22) (1.36) (0.37) (1.26) (0.17) (1.93) (2.88) (0.58) (1.77)
Business location is a farm 0.031 -0.005 0.066** 0.215*** 0.103*** 0.171*** 0.027 0.024 0.063*
(dummy) (1.54) (-0.17) (2.15) (6.63) (3.14) (4.79) (1.38) (1.06) (1.80)
Sector (omitted is manufacturing)
Sector - services 0.031 0.085** -0.120** 0.113** 0.035 0.064 0.098** 0.014 0.049
(dummy) (0.94) (2.00) (-2.47) (2.09) (0.69) (1.20) (2.17) (0.41) (0.92)
Sector - retail trade 0.004 0.020 0.027 0.049 0.018 0.037 0.049 0.004 0.087*
(dummy) (0.16) (0.61) (0.65) (1.12) (0.44) (0.86) (1.49) (0.15) (1.95)
Sector - Agriculture -0.026 -0.033 0.010 -0.003 0.033 -0.085* 0.057* -0.010 0.029
(dummy) (-0.96) (-0.91) (0.22) (-0.07) (0.74) (-1.79) (1.93) (-0.32) (0.62)
Sector - Other 0.021 0.113 -0.158 -0.014 0.096 0.124 0.007 -0.012 0.268**
(dummy) (0.30) (1.22) (-1.30) (-0.12) (0.82) (1.08) (0.11) (-0.16) (2.13)
Pseudo R-Squared 0.108 0.103 0.0304 0.112 0.0295 0.0781 0.111 0.0722 0.0421
Source: Authors calculations based upon data from Zambia Business Survey
***,**,* Statistically significant at 1,5, and 10 percent level
57
Table 14: Differences in perceptions by firm type for corruption, taxation, regulation, and crime
Corruption Taxation Regulation Crime
Tax Business
Corruption Tax Rates Trade Regulation Labor Regulation Crime
Administration registration
Observations 3284 2473 2378 2377 2467 2673 3690
Firm is in urban area 0.073*** 0.044*** 0.037*** 0.023* 0.013 0.009 0.075***
(dummy) (3.71) (3.40) (3.23) (1.82) (1.16) (0.60) (3.99)
Workers 0.009 0.006 -0.001 0.007 0.013*** 0.004 0.013
(natural log) (0.95) (1.02) (-0.12) (1.23) (2.67) (0.54) (1.51)
Age of firm -0.004 0.019*** 0.017*** 0.014*** 0.002 -0.004 0.002
(years, natural log) (-0.51) (3.67) (3.67) (2.70) (0.45) (-0.55) (0.27)
Firm is growing -0.022 0.002 0.011 -0.005 0.011 0.008 -0.028
(dummy) (-1.15) (0.19) (1.02) (-0.39) (1.04) (0.50) (-1.56)
Registered with any government entity 0.026 0.056*** 0.034** 0.034* 0.011 0.108*** 0.062**
(dummy) (0.94) (2.96) (2.10) (1.86) (0.73) (4.29) (2.20)
Capital Intensity 0.020*** 0.011*** 0.009*** 0.005 0.002 0.005 0.027***
(Index - high values mean more capital) (3.77) (3.23) (3.14) (1.55) (0.83) (1.05) (5.15)
Firm exports 0.036 -0.000 0.001 0.075 -0.014 -0.103
(dummy) (0.22) (-0.01) (0.02) (0.84) (-0.25) (-0.68)
Firm is foreign-owned 0.062 0.007 0.088 0.143* 0.035 0.115 -0.029
(dummy) (0.65) (0.13) (1.43) (1.94) (0.69) (1.35) (-0.30)
Informal business location 0.094*** 0.032* 0.013 0.019 0.037** 0.089*** 0.134***
(dummy) (3.09) (1.65) (0.79) (1.04) (1.97) (3.45) (4.60)
Business location is owners home 0.070** 0.014 0.009 0.005 0.042** 0.037 0.049*
(dummy) (2.42) (0.83) (0.58) (0.28) (2.37) (1.59) (1.82)
Business location is a farm 0.097*** 0.035 0.035* 0.020 0.030 0.035 0.075**
(dummy) (3.02) (1.56) (1.69) (0.97) (1.57) (1.29) (2.50)
Sector - services 0.020 0.010 -0.002 0.093* 0.112** 0.042 0.036
(dummy) (0.41) (0.35) (-0.07) (1.84) (2.21) (1.02) (0.74)
Sector - retail trade 0.016 0.023 0.017 0.093** 0.067* 0.021 0.064
(dummy) (0.40) (0.90) (0.79) (2.36) (1.87) (0.65) (1.56)
Sector - Agriculture -0.021 -0.026 -0.036 0.036 0.050* 0.005 0.061
(dummy) (-0.48) (-0.94) (-1.40) (1.06) (1.67) (0.13) (1.46)
Sector - Other -0.032 -0.033 -0.002 0.064 -0.060 0.153
(dummy) (-0.31) (-0.69) (-0.05) (0.83) (-0.89) (1.35)
Pseudo R-Squared 0.0639 0.131 0.145 0.111 0.113 0.0546 0.0324
58
Table 15: Differences in perceptions by firm type for infrastructure, land, finance, skills, and macroeconomic environment (large firms included)
Infrastructure Land Finance Skills Macroeconomic Environment
Access to Access to Cost of Worker Political Macroeconomic
Telecom Power Transport
Land Finance Finance Education environment Instability
Observations 2897 2725 3875 3634 3857 3200 2828 3377 2880
Firms is in large firm sample 0.073 0.038 -0.026 -0.236*** -0.113 -0.023 -0.038 -0.045 0.003
(dummy) (0.80) (0.37) (-0.18) (-3.03) (-0.72) (-0.17) (-0.87) (-0.62) (0.024)
Workers 0.003 0.019** 0.033*** 0.003 -0.019* 0.015 0.008 0.013** 0.034***
(natural log) (0.61) (2.43) (3.64) (0.30) (-1.87) (1.53) (1.51) (2.05) (3.34)
Firm is in urban area -0.027** 0.006 -0.094*** 0.064*** 0.049** 0.028 0.022* -0.026** 0.135***
(dummy) (-2.30) (0.39) (-4.82) (3.18) (2.36) (1.35) (1.84) (-1.98) (6.29)
Age of firm 0.003 0.012* -0.004 -0.000 0.014 -0.004 0.000 -0.019*** 0.008
(years, natural log) (0.60) (1.66) (-0.51) (-0.019) (1.53) (-0.44) (0.053) (-3.27) (0.95)
Firm is growing 0.008 0.003 0.035* 0.044** -0.056*** -0.068*** 0.010 -0.028** -0.034*
(dummy) (0.73) (0.16) (1.83) (2.36) (-2.70) (-3.45) (0.95) (-2.22) (-1.66)
Registered with any government entity -0.003 0.093*** 0.054* 0.075** 0.050 0.057* 0.079*** 0.032 0.057*
(dummy) (-0.15) (3.77) (1.77) (2.50) (1.61) (1.79) (3.97) (1.52) (1.85)
Capital Intensity 0.009* 0.000 -0.026*** 0.048*** -0.037*** 0.023** -0.000 0.004 0.008
(Index - high values mean more capital) (1.69) (0.029) (-2.68) (5.30) (-3.70) (2.32) (-0.038) (0.54) (0.79)
Firm exports 0.000 -0.043 0.070 -0.016 0.107 -0.011 -0.049 0.058 0.082
(dummy) (0.0093) (-0.67) (0.58) (-0.14) (0.86) (-0.10) (-1.25) (0.77) (0.74)
Firm is foreign-owned -0.012 0.054 0.142 0.078 -0.006 -0.103 0.022 -0.017 -0.102
(dummy) (-0.23) (0.64) (1.36) (0.78) (-0.054) (-1.14) (0.47) (-0.28) (-1.12)
Informal business location 0.025 0.073*** 0.057* 0.053* 0.025 0.052 0.054*** 0.042* 0.048
(dummy) (1.33) (2.88) (1.95) (1.75) (0.83) (1.64) (2.62) (1.95) (1.53)
Business location is owners home -0.005 0.033 0.009 0.036 0.006 0.057* 0.053*** 0.009 0.055*
(dummy) (-0.30) (1.43) (0.33) (1.23) (0.19) (1.92) (2.78) (0.46) (1.87)
Business location is a farm 0.033 0.001 0.062** 0.228*** 0.095*** 0.179*** 0.029 0.025 0.065*
(dummy) (1.64) (0.038) (2.03) (7.10) (2.91) (5.04) (1.49) (1.11) (1.87)
Sector services 0.026 0.064 -0.128*** 0.106** 0.045 0.044 0.112** 0.015 0.033
(dummy) (0.81) (1.62) (-2.73) (2.03) (0.91) (0.88) (2.45) (0.45) (0.64)
Sector - retail trade 0.008 0.009 0.024 0.053 0.021 0.035 0.060* 0.007 0.081*
(dummy) (0.32) (0.29) (0.59) (1.24) (0.51) (0.82) (1.80) (0.24) (1.88)
Sector - Agriculture -0.018 -0.042 0.006 0.031 0.022 -0.072 0.069** -0.003 0.024
(dummy) (-0.69) (-1.21) (0.14) (0.71) (0.50) (-1.55) (2.34) (-0.095) (0.54)
Sector Other 0.023 0.070 -0.149 -0.014 -0.004 0.006 0.054 0.028 0.212**
(dummy) (0.39) (0.96) (-1.48) (-0.14) (-0.033) (0.066) (0.83) (0.40) (2.01)
Pseudo R-Squared 0.10 0.11 0.03 0.11 0.03 0.07 0.11 0.07 0.04
59
Table 16: Differences in perceptions by firm type for corruption, taxation, regulation, and crime (large firms included).
Corruption Taxation Regulation Crime
Labor
Corruption Tax Rates Tax Administration Trade Regulation Business registration Crime
Regulation
Observations 3322 2512 2416 2432 2467 2697 3729
Firms is in large firm sample -0.211*** -0.052 -0.053*** -0.053 -0.115** -0.098
(dummy) (-2.89) (-1.28) (-2.97) (-1.59) (-2.39) (-0.87)
Workers 0.011 0.007 -0.001 0.007 0.014*** 0.005 0.016*
(natural log) (1.21) (1.10) (-0.14) (1.31) (2.85) (0.61) (1.86)
Firm is in urban area 0.071*** 0.041*** 0.034*** 0.022* 0.014 0.009 0.073***
(dummy) (3.60) (3.09) (2.99) (1.80) (1.24) (0.55) (3.86)
Age of firm -0.004 0.018*** 0.015*** 0.015*** 0.003 -0.003 0.003
(years, natural log) (-0.46) (3.37) (3.24) (2.91) (0.71) (-0.44) (0.38)
Firm is growing -0.020 -0.003 0.007 0.000 0.014 0.010 -0.019
(dummy) (-1.10) (-0.24) (0.61) (0.018) (1.35) (0.65) (-1.06)
Registered with any government entity 0.031 0.051*** 0.026* 0.042** 0.021 0.108*** 0.077***
(dummy) (1.10) (2.71) (1.65) (2.23) (1.28) (4.32) (2.71)
Capital Intensity 0.024*** 0.023*** 0.022*** -0.001 -0.007 0.004 0.018**
(Index - high values mean more capital) (2.76) (4.47) (4.90) (-0.24) (-1.49) (0.60) (2.04)
Firm exports 0.204* -0.022 -0.031 -0.001 -0.017 -0.129
(dummy) (1.68) (-0.51) (-0.98) (-0.014) (-0.30) (-1.34)
Firm is foreign-owned 0.077 0.001 0.106* 0.145** 0.042 0.108 -0.026
(dummy) (0.84) (0.029) (1.72) (2.11) (0.81) (1.30) (-0.28)
Informal business location 0.096*** 0.037* 0.019 0.018 0.034* 0.089*** 0.131***
(dummy) (3.13) (1.83) (1.10) (0.97) (1.81) (3.45) (4.52)
Business location is owners home 0.070** 0.016 0.010 0.003 0.039** 0.037 0.046*
(dummy) (2.42) (0.90) (0.63) (0.17) (2.25) (1.57) (1.70)
Business location is a farm 0.105*** 0.041* 0.041* 0.021 0.029 0.036 0.083***
(dummy) (3.26) (1.77) (1.89) (1.01) (1.56) (1.36) (2.76)
Sector - services 0.012 0.009 -0.010 0.071* 0.117** 0.043 0.035
(dummy) (0.25) (0.32) (-0.47) (1.70) (2.29) (1.06) (0.74)
Sector - retail trade 0.017 0.028 0.013 0.082** 0.068* 0.025 0.059
(dummy) (0.42) (1.13) (0.61) (2.39) (1.90) (0.77) (1.48)
Sector - Agriculture -0.005 -0.010 -0.028 0.030 0.050* 0.011 0.077*
(dummy) (-0.11) (-0.36) (-1.12) (0.97) (1.69) (0.32) (1.89)
Sector - Other -0.056 -0.022 -0.020 -0.049 0.068 -0.016 0.049
(dummy) (-0.63) (-0.51) (-0.55) (-1.16) (0.87) (-0.23) (0.51)
Pseudo R-Squared 0.06 0.14 0.15 0.11 0.12 0.05 0.03
60
Appendix 3:
Zambia Business Survey design, sampling and methodology
The Zambia Business Survey (ZBS) is a demand-side national survey of micro, small, medium and large
enterprises in Zambia. The ZBS sampled close to 5,000 formal and informal businesses between
September and December 2008, covering both urban and rural areas across all nine provinces in the
country. The survey instrument drew upon the methodologies of both FinMark Trusts FinScope Small
Business Survey and the World Bank Enterprise and Rural Investment Climate Surveys.
The ZBS comprises two surveys: one being a survey of micro, small and medium enterprises (MSMEs)
and the other being a survey of large businesses. The methodologies used for each of these surveys are
described below. More details about the methodology and fieldwork are available in the field report.34
It is important to note that all the information supplied by the respondents from both surveys have been
kept confidential and anonymous.
The ZBS MSME Survey

For the purposes of the survey, MSMEs are defined as businesses with 50 employees or less. This
definition was in line with the Government of Zambias definition at the time that the survey was
conducted, as outlined in their draft MSME policy. Agreement on use of this definition was reached in
consultation with the surveys partners and other key stakeholders.
The MSME component of the ZBS was designed to be a nationally representative survey, covering urban,
peri-urban and rural areas in all nine provinces. The sample was selected through rigorous area
sampling, using a methodology based on the ILOs 3-stage sampling method. In contrast to other
methods that target areas where businesses are normally located (or use signs, advertisements,
business directories, or lists provided by government agencies), this approach ensures that small, home-
based and informal businesses are fairly represented in the final sample. Most enterprise surveys in
Africa draw from a sample of highly visible enterprises, hence there is a dearth of information on the
profile of and issues faced by MSMEs, particularly informal businesses. The ZBS represents a deliberate
attempt to correct this imbalance and build a nationally representative sample of MSMEs from which to
draw conclusions about the profile, performances and needs of MSMEs in Zambia.
To ensure that the sample of MSMEs was representative of the entire population, the sampling was
conducted in the following way. First, 320 Enumeration Areas (EAs) were randomly selected from the
sampling frame, which was based upon the 2000 Census. These EAs constituted the first-stage sampling
units or Primary Sampling Units (PSUs). The sampling frame was stratified based upon province and
whether the enumeration area was rural or urban. There are nine provinces in Zambia which are further
subdivided into Districts. For statistical purposes each district is sub-divided into Census Supervisory
Areas (CSAs) and these are in turn subdivided into Enumeration Areas (EAs). Enumeration Areas are
statistical demarcations of the country used in area-based sampling. Weights were calculated at the
household level to take into account the stratified sampling. Figure 38 illustrates the geographical
spread of the 320 EAs that comprised the sample.
34
The Steadman Group (2009b)
61
Figure 38:: Geographical distribution of the ZBS MSME sample
Once the EAs weree selected, the survey firm that was contracted to undertake the fieldwork for the
survey, Steadman Research Services, updated the 2000 Census data, using maps for boundary
identification, by creating an updated list of all households and buildings in the EA, through an intensive
pre-fieldwork
fieldwork listing exercise. For each household, which is defined based upon the Central Statistical
Offices definition as members who live in the same or different structures but cook from one pot, the
survey firm conducted a pre-fieldwork
fieldwork listing exercise during which they then gathered information on
all household members and determined whether the household contained any individuals that ran their
own business (including farms). The household therefore represented the second
secondary sampling unit (SSU)
of the survey. The households selected for interview were identified using a systematic epsem (equally
probability selection) procedure with a total of 12 households being selected per EA. This methodology
provides a self-weightingg sample. Benchmark weighting was used to adjust the gender proportions in
the survey results.
Target respondents who owned and ran their own businesses were then randomly selected from these
lists and interviews were set up with the eligible respondents. In households with multiple individuals
running eligible businesses, a kish grid was used to identify the correct respondent. A total of 4800
interviews were conducted across all nine provinces, as detailed in Table 1.
62
Table 17: Respondent coverage of the MSME ZBS
Province Number of enterprises
Central 570
Copperbelt 975
Eastern 525
Luapala 330
Lusaka 555
Northern 420
Northwestern 345
Southern 780
Western 300
Total interviews 4800
The ZBS Large Enterprise Survey

As a supplement to the ZBS MSME survey, a small survey of 161 large enterprises with over 50
employees was conducted. As with the MSME survey, this definition of large businesses was in line with
the Government of Zambias definition as outlined in their draft MSME Policy at the time the survey was
designed.
Similar, although not identical, survey instruments were used for the two surveys.35 In contrast to the
MSME survey, firms for the large business survey were randomly selected from lists provided by the
Central Statistical Office and the Zambia Development Agency. In addition, several other eligible firms
not appearing on both lists were identified by the research firm and used as substitutes as required.
Although random, the survey is not nationally representative in the same way that the MSME survey is.
In particular, it will only be representative to the degree that the sampling frame it was based upon is
nationally representative. Moreover, because the sampling methodologies were so different and
because nearly all of the large firms claimed to be registered meaning there is little variation in this
survey, no attempt was made to merge the two datasets in the econometric analysis below.
Another important difference between the two surveys is the characteristics of the respondents.
Whereas the respondents in the MSME survey were people that owned and ran the MSMEs (i.e., the
entrepreneurs), the respondents in the large enterprise survey were professional managers that are
involved in running the firm, but are not necessarily the owners. For this reason, many psychographic
questions were omitted from the large business survey. A breakdown of the positions held by the
respondents of the large business survey are provided in Table 2 below.
Table 18: Positions held by respondents of the large business survey
Number of
Position Held Respondents
Accountant 48
Finance & Administration Manager 20
Principal/Director/Head Teacher 6
Managing Director/Partner 64
35
See Steadman Group (2009a).
63
Corporate Deputy Manager 2
Marketing Manager 1
Consultant 1
Human Resource Manager 5
Chief or Assistant Executive Officer 3
Operations and Public Relations Manager 6
Program Facilitator/ Coordinator 2
Technician 1
Sales Officer 1
Head of research 1
Total Number of Respondents 161
64
Appendix 4: Firm performance in Zambia
This annex presents information on firm performance in Zambia relative to other countries in Sub-
Saharan Africa. The information is for small, medium-sized and large enterprises and is calculated using
information from the World Banks Enterprise Surveys. Although it would be interesting to make similar
comparisons for the microenterprises included in the Zambia Business Survey, similar data have not
been collected in other countries in the region.
Labor productivity in Zambia

Labor productivity, the per worker output that the firm produces less the cost of raw materials (such as
iron or wood) and intermediate inputs (such as engine parts or textiles) used to produce the output, is a
basic measure of firm productivity. Labor productivity is higher in firms that produce more with fewer
workers and raw materials. Differences in labor productivity can be the result of differences in
technology, differences in organizational structure, differences in worker skills, differences in
management ability, or differences in the amount of machinery and equipment that the firm uses.
Because labor productivity does not take the use of capital (i.e., machinery and equipment) into
account, it will generally be higher in firms that use machines in place of labor (i.e., firms that are capital
intensive).
Figure 39: Labor productivity is lower in Zambia than in the best performing economies in the region
Value-Added per Worker (2005 US$)

$20,000
$15,000
$10,000
$5,000
$0
Malawi
Togo
Cameroon
Swaziland
Chad
Botswana
Angola
Eritrea
Tanzania
Rwanda
Liberia
Mali
Burundi
Mauritius
Madagascar
Niger
Gabon
Congo, Rep.
Burkina Faso
Cape Verde
Benin
Congo, Dem. Rep.
Cote d'Ivoire
Mozambique
Gambia, The
Sierra Leone
Kenya
Nigeria
South Africa
Namibia
Zambia
Uganda
Guinea
Ghana
Senegal
Guinea-Bissau
Source: Authors calculations based upon data from the World Bank Enterprise Surveys
Note: All values are median values for enterprises with available data. Calculations are for all manufacturing firms
in each survey with over 5 employees. Weights are applied to re-weight the data up to population medians. See
additional notes in Table 19. All values are in 2005 US$.
65
The median firm in Zambia in terms of labor productivity produces about $4,000 of value-added per
worker.1 This puts Zambia slightly above the average for Sub-Saharan Africa.
As noted in the Investment Climate Assessment, this is lower than in many middle-income economies in
the Sub-Saharan Africa and other regions. It compares favorably, however, with other low-income
countries in the region. For example, the median value in Malawi is about $3200, about $3,500 in
Tanzania, about $2,200 in Uganda.
Although labor productivity is lower in Zambia than in the best performing middle-income countries, it is
important to note that Zambia is poorer than these countries. High income countries tend to have more
productive firms for a number of reasons including because the human capital of workers is higher in
high-income countries, firms in these countries are more capital intensive, and because the investment
climate is usuallyalthough not alwaysbetter in high-income economies (e.g., governance is better,
infrastructure is more developed and access to finance is easier). It is therefore useful to compare labor
productivity in Zambia with other countries in the region taking income differences into account. To
make these comparisons, Figure 40 is a scatter graph that shows value-added per worker plotted against
labor productivity for all countries in Sub-Saharan Africa with comparable data.
The observed value for the median firm in Zambia is fairly closealthough slightly abovethe
regression line. This suggests that, if anything, labor productivity is slightly higher in Zambia than would
be expected given Zambias income level. Although Zambia lags behind the most productive countries
in the region in terms of labor productivity, labor productivity is comparable withor even slightly
higher thanother countries at similar levels of income.
Figure 40: Relative to other countries in Sub-Saharan Africa, labor productivity is slightly higher in
Zambia than would be expected given Zambias per capita income
$20,000
$17,500
Value added per worker
$15,000
$12,500
$10,000
Zambia
$7,500
$5,000
$2,500
$0
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000
Per Capita GDP
Source: World Development indicators and Enterprise Surveys. See Table 19 for notes on data construction.
66
8. Labour costs
Labor productivity is a useful, but not ideal, measure of firm performance. One problem is that in the
absence of measures of other costs that the firms face, it is not possible to assess how competitive firms
will be. Two issues of particular concern are: (i) the cost of labor; and (ii) capital intensity.
Labor costs are important because even when labor productivity is low, firms can remain competitive by
paying low wages. It is important, therefore, to also look at labor costs. In this section, we will look at
two measures of labor costs: labor costs per worker in US$ and unit labor costs. The first is simply labor
costs per worker. Labor costs include wages, salaries, and other benefits. If labor costs are low, it is
possible that firms will remain competitive even when they are not very productive. This, of course,
comes at a cost in that workers will generally be less well off when wages and salaries are lower.
For small, medium-sized and large enterprises in Zambia, the median firm reports labor costs of about
$1,400 per worker. Although this is far lower than in the middle-income economies such as South Africa
and Namibia with the highest labor costs, it is slightly higher than in most low-income countries. Figure
41 shows a scatter plot of per capita income against labor costsZambia is above the trend-line
suggesting that labor costs are slightly higher than would be expected given Zambias per capital GDP.
Figure 41: Relative to other countries in Sub-Saharan Africa, labor costs are slightly higher in Zambia
than would be expected given Zambias per capita income
$8,000
$6,000
$4,000
Zambia
$2,000
$0
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000
Per Capita GDP
Source: World Development indicators and Enterprise Surveys. See Table 19 for notes on data construction
This is also noticeable when we focus only on low-income countries. Although per worker labor costs
are slightly higher in some low-income countries such as Kenya, costs are higher than in many other low-
income countries. For example, per worker labor costs are less than $1000 per worker in Ghana,
Madagascar, Mozambique, Tanzania and Uganda.
67
Figure 42: Wages are also high in Zambia when compared only to low-income economies
$2,500
Zambia
$2,000
$1,500
$1,000
$500
$0
$0 $500 $1,000 $1,500 $2,000
Per Capita GDP
Although per worker labor costs are higher in Zambia than in most other low-income countries in Sub-
Saharan Africa, labor productivity is also higher. To assess the net impact of labor costs on
competitiveness, it is more informative to look at unit labor costs (labor costs as a percent of value-
added). Unit labor costs are higher when higher labor costs are not fully reflected in higher productivity.
When unit labor costs are higher (i.e., when labor costs are higher compared to productivity), all else
equal, firms will find it more difficult to compete on international markets than when they are lower.
Although unit labor costs are not the only factor that affect competitivenessfor example, they do not
take the cost of capital or capital intensity into accountthey are a better measure of competitiveness
than labor costs alone.
Unlike per worker labor costs and productivity, there is no clear relationship between unit labor costs
and per capita income (see Figure 46). Firms in high income countries are usually more capital intensive,
which will tend to lower unit labor costs (i.e., because firms in these countries. But firms in these
countries also tend to hire more highly skilled workers, which will tend to increase labor costs. Figure 46
shows this ambiguous relationship in that unlike for the previous two measures the trend-line is
relatively flat and is downward sloping.2
Because of the unclear theoreticaland empirical--relationship between unit labor costs and per capita
income, Figure 43 shows unit labor costs directly rather than a scatter plot of unit labor costs against per
capita income. Unit labor costs for small, medium and large enterprises in Zambia are about 33 percent
of value-addedvery close to the average level for countries in the region.
68
Figure 43: Unit labor costs are not particularly high in Zambia
Unit Labor Costs

60%
50%
40%
30%
20%
10%
0%
Cameroon
Botswana
Tanzania
Mali
Malawi
Madagascar
Mauritius
Togo
Sierra Leone
Congo, Dem. Rep.
Cote d'Ivoire
Mozambique
Chad
Benin
Swaziland
Gabon
Nigeria
Kenya
Angola
Ghana
Eritrea
South Africa
Rwanda
Uganda
Zambia
Namibia
Liberia
Senegal
Burundi
Niger
Burkina Faso
Guinea-Bissau
Gambia, The
Cape Verde
Congo, Rep.
Guinea
Note: All values are median values for enterprises with available data. Calculations are for all manufacturing firms
in each survey with over 5 employees. Weights are applied to re-weight the data up to population medians. See
additional notes in Table 19.
As noted above, both labor productivity and labor costs are relatively high in Zambia. The relatively
average level of unit labor costs in the country suggest that high labor costs and high labor productivity
are mostly offsetting. In this respect, we would not expect labor costs to have a large impact on
Zambias productivity.
9. Capital intensity
Differences in labor productivity often reflect differences in capital use. Firms that have more capital
usually produce more output per worker than firms with less capital. For this reason, this chapter also
looks at capital intensity, how much capital the firm has per worker, and capital productivity, how much
the firm produces relative to the capital it has.
Although these measures provide some context for the previous results, it is important to note that it is
more difficult to measure capital than it is to measure labor (e.g., it is relatively easy to measure wages
and number of workers). Because most machinery is long-lived, providing services over a long period of
time, it is difficult to measure its contribution to output in a single year. As capital ages, it becomes less
productive (i.e., it depreciates in value) and will eventually stop producing anything, either by breaking
or becoming obsolete. Although accounting rules for depreciating machinery and equipment exist,
these often bear little resemblance to true rates of economic depreciationand can vary across
countries. The book value of capital (i.e., the value of capital included in company accounts) is therefore
69
not an especially accurate measure of the value of capitalespecially for small firms that do not keep
detailed audited accounts.
Rather than using the book value of capital, this report focuses on the sales value of capital. This is the
amount that the manager estimates it would cost to replace the firms machinery and equipment in its
current state. Although this measure is slightly closer to the economic cost of capital, this measure is
also likely to be measured poorlyespecially for specialized equipment where markets are thin.
The median firm in Zambia has about $3000 of capital per work. Although lower than in Kenya or in
most of the middle-income countries in the region, this is high than in most other low-income countries.
For example, the median firms in Mozambique, Tanzania and Uganda have between about $800 and
$1200 of capital per worker. In this respect, the high labor productivity observed in Zambia probably at
least in part reflects that firms are highly capital intensive. Given that wages also appear relatively high,
this could suggest that the small, medium-sized and large manufacturing firms in the Enterprise Survey
are substituting capital for labor
Figure 44: Relative to other countries in Sub-Saharan Africa, labor costs are slightly higher in Zambia
than would be expected given Zambias per capita income
$9,000
$6,000 Zambia
$3,000
$0
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000
Per Capita GDP
10. Exports
As a final indicator of firm performance, it is useful to look at whether firms are exporting or not. High
transportation costs and barriers to trade can allow firms to continue to operate in domestic markets
even when they are not highly competitive. In contrast, only relatively efficient firms are able to
overcome physical and legal barriers to trade. In this respect, export behavior is a useful indicator of
firm competitiveness.
70
About 32 percent of manufacturing firms in Zambia are involved in exporting (see Figure 45). Again, this
is higher than in most other countries in Sub-Saharan Africaonly Ghana, Madagascar and Kenya
perform better in this respect. This strongly suggests that despite relatively high labor costs, firms
remain relatively competitive.
Figure 45: Zambia compares favorably with other countries with respect to export performance
of firms
% of firms that export

60%
50%
40%
30%
20%
10%
0%
Cameroon
Botswana
Tanzania
Malawi
Mali
Togo
Ivory Coast
Congo
Sierra Leone
Swaziland
Chad
Gabon
Benin
Guinea Bissau
Mozambique
Kenya
Ghana
Zambia
Rwanda
Uganda
Eritrea
Nigeria
Namibia
Gambia
Liberia
Angola
Senegal
Congo, DR
Burundi
Madagascar
Niger
Mauritius
Burkina Faso
Cape Verde
South Africa
Guinea
Mauritania
Note: See additional notes in Table 19.
11. Summary
The small, medium and large manufacturing firms in Zambia covered in the Enterprise Survey are
relatively productive when compared to similar firms in other low-income countries in Africa. Although,
as noted in the Investment Climate Assessment, productivity is lower than in middle-income countries in
Africa and elsewhere, it is higher than in all but a handful of low-income countries.
Labor costs are also relatively high compared to other low-income economies in the region. However,
these are offset by the relatively high productivity of firms. As a result, unit labor costs are relatively
modest. In part, this is likely to be because firms are relatively capital intensive compared to other
countries in the region. In part, the high labor productivityand modest unit labor costsprobably
reflect that firms in Zambia are relatively capital intensive.
71
12. Tables
Table 19: Firm productivity in Africa
Value- Labor Unit
Year of Number Capital per Capital
Added per Cost per Labor
Survey of Obs. Worker Productivity
Worker Worker Cost
Angola 2006 215 $5,038 $2,471 55% $2,049 262%
Benin 2009 17 $3,325 $629 16%
Botswana 2006 110 $8,966 $2,818 29% $6,646 130%
Burkina Faso 2009 47 $6,454 $580 15% $5,804 302%
Burundi 2006 102 $1,722 $431 39% $792 298%
Cameroon 2009 89 $5,038 $1,463 27% $2,812 178%
Cape Verde 2009 45 $4,795 $1,075 13%
Chad 2009 21 $2,767 $1,363 31%
Congo 2008 14 $12,755 $2,908 12%
Congo, DR 2006 149 $2,158 $760 41% $803 259%
Eritrea 2009 53 $3,023 $471 12%
Gabon 2008 24 $15,234 $2,480 28%
Gambia 2006 33 $1,067 $588 46% $1,200 110%
Ghana 2007 292 $1,093 $507 49% $439 248%
Guinea 2006 134 $1,255 $470 34% $206 513%
Guinea Bissau 2006 50 $1,719 $1,018 51% $1,115 150%
Ivory Coast 2008-09 137 $1,366 $522 34% $707 197%
Kenya 2007 395 $7,695 $1,891 25% $8,578 105%
Lesotho 2008 $2,019
Liberia 2008 72 $326 $192 28%
Madagascar 2008-09 148 $1,690 $619 37% $990 110%
Malawi 2009 55 $3,210 $767 26%
Mali 2007-08 301 $2,036 $856 44% $965 244%
Mauritania 2006 79 $3,687 $1,589 48% $3,138 108%
Mauritius 2008-09 129 $11,205 $2,645 22% $6,936 215%
Mozambique 2007-08 336 $2,151 $878 49% $1,984 121%
Namibia 2006 102 $14,967 $4,718 29% $8,912 161%
Niger 2009 17 $1,179 $2,320 25%
Nigeria 2007 948 $2,450 $907 39% $568 413%
Rwanda 2006 58 $2,157 $867 44% $2,542 158%
Senegal 2008 259 $3,472 $1,435 42% $1,875 213%
Sierra Leone 2008 43 $775 $373 48%
South Africa 2007-08 678 $18,682 $7,619 45% $8,341 200%
Swaziland 2006 68 $8,398 $2,588 29% $2,258 330%
Tanzania 2006 271 $3,479 $886 29% $2,812 133%
Togo 2009 13 $4,080 $1,107 21%
Uganda 2006 307 $1,985 $887 43% $1,953 103%
Zambia 2007 304 $4,082 $1,432 33% $2,996 143%
Source: Authors calculations based upon data from Enterprise Surveys database
72
Note: All values are medians for enterprises with available data. Calculations are for all manufacturing firms in
each survey. Weights are applied to re-weight the data up to population medians. All monetary values are in 2005
US$. Data collected after 2005 is converted to 2005 figures using GDP deflators and to US dollars using 2005
exchange rates. Value added is calculated by subtracting intermediate inputs and energy costs from sales from
manufacturing. Workers include full-time permanent and temporary workers. Capital is the sales value of
machinery and equipment (i.e., the amount the manager thinks his machinery and equipment would cost if sold in
its current condition). Labor cost is the total cost of wages, salaries, allowances, bonuses and other benefits for
both production and non-production workers. Unit labor costs are labor costs divided by value-added and capital
productivity is value added divided by the sales value of machinery and equipment.
73
Table 20: Internationalization of firms in Africa
Year of % of firms that % of Production % of firms that % of inputs
Survey export Exported import imported
Angola 2006 1% 0.3 68% 40.4
Benin 2009 19% 6.3 50% 36.0
Botswana 2006 18% 6.9 83% 57.6
Burkina Faso 2009 20% 6.4 76% 52.6
Burundi 2006 4% 1.6 78% 42.8
Cameroon 2009 21% 8.0 65% 34.9
Cape Verde 2009 3% 0.9 60% 47.2
Chad 2009 23% 9.2 65% 42.1
Congo 2008 9% 3.0 61% 47.4
Congo, DR 2006 6% 2.2 58% 29.9
Eritrea 2009 9% 2.6 46% 25.0
Gabon 2008 22% 4.6 81% 58.7
Gambia 2006 14% 2.0 63% 52.2
Ghana 2007 32% 10.8 51% 26.6
Guinea 2006 20% 4.7 66% 43.4
Guinea Bissau 2006 11% 6.2 68% 45.8
Ivory Coast 2008-09 11% 4.2 30% 19.1
Kenya 2007 47% 13.8 60% 33.9
Lesotho 2008 25% 14.8 69% 58.0
Liberia 2008 3% 1.8 57% 41.7
Madagascar 2008-09 35% 27.0 67% 46.0
Malawi 2009 22% 8.7 56% 36.5
Mali 2007-08 18% 6.1 44% 26.8
Mauritania 2006 15% 7.6 67% 52.6
Mauritius 2008-09 28% 15.0 57% 43.5
Mozambique 2007-08 6% 1.8 29% 19.3
Namibia 2006 14% 5.1 83% 59.0
Niger 2009 25% 5.9 100% 96.1
Nigeria 2007 4% 1.0 28% 9.9
Rwanda 2006 25% 11.8 74% 52.0
Senegal 2008 21% 6.8 46% 29.5
Sierra Leone 2008 3% 0.5 --- ---
South Africa 2007-08 23% 4.8 38% 14.6
Swaziland 2006 24% 16.6 63% 43.3
Tanzania 2006 13% 5.2 48% 26.2
Togo 2009 23% 16.6 72% 57.8
Uganda 2006 16% 6.7 41% 21.7
Zambia 2007 32% 9.1 69% 40.4
Source: Authors calculations based upon data from Enterprise Surveys database
Note: All values are means for enterprises with available data. Calculations are for all manufacturing
firms in each survey. Weights are applied to re-weight the data up to population means.
74
13. Additional figures
Figure 46: Unit labor costs
60%
50% Zambia
40%
30%
20%
10%
0%
$0 $5,000 $10,000 $15,000
-10%
Per Capita GDP
75
14. References
ACT Watch. 2008. "Draft Baseline Outlet Survey Report for Zambia." ACT Watch: Lusaka, Zambia.
Azfar, Omar, and Peter Murrell. 2009. "Identifying Reticent Respondents: Assessing the Quality of Survey
Data on Corruption and Values." Economic Development and Cultural Change 57(2):387411.
Business Reporter, Times of Zambia. 2009. "KCCI files injuction over new licence fees." Times of Zambia,
October 8.
Clarke, George R. G, Robert Cull, and Maria Soledad Martinez Peria. 2006. "Foreign Bank Participation
and Access to Credit Across Firms in Developing Countries." Journal of Comparative Economics
34(4):774796.
Clarke, George R. G. 2008. "How Petty is Petty Corruption in Africa? Evidence from Firms Surveys."
World Bank: Washington DC. Available on line at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1117631. Processed.
--------. 2009a. "Are Managers' Perceptions about Constraints Reliable." Texas A&M International
University: Laredo, TX. Processed.
--------. 2009b. "What are the Constraints to Growth in Zambia? Managers' Perceptions about the
Investment Climate." World Bank: Washington DC. Processed.
Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2002a. "The
Regulation of Entry." Quarterly Journal of Economics 117(1):137.
Djankov, Simeon, Ira Lieberman, Joyita Mukherjee, and Tatiana Nenova. 2002b. "Going Informal:
Benefits and Costs." World Bank: Washington, D.C. Processed.
Economics Association of Zambia. 2009. "Business Unusual: The Policy Implications for Zambia of the
Global Economic Crisis." Economics Association of Zambia: Lusaka, Zambia.
Foreign Investment Advisory Service. 2004a. "Republic of Zambia: Administrative Barriers to
Investment." International Finance Corporation and the World Bank: Washington DC.
--------. 2004b. "Republic of Zambia: Sectoral Study of the Effective Tax Burden." International Finance
Corporation and the World Bank: Washington DC.
Friedman, Eric, Simon Johnson, Daniel Kaufmann, and Pablo Zoido-Lobaton. 2000. "Dodging the
Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries." Journal of Public
Economics 76(3):459493.
Fries, Steven Lysenko Tatiana Polance Saso. 2007. "The Business Environment and Enterprise
Performance in Transition: Evidence From a Large-Scale Survey." In Boris Pleskovic, Pierre
Jacquet, and Francois Bourguignon, eds., Annual World Bank Conference on Development
Economics-Europe. Washington DC: World Bank, pp. 245--274.
Gelb, Alan, Vijaya Ramachandran, Manju Kedia Shah, and Ginger Turner. 2006. "What Matters to African
Firms? The Relevance of Perceptions Data." World Bank: Washington DC. Processed.
76
Hallward-Driemeier, Mary, and Reyes Alterido. 2009. "Comparing Apples with...Apples: How to Make
(More) Sense of Subjective Rankings of Constraints to Business." World Bank 5054. Washington
DC.
Hausmann, Ricardo, and Andres Velasco. 2005. "Slow Growth in Latin America: Common Outcomes,
Common Causes?" Kennedy School of Government: Boston MA. Processed.
Hellman, Joel, Geraint Jones, Daniel Kaufmann, and Mark Schankerman. 1999. "Measuring Governance
and State Capture: The Role of Bureaucrats and Firms in Shaping the Business Environment."
EBRD Working Paper 51. London, UK.
Jensen, Nathan M., Quan Li, and Aminur Rahman. 2008. "Heard Melodies Are Sweet, But those Unheard
Are Sweeter : Understanding Corruption Using Cross-National Firm-Level Surveys." Policy
Research Working Paper 4413. World Bank, Washington DC. Available on line at
http://go.worldbank.org/FVMFX9KVJ0.
Johnson, Simon, Daniel Kaufmann, and Pablo Zoido-Lobaton. 1998. "Regulatory Discretion and the
Unofficial Economy." American Economic Review Papers and Proceedings 88(2):38792.
Lusaka Times. 2008a. "Mufulira Council Brainstorms on Help for Local Traders." Lusaka Times, October
1a.
--------. 2008b. "Traders and Fishermen Refuse to Pay Government Increased Fees in Mpulungu." Lusaka
Times, December 19b.
Patent and Companies Registration Office, 2009a. Frequently Asked Questions on Business Names.
Retrieved 5-14-2009a, from Patent and Companies Registration Office web site:
http://www.pacro.org.zm/index.php?option=com_content&task=view&id=38&Itemid=.
Patent and Companies Registration Office, 2009b. Frequently Asked Questions on Companies. Retrieved
5-14-2009b, from Patent and Companies Registration Office web site:
http://www.pacro.org.zm/index.php?option=com_content&task=view&id=37&Itemid=.
Schneider, Fredrich, and Dominik Enste. 2000. "Shadow Economies: Size, Causes and Consequences."
Journal of Economic Literature 38(1):77114.
Schneider, Friedrich, and Robert Klinglmair. 2004. "Shadow Economies Around the World: What Do We
Know?" Discussion Paper 1043. Institute for the Study of Labor (IZA), Bonn, Germany.
Shleifer, Andrei, and Robert W. Vishny. 1993. "Corruption." Quarterly Journal of Economics 108(3):599
617.
Steadman Group. 2009a. "Field Technical Report: Large Business Survey (MSME) Zambia." The Steadman
Group: Lusaka, Zambia.
--------. 2009b. "Field Technical Report: Micro, Small and Medium Enterprises Survey (MSME) Zambia."
The Steadman Group: Lusaka, Zambia.
Svensson, Jakob. 2005. "Eight Questions About Corruption." World Bank Research Observer 19(3):1942.
Times of Zambia. 2008. "Zambia: License Fees Still Low -- Mutati." Times of Zambia, August 4.
77
United Nations Conference on Trade and Development. 2003. "Investment Policy Review--Zambia."
United Nations: New York, NY.
World Bank. 2003. Doing Business in 2004. Washington DC: World Bank.
--------. 2008a. Doing Business 2009. Washington DC: World Bank.
--------. 2008b. "Doing Business 2009: Country Profile for Zambia." World Bank: Washington DC. Available
on line at http://www.doingbusiness.org/Documents/CountryProfiles/ZMB.pdf.
--------. 2009. World Development Indicators. Washington, D.C.: World Bank.
Zambia Development Agency. 2009. "Procedures and Guidelines for Obtaining Investment Licence."
Zambia Development Agency: Lusaka, Zambia.
Zambia Revenue Authority. 2004. "Income Tax (Amendment) Act 2004." Zambia Revenue Authority:
Lusaka, Zambia.
--------. 2009a. "A Guide to TPIN Registration." Leaflet 12. Lusaka, Zambia. Available on line at
http://www.zra.org.zm/publications/TPIN.pdf.
Zambia Revenue Authority, 2009b. Getting Started in Business. Retrieved 5-18-2009b, from Zambia
Revenue Authority web site: http://www.zra.org.za/starting_business.php.
1
Throughout the text, we will follow convention and use the median firm to refer to the firm with the median value for the
indicator being referred to. As a result, the identity of the median firm will change for different indicators.
2
In contrast, to the other measures the null hypothesis that there is no relationship cannot be rejected in a simple linear
regression.
78

The Business Landscape For MSMEs and Large Enterprises in Zambia - ZBS July 2010

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

The Business Landscape For MSMEs and Large Enterprises in Zambia - ZBS July 2010

Загружено:

Авторское право:

Доступные форматы

The business landscape for

MSMEs and large enterprises

George C. Clarke, Manju Kedia Shah and Roland V. Pearson, Jr.

1. The Zambia Business Survey

How large are they?

Percent of firms, by monthly sales in ZMK

Source: Zambia Business Survey, MSME Sample.

Where are they located?

Distribution of MSMES, by provice Distribution of MSMEs, by business premises

Eastern Lusaka Informal Formal,

Source: Zambia Business Survey, MSME sample

Percent of firms, by location

Farm Home Formal Informal

Source: Zambia Business Survey, MSME sample

Source: Zambia Business Survey, MSME and large enterprise samples

Table 4: Distribution of enterprises by sector for each province

Percent of firms, by firm size

Single Person Micro SMEs

Source: Zambia Business Survey, MSME sample

How are they owned?11

Limited Dist. of large enterprises, by legal status

Source: Zambia Business Survey, MSME and large enterprise samples

3. Characteristics of the owners

Key demographic indicators (i.e. gender and age)

Why did they become business owners?

Reasons started business

Make more money owning business

Try out business idea

Could not find job

0% 25% 50% 75% 100%

Source: Zambia Business Survey, MSME Survey

Full- and part-time involvement with the business

Reasons for running business on part-time

Products not available

Other sources of income

Full-time Other business to run

0% 20% 40% 60% 80%

Source: Zambia Business Survey, MSME sample

Products not available throughout year

Engaged in full-time employment

Other sources of income

Other business to run

0% 25% 50% 75%

Source: Zambia Business Survey, MSME sample

Number of businesses owned by the owner

Number of business owned by the MSME owner

Source: Zambia Business Survey, MSME Survey

Impact of health issues on the business

Indicators of entrepreneurship and commercial acumen

Source: Zambia Business Survey, MSME Survey

Good access to communication systems

Good access to water/power

Good access to transportation

Right business skills

0% 25% 50% 75%

Source: Zambia Business Survey, MSME Survey

Source: Zambia Business Survey, MSME sample

4. Business relations with other businesses and the

Source: Zambia Business Survey, MSME sample

Figure 15: Reasons for registering Businesses for MSME owners

Source: Zambia Business Survey, MSME sample

Learned of the procedures required to register 1%