While there are indications that the country’s Small, Medium and Micro Enterprise (SMMEs) gets an increasing attention given their role of fostering economic growth, the sector is still faced with a host of problems which lead to their failure rate remaining high.
The Botswana Institute for Development Policy Analysis (BIDPA) noted in its recent working paper number 47 titled ÔÇô “Determinates of informal sector business success in Botswana”, that if properly natured, small businesses can contribute immensely to the country’s economy.
The paper however state that 70 percent of SMMEs in Botswana fail within the first eighteen months of operation while the overall failure rate is around 80 percent.
Among the challenges faced by the SMEs that have been previously identified include lack of finance, prohibitive costs in acquiring and effectively utilizing appropriate technology and limited managerial skills as well as little or no business acumen.
Consequently, the sector suffers low productivity while the seeming inevitable influxes of well established foreign investors who apparently prove adequate to the demands of business render SME a casualty or victim of loose regulatory restrictions.
Correspondingly an African Economic Outlook report published in 2016 stated that approximately 80-85 percent of small enterprises in Botswana cease trading within five years of start-up. In addition, few SMMEs have managed to grow and make the transition from SMMEs to larger enterprises (only one or two out of 100 SMEs succeed in doing so).
The report says this is due to limited management skills, lack of access to markets, poor work ethics, excessive laws and regulations, lack of information on government assistance programmes, lack of entrepreneurial “role models” and financial constraints though several measures have been proposed to address some of these constraints. As a result, the survival rates of SMMEs in Botswana have not been encouraging.
Still, the BDIPA reports noted, “The national surveys of 1999 and 2007 show that there was a 72.3 percent increase in the number of informal businesses, from 23 454 businesses in 1999 to 40 421 businesses in 2007”.
In a previous survey, BIDPA says the majority of the respondents indicated that they joined the informal sector because they were unemployed and had to take the informal business as the last resort.
It has also emerged that 40 percent of individuals in the informal sector entered the sector because they were unemployed, 35 percent entered because they were interested in being self-employed while the remaining 25 percent enter because they wanted a better income.
Another informal sector survey conducted in 2015 estimates that the sector in Botswana employs 191 000 people which constitutes approximately 31 percent of total employment. The sector contributes an estimated 5.3 percent to the country’s Gross Domestic Product (GDP).