Tuesday, October 19, 2021

Business dynamism, what is really behind it?

Could it be that the stagnation or failure of enterprises in Botswana is due to them not generating revenue as quickly as they should?

The sale of inventory by a business is considered an important part of enterprising because how quickly the enterprise collects cash determines the earnings it generates, which are necessary to meet its obligations as and when they come. This speaks to both the survival and growth of the enterprise.   

According to the latest Census of Enterprises and Establishments (CEE) or Economic Census (EC) released by Statistics Botswana (SB) almost half of enterprises (47.5 percent) in the country make a turnover between P10 001 and P500 000, of which 26 percent make within the range of P100 001 and P500 000. Those who make a turnover between P1, 000,001 and P5, 000,000 made up 21 percent of the establishments. At 1.4 percent, being the smallest share, are enterprises that make a turnover between P50, 000, 000 and P100, 000, 000. Edging closer to that 1.8 percent are enterprises that make a turnover of over P100, 000, 000. The figures, as cited, lend the idea that enterprises in Botswana could be stagnating at the medium size level, with few of them not generating enough revenue to grow into big enterprises.        

The 2016/17 census is the second to be carried out since the first one in 2006/07. According to SB the census covers all the economic players in Botswana, and its results are used to update the Statistical Business Register (SBR). SBR is said to comprise of all operating establishments in the country whose statistics serve as a major source of economic information. It contains among others the name, postal and physical address, economic activity, legal status, turnover and employment size of such establishments. SB collected the information from a total of 18,676 establishments but focused its analysis on 18,552 of them comprising those that completed all questions and that completed part of the questions in the questionnaire. The economic activity excluded hawkers, street vendors and other small businesses without permanent structure.

One of the reasons SB compiles this information is to measure and monitor the performance of the development policies and programmes in the country. The interpretation of the figures could suggest that earnest and deliberate efforts are needed to assist enterprises to graduate from medium sized to big enterprises. This is in particular reference to entities such as the Local Enterprise Authority (LEA) as the main institution that is involved in enterprise development and Citizen Entrepreneurial Development Agency (CEDA) as the development finance institution that offers finance and technical support to local enterprises.   

An interesting observation from a 2002 OECD Small and Medium Enterprise Outlook points out that even though it’s assumed that countries that are more dynamic, in terms of experiencing better economic performance, have higher rates of turnover, cross-country studies could not demonstrate that countries that perform better (economic growth and productivity) also have the highest rate of firm turnover. Though turnover is an important part of an enterprise, the observation by OECD suggests that there are other factors, including rate of turnover, that contribute to the survival and growth of enterprises.

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