Saturday, September 25, 2021

Non SMME disclosure makes it difficult to redefine the sector

A recent study by an agency responsible for promoting the interests of the Small, Medium and Micro Enterprises (SMMEs) has revealed that secrecy by owners of enterprises has made it difficult to create a new working definition for the sector.

Such bodies, like the Local Enterprise Authority (LEA), therefore uses the definition as stipulated in the 1999 SMME Policy.

“There are shortcomings on the definition, especially on turnover,” Masego Gwaila, LEA’s Head of Research, said.

“Most of the SMMEs are reluctant to reveal how much they earn,” she added.

Gwaila said their preliminary study has unearthed some deficiencies in the utility of the current definitions, owing largely to information scarcity.

The 1999 SMME Policy says micro enterprises are those entities with less than 6 workers, including the owner, and an annual turnover of less than P60, 000.

It describes a small enterprise as one with less than 25 employees and an annual turnover of between P60, 000 and P1.5 million.

The medium enterprise on the other hand is the one with less than 100 employees and an annual turnover of between P1.5 million and P5 million.

The effect of the monetary inflation on the turnover thresholds has also not been accounted for over the past 10 years, rendering such threshold irrelevant today.

“We are saying this definition is absolute and should be reviewed,” Gwaila told Sunday Standard.

The definition also leaves out many small companies that are classified as ‘big’ although internationally they will fall under SMMEs.

It was found from the study that employment was found to be common as a criterion used for defining the SMMEs because the information was easily available.

In other countries where the research was benchmarking, difficulties were experienced in using the turnover.

For example, the European Union (EU) has advised that it be used simultaneously with the annual balance sheet total to reflect the overall wealth of a business.

Gwaila said LEA recommends the review of SMME study together with other interested parties such as Central Statistics Office (CSO), CEDA, commercial banks and Centre for the Development of Enterprise (CDE).

It is suggested that the study should harmonise the definitions in the country and determine the most reliable variable that could be used in Botswana.

“It is recommended that Botswana should consider employment as the major primary determinant in SMME definitions while turnover and asset base occupy a secondary position,” added Gwaila.

LEA has also found out that many businesses in the SMME sector still classify lack of access to finance as their major impediment.

This is overstated overlooking other factors inhibiting business growth like lack of skills, limited access to infrastructure, access to government contracts, lack of reliable market information and limited access to infrastructure.

“The project team’s assessment is that access to finance is somewhat overstated as a constraint and that market issues, quality systems and technology choices (to identify market niches, differentiate products or services and improve efficiencies) are likely to be understated due to a lack of awareness by enterprises of the implications of these issues for their viability,” added Thato Jensen, Head of Corporate Planning at LEA.

The SMMEs make lack of finance a priority despite the government financing programmes like CEDA, which gives out soft loans to Batswana business start ups and expansions.

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