Tuesday, September 28, 2021

SMEs could be Botswana’s next diamonds, yet their woes persist…

Botswana’s small and medium sized enterprises (SMEs) can spur job creation and economic diversification, but that is dependent on the SMEs overcoming challenges to become competitive, suggests information from the International Trade Centre (ITC), a joint agency of the World Trade Organization and the United Nations.

The ICT report is not only indicative of the latent potential surging in Small Businesses but is a stark reminder of lamentations emerging from SMEs in Botswana’s race to relinquish dependence on raw minerals. 

The report came through data collected from the SME Competitiveness Survey in Botswana in which LEA, with support from ITC, collected data using the SME while MITI provided high-level support to the initiative. ITC gives these institutions the software to gather and maintain an active database on micro, small and medium-sized enterprises, and helps their staff select samples and train interviewers.

Data from more than 600 companies in Botswana, interviewed for ITC’s SME Competitiveness Survey, revealed the strengths and weaknesses of firms and their business ecosystem. 

The survey discovered that more than half of the SMEs are involved in the services sector, consistent with evidence of the prevalence of services companies in the country’s private sector. In addition, a strong tradition of women’s entrepreneurship is reflected in the fact that women led two-fifths of the companies, a rate of participation higher than in other sub-Saharan African SME competitiveness surveys. Notwithstanding, women and youth led companies trail other enterprises when it comes to adopting professional management practices and achieving results in terms of productivity, inventory and cash flow.

Evidence from the SME competitiveness survey indicates that Botswana firms generally perform well when it comes to business management, with high average scores on meeting market quantity, cost and time requirements. However, the report discloses that the strong performance masks significant differences between enterprises, with the success of the business hinging on the firm’s leadership effect changes and adopt best practices. 

“Most Botswana companies follow professional management processes in running their businesses. Indeed, 85 percent keep track of revenues and expenses, and 77 percent of the goods they supplied were delivered on time. Yet the significant differences among interviewed firms on several measures of management performance indicate that some enterprises are lagging behind,” said the report authors.

The country’s SMEs were found to inefficient, with average company output of the surveyed enterprises coming at 58 percent of the maximum possible output, indicating that many companies were using at least half of their capacity. The degree to which firms used their potential varied widely, and many were far less productive, said the report.

Furthermore, very few local companies are certified to national and international standards. More than 75 percent of survey respondents said they were not certified to any quality, sustainability or other standard. Though the survey data indicates that firms may be following quality practices and communicating them to buyers in alternative ways, it remains the case that standards are often needed to enter new export markets.

Despite challenges, the report says Botswana companies excel at delivering their products and services on time. The survey found that 27 percent of respondents always delivered their goods or services on time, and 45 percent had punctual delivery at least three-fourths of the time, giving an average 77 percent of goods and services supplied and delivered on time.

In terms of cash flow management, about 46 percent of Botswana SMEs say they have a strong ability to manage their cash flow, with the rest less confident about their exposure to risk from cash flow issues. 

“Most common reasons for bankruptcy around the world is short-term liquidity crises, when, for example, the firm is owed funds by a buyer and yet has to pay suppliers. Therefore, the viability of SMEs depends upon their ability to manage their cash flow,” reads part of the report. 

The Ministry of Finance and Economic Development last week admitted that late payments to suppliers may ultimately lead to collapse of businesses and revealed that government has re-engineered processes across ministries and government departments which requires them to pay suppliers within ten days of receiving invoice. 

Meanwhile, the report highlighted previous studies which noted that the cost of infrastructure, and utilities may be an important issue for Botswana SMEs, with several sources suggesting that infrastructural bottlenecks, alongside high costs, may make Botswana SMEs less competitive.

The survey uncovered that relatively competitive firms are in Gaborone, Lobatse and Francistown, while medium levels of competitiveness is found in tourism and other firms in the Okavango Delta and parks in Ngamiland and Chobe, and lower levels of competitiveness in the arid Kalahari Desert regions of Kgalagadi and Ghanzi as well as the mainly agricultural Central region. 

“Interestingly, there is a positive connection between roads and competitiveness districts with a higher concentration of roads have higher competitiveness scores,” the report said. 

Meanwhile on the bright side, the report noted commendable improvements in Botswana’s SMEs. For instance, the survey discovered that though paper record-keeping was most prevalent, electronic records were growing in popularity, with 243 of 555 respondents reporting that they tracked their finances by computer. 

In terms of financial management, the survey uncovered that 80% of surveyed companies had a bank account for daily operations that was separate from any personal account, underscoring that firms tend to do a good job at monitoring and recording financial transactions. 

RELATED STORIES

Read this week's paper