Sunday, September 19, 2021

SMMEs are essential to economic development, poverty alleviation

SMMEs play a major role in the growth of the economy of a country and a crucial role towards achieving industrial and economic development that are expected to be the key drivers of sustainable growth in Africa in the next decade. Governments view the SMMEs sector as major sources of employment, economic growth and wealth creation; and the development of the sector contributes to poverty alleviation and generation of potential entrepreneurs.

In a 2012 research paper that sought to establish the role that the SMME sector plays in the development of countries such as Botswana, the author of the paper, Nugi Nkwe observes that the sector offers linkage development to large industries and are essential for a competitive and efficient market.

The paper, titled: “The role of SMMEs in Botswana” posits that SMMEs support the rural economy in providing income generating activities and thus increase the rate of growth of real per capita income, balance income distribution and improve economic stability. In countries like Botswana, where there are difficulties faced by marginalized groups such as the disabled, youth and women, SMMEs are seen to be forming a large part of the solution.

According to the paper, the importance of SMMEs has always been observed by the government but the policies and the documents were a bit implicit on the matter. Although earlier National Development Plans (NDPs), particularly one to five did not cover a lot of policies for the SMME sector, the mind set changed since NDP6 of 1985 – 1991, when the government started to identify alternative sources of income.

Strategies were formulated in NDP8 to encourage SMMEs. An objective to increase linkage between export business and small and medium scale businesses in Botswana was set. During the NDP8 period, government found out that despite the numerous efforts to help SMMEs, they still failed and that was a major concern. A task force was established to provide policy recommendations to government encompassing entrepreneurship development, access to credit, training policies, institutional support, technology acquisition and diffusion as well as the regulatory environment and other issues pertaining to the SMME sector development.

The Policy on Small, Medium and Micro Enterprises in Botswana was adopted in 1999 following the findings of the SMME task force of 1998 whose job was to comprehensively address SMME issues and guide the development of a national policy for the SMME sector. NDP9 put a lot of emphasis on SMME development and growth. A lot of policies which were aimed at cultivating and encouraging the spirit of entrepreneurship were formulated during this plan.

According to the United Nations Development Organization (UNIDO) integration into the global economy through economic liberalization, deregulation and democratization is seen as the paramount way to triumph over poverty and inequality for the developing countries. Important to this process, is the development of an animated private sector, in which small and medium enterprises can play a central role.

From the viewpoint of economic development, small businesses create almost half of new jobs in the economy, and it is assumed that they are good jobs. Estimates from the Botswana Institute for Development Policy Analysis (BIDPA) of 2006 put the SMME contribution to employment at 32 percent, the majority of which is in the micro sector at 14 percent. This figure compares with 32 percent for large firms and 36 percent for government.

Internationally, there is a general agreement that small enterprises contribute immensely to economic development. In Botswana, the government and donor agencies are increasingly emphasizing the key role played by SMME sector in promoting economic and social development. Consequently, they are providing financial assistance in an attempt to encourage and assist SMMEs in the country. Similarly, the government has realized that it is not sensible to depend largely on the diamond industry for the long-term economic development of the country. Consequently, it is encouraging the development of the SMME sector as a way to diversify its economy.

The 2007 BIDPA report indicates that SMMEs contribute up to 75 percent of private sector employment and about 20 percent of national output (GDP). Micro and small enterprises are a major feature of the economic landscape in all developing countries.

Despite the SMME sector importance in economic development, the sector continues to face a number of challenges among them marketing skills problems, financial problems, competition and lack of training and management skills.

It is observed that SMMEs in Botswana do not have the necessary marketing skills. They do not utilize the marketing strategies such as social networks and others while on the financial side there are core difficulties seen in terms of discrimination by financial institutions against micro-enterprises with little collateral, difficulties in accessing information and a lack of market exposure. The criteria and credit rate used by banks disadvantage SMMEs a lot in Botswana, in addition to huge collateral requirements that add salt to injury.

The sighting of competition as a top challenge is expected as most SMMEs, especially small sellers and producers tend to congregate in dense markets and overcrowded cities. It also suggests a lack of market information and innovation as most new businesses are a duplication of already existing ones. Just to name one, the streets of Gaborone are lined with informal businesses selling the same products and this impact their growth negatively.

In conclusion the paper says that the contribution of SMMEs in Botswana is huge. SMMEs contribute to economic development in various ways: by creating employment for rural and urban growing labour force, providing desirable sustainability and innovation in the economy as a whole. In addition to that, large number of people relies on the small and medium enterprises directly or indirectly. The most important development priority in Botswana is to diversify the economy in general, and to diversify production for export in particular. The diversification of exports should include services as well as manufactured goods. Economic diversification is necessary for future economic growth, and this in turn is necessary for the growth of employment and others. SMMEs are the pillars to the government’s diversification drive.

The question of the financing of the SMME sector has always been a thorny one and in a 2017 research study on “Factors Influencing Small, Medium and Micro-sized Enterprises’ Borrowing from Banks: the Case of the Botswana Manufacturing Sector”, the author, Wilbert Mutoko submits that “adequate financing has been a major factor hindering SMMEs success”.

It is generally agreed and this study confirmed that of all the challenges that the manufacturing SMMEs face, lack of finance has been identified and many others as the major challenges that hinders SMMEs from tapping into the available business opportunities. Lack of financing was most cited and is the main factor that hinders SMMEs growth.

Numerous scholars agree that apart from governments providing SMME funding, commercial banks are the major financiers or potential financiers for SMMEs and it is generally considered that commercial banks are the major financiers because government has a limit in terms of financial support to manufacturing SMMEs.

The article recommended that manufacturing SMMEs should focus more on marketing, networking and the ability to manage their resources efficiently. Since SMMEs are struggling with accounting records, shortage of skills and scarce resources, they should engage in regular formal and informal training to keep abreast with the changing business environment so they can remain relevant.

In yet another research study titled: “Challenges of Access to Markets and Opportunities for Small, Medium and Micro Enterprises in Botswana”, the author, Mutuko posits that in Botswana, SMMEs face challenges that threaten their survival, chief of which is lack of markets and how it can be confronted.

In developed economies, private sector takes a leading role in offering the market for SMMEs. SMMEs are a ready market, through the vertical and horizontal linkages. Over 90 percent of businesses in Botswana, however, rely on government for market. But businesses can learn to be self-reliant. For example, cattle farmers buy their feeds and vaccination from retailers like Agri-Chem, and they sell the cattle to butcheries, supermarkets, meat processors and, ultimately, the product reaches the consumers. SMMEs should be knowledgeable about government efforts to support and diversify the economy.

Challenges for the SMMEs sector notwithstanding, also lies a number of opportunities that could be exploited as the sector can capitalize on the southern African market of about 200 million people. Africa is also another huge market for SMMEs. It is also observed that Botswana is advantageously located in Sub-Saharan Africa and foreign investors have demonstrated a real desire to participate actively in African growth, which helps to explain the rapid progress of the capital investment sector. SMMEs should also take advantage of globalization and the African domestic market for their survival.

A 2016 BIDPA sponsored study titled: “Institutions and SMMEs Development in Botswana: Evidence from Exploratory Factor Analysis” reports that both men and women SMME owners agree that the key factors that can boost the sector development include government support, capacity building, finance, SMME regulatory framework and the sector management.

The study therefore recommended that all institutions must adopt gender neutral policies so as to enhance development and growth of female owned SMMEs as it has become evident that women were being discriminated against.

Yet another 2017 study titled “Strategic Planning in Small and Medium Enterprises: A case Study of Botswana SMMEs”, it is acknowledged that although SMMEs contribute immensely to the economy of a country, they are characterized “by low performance and high failure rate which is often blamed on lack of resources such as funds, land and skilled labour”.

Many business management specialists argue that even on the availability of such resources, some SMMEs still fail due to lack of strategic planning. Formal strategic planning improves business performance as it involves deriving a game plan that enables SMMEs to anticipate and respond to the turbulent market by arranging their resources and capabilities accordingly.

The study found that strategic planning efforts do exist within the SMME sector but most of the firms engaged in strategic planning activities to a limited extent. The study also found that several barriers which contribute to lack of strategic planning. For instance, the study finds most SMME owners/managers have limited knowledge in the area of strategic planning. Some owners/ managers admitted that” they still possess the traditional based thinking where most business decisions are based on intuition”.

Although SMMEs are recognized as a source of employment and economic diversification, SMMEs management often suffer from insufficient entrepreneurial and management skills. It is argued that by neglecting strategic planning, the organization will not grow and will struggle to improve performance which will consequently result in ultimate collapse. Accordingly, a company’s strategy consists of the competitive moves and business approaches that managers employ to grow the business, complete successfully and achieve the targeted levels of organizational performance.

The study recommended that since SMMEs contribute significantly to the economy of the country, it is fundamental that entrepreneurial training and coaching be taken to greater heights to equip SMME owner/managers with the rights skills to enable them to engage in planning activities to ensure survival and growth of the sector.

Sid Boubekeur, Head, Centre for the Development of Enterprise Regional Office for Southern Africa, writing in 2016 on “Private Sector Development Programme in Botswana: How SMMEs are Facing Challenges” observed that government has developed several initiatives to support SMMEs in Botswana. However, it “created dependencies within the private sector affecting in-house growth and innovation. Business owners are able to come up with a business idea without the know-how to bring it to life.

There is no proactive mentoring to assist SMMEs that have had funding approved. Known instances of mentoring have only been initiated once beneficiaries were in danger of financial collapse; if at all, perpetuating treatment of the symptoms instead of the condition”.

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