Micro Small and Medium Enterprises: realities and challenges

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Small and Medium Enterprises or Micro, Small and Medium Enterprises (MSMEs) as they are now called, are the backbone of any country’s economy. They create job, increase revenue and contribute to inclusive development. Unfortunately, they face many challenges which make their livelihood and even survival very difficult. How to deal with these challenges and how to move forward? Some of the answers came up in the 25th meeting of the Intergovernmental Committee for Senior Officials and Experts of Southern Africa organised by the United Nations Commission for Africa (UNECA) and hosted by the kingdom of Eswatini. A range of views was expressed. We captured the gist of these for you through the selected opinion pieces below. 

Towards leveraging regional value chains

By Ambrose Mandvulo Dlamini Prime Minister, Eswatini

Micro, small and medium enterprises (MSMEs) are undeniably the heartbeat of many economies across the globe, especially in rapidly developing countries. They are a key engine of growth and an important source of job creation and innovation. They are the foundation for private sector growth and expansion. Their potential to promote domestic-led growth in new and existing industries and to strengthen the resilience of the economy in a competitive and challenging environment is beyond any doubt. Evidence shows that they not only promote industrial development but also accelerate the achievement of wider socio-economic objectives. Many large enterprises commence their life cycle as start-ups before scaling up into market leaders. 

MSMEs are widely recognised as cornerstones for economic development with the potential to significantly accelerate industrialisation and high value addition processes provided that their entrepreneurial spirit is nurtured. Clearly, this is the reason why Eswatini and many governments and organisations are focussing on supporting their growth. This support comes through targeted schemes and resources and the facilitation of market access, helping them to develop and adopt new technologies and types of innovation. 

The MSME sector has a major role to play towards fulfilling the objectives of our Strategic Roadmap mainly in spurring economic growth, job creation and poverty alleviation. Currently, the MSME landscape in the country is highly skewed towards enterprises with low value addition. Our MSMEs operate predominantly in the wholesale and agricultural sectors, with about 40 per cent in the wholesale sector and 23 per cent in the agriculture sector. Only around 13 per cent operate in the manufacturing sector. 

It is for this reason that we are implementing far reaching reforms to reverse this distribution pattern. This will help to significantly increase the share of high value firms. The current distribution of firms also suggests the crucial need to strengthen inter-sectoral linkages that will enable MSMEs to join the various value chains and contribute effectively to the industrialisation and economic transformation processes, regardless of their primary sector of activity.

Some of the major constraints that impede MSMEs’ contribution to industrial development require a concerted and cooperative approach. These issues and challenges include low access to regional and global markets, the inability of MSMEs to leverage regional value chains, lack of skills –  including digital and management skills – and financial and infrastructure constraints, to mention but a few. Digital skills are of growing importance as an increasing number of activities and transactions along the value chains are digitised, especially with the advent of the fourth industrial revolution. 

Access to financing is one of the major constraints to MSME growth. Generally, limited access to credit prevents firms, especially micro-enterprises from capitalising on economic benefits and opportunities, including higher productivity, the opportunity to upgrade to higher value-added production and a greater demand for products.

Here in Eswatini, one of the mechanisms that we have introduced to ease access to finance to MSMEs is the Small-Scale Enterprise Loan Guarantee Scheme. Through this Scheme, businesses are able to obtain a guarantee for a loan up to a certain amount, with government providing a guarantee of about 95 per cent of the loan. It is not perfect, but we are working to improve it to ensure it is more impactful and effective. In fact, easing small business access to finance by using alternative and innovative financing schemes is part of our Micro Finance Policy, Financial Sector Development Implementation Plan and National Financial Inclusion Strategy.

Feeding the overfed while those who need food are starving

By Said Adejumobi, Director, ECA Southern Africa Regional Office,

Industrialisation is the flip side of trade liberalisation. With a free trade zone in Southern Africa, the volume of intra-regional trade still remains low at less than 25 percent, which shows the low level of production in the region. Without increased productivity, there would be nothing to trade with. The whole object of trade liberalisation will be futile, if we do not scale up production especially of light and intermediate manufactured goods and processed agricultural products necessary for feeding our teeming population and ensuring food security in the region.

In a market economy, the private sector, especially micro, small and medium scale enterprises (MSMEs) are the engine of sustained economic growth and development. They create jobs, contribute to government revenue, ensure livelihood, reduce poverty and facilitate the realisation of key goals of Agenda 2063 and the SDGs. Whether in the developing or developed World, MSMEs are very important to economic sustenance and development. Studies suggest that in the developing World, MSMEs constitute over 90 percent of businesses, with relative importance in the developed economies as well. 

For example, in the UK, MSMEs contribute about 62 percent of total employment, and 25 percent of the GDP and in the United States, about 52 percent of private workforce and 51 percent of GDP. In Italy, they contribute about 79 percent of employment, while in China, MSMEs provide about 80 percent of urban employment and 60 percent of GDP. In sub-Saharan Africa, estimates suggests that about 95 percent of businesses are MSMEs. 

While MSMEs contribute to employment, GDP, innovation and creativity, market discovery and state revenue, they are mostly weak, stunted and with a high rate of attrition in Africa. Three out of five MSMEs do not usually survive their first year of existence. Plagued with several challenges, the mortality rate is usually very high.
 
Although different governments have developed plans and initiatives to support MSMEs, those initiatives have been mostly ineffective with a minimal transformative impact. The policy attention that the big Multinational Corporations (MNCs) get far outweigh the policy incentives given to the MSMEs. For example, these are given tax holidays for a period of time (usually five years) in many of our countries, but the MSMEs are not. Yet, the MNCs have more resources, capacity, skills, and a more extensive global network than the MSMEs. The analogy is one of feeding the overfed while those who need food are starving. However, evidence suggests that tax incentives have not significantly increased the inflow of Foreign Direct Investment (FDI) into African countries. There is need for us to pay better and closer attention to our MSMEs. 

The challenges confronting the MSMEs are very well known; some are structural and of the macro-economic environment while others are policy and capacity related. The structural include infrastructure related challenges – power shortages and rationing, poor transport facilities, poor market information, access to finance etc. The others include government incentive regime, poor product quality, poor management, inadequate skills and training, etc. 

A major phenomenon that has characterised the socio-economic landscape of the Continent, especially Southern Africa, is the growth of shopping Malls. Initially, an urban phenomenon of a middle class orientation, it has now assumed an enduring part of national life for virtually all citizens, even in small towns and rural areas. This signifies a process of modernisation, which is good. However, of importance in the growth of shopping malls is the production value chain in ensuring that small and medium scale enterprises are part of the production system, have market access, and are not displaced by foreign goods that are often associated with a new taste of modernity that may be cultivated. In other words, conscious efforts must be made to ensure that MSMEs are part of the growth trajectory of the shopping mall culture. African shopping malls must not only promote domestic consumption, but also production and support MSMEs to improve the standard, quality and value of their goods and services, and also ensure market access, with increased capacity for the MSMEs. This is how a common vision of development can be fostered in which ‘no one is left behind’.

In the age of 4D technology, innovation and creativity will be key to the growth and transformation of MSMEs. Size will increasingly matter less; competitiveness, adaptability, and flexibility to respond to changing market environments and dynamics will become more important.  Our governments will have to do things differently in supporting our MSMEs. Investment in research and development as part of the package of policy incentives will be central to the growth of our MSMEs. Fostering linkages between large firms and MSMEs both in the upstream and downstream sectors of inputs and finished products will also be important in supporting our MSMEs. As we build Special Economic Zones (SEZs) to attract FDI, we must construct an ecosystem that crowds in the MSMEs in the architecture of SEZs. 

We must also not be oblivious to the global trading context in which our MSMEs exist. With the influx of goods from all parts of the World into African markets including poor and sub-standard commodities, the prospects of growth of our MSMEs are dimmed. While not advocating for protectionism, the issue of regulation, quality, standard and interests of our MSMEs must be taken into consideration in our economic planning process. 
Furthermore, special interests especially of women and youth should be taken into consideration in our MSME policy in ensuring that MSMEs are part of the production value chain at the national and regional levels.

See, Samuel Muiruri Muriithi,  “African Small and Medium Enterprises: Contributions, Challenges and Solutions”, European Journal of Research and Reflections in Management Sciences, Vol. 15, No. 1, 2017, pp. 36-37.

For a developed, industrialised and prosperous SADC  

By Stergomena LAWRENCE-TAX SADC Executive Secretary

The latest indicators provide a rather somber picture of our regional economy. Our Real GDP growth rate has been on the decline since a high of 6.8% in 2007 to below 5% since 2009, and has remained below 3% during the last four years from 2016 to 2018.  Our Manufacturing Value Added as share of GDP has remained below 12% since 2010 and the growth rate of the manufacturing sector has remained below 5% since a high of 7.6% in 2010.  Our Southern African Development (SADC) community intra-regional trade has also curved in after reaching an all-time high of 23% in 2016 and measures only 19.3% as at the end of 2018.  At this rate, there is no doubt that our industrialisation and regional integration ambitions are greatly threatened and there is therefore an urgent need to reverse this worrying trend. 

Without a doubt, the integration of Micro, Small and Medium Enterprises (MSMEs) into our industrialisation process can be a powerful driver for structural transformation, industrial development and inclusive growth for the region. Nonetheless, it should be recognised that this integration won’t happen automatically, or in a vacuum. The ambitious growth target set for our region, a minimum of 7 per cent a year, will only be realised by a strong industrial diversification drive, supported by policy measures geared towards enhancing production capacity and boosting productivity and efficiency of our regional industries.  We also need, as a must, to create conditions that will enable higher rates of investments by the public and private sectors into economic infrastructure, which in turn will enable crucial sectors of the economy, particularly value-adding manufacturing, to grow. There is therefore a need for a review of existing trade and investment policies, and the performance of our regional and national industrialisation strategies, with a view to deepening and broadening them, while also ensuring that the participation of key sector, such as MSMEs are maximised. 

The recently concluded Summit of the Heads of State and Government held in August 2019 in Dar es Salaam, Tanzania, witnessed the approval and signing of the Protocol on Industry. Once ratified, the Protocol will give legal effect to the objective to promote the development of diversified, innovative and globally competitive regional and national industrial bases to enable the region to achieve sustainable and inclusive industrial development. In line with Article 7 of the Protocol, Member States commit, specifically, to the promotion, development and participation of MSMEs in industrialisation, by formulating relevant policies and strategies, and putting in place measures for implementing the required interventions.  

Some could argue that the measures that we have put in place, while very sound, relevant and in line with our industrialisation aspirations and goals, do not render themselves readily available for implementation.  The SADC Secretariat is very much alive to this and hence remains seized with a number of initiatives where MSMEs development takes a pivotal role. The Secretariat also continues to collaborate with the private sector and development partners. In August, 2019, SADC launched the SADC business council, and also signed three Development Cooperation Programmes with the European Union, amounting to 47 Million Euros. The three Programmes are; Support to Improving the Investment and Business Environment (SIBE); Trade Facilitation Programme (TFP) and Support to Industrialisation and Productive Sectors (SIPS).  The Programmes will bring the needed impetus for the realization of our industrialisation objectives for inclusive growth, economic diversification, enhanced competitiveness and deeper regional integration, and in doing so, promote the development of MSMEs.  The SADC Business Council also provides a long wanted mechanism for the private sector to contribute to SADC industrialisation, integration and development.
 
We must continue working together if we are to succeed.  Let us use this event effectively, and come up with informed, articulate and well-reasoned set of proposals and recommendations, which will guide us, in charting the next course of actions for the development of our region and the growth and development our MSMEs in particular.

The United Nations Commission for Africa (UNECA) has been and continues to be a true and reliable partner to SADC development and integration agenda. UNECA played a pivotal role in the development of the SADC Industrialisation Strategy and Roadmap 2015-2063, and continues to support its implementation. As part of the implementation of the Industrialisation Strategy, UNECA is supporting SADC in the development of SADC SMEs’ Strategy. I look forward to the continued and formidable partnership with UNECA, in particular the integral role that UNECA continues to play in shaping our policy and strategic endeavours in the region as it shares a common vision with SADC of a developed, industrialised and prosperous SADC.  

For more views and in-depth analysis of current issues, Weekly magazine (Price: Rs 25) or subscribe to Weekly for Rs110 a month. (Free delivery to your doorstep). Email us on: [email protected]

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