ABSTRACT
Small, Medium and Micro- Enterprises (SMMEs) play a crucial role towards achieving industrial and economic development objectives of an economy.Recent years have seen increasing attention focused on the SMME sector, in both developed and developing countries. This is partly because SMMEs are seen as a potentially important source of employment generation, especially for the unskilled and semi-skilled. They also possess the potential as an engine of growth, it is therefore important to create a favorable environment that allows them to expand and prosper.In Botswana and other developing countries, SMMEs are predominantly owned by citizens, whereas larger firms are often foreign owned. The development of the SMME sector therefore involves the economic empowerment of citizens.SMMEs are faced with challenges such as access to finance, poor quality of products, and lack of access to markets and poor management structures. Lack of proper financial records and misuse of business-designated funds also characterize the sector.The paper aims to evaluate the polices and economic empowerment schemes put in place by the Botswana Government to help the Small-Micro and Medium Enterprises (SMMEs)and the performance of these enterprises in relations to the policies and assistance.It also considers the contribution of SMME towards the country’s economic growth. The issues of micro-financing, micro-lending programs and institutions and major constraints in micro and small enterprise development will be discussed.
INTRODUCTION
The development and performance of SMMEs have been of great interest to entrepreneurs, governments, financial institutions and non-governmental organizations. The contribution of SMMEs towards growth, job creation and social progress is valued highly and small business enterprises are regarded as important element in a formula to achieve economic growth. Governments do encourage industries to enhance production to satisfy the internal and external demands. Encouragement and incentives would be in the form of financial assistance, government protection, etc. and through this the state aims at achieving considerable improvement in entrepreneurship performance.The Government of Botswana is quite active in promoting small, medium and micro enterprises through its policies in industrial development. The Botswana Government acknowledges that whilst appropriate incentives must be provided to attract foreign capital, it is also necessary to ensure that local entrepreneurs are not disempowered in the process hence the formulation of Small; Medium and Micro Enterprises policy to promote citizen entrepreneurship. (Botswana Business Guide,2004). Government continues to promote citizen economic empowerment by implementing programs that enhance citizen participation in economic activities and business ventures (Botswana Budget speech, 2010).the research paper focuses on the policies put in place by the government of Botswana in developing the SMMEs, performance of the SMMEs in relation to the policies and assistance, contribution of SMMEs towards the country’s economic growth, sources of financing for this small businesses, the major challenges faced by SMMEs in Botswana and a recommendation to the government of Botswana and other developing countries pursuing similar empowerment schemes.
METHODOLOGY
To meet the research objectives the study employed desktop research by reviewing relevant texts, websites, annual reports, journals, magazines and newspapers.
REVIEW OF LITERATURE
The first ever, and most comprehensive nation-wide household survey of micro and small-scale enterprises (MSEs) in Botswana was conducted by Daniels and Fisseha (1992). The study estimated the (MSEs) sector to consists of 48, 000 enterprises, employing over 88, 000 people
The 1998 Task Force Report on the Policy on SMMEs in Botswana defined the three categories of business enterprises as follows:
Micro-enterprises: “a micro-enterprise is an enterprise which has less than six workers including the owner and an annual turnover of P 60 000”. Small-enterprises: Small-enterprises employ less than 25 paid employees and has an annual turnover of between P60 000 and P1 500 000.medium sized enterprises: the medium sized enterprises employ less than 100 paid employees and has an annual turnover of between P 1 500 001 and P8000 000. Subsequent to that, the 1998 Task Force Report indicated that there were approximately fifty six thousand three hundred (56 300) Small, Medium and Micro Enterprises (SMMEs) businesses operating in Botswana, employing one hundred and twenty five thousand (125000) people including business owners. The 1998 report also estimated that the SMME sector’s contribution to Gross Domestic Product (GDP) was in the range of thirty to forty five per cent (30-45 %), while that of large firms stood at thirty eight to forty eight per cent (38-48 %) of GDP. .
According to the Central Statistics Office (CSO) survey of the informal sector in 1999/2000, about twenty eight thousand seven hundred and twenty six (28,726) household enterprises employed a total of two hundred and twenty two thousand six hundred and eleven (222,611) persons.
The Government of Botswana provided financial support to the SMLEs through various schemes, such as: citizen economic empowerment as exemplified by BEDU; Financial Assistance Policy (FAP); the Small Medium and Micro Enterprises (SMME) Policy; reservation of certain businesses for Batswana.(LEA, 2007).
According to Dorcas Makgato-Malesu, the minister of trade and industry, small, micro and medium enterprises (SMMEs) employ over 300,000 people in the country. the minister said “ the sector accounts for almost 90 percent of registered businesses in Botswana” SMMEs are faced with challenges such as access to finance, poor quality of products, lack of access to markets and poor management structures. Lack of proper financial records and misuse of business-designated funds also characterize the sector. Makgato-Malesu said this during the launch of Stanbic bank’s new product, the SME Quick Loan in Gaborone in May 2012.
GORVENMENT PROGRAMMES AND POLICIES AIMED AT SUPPORTING SMMEs
Consistent with the vision 2016 pillar of ‘A prosperous, productive and innovative nation ’ the government has come up with a number of programs and policies that could contribute towards growth of SMMEs and enhancing citizen economic empowerment. These include; I) Localization Policy; II) Reservation Policy; III) Financial Assistance Policy; IV) Credit Guarantee Scheme; Citizen Entrepreneurial Development Agency (CEDA); Local Enterprise Authority (LEA) ;V) Youth Grant Fund; VI) e-innovation Youth Empowerment Program (e-YEP); VII) Young farmers fund and recently VIII) Economic Diversification Drive (EDD).
The Localization Policy gives preference to employment of Batswana over non-citizens given similar educational and training qualifications. The Credit Guarantee Scheme provides guarantees to loans extended by commercial banks to citizen-owned SMMEs and pays a certain percentage in case of default. Under the Reservation Policy, some businesses and services are reserved for citizens only.
The Financial Assistance Policy (FAP) which was established in 1982 with the aim of financing citizen owned projects was phased out in 2001 due to, among others, failure rate of projects. According to the FAP evaluation of 2000, the failure rate of small scale projects was about 70%, while for medium scale projects, it was about 40% and for large scale projects, about 35%. The FAP evaluation resulted in the establishment of CEDA in 2001.
Citizen Entrepreneurial Development Agency (CEDA) is the Government’s most recent development finance institution, which provides subsidized credit , along with monitoring , mentoring , business advisory services and training, to selected citizen entrepreneurs (Okurut, olalekan & Mangadi, 2006). According to Moseki (2009) CEDA is the only institution that gives a loan without security and it is the Government’s citizen economic empowerment arm. CEDA finances projects that the commercial banks considers risky to fund, because its aim is to help Batswana out of poverty and assist them to take part in the economy taking them away from being spectators.
Local Enterprise Authority (LEA) was established by the Small Business Act, Number 7 of 2004 as a Statutory Authority of the Government of Botswana. The main objective was to promote as well as to facilitate entrepreneurship and enterprise development among the Small, Medium and Micro enterprises (SMMEs) community in Botswana. LEA targets women, youth, and the unemployed. Part of the strategy is to encourage businesses to use locally available natural resources and raw materials, within the identified sectors.
The Ministry of Youth, Sport and Culture has the portfolio responsible among others for the coordination, implementation and evaluation of the National Youth Policy. The Ministry has put in place a Youth Development Fund aimed at empowering youth to own businesses and create sustainable employment opportunities for young people. It caters for out-of-school youth, marginalized youth, unemployed youth and underemployed youth (working youth earning less than P600 monthly) who are citizens of Botswana aged between 18-29 years (Molelu, 2010). The Youth Grant Fund is 50 percent grant and 50 percent interest free loan of the total approved amount. Projects funded are divided into four categories namely: tourism, agriculture, services and manufacturing
The e-innovation Youth Empowerment Program (eYEP) is another youth scheme under Ministry of Youth, Sport and Culture where young people and graduates between 18-35 years are in invited to submit feasible business proposals in the Information and Communication Technology and Science and Technology sectors. Financial assistance provided by the eYEP is in the form of a grant. The financial assistance may be used for infrastructural developments such as movable containers, etc. required for the project or to cover working capital or both, provided that the requested amount falls within the fund ceiling projects . The expectation is that they have to graduate and utilize other financial intermediaries to expand and grow their establishments.
Through the Young Farmers Fund (YFF), as the Fund is called, young people will have improved access to finance and entrepreneurial training and thus will be able to engage in sustainable agricultural activities better equipped with the requisite skills for running farming businesses. The major objectives of the young farmers fund are to: • Foster youth enterprises in agriculture through effective pursuit of opportunities in the agricultural sector • Encourage the development of competitive and sustainable youth enterprises by rewarding competitiveness and discouraging inefficiency.
In 2010, Government directed Ministries and their Stakeholders to intensify efforts to diversify the economy through the Economic Diversification Drive (EDD) Short-Term Strategy and the EDD Medium to Long-Term Strategy. The EDD Short-Term Strategy is based on the use of Government interventions such as local procurement, the use of preference margins to promote local production and consumption. It is aimed at achieving quick wins and early harvest of low hanging fruits in targeted sectors of the economy where private sector efficiency and competitiveness may be achieved quickly. The major aim of the Strategy is to diversify the economy and reduce the large import bill. As the EDD Short-Term Strategy interventions are not sustainable in a free market economy, Government provided for the development of the EDD Medium to Long-Term Strategy. The Strategy envisages diversification of the economy through the development of globally competitive enterprises that need little or no Government protection and support. Its major aim is to diversify the economy into sectors that will continue to grow long after minerals have run out.
PERFORMANCE OF SMMEs AND THEIR CONTRIBUTION TO THE ECONOMIC GROWTH OF BOTSWANA
According to LEA’s needs assessment study on SMMEs of 2009: The LEA national database consisted of micros (80%), small SMEs (19%) and medium SMEs (1%). • Forty-five percent of the interviewed SMEs were fully operational, 34% at start-up stage, 19% at planning stage and 2% were winding off, in the process of closing down. • Seventy percent of the respondents indicated that they do keep financial records, while 30% do not. Cash flow forecasting is conducted by 56% of the respondents while 44% do not conduct such. As for business plan preparation at the time of establishing the business, 47% stated that they had written business plans while 53% started their businesses without the business plans. These results shows that the SMMEs are performing fairly well in Botswana as evidence by 45 % of SMMEs who are fully operational and only 2 % facing extinction. This could be attributed partly due to sound macro-economic environment prevailing in the country and initiatives such as SMMEs Pitso and fair, adopted by LEA in 2009 which promotes and ensures sustainability of small businesses in Botswana. However, it is clear from this study that support programs for new and continuing businesses on vital areas such as financial literacy, mentoring and incubation of entrepreneurs are much needed in order to curb business failures and discontinuance.it is unhealthy for businesses to run without business plans and others not conducting cash flow forecasting.
At Independence in 1966, Botswana was one of the world’s 24 poorest countries with per capita income US$60 but is currently ranked as an upper middle-income country with per capita income in excess of US$5,000.. The first ever, and most comprehensive nation-wide household survey of small, medium and micro enterprises (SMMEs) in Botswana was conducted in 1992. The study estimated that the SMMEs sector consisted of forty eight thousand (48 000) enterprises, employing over eighty eight thousand (88 000) people.
Subsequent to that, the 1998 Task Force Report on the Policy on SMMEs in Botswana, indicated that there were approximately fifty six thousand three hundred (56 300) Small, Medium and Micro Enterprises (SMMEs) businesses operating in Botswana, employing one hundred and twenty five thousand (125000) people including business owners.
The 1998 report also estimated that the SMME sector’s contribution to Gross Domestic Product (GDP) was in the range of thirty to forty five per cent (30-45 %), while that of large firms stood at thirty eight to forty eight per cent (38-48 %) of GDP. According to the Central Statistics Office (CSO) survey of the informal sector in 1999/2000, about twenty eight thousand seven hundred and twenty six (28,726) household enterprises employed a total of two hundred and twenty two thousand six hundred and eleven (222,611) people.
According to the Global Entrepreneurship Monitor (GEM) report of 2014; Botswana has moved nine places up to number 56 out of 189 countries ranked. The country has made notable strides in the Doing Business rankings from last year where it moved five places upward to number four in Sub-Saharan Africa after Mauritius and South Africa. The GEM research has shown that nearly 90 percent of all registered businesses are Small, Medium and Micro-enterprises (SMMEs) which employ well over 300 000 people both formally and informally.
Speaking recently at the signing of the Memorandum of Understanding between Women’s Finance House Botswana and Standard Chartered Bank, Bank of Botswana governor, Mrs. Linah Mohohlo stated that women dominate the informal economic activity which employs more than 50 percent of the working class and contributes about a third of the country’s GDP which stands currently at US$ 14.8 billion according to the figures released recently by the Global Competitiveness report of 2014-2015.
The GEM report and the Global Competitiveness report clearly shows that SMMEs plays a major role in contributing to the country’s output. The employment figure in the SMME sector increased from 125 000 people in 1998 to over 300 000 people currently, this significantly shows the impact that the sector has on the country’s output, if more people are employed production of goods and services will rise leading to the growth of the country’s GDP . Botswana’s GDP per Capita is currently at US$ 7136(GCI report 2014-2015) as compared to US$ 60 when the country gained independence 5 decades ago. This could be attributable partly to the major role that the SMMEs sector has played in the economic activity of the country since independence though not undermining the significant part played by the mineral rent in the development of Botswana’s economy.
SOURCES OF FINANCING OF SMMEs IN BOTSWANA
In order to address the concerns of access to credit, particularly for small and medium local investors, government introduced Citizen Entrepreneurial Development Agency (CEDA) in 2001. The Citizen Entrepreneurial Development Agency provides a holistic approach to the development and promotion of viable sustainable citizen-owned enterprises. This is done through the provision of financial assistance in the form of loans at subsidized interest rates, and back-up business training and mentoring services to enhance the sustainability of these enterprises. CEDA finances projects that the commercial banks considers risky to fund, because its aim is to help Batswana out of poverty and assist them to take part in the economy taking them away from being spectators.
CEDA lends from P500 to P150 000 at 5 percent interest per annum payable over a period of five (5) years for the small scale category of enterprises. Repayment periods vary according to the size of the loan and the project cash flow. The smaller the loan amount, the shorter is the repayment period. The maximum repayment period is 60 months or 5 years, with some flexibility for projects of a special nature in sectors such as agriculture. (CEDA annual report, 2008)
Standard Chartered Bank Botswana (SCBB) introduced a product called GPO Financing in 2011 under which SMMEs do not have to provide any security or collateral to the suppliers. After obtaining a Government Purchasing Order (GPO) for procuring goods outside the country, the SMME applies for financing from the bank. The bank then arranges a letter of credit facility to the supplier, enabling the SMME to obtain the required goods. The SME will in turn arrange with the government to forward the payment to the bank, which will in turn settle the suppliers’ payment. The minimum amount for financing under the program is P100, 000. (mmegi online,2012)
In 2001, the Bank of Botswana granted a waiver to Women Finance House Botswana as allowed under the banking act to accepts deposits from their members and extend loans. This shows that the bank is aware that the main constraint for women to be self-employed is a lack of funding.
Thusang basadi is an organization which provides financing and savings products to women at the bottom of the pyramid. This initiative by Thusang Basadi is extremely important considering the critical role that the small enterprises play in the community and the potential that they have to contribute significantly to GDP in the long run.
CHALLENGES FACED BY SMMEs IN BOTSWANA
According to the Needs Assessment Study on SMMEs conducted by LEA in 2009: 56% percent of the interviewed SMMEs identified lack of finance as the major problem. This is particularly the case amongst SMMEs in the manufacturing sector. On the other hand, lack of finance was not a ‘major’ problem amongst medium sized SMMEs, SMMEs in the Tourism sector and non LEA clients.
The next major challenge for SMMES was Limited access to infrastructure, stated by 14% of the respondents. This is a common problem especially in Ramotswa, Gantsi, Kasane, amongst micros and agriculture based SMMEs. Lack of business skills and experience was reported by 12% of the respondents as their major challenge. This problem was reported mostly at Tsabong, Ramotswa and Maun, by SMMEs in the manufacturing and Tourism sectors, non LEA clients and a significant number of medium sized SMMEs.
The GEM report of 2014 mentions that Small Medium Micro Enterprises( SMMEs) face challenges such as access to finance , poor quality of produced products, access to markets, lack of proper management structures , lack of proper training, lack of proper financial records and misuse of business designated funds among many other constraints.
CONCLUSION
Small Medium and Micro Enterprises (SMMEs) play a crucial role towards achieving industrial and economic development objectives of an economy. They provide the main driving force behind the interrelated trade flows, investment and technology, on which the strength and dynamism of an economy depend. In recognizing the importance of SMMEs the government of Botswana has introduced various policies and programs in a bid to support the development of SMMEs. SMMEs played a major role in the economic growth and development in Botswana since independence; this is evidenced by Botswana being regarded as one of the middle income economy from the world’s poorest country in 1966. The Global Entrepreneurship Monitor (GEM) report of 2014 ranked Botswana at number 56 out of 189 which clearly shows that there is an improvement in terms of entrepreneurship development in Botswana. However reducing obstacles or bureaucracy during the business startup process and ensuring that expertise can be easily accessed when it is required is one of the fundamental hurdles which need to be removed to ensure the sustainability of businesses in Botswana. Even though the government has come up with initiatives that could contribute towards SMMEs growth, there are still challenges that they face such as access to finance, poor quality of produced products, access to markets and misuse of business designated funds among many other constraints.
RECOMMENDATIONS
The policy makers, financiers and institutions charged with the development of entrepreneurship and enterprises should consult and adopt some of the recommendations made by the GEM report of 2014, some of which are:
Making sure that funding of sustainable youth and female entrepreneurial initiatives are at the top of government’s agenda
It further suggests that their support for youth is balanced when it comes to gender based issues.
Tailor made management courses on training on risk taking and risk management must also be provided.
Educational institutions should include financial literacy as a mainstream part of their curricula.
SMMEs should have preferential access to mining sector procurement and beneficiation programs
