The hurdle for SMMEs to grow past infancy
Pauline Dikuelo | Friday August 28, 2015 15:57
Though various sectors have their own definition of SMME, it usually refers to a business that has a turnover that ranges between a pula to P10 million. Most of these businesses are highly concentrated in supplies and service industries and contribute largely to the employment creation. As part of empowering locals, government has established entities such as Local Enterprise Authority (LEA), Citizen Entrepreneurial Development Agency (CEDA), BOBS, Ministry of Trade and Industry through the Economic Diversification Drive initiative and the Botswana Investment and Trade Centre (BITC) to help SMMEs with institutional support ranging from the provision of entrepreneurial development support and enabling business environment, financial institutional support and export promotion.
However, it has been evident that despite these initiatives half of the SMMEs fail in the first 3-5 years of establishment while the remaining half that survive continue to operate in conditions of uncertainty that is laden with a highly volatile market, intense competitive rivalry, shortage of serviced land, lack of marketing skills, low technology uptake and inherent biases against SMMEs. Out of the 12 908 SMMEs that LEA registered since inception, the director corporate and stakeholder communications Boikhutso Kgomanyane said some are no longer operating and either using their services while some have graduated from being small businesses.
“We established that most of our clients, especially in the agriculture projects, usually face competition from giant chain stores who are able to control the raw materials process up to the processing and retail stage making it difficult for small businesses to penetrate the market,” she said. Kgomanyane stated that budget cuts by financiers that normally take place at business approval stage lead to under-capitalisation of projects and thereby projects not having enough capital to survive.
She added that high production costs especially in the pig feeds and poultry also forces them to sell at unattractive prices.
It also has surfaced that most businesses rely on government for tenders, which is however not sustainable in the long-term because the businesses collapse when the tenders dry out.
Tshwenyego Pholo, who is an entrepreneur and fashion designer says most of businesses fail due to lack of promoters, poor cash flow management, lack of working capital due to under estimation of the operating expenses and other unforeseen circumstances. Pholo pointed out that their inability to outsource services due to lack of finances, usually sees them being swamped by managing their businesses since they are involved with the production side as well as marketing and communications.
“Banks do not cater for us, they usually advertise that they cater for us but they will ask for any tangible collateral for them to assist us which never succeed because we do not have anything like that,” she argues.
Another entrepreneur, Karline Watsela states that her supplies company relies on government for tenders but instead of publicly circulating their tenders, government often award tenders to certain companies in discretion.
Last week, BITC Chief Executive Officer Letsebe Sejoe said SMMEs do not have adequate awareness on Government assistance programmes that are put in place to compete favourably in the market.
According to Sejoe, SMMEs play a critical role in accomplishing industrial and economic development objectives of the economy by helping with job creation for citizens, tax revenues for government and development of the society.
Sejoe said it is important for the voice of SMMEs to be included in the economic diversification debate. Earlier this week, the head of business banking at First National Bank of Botswana, Khalala Mokefane said they have softened up to help SMMEs, citing that they have considered the use of current assets as collateral to finance businesses. “We can even take GPO’s to help buy material for an entrepreneur so that he does not lose out on the tender and then we get our money back later,” he said.
According to Mokefane, there are many opportunities for small businesses in the country. He also said government is committed to helping SMMEs, adding that they have reserved 30 percent of maintenance works to the SMME market.