Is procurement panacea to SMEs growth?

EMANG CHIBUA | Wednesday November 28, 2007 00:00

Some had pointed out that such a policy would also achieve social justice within the society as a procurement system biased towards SME's contribute to fair distribution of resources.

Nothing can be further from the truth. Botswana being a free market economy is susceptible to unequal distribution of resources, which can only be addressed through targeted government policy intervention. Personally I do not have any problems with free market economy or capitalism. But as some people had argued, and even myself as a capitalist, I am convinced that leaving everything to the market forces can never achieve social justice. The truth being that free market policies reward the strongest. Capitalism is about survival of the fittest and the weak get destroyed through competition.

Whilst this is the limitation of a capitalist economy, I strongly feel it is unfair to blame Botswana government for pursuing free market policies when its trading partners such as South Africa and Namibia are also pursuing free market policies and are attracting foreign investment. What needs to be addressed here is not the need to change from free market economy to the protectionist economy.  Protectionist economy will not result in empowering Batswana particularly if one is to look at the long term.

It is necessary to give a background about Botswana's economic policies in order to understand Botswana's procurement system. Botswana being a free market economy, it is not surprising for her to adopt a 'laisser's faire' (survival of the fittest) system in its procurement undertakings. As has been pointed out this 'laisser's faire' system, if it is used indiscriminately, will obviously result in unequal distribution of resources and ultimately with very few beneficiaries whilst the majority of citizens are totally excluded from participating in the mainstream economy.

There had been various reasons advanced for adopting a market based bidding system which promotes competitiveness. The result is that SMEs, being uncompetitive are systematically shut out of the bidding process on the basis that they lack capacity. Some had argued that some SMEs have an element of inefficiencies and incorrect costing contributing to their inability to cost their projects accurately thus limiting their chances of winning government jobs.

As already noted, our government policy has not been successful in building capacity within small business owners to benefit from the procurement system. To understand this problem of lack of capacity, we need to look at the construction industry as a good example. This is one sector that government was determined to empower through its procurement system. What happened? The government burnt its fingers when small business owners failed to finish council projects and even failed to pay government its taxes. There are so many lessons that emerge from the construction industry sector. Some blame the education system for failing to equip Batswana with business skills. Others blame citizen businesses for reckless spending and lack of managerial skills. But all the criticism ignores one thing. Just because somebody has a trade skill or has gone to Vocational Training Centre does not make one a business person. A good illustration is that of law firms where lawyers get struck off the register not because they are not good lawyers but because they have no idea how to run a business (law firm).
The result is that you get struck-off the register by the High Court not because you have misappropriated trust funds but because you failed to convince external auditors that you kept proper accounting records during the year.  It takes a businessman to run any business successfully.

In the absence of business skills, the business venture fails and closes down. By the way business failure is more than reckless spending!

The assertion that business people purchase expensive cars does not hold water. In fact there is nothing in business owners purchasing luxury cars if viable to do so.

The construction sector faced the similar dilemma. Lack of skills particularly costing of projects resulted in citizen companies failing to complete projects. Small business owners would get excited about winning a council job of say one million pula. But the sad reality is that the poor business owner had absolutely no idea about costing of projects. He is a tradesman and he is only looking at the contract sum! The small businessman does not even bother to enquire how the council quantity surveyor arrived at the cost of P1 million for just building a small primary school with few classes. Even if the council officer had made mistakes in estimating the project cost, there is no way the tradesman could pick that error.

So to cut a long story short the poor business owner only discovers half way through the project that the P1 million has just flown different directions in form of overheads and other contingencies that befell the project.

The business owner had no option but to face the reality that he had run short of funds and must abandon the project. Otherwise how do you keep paying wages, transport and materials when funds in the bank have been depleted. So these business people simply run away from the government without finishing the project. This obviously explains government reluctance to give projects to small business with little capacity and experience to comprehend dynamics of costing and management. The bidding system and construction industry processes are far beyond understanding of an ordinary business person.

Some of these contractors get the shock of their life a year later when the government gives them a high tax bill for projects that they were awarded. Value Added Tax (VAT) and Income Tax matters are complex for majority of business owners. Should we blame the government all the time? As Log Raditlhokwa stated in one of the newspapers, Africans always seek to blame somebody else other than themselves. I am personally very skeptical about this excitement that for SMEs to grow government should award a sizeable amount of its tenders to small businesses. The government burned its finger in the past and what we as Botswana should debate is the issue of capacity building within SMEs instead of just advocating for procurement as if it is panacea for growing SMEs. In the past I had been heavily criticized for expressing these views but short cuts to empowerment will not work.