EDD stunts SMEs growth

| Thursday June 27, 2013 00:00

Addressing the Exporters and Manufacturers Association, Rakhudu was quoted as saying citizen companies should do more to market themselves and be rid of the expectation of government procurement.  On the surface, these remarks sound logical and even prudent when set against the backdrop of forecast reductions in public spending.  However, analysed further, they are symptomatic of the laissez-faire approach creeping into government's interaction with Small-to-Medium Enterprises (SMEs) and local industrialisation.

The operating hypothesis here is that the Economic Diversification Drive and its billions should surely result in the upliftment of SMEs and greater local industrialisation.  It would appear that government, in assuming a facilitator's role, put a little too much distance between itself and the development of local SMEs.  The evidence on the ground directly contradicts the operating hypothesis because SMEs continue to experience high failure rates due to factors like limited access to credit facilities, unavailability of land, market barriers, know-how and stiff competition.   For all its noble objectives, the EDD will hardly reverse the large-scale capture of government procurement by foreign entities along with the latent export of jobs.  Various government and quasi-government fora have exhausted discussion of all factors here, from the fact that local SMEs and industry have costlier but poorer quality products to the global 'illegality' of imposing import barriers willy-nilly.

Government's emphasis needs to be on cutting the unit costs incurred by local producers of goods and services, firstly to enable them to better compete for public procurement and secondly to boost export competitiveness.  In the same way that the IFSC used to provide an incentives package for international finance investors, qualifying SMEs and local manufacturers could be given an inducement basket enabling them to lower their unit costs.  These incentives could encompass tax holidays/relief; land allocation preferences, preferential settlements at public accounting offices and many others.  Other incentives could include favourable electricity, water and telecommunications tariffs.  Reducing unit costs is a more sustainable approach to accelerated industrial growth and SME development than the EDD's use of precarious government procurement. The difference between targeting unit costs and using the EDD is that the former focuses on inputs, while the latter seeks to 'cure' the negative outputs.  It can be successfully argued that the EDD's cover and even enable a poor input and processes environment within local SMEs and industry.  The EDD ostensibly rewards some SMEs with a rich helping of taxpayer's funds for the delivery of poor quality, costly goods and services.  By starting with lowering unit costs, through strategic incentives, government could then focus parastatals' attention on boosting the quality of these products and services and securing local and foreign markets through policy initiatives.  At any rate, a thorough re-think of the prevailing strategy, as can be deduced from Rakhudu's comments, is desperately required if local SMEs and industry are indeed the future of Botswana's 'diamondless' economy.

                               Today's thought

'Wherever you see a successful business, someone once made a courageous decision'.

                          - Peter Drucker