Promoting SMEs for sustainable economic growth

Facilitating the development of the private sector and SME
 
In a labour surplus country like Bangladesh, small and medium enterprises (SMEs) can play a substantial role in providing the impetus to the development of a modern manufacturing sector and in job creation outside of agriculture and informal services.

In addition, micro-small-and medium-scale entrepreneurship is perhaps, the most accessible type of entrepreneurial activity for migrants and the members of their families, often backed by remittances, cross-border social networks and private savings. 

Unfortunately, the lack of data makes it very difficult to understand the role of SMEs, especially small industrial enterprises. Some elementary data is available from the National Report of BBS based on the nationwide census of all non-farm economic activities in 2001 and 2003.

An overwhelming majority -- 98% of establishments -- are micro units having less than 10 workers. Only 13% are in manufacturing and the remaining 87% are involved in trade and services. Within manufacturing, 58% of the enterprises are in the category of SMEs (less than 50 workers) employing about 20% of total manufacturing labour force.

The 7th five-year plan (2016-20) recommends a three-step strategy for the development of the SME sector of the country. The first step relates to the consolidation of the naturally developed capabilities mainly serving the domestic market, the second step focuses on making the entry of SMEs into the export market easier and the third step emphasizes the enhancement of capacities to thrive into the global market. 

The first step is protection in nature -- protecting the naturally developed capabilities whereas the second and third strategies are promotional in nature, promoting the capacities of the SMEs to penetrate into the export market and thrive in the global market.

A comprehensive approach to the development of this sector should be adopted, which will entail wide-ranging fiscal incentives, preferential access to finance, favourable trade policy, provisioning of land and site services, and the facilitation of technological and marketing support.

The achievement of this objective will be the organizing principle governing the implementation of the SMEs policy announced by the government. For promoting agro-processing and small scale rural enterprise,a value chain approach will have to be followed by integrating input providers, traders, processors and service producers.

To promote the growth of SMEs, numerous development projects should be considered such as providing incentives for development of agro-based industries; special assistance for expansion of rural industries; education and skill development programs; and broad-based growth promoting macro-policy.

Areas have to be identified where small and medium enterprises have a comparative advantage and higher growth potential and it is an essential element of a strategy for the development of the SME sector. This will mean exploring market opportunities on a sustained basis and mobilizing the required support services for the promotion of these industries once such niches are identified.

Collection and analysis of the relevant industry related information will be an essential prerequisite for such strategic planning. It is with this purpose that the government has set up the SME Foundation whose mandate is to work out such development strategies for the SME sector in Bangladesh on a continuing basis in close tandem with the private sector. The capacity and activities of the SME Foundation need to be strengthened to this end. Also, a national SME census needs to be conducted through the Bangladesh Bureau of Statistic (BBS) in order to create a comprehensive information repository regarding the SME sector. The census will give special focus on enumerating women entrepreneurs engaged in manufacturing enterprises classified as SMEs.SMEs need a differentiated and hassle free indirect tax system. The structural difference between the SMEs and their large-scale counterparts, justify a case for a differentiated system of indirect tax for the SMEs that will enable them to pay the indirect tax-free from harassment. 

Further trade liberalization measures should be taken with a view to providing SMEs easier access to imported inputs. One important factor affecting the growth of SMEs has been the trend in domestic demand. Thus, the rapid growth of the construction sector seems to have contributed to the expansion of SMEs producing non-metallic mineral products, particularly bricks, structural clay and cement products.

Public expenditure directed particularly towards the agricultural and the rural sector would raise the purchasing power of the rural people. Since the demand structure of this segment of the population is more oriented to local products, it would act as a stimulus to growth and expansion of SMEs.

The comprehensive credit policy for SMEs developed by the Bangladesh Bank should be implemented duly. Under this policy, the commercial banks and other financial institutions are required to disburse SME credit according to the target set by Bangladesh Bank and send disbursement report to Bangladesh Bank. The financial institutions will be required to develop loan products that relate better to a specific type of credit needed in SMEs. 

Provision of subsidized credit to clusters, disadvantaged groups, and fringe regions with close monitoring should be ensured. SME cells should be set up for identifying potential borrowers, loan disbursement, monitoring use of credit and collection of the loan. To strengthen targeting of SME credit, a prerequisite for this is the creation of SME database, which would help assess the relative growth potentials of diverse SMEs and enable proper targeting of SME credit in line with the earlier suggestion of selective SME development strategy.

Clustering is a critical concern for rapid industrialization in general and development of SMEs in particular. The growth of SMEs also depends on successful integration, both vertical and horizontal. SMEs alone cannot move further without mutual support from other SMEs or large-scale enterprises. SMEs in Bangladesh face formidable challenges in expanding their capacities. An efficient strategy for capacity expansion of SMEs is through agglomeration of co-located industries to take advantage of scale economies in logistics and infrastructure and a host other ancillary facilities.

The system of technical and vocational education in the country needs to be restored for the development of manpower in the SME sector. Many of the skilled workers may join family-owned SMEs. The institutional capacity to impart appropriate technical and vocational education needs to be strengthened. For this, close association of the potential employers in developing the right curriculum would be important. Women entrepreneurs should be brought into the mainstream SME development process.

In facilitating the development of the private sector and SME, the primary role of the government will have to be to create investment-friendly law and order situation, supportive legal and regulatory framework and appropriate macroeconomic policies.

These will need to be complemented by prioritized public investment designed to ease various structural bottlenecks pertaining to physical and infrastructural facilities, energy, and technology. In addition, the quality of governance will have to be improved to ensure a reliable supply of basic services upon which honest and efficient businesses depend.
Source: https://www.dhakatribune.com

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