Description
This research was supported by a grant from the Investment Climate and Business Environment (ICBE) Research Fund, a collaborative initiative of TrustAfrica and IDRC.
This research was supported by a grant from the Investment Climate and Business Environment (ICBE) Research
Fund, a collaborative initiative of TrustAfrica and IDRC. It’s a working paper circulated for discussion and
comments. The findings and recommendations are those of the author(s), and do not necessarily reflect the views
of the ICBE-RF Secretariat, TrustAfrica or IDRC
Small Business Development
and the Inclusive Business Concept
By
Ullrich Klins
1
Southern Africa Trust
Johannesburg, South Africa
ICBE-RF Research Report N0. 82/14
Investment Climate and Business Environment Research Fund
(ICBE-RF)
www.trustafrica.org/icbe
Dakar, January 2014
1
Contact: [email protected]
1
Table of Contents
1 INTRODUCTION ........................................................................................................................................ 2
2 PROJECT DESCRIPTION ......................................................................................................................... 2
2.1 PROJECT PURPOSE ......................................................................................................................................... 2
2.2 RESEARCH METHODOLOGY .................................................................................................................... 3
2.2.1 Research Scope...................................................................................................................................... 3
2.2.2 Research Design ................................................................................................................................ 4
2.2.3 Data Collection Method .................................................................................................................... 6
2.3 DATA ANALYSIS .................................................................................................................................... 7
2.4 CHALLENGES OF THE RESEARCH PROJECT ............................................................................................. 7
3 SUMMARY OF DESKTOP STUDY FINDINGS ..................................................................................... 8
3.1 LITERATURE REVIEW ............................................................................................................................. 8
3.1.1 Literature review on SMME development in the target countries ..................................................... 8
3.1.2 Literature review on inclusive business .......................................................................................... 12
3.2 SMME DEFINITIONS ............................................................................................................................ 13
3.3 MACRO-ECONOMIC ENVIRONMENT AND STATUS OF SMME DEVELOPMENT ...................................... 14
3.3.1 Macro-Economic Environment ....................................................................................................... 14
3.3.2 The status of SMMEs in the target countries ................................................................................... 16
3.4 REGULATORY FRAMEWORK IN PLACE TO ASSIST WITH SMME DEVELOPMENT AND BUSINESS
LINKAGES .......................................................................................................................................................... 18
3.5 INSTITUTIONS IN PLACE TO ASSIST WITH SMME DEVELOPMENT AND BUSINESS LINKAGES ................ 24
3.6 CHALLENGES FACED BY SMMES BASED ON THE REGULATORY FRAMEWORKS AND SUPPORT
STRUCTURES ..................................................................................................................................................... 33
3.7 STATUS AND FRAMEWORK FOR INCLUSIVE BUSINESS .......................................................................... 38
3.8 INCLUSIVE BUSINESS CHALLENGES ..................................................................................................... 44
4 RECOMMENDATIONS FOR SMME DEVELOPMENT AND INCLUSIVE BUSINESS................ 45
4.1 RECOMMENDATIONS FROM THE FIVE RESEARCH STUDIES ................................................................... 45
4.1.1 Regulatory Frameworks .................................................................................................................. 45
4.1.2 Support Structures ........................................................................................................................... 46
4.1.3 Access to Finance ............................................................................................................................ 48
4.1.4 Access to Markets ............................................................................................................................ 49
4.1.5 Business Services By The Private Sector......................................................................................... 49
4.2 POLICY DIALOGUES – RECOMMENDATIONS AND ACTION PLANS ......................................................... 50
4.3 DISCUSSION OF THE RECOMMENDATIONS ............................................................................................ 55
4.4 COMMONALITIES AND DIFFERENCES .................................................................................................... 55
5 NATIONAL ACTION PLANS ................................................................................................................. 56
5.1 THE ACTION PLAN FOR MALAWI ......................................................................................................... 57
5.2 THE ACTION PLAN FOR MAURITIUS ..................................................................................................... 57
5.3 THE ACTION PLAN FOR MOZAMBIQUE ................................................................................................. 59
5.4 THE ACTION PLAN IN SOUTH AFRICA .................................................................................................. 61
5.5 THE ACTION PLAN FOR ZAMBIA ........................................................................................................... 61
5.6 RECOMMENDATIONS FOR ACTIONS AT THE REGIONAL LEVEL ............................................................. 64
6 CONCLUSIONS ......................................................................................................................................... 65
APPENDIX II - REFERENCES ........................................................................................................................ 69
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1 Introduction
Trends in developing countries over the last two decades show that the involvement of small and very
small enterprises makes a constructive contribution to building economies, especially during periods of
economic recovery (Government of South Africa, Detea et al. 2012a). Small, Medium and Micro
Enterprises (SMMEs) play a vital role in encouraging job creation and their successes are influenced
greatly by their ability to enter the value chains of larger organisations, in both the private and public
sectors.
Though valuable to the progression of African economies, the challenges facing SMMEs are many.
Lack of access to capital, limited infrastructural capacity, limited access to markets and of resources to
enable business activity as well as a lack of economic skills are some of the pervasive constraints faced
by SMMEs.
This was the background that motivated the Southern Africa Trust to successfully submit a research
proposal to Trust Africa’s Investment Climate & Business Environment (ICBE) Research Fund, and in
September 2012, the Southern Africa Trust undertook a research study entitled, “Small business
development in connection with the inclusive business concept”.
The International Finance Corporation (IFC) defines inclusive business as, “models (that) expand access
to goods, services, and livelihood opportunities for those at the base of the global economic pyramid
(BoP) in commercially viable, scalable ways” (IFC 2011:2).
As part of its core mandate through its Business for Development (B4D) Pathfinder project, the Southern
Africa Trust seeks to contribute to social, human and economic development in Southern Africa through
programmes that foster the growth of SMMEs that adopt inclusive business models. The Business for
Development (B4D) Pathfinder Project of the Southern Africa Trust is underpinned by the ethos of
inclusive business practices. B4D is responsible for the implementation of the research study.
2 Project Description
2.1 Project Purpose
The purpose of the research is to critically describe and examine the factors that either promote or hinder
the growth of SMMEs in five African countries.
This includes the analysis of options to link smaller and micro-sized enterprises with larger firms, a
concept which is known as inclusive business. In general, inclusive business means the profitable
integration of the poor into the value chain of a company.
The overall objective of the project is to provide the necessary knowledge to improve the performance
and competitiveness of SMMEs so that there are increased entrepreneurial and employment
opportunities and, based on this, wealth creation.
The project has two components, namely:
? a comprehensive research study in five target countries, and
? the convening of multi-stakeholder dialogues at a country level and regional level (SADC) to
discuss research findings with policy makers and key players.
The research examines the factors that have promoted or inhibited the growth of small businesses in the
selected countries and how success stories can be replicated in the region. The following questions
guided the research:
? How can the development of SMMEs be described in the five target countries?
? What kind of regulatory framework works best for business development?
o To what extent is such a framework supportive of business development?
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o What are possible hindering factors or factors that have not been implemented in
practice?
? What kind of support structures exists to foster business development?
o How functional and successful are these support structures?
? What are the major factors that hinder the development of SMMEs, in particular with regard to
the regulatory framework and supporting structures?
? To what extent has the concept of inclusive business been introduced in the five countries?
o Which (regulatory) factors promote or hinder inclusive business in these countries?
o What options are available to promote SMME linkages with larger companies
(inclusive business)?
? What are the challenges that need to be overcome to achieve this, and how can this be done?
Based on preliminary research undertaken by the Southern Africa Trust it is assumed that,
a) Although SMME development is universally acknowledged as an effective instrument for
employment generation and economic growth for development, and although governments and
other key players have made various efforts to foster SMME development, countries still fail to
support the enterprises in being successful and sustainable; and
b) The concept of inclusive business currently only plays a secondary role in SMME development
and thus in the growth and development of a country, however the stronger involvement of
larger companies that implement Inclusive business practices can trigger SMME development
and lead to economic growth and employment of a country.
2.2 Research Methodology
2.2.1 Research Scope
The research scope is focused on the development of SMMEs in the SADC region, analysing the
enabling environment for SMMEs, and to deepen the study, examining the relationship between very
small enterprises and larger organisations, and the enabling environment relevant to: (1) opportunities
within the value chain for very small enterprises; and (2) the ability of very small enterprises to do
business with larger organisations. This includes research on enabling agencies and organisations and
findings on macro-economic conditions.
Consideration was also given to the sector focus as an indicator of where SMMEs are most likely to
have access. In the target countries, the agriculture, manufacturing and retail sectors play an important
role in the development plans of the countries – with the exception of Mauritius with regard to
agriculture.
The studies were conducted in Malawi, Mauritius, Mozambique, South Africa and Zambia. These
countries were selected on the basis of existing processes on SMME development in a country, or the
absence thereof; and with regard to the research focus sectors, such as food and beverages,
manufacturing and retail.
In two of the selected countries, South Africa and Mauritius, the promotion of SMME development has
been under way for some time and it is possible to share long-term experiences:
? In Mauritius, a joint enterprise development approach involved government and other key
stakeholders. Two of the four major strategies of the Mauritius Government since the
independence of the country have been (i) to provide income earning opportunities through the
creation of jobs, and (ii) to provide non-wage income opportunities through entrepreneurship,
where the government functioned as a developmental state, facilitator, operator and regulator in
promoting an enabling environment for SMMEs.
? In South Africa, various initiatives have been undertaken to foster business development by
different stakeholders like government, the banking sector, companies from other industry sectors,
SMME-related organisations and other players. In addition, several initiatives in the field of
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inclusive business have been started in the country that will provide solid data on concepts,
successes and obstacles in relation to SMME development.
These two countries were therefore selected to provide good practice examples and information on
promoting and hindering factors for SMME growth and development, based on the experiences from
long-term processes.
Malawi, Mozambique and Zambia were selected as they are characterised by extensive agriculture
and the lack of proper infrastructure and wealth (as is the case in Mauritius). All three countries are
targeted by retailer companies which, in South Africa, have commenced inclusive business activities,
but still retain their former traditional business concept in the markets in Zambia, Malawi and
Mozambique, importing their products from their home country South Africa.
However, SMME activities still play a role in Malawi, Mozambique and Zambia and concepts of SMME
development exist. SMME-related organisations or business associations often implement these.
Inclusive business approaches are being implemented but are still in their infancy at the broader national
level. The study intends to provide a comparison of activities in countries with differing situations,
frameworks and experiences in SMME development, including inclusive business.
2.2.2 Research Design
The research examined the factors that either promote or hinder the growth of SMMEs in five African
countries, including the analysis of options for linking SMMEs to larger companies based on the
inclusive business concept.
The qualitative research method was selected to obtain an in-depth understanding of political
frameworks, policy decisions and other factors that determine the enabling environment for SMME
development and inclusive business. In selecting a qualitative research method, of greater importance
was the fact that the studies scrutinize mindsets, attitudes and reasons for the decisions that the various
stakeholders made, as well as their perceptions of the enabling environment.
Box 1: Key aspects of the Research
The following five aspects that are relevant for SMME development and inclusive business formed
the focus of the research:
? Macro-economic environment and status of SMMEs in the target countries
? Regulatory framework in the target countries
? Support structure in the target countries
? Factors based on the above three aspects that either promote or hinder SMME development
? Inclusive business and the enabling environment thereof
? Recommendations to improve the current situation
Based on these six key aspects, desktop research and qualitative interviews were conducted. The desktop
study provided an overview of the political and economic processes that result in an enabling
environment for SMME development and inclusive business and provided insights in the following
ways:
? The situation in each of the five countries that impact on SMMEs, including macro-economic
factors;
? The focus research sectors (agriculture, manufacturing and retail) in the target countries and the
selected research provinces within these countries;
? The status and legal framework for SMME development and business linkages, including
political intentions and historic developments
? Existing public and private structures that foster SMME development and business linkages
(supporting agencies);
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? Factors that either promote or prevent SMME development and business linkages, in particular
those related to regulatory frameworks, supporting agencies and other aspects of the enabling
environment;
? Examples of successful inclusive business activities; and
? Options to improve the current situation.
This overview provided the basis for further research on the enabling environment and a “reality check”
as to whether and/or how the regulatory frameworks and the SMME-supporting agencies had improved
the development of SMMEs and business linkages in practice. This information was obtained through
interviews, using open-ended questions completed by sub-contracted local partners. The semi-structured
interview guidelines addressed the following questions:
? What are the factors that advance or inhibit the growth of SMMEs in the target countries, and
allow for SMMEs to start or extend an inclusive business approach?
? To what extent are SMMEs using supporting factors provided by the governments, SMME-
related agencies, and the private sector to foster business linkages? Which limiting factors can
be changed for short, medium and long-term impact?
? How strongly are SMMEs linked to larger firms, in particular related to food, beverages and
manufacturing? What are the enabling and disenabling factors?
? What conditions need to be in place for larger companies to co-operate more closely with
SMMEs? Which of these factors can be realistically implemented or changed in the near
future?
? What examples of good practice exist and what can be shared and replicated?
? Are there ways in which SMMEs can get better access to people at the Base of the Pyramid
(BoP) by co-operating with larger firms?
? What needs to be changed to create an enabling environment for SMMEs to better establish
themselves and serve these markets, as part of the value chain of a larger firm?
The aim of the interviews was to gain insight into the positions and perspectives of three key
stakeholder groups on the subject matter and on the dynamics that will be practical for application
within the Southern African context. The interviews also supported the desktop research with regard
to knowledge on the implementation of laws, policies and strategies to support SMME development.
Of particular interest were the levels of awareness regarding inclusive business, as well as factors that
hinder or support its expansion. The research also considered whether a parallel can be drawn between
the views of larger organisations in the private sector, government officials and the experiences of the
owners of very small enterprises.
The mixed methodology approach was selected to strengthen the validity of the data elicited and to
overcome any weaknesses inherent in either method. It allowed the research to provide greater insights,
interpretation and discovery in cases less suitable for hypothesis testing.
The basis for study findings and recommendations was the comparative results and recommendations
at a general level (cross-country/regional level) and at the national level.
In a third step, the research findings and recommendations were discussed in multi-stakeholder policy
dialogues in the five target countries and within one regional policy dialogue. While this step formed
part of the distribution strategy, the additional recommendations of each policy dialogue were
incorporated in this present study report. In the graph below the design and procedure of the project is
summarised.
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Figure 1: Structure of the Project
2.2.3 Research Procedure
2.2.3 Data Collection Method
The desktop research consisted of national and international studies, publications on SMME
development and inclusive business in the target countries, and analysis of documents about the
regulatory framework, including White Papers, political strategies, policies, laws and guidelines.
The activities of the SMME-supporting agencies were analysed using public documents, the agencies’
websites and direct communication with representatives of these agencies. Newspaper articles were
included, for instance in the case of South Africa, so as to be updated on SMME development.
2
The sub-
contracted local researchers, where applicable, also participated in workshops in which new
developments of legal frameworks for SMMEs were discussed. In Mozambique, for example, the
researcher took part in a workshop on the follow-up Strategy for the Improvement of the Business
Environment (Estratégia de Melhoria do Ambiente de Negócios EMAN II).
In the second step, data was obtained through qualitative interviews using semi-structured interview
guidelines exploring the opinions and experiences of different stakeholders. For each of the target
countries selected, the sample of qualitative interviews included about twenty very small enterprise
owners; eight representatives from larger organisations that influence procurement processes and
policies; and four officials from national, provincial or local government that influence policy
development with regard to SMME development and inclusive business. In South Africa, the sample
also included one representative of a business chamber representing enterprises on a national level.
2
In South Africa, in 2012, the Government announced its intention to significantly change the Codes of Good Practices for
the Broad-Based Black Economic Empowerment (BBBEE) which will have an impact on SMME development in the country.
The Government provided a draft of the new Codes of Good Practice which were discussed with key stakeholders, such as
large businesses. These announcements and discussions received extensive media coverage that was taken into account by
the South African researcher.
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Geographical Focus
In the larger target countries (South Africa, Mozambique, Zambia), the research was conducted in
geographical focus areas outside of the capital cities. For example, in Mozambique, the poorer region
of Nampula was selected for interviews with SMMEs.
The geographical focus of the South African study falls on the so-called poverty nodes,
3
incorporating
the rural and urban poor areas or communities that have been described
4
as the spatial manifestation of
the second economy, and are characterised by underdevelopment, contributing little to Gross Domestic
Product (GDP), and absorbing the largest proportion of the country’s population.
5
Therefore, the South
African part of the study looked at provinces chosen because of the incidence of prominent rural nodes
that are not close to any urban, metropolitan areas with their particular influences and because they share
relatively high populations outside of the more urban and central Gauteng Province. They also have in
common a high incidence of rural communities and high unemployment rates within those communities.
The study was mindful that, when focusing on specific geographical areas, a market-focused approach
had to be adopted; so that the realities pertaining to local environmental conditions are taken into account
(in order to avoid creating unrealistic expectations); that basic conditions in the specific rural area need
to be in place first, such as transport infrastructure, electricity and institutional capacity; and that there
is sound co-operation between the private and public sectors.
2.3 Data Analysis
The data were mainly examined using the method of content analysis. The input was not analysed for
frequencies but rather according to categories. The main categories of the content analysis were based
on the key research objectives described in the research design (see Box 1 in chapter 2.2.2), namely:
? The status of SMME development in the target countries, including the macro-economic
situation;
? The regulatory framework for SMME development and linkages between SMMEs and larger
companies;
? The support structure for SMME development and linkages between SMMEs and larger
companies;
? The factors that promote or impede SMME development and inclusive business, with a focus
on macroeconomics and linkages;
? Existing inclusive business activities; and
? Recommendations to improve the current situation.
As indicated in chapter 2.2.2., these five major research goals were sub-divided into more detailed
research aspects and questions, as described in chapter 2.2.2 and used as sub-categories to analyse the
results in a structured way.
2.4 Challenges of the Research Project
As is often the case with qualitative research, smaller but more focused samples are used and this
brings an element of subjective interpretation into the study. The qualitative method investigates the
‘why’ and ‘how’ of decision-making, not only the ‘what’, ‘where’ and ‘when’, hence smaller but
focused samples are more often needed than large samples. It is suggested that future research of this
nature should be aimed at obtaining more data to improve statistical significance.
Even though guidelines to structure the desktop research and detailed interview questions covering
guidance notes were sent to the local research partners, the results and quality of the studies varied
3
Previously referred to as Presidential Poverty Nodes: South Africa Department of Provincial and Local
Government/Business Trust, 2007.
4
South Africa Department of Cooperative Governance (DECOG)
5
Previously referred to as Presidential Poverty Nodes: South Africa Department of Provincial and Local
Government/Business Trust, 2007.
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with regard to deciding on the country study focus (policy versus the macro economy), the length,
extent of detail, style and quality. These aspects had an unavoidable impact on the comparability of
the studies.
3 Summary of Desktop Study Findings
3.1 Literature Review
The Southern Africa Trust comprehensively gathered literature relevant to the project and also other
sources such as websites. These are listed as Appendix II. During this phase of the research project, new
literature published after the project began was also taken into consideration.
3.1.1 Literature review on SMME development in the target countries
The literature refers to SMME development including challenges, solutions, support agencies and the
regulatory frameworks of the five target countries. Very few publications focus on only one of these
issues. Most of the publications analyse the holistic picture of SMME development in a country. Recent
publications that were released during the present research project are introduced first, followed by brief
descriptions of the literature that was available before the project commenced.
It is important to note that the available literature on SMME development at national level varies
significantly. While there is already comprehensive information in countries such as South Africa and
to some extent in Mauritius and more recently in Malawi, the literature on recent processes of SMME
development in Mozambique and Zambia is limited. Even in Mauritius and Malawi, there is a lack of
statistics, especially with respect to the informal sector and business development many of the sources
were published already in the beginning or mid-2000s. The same is true for Malawi, where many studies
have become outdated, with the exception of the studies by the International Labour Organisation (ILO)
and FinScope that are described below.
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Literature on the situation of SMME development in Malawi
In Malawi and Mozambique the recently created new key components of the legal framework for SMME
development, in particular new SMME development strategies and policies, have not yet been fully
implemented and can therefore not be properly assessed for this report.
SMME policies in Malawi have historically been strongly criticised. The International Labour
Organisation, for example, which published one of the few more recent reports on SMME development
observed that,
“Well-designed and clear regulations, including those that uphold labour and environmental standards,
are good for the promotion of start-ups and enterprise development. They facilitate formalization and
boost systemic competitiveness. The Regulatory Quality Index measures the ability of a government to
provide sound policies and regulations for the promotion of the private sector. Malawi’s performance in
this regard has been poor and below 0, shifting from -0.48 in 2005 to -0.70 in 2011, on a scale from -
2.5 to 2.5, with higher values indicating better performance. The country scores poorly, having achieved
a value lower than that of Mozambique, Tanzania and Zambia in 2011” (ILO 2013:31).
This observation refers to the period of time before the new SMME policy was implemented and it also
highlights that the ‘Ease of Doing Business -ranking in Malawi has decreased. However, when large
companies were asked to describe the regulatory environment as it affects their daily business, about
80% assessed it as “supportive” or “very supportive, whereas this picture significantly changes when
SMMEs were asked the same question (ILO 2013:31).
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FinScope (2012), for instance, has published a list of literature on SMME development in Malawi in the annex of their
publication, indicating that most of the studies were published before the year 2006. This lack of current information was
confirmed by the local researcher of the present study.
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The report from the ILO focuses on the enabling environment for sustainable enterprises in Malawi (ILO
2013), analysing political, economic, social and environmental factors for SMME development in the
country. It addresses, inter alia, good governance; trade; the regulatory framework; competition; access
to finance; infrastructure; entrepreneurial culture; training and education, as well as responsible
stewardship of the environment. The analysis is based on indicators for each of these aspects and draws
comparisons between Malawi, Mozambique, Tanzania and Zambia as well as the Southern African
median. The study does not, however, examine the regulatory framework and the support structures for
SMMEs, including identifying their challenges. The findings of the ILO study supported to a large extent
the findings of the Southern Africa Trust in the Malawi country study.
There have been other recent releases in this field in Malawi. For example, in 2012 FinScope, which is
a FinMark Trust initiative, disseminated a series of survey results on SMME development in Malawi,
via a survey that was supported by the Malawi Ministry of Industry and Trade and the Reserve Bank of
Malawi as well as the United Nations Development Programme (UNDP) and the Department for
International Development (DFID) (FinScope 2012). This survey provides an overview of the size and
scope of SMMEs in Malawi, the profile of the small business owners, their financial capability and
money management, constraints and support mechanisms and, in particular, reveals comprehensive
knowledge about the current situation and options of financial inclusion in Malawi (FinScope 2012).
Additional studies conducted in Malawi by FinScope focus on women in small business – analyzing the
extent of their financial inclusion (FinScope 2012a), and the issue of education regarding the educational
profile of business owners and the options of financial inclusion (FinScope 2012b).
Literature on the situation of SMME development in Zambia
In Zambia, more recent reports focus on specific aspects of SMME development, such as the mining
and agriculture sectors. Relatively few recent publications analyse the situation of SMMEs in Zambia,
including the regulatory framework of the country and its support structure for SMMEs. Based on
specific projects, the ILO has published brief articles on business linkages in agriculture (ILO 2009) and
the Broad Based Wealth and Job Creation Programme (ILO 2011). Chisala (2008) examined the SMEs
performance in the country and identified practical lessons from South-East Asian countries that Zambia
can draw on to facilitate industrial development through unlocking the potential of its SMEs sector.
Literature on the situation of SMME development in Mozambique
Mwanza (2012) prepared a review for USAID on the “Mozambique Support Program for Economic and
Enterprise Development (SPEED)”
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which was established by USAID in Mozambique. The review
refers to the Mozambican ‘flagship’ programmes of business linkages and business development that
are called MozLink I and Mozlink II.
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Mwanza recommends stronger investment by the public sector in
SMME development and calls for improvement of, and investment in, the manufacturing sector. The
report also calls for more joint ventures between larger companies from neighbouring South Africa and
SMMEs from Mozambique and recommends donor programmes to foster business linkages (Mwanza
2012).
In line with this comprehensive review by Mwanza, a number of publications on recent SMME-related
processes focus on the approach and effects of MozLink I and MozLink II. For instance, there are brief
overviews by MozLink (2013) and an online presentation by BHP Billiton (2010).
A recent publication on SMME development in Mozambique was released by UNCTAD in 2012 and
focuses on Foreign Direct Investment (FDI) for SMEs in the country, the investment framework and
7
SPEED’s approach to improving the climate for private sector trade and investment divides into four broad topics:doing
business, competitiveness, macroeconomics, and governance. (USAID/SPEED 2013)
8
Both programmes bridge the needs of a large company bound by business, operational, and technical standards with the
needs of local SMEs striving for an opportunity to build their capacity and become competitive economic players. Whilst
MozLink I was implemented by BHP Billiton’s Mozambican company ‘Mozal’, MozLink II was implemented by the four
companies Mozal, Sasol, SABMiller and Coca Cola. Both programmes were supported by the International Finance
Corporation (IFC) and the Mozambican Investment Promotion Centre (Centro de Promoção de Investimentos - CPI).
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suggested strategy (UNCTAD 2012). The ILO survey (ILO 2013) also provides useful information on
aspects of the regulatory framework in Mozambique and the SMME support structure. None of them,
however, analyse these in depth as was done in the present research project. One study analysed the key
governmental support agency of Mozambique, the Instituto Para a Promoção das Pequenas e Médias
Empresas (IPEME). It analyses the capacity and activities of IPEME at an early stage after its
establishment, the envisaged implementation matrix to support SMMEs in Mozambique, provides input
with regard to international experiences that can be replicated and makes recommendations to improve
the enabling environment for SMMEs in the country (GTZ 2009). Results of the study were used and
compared to the actual state of IPEME’s current activities and impact.
In the target countries of Mozambique and South Africa there were some political discussions on new
movements regarding SMME development and inclusive business during the phase of the present
research project. In Mozambique, public discussion on the new Strategy for the Improvement of the
Business Environment (Estratégia de Melhoria do Ambiente de Negócios, EMAN II) commenced in
August 2013 and, the relevant local research partner participated in related information workshops
(Southern African IDEAS 2013; StarAfrica.com 2013).
Literature on the situation of SMME development in South Africa
In South Africa, current discussions focus on the call for more inclusivity and the change of the codes
or regulations relating to Broad Based Black Economic Development which will foster a stronger
involvement of SMMEs into the value chains of larger companies. Media releases were followed up and
incorporated in the present studies (Fin24 2013; South African Government 2013; KMG Attorneys &
Associates/ Klopper 2013).
A general overview on the situation of SMMEs in South Africa (basic data) was provided by FinScope
(2010). The research project also covered the SME Toolkits by IFC and IBM for South Africa (IFC/IBM
2011), and Zambia (IFC/IBM 2013).
A recent report of the Small Business Project (SBP 2013) confirmed many findings of the South African
desktop study calling for the reduction of bureaucratic processes related to the “compliance burden” for
small scale companies (SBP 2013:43). In both the SPB study and the present study, small scale
companies named their need to be “integrated into value chains in the broader economy, with a firm eye
on firms’ abilities to make a productive contribution” as their main concern (SBP 2013:45). The SBP
highlighted that, “as a group, SMEs are frequently spoken about, but seldom spoken to” (ibid).
Consequently, another strong hindering factor is the lack of knowledge of governments, supporting
agencies and also larger firms regarding the specific needs and conditions of SMMEs, and this lack of
knowledge can be the basis for failure of SMME development from the outset.
A recent study commissioned by the South Africa Small Enterprise Development Agency (SEDA)
focused on the needs, state and performance of SMEs in various industry sectors in South Africa and
provided a valuable resource (Mthente 2012). The study provides a comprehensive overview of the
barriers that SMMEs face in the above sectors in South Africa and provides highly relevant
recommendations for SEDA as the central governmental support agency for SMME development in
South Africa. These recommendations include, amongst others:
? The establishment of more satellite offices of SMME supporting agencies to improve the reach
of programmes, products and services;
? Improving the alignment of these agencies’ support strategies with the context and needs of
SMMEs operating in rural areas of the country;
? The use of other official languages in addition to English;
? The introduction of sector-specific business advisors, with expertise in designated sectors;
? Avoiding a numbers-driven approach that is only focused on the quantity of SMMEs;
? The provision of follow-up support services.
11
In addition, in South Africa, the Department of Economic Development, Tourism and Environmental
Affairs of the Free State Province in South Africa (Detea), together with the ILO and the University of
the Free State, published a series of reports titled “South Africa SME Observatory – Review of the
efficiency and effectiveness of past and ongoing SME development initiatives in the Free State
province” (Detea et al. 2012a). This synthesis report is accompanied by a Literature Review (Detea et
al. 2012a) and an Annotated Biography (Detea et al. 2012b), as well as Field Work (Detea et al. 2012c).
These four reports were published only after the present research project had started, but were included
in the desktop study for South Africa because research for this project ahd been undertaken in the Free
State Province.
9
The reports by Detea et al. focus on the following aspects:
? The literature review reflects on the most important service providers at national and provincial
level, and on the role and context of SMEs in South Africa and the Free State in four selected
industry sectors. This review also includes the key problems and challenges related to SMEs
drawn from comparative research.
? The annotated biography summarises literature relevant to the SME and SMME sectors in South
Africa.
? The fieldwork report analyses the efficiency and effectiveness of past and ongoing initiatives
concerning Business Development Support (BDS) to SMEs that are taking place in two
municipalities in the Free State province.
? The synthesis report provides an overview of the business development services, training and
education, marketing and markets, administration and regulations, funding, entrepreneurial
development as well as recommendations. It integrates the various findings of the three reports
mentioned above and reflects on the key themes that run through the three reports.
Literature on the situation of SMME development in Mauritius
In Mauritius, recent publications on SMME development are scarce. The desktop study for Mauritius
identified few publications in this field that were more recent than 2000, other than Jenders (2008) and
local research partner StraConsult (2002). This may be because enterprise development in Mauritius has
been implemented for about 35 years and policy changes are characterized by the involvement of various
stakeholders. The publications do not analyse the regulatory framework for SMME development or the
support structure in Mauritius, but rather focus on motivation of entrepreneurs and the youth in Mauritius
to become more interested in entrepreneurship.
Literature on the situation of SMME development in the Sub-Sahara region
UNIDO et al. (2008) reveals five structural deficits of the Sub-Saharan region’s enterprise structure,
namely rising informality; a “missing middle” and lacking upward mobility of enterprises; weak inter-
company linkages; low levels of export competitiveness; and a lack of innovation capabilities. The
publication also explains the characteristics of the regulatory framework. Its recommendations include:
? Reforms to ease business registration and the acquisition of licences;
? Property titling programmes; and
? Simplification of labour regulations.
These recommendations are supported with regard to the target countries by the findings of the present
research project. The study by UNIDO et al. provides a series of recommendations that have been
followed up in the present research project and have contributed to the recommendations in the research
9
For this reason, the ILO was also invited to present their study results within the national policy dialogue on SMME
development and inclusive business in South Africa, which was part of the second component of the present research
project.
12
studies in the five target countries (see Chapters 4 and 5). The specific suggestions made by UNIDO et
al. (2008) are:
? Providing active government support for private sector development;
? Ensuring good practices of service delivery;
? Selecting policy interventions for private sector development;
? Improving state-business relations;
? Supporting innovative entrepreneurship, which has a strong relation to the inclusive business
concept analysed in the five target countries in the present research project;
? Strengthening inter-firm specialization and linkages;
? Promoting exports; and
? Developing financial services for SMEs.
3.1.2 Literature review on inclusive business
Literature on inclusive business at the global level
There is an extensive list of literature and websites with regard to inclusive business. UNDP has
published a series of more than 120 case studies on their websites that are linked with their Growing
Inclusive Markets (GIM) initiative, initiated in 2006 (UNDP 2013). The case studies are classified
according to sectors and countries, and the first publications became available in 2008, including the
Heat Map Methodology.
10
In addition, in 2010, UNDP and its African Facility of Inclusive Markets (AFIM) published various
documents on inclusive business that connect Millennium Development Goals (MDGs) to the approach
of inclusive business or support companies and other stakeholders to assess (inclusive) markets, (UNDP
2010a). The UNDP also moved towards providing guidance around brokering (UNDP 2010b) as well
as a manual (UNDP 2010c). The UNDP publications also become more strongly sector-focused (UNDP
2010d). The recent publication of the UNDP’s, “Realizing Africa’s Wealth – Building Inclusive
Businesses for Shared Prosperity” analyses the so-called ‘ecosystem’ of inclusive business in Africa and
the role of enabling organisations for inclusive business (UNDP 2013a). This publication provides
complementary information on support structures for SMME development.
All the recent UNDP publications illustrate that the concept of inclusive business can be regarded as a
globally accepted approach and newer publications therefore focus on the “how to implement” aspects
by developing tools and methodologies and sharing in-depths knowledge for specific industry sectors.
In this regard, Wach (2012) published a summary of methods and tools that are related to the
measurement of inclusive buisiness.
The World Business Council for Sustainable Development (WBCSD) in alliance with the Netherland
Development Organisation (SNV), is an important international publisher with a focus on inclusive
business. Both organisations became closely involved in inclusive business activities in Latin America,
and are now active globally. WBCSD and SNV have established a website that (amongst many others)
provides the reader with case studies (categorised into industry sectors, events, advocacy, reporting) as
well as regular updates on inclusive business activities and processes, recommended links and best
practice (WBCSD & SNV 2013). In addition, WBCSD has published a comprehensive toolkit that
includes case studies and a field guide for inclusive business: “Doing business with the poor - a field
guide” (WBCSD 2010).
Connected to UNDP, WBCSD/SNV and many other organisations is the United Nations initiative
Business Call to Action (BCtA), that has published a series of 13 case studies involving companies that
are active in Africa, various briefs on inclusive business, and also convenes regular information webinars
(BCtA 2013).
10
Heat Maps are an analytical tool that provides detailed information on the nature and composition of markets pertinent
to human development. Their visually compelling combination of information allows for a quick read of market
inclusiveness (UNDP 2008).
13
There is a strong link between WBCSD and the World Economic Forum (WEF) which has published
documents on “The Next Billions”, emphasizing that the untapped markets will play an important role
in promoting the growth of companies in the future (WEF 2009; WEF 2010). In addition, a specific
online discussion forum called “Next Billion” was created by the World Resources Institute in
partnership with the Acumen Fund (Next Billion 2013), bringing together business leaders, social
entrepreneurs, civil society organisations, policy makers and academics for networking and knowledge
sharing purposes.
Another internet platform, which is the world’s largest community of professionals who are “harnessing
business for social impact” is provided by Business Fighting Poverty. This platform provides knowledge
to about 11,000 members, of which 50% are from the private sector. The organisation sends out weekly
newsletters to its members on specific topics in the field of social impact, and often provide information
and updates on inclusive business activities (Business Fighting Poverty 2013).
The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) has published sector-oriented
studies on inclusive business activities such as agribusiness (GIZ 2012).
Literature on inclusive business in Africa
Kubzansky et al. (2011) had already identified in 2009 about 430 examples of inclusive business in nine
African countries, the majority of them including SMMEs.
A recent publication by GIZ addresses value chain management and inclusive business in Africa (GIZ
2013) and GIZ also produced industry-specific factsheets in partnership with large companies.
Two main internet platforms provide comprehensive information on inclusive business in Africa. One
was developed by the Business Innovation Facility (BIF) as an online forum, “The Practitioner Hub for
Inclusive Business” that currently covers project descriptions of 48 inclusive business projects in
Zambia and Malawi (Business Innovation Facility 2013b and 2013c). The other main African internet
platform is provided by Business Action for Africa since 2005, “for harnessing the collective energy of
business in support of Africa’s development (Business Action for Africa 2013), and appeals to business
partners and development organisations to “advocate” for policy changes; encourage business-to-
business partnerships to drive on-the-ground action on business issues; and share and disseminate
practical knowledge including between practitioners.
The organisation Reciprocity provides case studies for the South African context and has produced 24
fact sheets of companies implementing inclusive business in South Africa (Reciprocity 2013).
In Mozambique, the Netherland Development Organisation SNV provides information in the field of
agriculture, water and sanitation as well as renewable energy (SNV Mozambique 2013).
11
The focus of the study was on SMME development and therefore the Southern Africa Trust mainly used
sources that were relevant for this issue. In summary, all local research partners were provided with
sufficient information with regard to inclusive business at the national, regional and global level with
the exception of the research partner in Mauritius, where the concept of inclusive business has not yet
been fully adopted.
3.2 SMME Definitions
SMMEs are generally defined by revenue, assets or the number of employees (see table below). In
Zambia, the Small Enterprise Development Act of 1996 does not provide the definition of medium
enterprise, and even though there is specific legislation in place for SMME development, unlike the
other four target countries, there is no nationally accepted definition for SMMEs in Zambia. In the
11
Consequently, in the second phase of the present research project, SNV Mozambique also co-presented in the national
policy dialogue on inclusive business in the country.
14
absence of an accepted national definition, many SMMEs are not able to access the financial and other
services provided for in law, as their eligibility is not officially recognized.
Table 2: Definitions of micro and small enterprises in the target countries
Country Micro enterprises /
Employment
Micro enterprises /
Income
Small enterprises /
Employment
Small enterprises /
Income
Malawi
(Malawi’s MSME
policy)
Employs up to 4
persons.
-- Employs 5 to 20
persons.
--
Mauritius
(Small and Medium
Enterprises
Development
Authority
(SMEDA) Act
2009)
It is important to note that the concept of micro-
enterprise is not stated in the law and therefore all
official reference to this sector relates to small
and medium enterprises.
-- Annual turnover of
not more than 10
million Rupees (USD
330,000).
Mozambique
(Official Gazette -
Boletim da
República - BR No.
38 of 21st of
September 2011)
Employs up to 4
persons.
Up to 1, 200 000 Meticais
Mtn. (USD 41,551) annual
turnover.
Employs 5 to 49
persons.
Annual turnover more
than Mtn. 1,2 million
and less than or equal
to Mtn. 14,7 million
(USD 509,002);
South Africa
(South African
Department of
Trade and Industry
(1996)
Part of the formal
economy, use
technology,
employs less than
ten (10) paid
employees in
agriculture and
less than twenty
(20) in
manufacturing.
Turnover of less than
R 500,000 (approximately
US$ 56,600) for
enterprises in the
agricultural sector, and
less than
R 5,000,000
(approximately US$
566,000) for businesses in
manufacturing”.
Depending on the
industry sector:
Agriculture: 11-50
persons
Manufacturing: 21-
50 persons
Retail: 21-50
persons.
Depending on the
industry sector:
Agriculture: up to
R 3 million
(approximately US$
309,600)
Manufacturing:
R 13 million
(approximately US$
1,301,800)
Retail:
R 19 million
(approximately US$
2,150,800)
Zambia
(Small Enterprise
Development Act of
1996)
Employs up to 10
persons.
Total investment,
excluding land and
buildings, does not exceed
ZMK 80 million (USD
16,000); annual turnover
that does not exceed ZMK
150 million (USD 30,000)
Employs 11 to 50
people.
Total investment,
excluding land and
buildings: ZMK 80 to
200 million
(approximately US$
16,000 to US$
40,000), for
manufacturing and
processing
enterprises; and for
trading and service
enterprises: ZMK 150
to 250 million (USD
30,000 to USD
50,000).
3.3 Macro-Economic Environment and Status of SMME Development
3.3.1 Macro-Economic Environment
Africa is considered the second fastest growing continent in the world after Asia. Growth in Africa has
been driven by the boom in minerals, agriculture, transport, telecommunication and retail. In Southern
Africa, the continent’s largest recipient of Foreign Direct Investment, the average real GDP for 2011
and 2012 was 3.5% and 4% respectively.
12
Desktop studies reveal that South Africa was the only country
(of the five target countries) to perform below the average real GDP growth rates experienced in Africa
12
African Economic Outlook (2013), Estimation for 2011 and projection for 2012.
15
at -1.5%,
13
largely as a consequence of high exposure to the global economic downturn. None of the
other target countries in the study experienced an economic recession. The macroeconomic indicators
in the five target countries are presented below.
Table 3: Summary of macro-economic indicators
Country GDP
Growth
(%) -
2011
GDP
Growth
(%) – 2012
Unemploy
ment Rate
(%) - 2012
SMME
Contrib-
ution to
GDP –
2012
(Estimate)
Agricultur
e (% Of
GDP) -
2012
Manu-
facturing
(% of
GDP) -
2012
Retail
(% of
GDP) –
2012
South
Africa
2.5 3.2 25.5 54 2.4 9 12%
Zambia 6.8 6.9** 14 Not known 20 9.1** 17.5**
Mauritius 3.8 4
14
** 8 30.9 3.5 6 55
Mozam-
Bique
7.2 7.5 27** Below 15
***
30.9** 13.2** 17.9**
Malawi 4 5
15
** Not known 17 31.6
16
** 11.3
17
** 23.5
18
**
*In cases where official data could not be found, the symbol (–) has been in inserted in the table.
** statistics obtained from African Economic Outlook 2013c for Mozambique and African Economic Outlook 2013d for Zambia).
*** Data of World Bank found in SME World (2013).
Mozambique has the highest reported unemployment rate (27%) in the 5 target countries. However, its
GDP growth rate was 7.5 in 2012, the highest of the 5 target countries. According to the Mozambique
desktop study, GDP growth was largely driven by infrastructure spending and Foreign Direct Investment
(FDI). In contrast, Mauritius experienced a GDP growth rate of 4% in 2012, the second lowest reported
GDP growth rate. The unemployment rate was 8% in 2012 (lowest of all 5 countries), and the Mauritius
desktop study indicates that the contribution of SMMEs to employment has been materially responsible
for this relatively low rate. For example, the contribution of small and micro enterprises to employment
increased by 17.5% between 2002 and 2007. The contribution of SMMEs to GDP is 30.9%. In contrast
to Mauritius, South Africa, which experienced the second highest reported unemployment rate of 25.5%
in 2012, had the highest reported contribution of SMMEs to GDP, estimated at 54%.
South Africa and Mauritius are similar in a sense that both countries are relatively exposed to the
international economy in comparison with the other target countries. These two countries are therefore
vulnerable to global economic growth cycles. Furthermore, both South Africa and Mauritius illustrate
that the contribution of SMMEs to GDP does not automatically translate into real GDP growth, given
the unfavourable global economic climate over the past few years. In addition, there was no direct
correlation observed between the high GDP growth rate in Mozambique and the contribution of SMMEs
to the economy.
In Zambia, official figures are not available on SMME contribution to GDP. Furthermore, Zambia was
reported to have the second highest GDP growth rate (6.9%) of all the five target countries. However,
unlike Mozambique, Zambia has attributed its growth in the economy to the increase in the growth of
the SMME sector. A further driver of the 6.9% GDP growth was the agricultural sector, which
contributed 20% towards GDP.
Malawi, on the other hand, whose agricultural sector has the highest reported contribution to GDP
(31.6%) and is the country’s main economic activity accounting for 80% of employment
19
has the
13
African Economic Outlook (2013)
14
African Economic Outlook (2013b), Projection for 2012.
15
African Economic Outlook (2013b), Projection for 2012.
16
African Economic Outlook (2013a), Projection for 2012.
17
African Economic Outlook (2013a), Projection for 2012.
18
African Economic Outlook (2013a), Projection for 2012.
19
African Economic Outlook (2013a).
16
second lowest recorded SMME contribution to GDP at 17%. Though the importance of SMME
development is highlighted in government policy, the desktop study did not indicate a direct correlation
between GDP growth and SMME contribution to GDP.
South Africa (which had the highest contribution of SMMEs to GDP) had the lowest level of agricultural
sector contribution to the economy at 2.4%. The agricultural and manufacturing sectors are reported to
have the highest multiplier effect of all the sectors in the economy.
20
The study also draws a direct
correlation between agriculture and manufacturing, stating that a boost in the manufacturing sector,
through agro-processing, could lead to further growth in the agricultural sector.
A further illustration of the correlation between agriculture and manufacturing is seen in Zambia, which
experienced the second highest recorded GDP growth rate, and attributes its growth in the manufacturing
sector of 9.1% of GDP to the agro-processing sector. In addition, continuous investment in the
manufacturing sector is important to the country’s long-term growth and employment strategy.
In direct contrast to Zambia, Mauritius does not consider the agricultural sector as a priority. Agricultural
activity is therefore not recorded by the Census of Economic Activities. The study indicates that
Statistics Mauritius has reported a consistent decline in most agricultural activities between 2010 and
2011, mainly due to the decline in the demand for sugar from that country. The growth in the
manufacturing sector was largely due to the expansion of the textile industry, which grew by 7% in
2011; this was offset by a 6.8% contraction in sugar milling (agro-processing).
21
The manufacturing
sector in Mauritius contributes only 6% to the GDP. The experiences from these three countries are a
clear indication that the correlation between the manufacturing and the agricultural sectors’ contribution
to GDP and their multiplier effect needs to be explored further.
The retail sector in Mauritius accounts for 55% of GDP, the highest sector contribution towards GDP
of its category. Due to the country’s export-oriented industry and exposure to the Euro Debt crisis from
2008 to 2012, GDP growth remained flat at 3.8% and 4% between 2010 and 2011 respectively. As a
result, the retail sector had a minimal effect on positive economic growth. This is further illustrated by
findings in Malawi in which the retail sector contribution to GDP was comparatively the second highest
reported (23.5%), although mining and agriculture are reported as the key drivers of economic growth.
22
In addition to Malawi, the Mozambique retail sector represents 17.9% (see Table 3) and has also not
been mentioned as a key driver of economic growth. This trend is observed in all five target countries
of the study. This indicates that relations between the positive economic growth of GDP and SMME
development cannot simply be assumed. The same is true for the often assumed correlation between
SMME expansion and a strong contribution of the labour-intensive sector of agribusiness to GDP.
3.3.2 The status of SMMEs in the target countries
There are significant differences in SMMEs and SMME development between the five target countries.
For instance, there are differences in the entrepreneurial mindset, in the establishment of SMMEs, and
also in the size. The Mauritian legal framework, for example, does not cover micro enterprises, yet a
vibrant sector of small and medium-sized enterprises was established over decades.
Mauritius has seen a significant increase in SMMEs in the last decade. There have been notable increases
in the wholesale and retail trade business and in transport, storage and communications. These and the
business of personal and household goods top the list of sectors with 55% of business activity while
manufacturing only has 6% of the sector.
23
However, leather and garments, food and beverages as well
as the profession/vocation/occupation category are the subsectors where more enterprises have started
operations. With the higher level of educational attainment in Mauritius, many entrepreneurs are
20
For instance, a R1 (R1 or $0.1132) investment spending in the agriculture and manufacturing sectors will lead to more
than a R1 value, R1.8 ($0.20) and R1.13 ($0.13) respectively in overall output (Manufacturing Circle of SA 2012).
21
African Economic Outlook (2013b).
22
African Economic Outlook (2012a).
23
Statistics Mauritius (2012).
17
opening offices to provide services to SMMEs such as consultancy, legal advice and company secretarial
services.
24
The agribusiness sector does not play a significant role in Mauritius itself, in particular due to imports
and the decline in sugar production. There is a strong culture of entrepreneurship, although this is not
emulated by younger adults, who are particularly opposed to careers as planters or farmers. With the
overall rise in the education level, people tend to aspire to ‘white collar jobs’. There is also a net
regression in the number of women who engage in entrepreneurship not as employees but as employers
or own-account workers. In 2002 the proportion of women stood at 16.6% of total number of employers
and own account workers; by 2007 this had fallen to a modest 6%.
25
The major challenges for SMMEs
in Mauritius can been seen in the access to finance, in particular working capital, the availability of
skilled labour and competition with foreign countries.
In Malawi, there were some 758,118 small business owners in the country, operating 987,480 enterprises
in the year 2012 and creating jobs for about 1,050,320 people.
26
They are overwhelmingly involved in
retailing, although almost 1 in 8 (13%) were involved in service provision. SMMEs generate revenue of
some US$ 2 billion. Due to Malawi’s highly rural population, most SMMEs in Malawi are linked in
some way to agriculture, and operate on small pieces of land. Some 30% of these businesses sell
agricultural products, and a further 23% conduct general trade and vending. Many are rural, family-run,
husband-and-wife firms that operate only on a part-time basis outside of the agricultural production
cycle, and are largely stagnant, and used to provide subsistence income.
27
In contrast to many SMMEs
in Mauritius, these people are driven by necessity. They are established mostly as a result of the decline
in formal employment rather than as a response to opportunities in times of economic growth. Many
such businesses have a short lifespan, and thus do not benefit from economies of scale and experience
accumulated over time.
Previous efforts by government have fallen short and many Malawians thus remain in unprofitable
businesses, while foreign investors dominate in larger, profitable firms, with a lack of vibrant businesses
in the central space that could link and eventually upscale enterprises across the country.
28
Common
barriers to the development and growth of SMMEs include the high cost of doing business; weak value
chain integration; lack of specific policies aimed at women and the youth; limited access to credit and
business development services; lack of a strong, coherent and organised MSME voice to represent the
sector; inability to meet production standards; and few opportunities to engage in export.
29
In Mozambique, 86% of the companies are sole proprietorships (one owner only) and 89% are micro or
small enterprises with less than 10 employees, whereas 14% are corporations. However corporations
hire 65% of the workers and contribute to 69% of the annual turnover of the private sector. Large firms,
with 100 or more employees, represent only 1% of firms in Mozambique but they provide 54% of the
work positions and contribute to 44% of the annual turnover.
30
As in Malawi, most SMMEs in Mozambique, especially the informal ones, are created either as a
response to a lack of well-paid formal employment or as a source of additional income. They appear
when given market opportunities. These entrepreneurs usually have no prior knowledge about business
management or entrepreneurship and generally avoid the risk of long-term investment that would result
in quality improvement and structuring the enterprise.
The deficit of entrepreneurship and risk-taking exists also in Zambia, where many enterprises are
primarily engaged in the supply of traditional goods and services to the domestic market. Many business
owners in this category lack the self-belief, innovation and foresight required to envision a growth
24
Ibid.
25
Statistics Mauritius (2013).
26
FinScope (2012).
27
Ibid.
28
Government of Malawi/ UNDP (2012).
29
Ibid, as well as UNIDO et al (2008).
30
Instituto Nacional de Estatística (2009).
18
trajectory for their enterprise that goes beyond the fulfilment of their basic income requirements. The
lack of innovation also implies that the sector is challenged by inefficient business practice that does
little to improve quality, reduce costs and improve their competitiveness.
Despite the SMME proliferation that resulted from economic liberalisation in 1991, the predominance
of the informal sector in Zambia (approximately 90%) and the consequent lack of documentation,
accounting and reporting makes it difficult to quantify the sector’s contribution to economic growth and
development. The majority of the SMMEs are active in the field of manufacturing, trading and
services.
31
In South Africa, on the other hand, the situation appears different at first glance. In its “rankings on the
ease of doing business”, the World Bank/IFC ranked South Africa 39 in the global comparison.
32
Despite
these relatively high rankings, the Global Entrepreneurship Monitor report for South Africa predicts that
nine out of ten start-up initiatives in South Africa fail very quickly.
33
Thus the vast majority of SMMEs
do not reach their full potential and fail to grow, resulting in lost jobs and diminished wealth for the
region in which they are based. Nonetheless, South Africa is home to 5,979,510 small enterprises.
34
There has been a significant increase in the number of registered enterprises from the reported 800,000
that were originally recorded in 1995.
35
Similar to the above countries, other than Mauritius, the SMME environment is dominated by retail,
which comprises 78% of the sector, and is mainly emerging enterprises that are not globally competitive
or integrated into global manufacturing and supply chains, as well as poorly skilled, less innovative and
under-capitalised enterprises, particularly in terms of technology and capital.
36
Limited beneficiation
by the manufacturing, mining and agricultural sectors as well as the dominance of a few large firms in
critical intermediate industries affects the creation of SMMEs downstream. However, there are potential
markets such as, for example, the manufacturing sector, which currently represents over 76% of the
country’s exports and 13.4% of its GDP.
37
Scope for growth can also be found in the agricultural sector which currently represents about 9% of the
country’s exports and contributes 2.4% to its GDP
38
. Although large areas of unutilized arable land are
available and South Africa covers less than 4% of the African continent, the country has the most rapidly
transforming food sector on the continent and is one of the six net food exporting nations in the world.
39
Regardless of other interventions that need to take place in South Africa, the spotlight falls on education
as an aspect that deserves critical attention. The World Economic Forum, cited in the GEM 2012 report,
indicates that, in terms of the quality of mathematics and science education, South Africa rates 143 out
of 144 against other efficiency-driven economies.
40
3.4 Regulatory Framework in place to assist with SMME Development and
Business Linkages
For most SADC countries, SMME development as a means of economic growth and job creation is a
recent realisation. Having a regulatory framework in place to foster SMME development is characterised
by:
? A specific government macroeconomic policy or strategy in place that has led to legislative
and/or financial and/or non-financial interventions; and/or
31
Government of Zambia/Ministry of Commerce, Trade and Industry (2007).
32
World Bank/IFC (2013).
33
Herrington et al (2012).
34
FinScope (2010).
35
Lloyd (2002).
36
Herrington et al. (2012).
37
World Bank 2011.
38
See also Index Mundi (2013).
39
International Trade Centre (2010).
40
World Economic Forum (2011); see also Herrington et al. (2012).
19
? Specific legislation(s) in place that lead to financial and/or non-financial interventions.
The desktop studies reveal that the regulatory frameworks in place to foster SMME development in the
target countries came into effect as a result of a new political dispensation or a country’s increased level
of involvement in the international economy.
Mauritius, for example, began its legislative interventions for the purposes of small business
development with the Small Scale Industries Act of 1988 which was formed as a result of a 20-year
industrialisation process and import substitution strategy. Even before this Act, SME development was
promoted by government, starting in the 1960s and in 1976, the Small Scale Industry Unit (SSIU) was
established under the aegis of the then Ministry of Commerce and Industry. The outcome has been a
stable exporting country that is well integrated into the global economy.
41
In keeping with the trend followed by Mauritius, albeit only to a certain extent, Zambia, which
liberalised its economy in 1991, effected its Small Enterprise Development Act in 1996. Already in
1981 the Small Industries Development Organisation (SIDO) was created through the Small Industries
Development (SID) Act. SIDO was charged with promoting the MSMEs sector by, inter alia, addressing
the financing needs of small-scale companies as defined in the Act. In other words, the key issue of
access to finance for small scale businesses was already discussed in Zambia before other target
countries (except Mauritius) had established any significant legislation on SMME development at all.
Notwithstanding all these efforts and pronouncements in the early 1980s, there was little impact on
SMME development as significant gaps remained in the implementation, funding management of the
supporting institutions.
42
There was furthermore the added constraint of a history of state dominance in productive enterprise that
had, over a period of nearly three decades, inculcated a culture of state dependency into the population
and resulted in a near complete lack of entrepreneurial spirit.
43
Following the liberalisation of the
economy in Zambia in 1991, the Industrial, Commercial and Trade Policy was issued in December 1994
to encourage private enterprise.
44
In South Africa, however, though well integrated in the international economy today, the
commencement of SMME development was heavily influenced by what happened during the apartheid
era.
45
The change in the political landscape after 1994 led to more focused attention on SMME business
development, and the National Small Business Act of 1996 was promulgated.
The end of the apartheid era also led to a concept that today is known as Broad-Based Black Economic
Empowerment (BBBEE). The BBBEE Act aims at increasing the number of historically disadvantaged
persons who have an ownership stake in, and control of, enterprises assets as well as their indirect
empowerment through preferential procurement and enterprise development, mainly by government.
The regulatory framework focusing on BBBEE has a significant impact on the SMME development in
the country. It clearly fosters SMME development, but also leads to a more complex situation as legal
approaches of BBBEE and SMME development might overlap. Whilst BBBEE leads to (indirect)
empowerment through preferential procurement and enterprise development of SMMEs, the general
concept of SMME development does not only address formerly disadvantaged persons, but all potential
entrepreneurs. To properly understand and foster SMME development in South Africa, entrepreneurs,
start-ups, larger companies and other stakeholders must be aware of the complex regulatory framework
that can be synergic but may also present obstacles for entrepreneurs.
46
Although Mozambique and Malawi have no legislation specifically for the purpose of SMME
development, there are government policies and strategies in place.
41
Lal/Peedoly (2006).
42
Mauzu (2013).
43
SME World (2013).
44
Government of Zambia/Ministry of Commerce, Trade and Industry MCIT (2007).
45
Stanton/Polatajko (2001).
46
Herrington/Overmeyer (2006).
20
In Malawi, the government approved a first Small and Medium Enterprise Policy in 1998. In 2012, the
government introduced a new MSME policy for the period 2013 to 2017. This new policy was approved
to better enhance policy implementation and integration; strengthen the capacity of the Ministry of
Industry and Trade; foster business-to-business linkages and support high potential value chains in
export promotion and import substitution crops; and promote an enabling environment for SMME
development. The SMME Policy is one way of safeguarding government’s role of promoting a market
economy for SMME development by ensuring that there is less direct intervention. In this regard, the
government of Malawi through its Ministry of Industry and Trade is in the process of reviewing all
economic laws to ensure that the entire legal framework is business-friendly. This process will ensure
that economic laws complement each other and are not in conflict. This development will go a long way
to facilitate business activity in the country and augurs well for the MSME sector.
Mozambique has a Strategy for the Improvement of the Business Environment (Estratégia de Melhoria
do Ambiente de Negócios EMAN I) which was approved in 2008 and terminated in 2012. EMAN II
was approved in 2013and focuses on the further reform of the legal and institutional framework and the
refinement of the processes. In 2007 the Mozambican government approved a strategy for the
development of Small and Medium Enterprises known as the “Estratégia para o Desenvolvimento das
Pequenas e Médias Empresas em Moçambique” which provided the foundation for the creation of the
Institute for the Development of Small and Medium Enterprises (Instituto Para Promoção de Pequenas
e Médias Empresas IPEME). EMAN I and II complement this strategy. In 2010, Mozambique developed
Procurement Act No. 15 that covers the legislation of public tendering from small scale enterprises.
In all the target countries, government macroeconomic policies and strategies have led to specific
interventions in the form of legislation and/or financial support and/or non-financial support for
SMMEs. Key government macroeconomic policies/strategies in the target countries include:
? South Africa: Integrated Small Business Development Strategy (2003)
47
? Zambia: Micro Small and Medium Enterprise Policy (2009)
48
? Mozambique: Strategy for the Promotion of Small and Medium Enterprises (2008)
49
? Malawi: Micro Small and Medium Enterprise Policy (1998, revised 2012)
50
The prevailing trend in the four countries mentioned previously is that, within the regulatory framework,
an SMME development macroeconomic policy is generally followed by specific legislative
intervention(s) put in place to foster SMME development. In Mozambique, for example, the creation of
a solid tax regime for SMMEs was mentioned as an SMME development measure in the ‘Strategy for
the Promotion of Small and Medium Enterprises’ (EMAN I) of 2007. In 2009, the Simplified Tax for
Small Contributors (Imposto Simplificado para Pequenas Contribuentes (ISPC)) was introduced. The
ISPC applies to some small and micro enterprises and constitutes 3% of turnover. Businesses that qualify
for ISPC are also exempt from VAT and other taxes.
Tax incentives in Zambia are provided for by the Zambia Development Agency (ZDA) incorporated as
a result of the ZDA Act of 2006. The ZDA also provides SMMEs with access to markets and financial
support. The ZDA Act of 2006 is the main legal provision for development of the SMME sector in
Zambia and is the principal legislation under which the SMME development policy is implemented.
47
The primary objective of this strategy is to create an enabling environment for the accelerated growth of small businesses
following a history characterised by the dominance of large, capital-intensive firms and the continued neglect of small
enterprises.
48
The primary objective of this policy is to create a vibrant, dynamic sector that contributes 20% towards GDP and 30%
towards the creation of decent employment annually by the year 2015.
49
The primary objective of this strategy is to facilitate SMME development by (1) improving the business environment; (2)
capacity building; and (3) the development of strategic support for SMMEs.
50
The primary objective of this policy is to create a conducive environment in which SMMEs can operate by (1) enhancing
policy implementation and integration; (2) improving the operations of value chains; (3) improving business development
services; (4) improving information, skills and technology standards; and (5) promoting an enabling environment.
21
Unlike Zambia, with one specific law pertaining to the implementation of SMME development, the legal
framework for SMME development in South Africa under the Integrated Small Business Development
Strategy (ISBDS) is relatively broad.
51
For example, one of the key targets for development support in
the ISBDS is the promotion of black-owned SMMEs. The proposed intervention to these is underpinned
by at least 5 different laws: (1) Preferential Procurement Act of 2000; (2) Public Finance Management
Act of 1999; (3) Broad Based Black Economic Empowerment (BBBEE) Act of 2003; (4) Co-operatives
Act of 2005; and (5) Competition Act of 1998.
In contrast to the other four countries, the regulatory framework in Mauritius, a country in which SMME
development contributes 30.9% of GDP, only makes use of specific legislative interventions that foster
SMME development. The SMEDA Act of 2009 is the focal law in place for SMME development. It
provides for the establishment of the Small and Medium Enterprise Development Authority (SMEDA)
in Mauritius. Furthermore, the SMEDA Act provides for a number of strategic interventions similar to
those in the Micro Small and Medium Enterprise Policy of Malawi. The SMEDA Act also provides for
interventions similar to those in the Mozambican Strategy for the Promotion of Small and Medium
Enterprises
52
which has led to the establishment of over 500,000 SMMEs. The legal framework in
Mauritius, which regulates business operations including SMME operation, is comprehensive and each
piece of legislation serves a specific role with the SMME-related activities being regulated by only four
major laws. The laws are complementary and clearly define the role of institutions in facilitating
business operations.
The desktop studies on Malawi and Mauritius indicate that within a regulatory framework the
macroeconomic policy specifically designed for the development of SMMEs does not necessarily need
to precede a focal law for the development of SMMEs in order to yield positive results. The opposite is
also true. The existence of a (comprehensive) regulatory framework does not necessarily mean that the
framework in place is successful. In particular in South Africa, a country with an extensive network of
plans, policies, strategies and laws in place, the challenge of limited capacity and proper implementation
means that in spite of all efforts made and South Africa being ranked in the best 40 countries globally
regarding the “ease of doing business”,
53
70%-75% of the SMMEs have to close down again within the
first years,
54
with most SMMEs being unaware of the strategies, policies and laws that are in place.
55
While there was no information on the exact number of failures of start-ups in the other target countries,
it can be assumed that the failure rate of SMMEs in Mauritius is comparably low as SM(M)Es are
regarded as an important component of the economy.
In Zambia, SMMEs have emphasised weaknesses and threats of the regulatory framework, but the
relevant ministry, the Ministry of Commerce, Trade and Industry (MCTI) has responded to these
concerns and developed a Strategic Plan addressing these issues. Thus, several instruments are up for
review including the Zambian Development Agency (ZDA) Act, the Weights and Measures Act, the
Standards Act and the Companies Act, all of which should have been reviewed by December 2012 in
accordance with the timeframes contained in the MCTI Strategic Plan. Due to delays and challenges in
implementing this Strategy Plan, and due to various factors including poor intra and inter-agency co-
ordination, lack of policy alignment across institutions and sectors, deficiencies in implementation
capacity and inadequate, or untimely, resource allocation, many of the benefits have not yet been felt
“on the ground” by the small business owners and other stakeholders.
51
The research partner identified over 20 laws pertaining to the legal framework for SMME development.
52
The SMEDA Act Provides for (1) the promotion of SMMEs; (2) the provision of support services; (3) the implementation of
a registration scheme for SMEs; (4) facilitation of access to productive resources; (5) facilitation of networking among SMMEs
and business linkages between SMMEs and large companies; (6) devising and reviewing policies relating to SMMEs; and (7)
the co-ordination of public and private sector initiatives relating to SMEs.
53
The newest World Bank Report ranks South Africa 39 (World Bank/IFC 2013).
54
Herrington et al (2012).
55
This has been confirmed through the interviews with SMMEs that were conducted by the local research partner in South
Africa.
22
In Mozambique many parts of the regulatory framework are not known to the SMMEs, some of whom
have indicated that they do not regard the framework as helpful. A significant exception to this applies
to the more recent simplification of laws and regulations which have been well communicated by the
government and thus are known and valued by SMMEs. This can be regarded as a success story which
could also be replicated in other countries.
In Malawi, the current awareness of SMMEs about the regulatory framework is difficult to assess as the
policies were recently reviewed with the intention of improving their implementation. Up to now the
challenges of the regulatory framework have been perceived as being complex. The business
development services and the lack of access to finance are also seen as being bureaucratic and costly
and place MSMEs at a greater disadvantage than their counterparts that are larger in size. One example
is the high cost of compliance with regulations which may discourage potential entrepreneurs from
formally setting up a business, while driving some existing enterprises out of business and those working
for them into unemployment.
In Mauritius, on the contrary, SMMEs are aware of the four main laws that affect them and concede the
legal framework as important for them to operate but explained that business laws do not influence their
decision-making about their business. These business laws are rather seen as entry points that allow
SMMEs to be officially recognised and therefore to obtain access to grants, to loans and to market spaces
dedicated to SMMEs or hawkers. SMMEs indicated that there are enough laws to regulate business
operations and most of them stated that reforms of the Companies Act and the Business Facilitation Act
are not necessary.
Support to the SME sector is ongoing. It is worth noting that, in his latest budget speech, the Minister
of Finance and Economic Development viewed SMEs as crucial to the Government’s resolve to
democratise the Mauritian economy. The democratisation of the economy has been the motto of the
government since coming into power in 2005. In that respect a series of measures to boost the SME
sector was announced. These measures are a continuation of measures of previous government
budgets:
56
? Banks will now loan an amount of 250 million rupees (USD 8,333,300) annually to micro and
small enterprises with turnover under 10 million rupees (USD 333,300).
? The VAT registration threshold is increased from a turnover of 2 million rupees (USD 66,600)
to 4 million rupees (USD 133,300) per annum, thereby allowing SMEs with turnover lower than
4 million rupees to forego administrative costs which accompany VAT computation.
? One of the main reasons why few SMEs do not participate in Government tenders is because of
the need for performance bonds and other bank guarantees. Most SMEs do not have the
necessary funds to obtain a performance bond. In that respect, government has decided that
performance bonds for government tenders will not be required for contracts of up to 5 million
rupees (approximately USD 166,667). The requirement to provide advance payment guarantees
will also be considerably overhauled. This is meant to allow more SMEs to tender for
Government contracts.
In all the other target countries the interviews revealed that SMMEs and the private sector feel excluded
from the design and development of legislation and policies. The request is that governments should
engage them more proactively in the process and communicate the legislation more clearly.
56
Doubling the amount of refund to SMEs for participation in international fairs from 100,000 to 200,000 rupees and
providing a grant for freight expenses of up to 20,000 rupees is yet another measure proposed by the Minister of Finance in
his budget speech (Laporte 2012).
23
Table 4: Regulatory frameworks in the target countries
INDICATOR MALAWI MAURITIUS MOZAMBIQUE SOUTH
AFRICA
ZAMBIA
Start of
framework
1998 1976 2007 1994 1981
Type of core
regulation that
targets SMME
development
Policy
57
Law
58
Strategies
59
Laws, policies,
strategies, plans
and frameworks
60
Law
61
but also a
SMME Policy, a
Strategic Plan and
a Development
Programme
Complexity of
framework
Low Low Low High Medium
Awareness of
SMMEs on
framework
(Based on
interviews)
Low High Low in general,
but medium-high
with regard to
simplifications
Low Low, but this
might be changed
through the new
Strategy Plan
Appreciation by
SMMEs (Based
on interviews)
Low until now Mainly positive
feedback
Low, but high
with regard to
simplification of
administration
Varies, but due to
lack of
knowledge and
failure rate ranked
as low
Low up to now
Attempt for
business linkages/
inclusive business
For example the
revised Policy
from (2012)
Through the
SMEDA Act
(2009)
Through the
Strategy of the
Support for
SMMEs (2007)
Through various
regulations, e.g.
the Integrated
Small Business
Development
Strategy (2003)
Through the
Zambian
Development
Agency Act & the
new Strategic
Plan
Success/impact
(est.)
Low
62
until now,
the new SMME
Policy is only in
place for a short
time. The
preceding
regulatory
framework was
criticized due to
the lack of
implementation
High as the
awareness of
SMMEs of the
regulatory
framework is
high and a
significant
number of
(sustainable)
enterprises have
been created.
Low, changes
might happen due
to new Strategy
Plan.
Simplification for
SMMEs can be
seen as success
that even can be
replicated in other
countries.
Varies, but low in
terms of failure
rate of SMMEs.
Higher impact
through Black
Economic
Empowerment,
but also led to
confusion on
which framework
is applicable.
Low until now,
the new SMME
Strategy is only in
place for a short
time. The
preceding
framework was
criticized with
regard to capacity
issues and lack of
policy alignment.
In terms of business linkages/inclusive business there are no specific laws in place although the
regulatory framework in each target country offers opportunities mainly through the creation of
supporting agencies.
It needs to be noted that the implementation of a given regulatory framework is often one of the major
challenges in relation to SMME development and inclusive business. For example, though it is the legal
mandate of SMEDA in Mauritius to create linkages between smaller and larger business, about half of
the interviewed SMMEs in Mauritius prefer to link with the larger companies by themselves. In other
57
Amongst others, this policy is embedded in growth strategies and poverty reduction strategies as well as laws that
regulate the operational level (taxes etc).
58
There are only 4 major laws covering SMME development, namely the Companies Act; the SMEDA Act (which regulates
the major SMME-supporting agency of the government; Business Facilitation Act which covers administrative aspects such
as registration or classification; and the Mauritius Revenue Authority Act which among others covers the issue of taxes.
59
In Mozambique, laws are used to target specific issues such as taxes, procurement/tendering, single attendance counters,
licensing, etc. For SMMEs these laws simplify administrative processes.
60
In South Africa, there is a complex mix of White Papers, frameworks, strategies, policies and laws that regulate SMME
development. In addition, SMME development is also strongly influenced by the Broad-Based Black Economic
Empowerment Act (BBBEE 2003) and a related framework.
61
The law is embedded as National Development Plans, SMME policy of the year 2009 and accompanied by laws on funding
and taxes as well as the Companies Act. Recent approaches also cover a new Strategic Plan by the Ministry of Commerce,
Trade and Industry (MCTI) and a Private Sector Development Reform Programme.
62
Malawi and Mozambique were ranked lower in the current World Bank ranking “Ease of doing business” compared with
the report from last year (World Bank/IFC 2012 and World Bank/IFC 2011).
24
countries, the approach of business linkages often requires a more co-ordinated effort from the
stakeholders involved, in particular the SMME-supporting agencies.
3.5 Institutions in place to assist with SMME Development and Business
Linkages
The establishment of public sector institutions specifically offering financial and non-financial support
to SMMEs is based on the promulgation of specific legislation or the implementation of government
policy. Private sector institutions
63
offering the same support take advantage of the regulatory
framework in place for SMME development. Business development support initiatives should assist
enterprises in overcoming hindrances to start-up, growth and survival.
South Africa
Legislation in support of SMMEs has made inroads in promoting change on the economic landscape. In
1995 a White Paper was published as a national strategy for the development and promotion of small
business in South Africa. This paper addressed the establishment of a support framework in the form of
enabling legislation, institutional reform and leveraging financial and other forms of assistance for small
business development. SMME support structures were formed as a result of such national and provincial
strategies. The landscape of the SMME support structure in this country is almost as complex as its
regulatory framework.
The South African Departments of Trade and Industry (DTI) and the Department of Economic
Development (EDD), as custodians of SMME development, play the most significant role in developing
policy and support structures to grow enterprises in the country. The support structure in South Africa
covers a variety of organisations, training institutions, facilitators, consultants and government
departments at national, regional and local level. It is offered by public and private organizations in the
form of a more general support, but also covering industry sector-specific support.
National and provincial departments and government agencies such as the Industrial Development
Corporation (IDC), Small Enterprise Development Agency (SEDA, also see below) and the Small
Enterprise Finance Agency (SEFA) offer support to SMMEs and facilitate access to markets and
finance; beneficiation and value addition of products and services; promote regional production; equity
and economic participation; and support knowledge-intensity and services integration. There is also the
National Youth Development Agency (NYDA) which advances youth development and promotes the
participation of youth in small business activities. The Development Bank of Southern Africa (DBSA)
is another player that offers support to SMME development although this is done in an indirect way,
namely through the financial support of governmental programmes such as the Jobs Fund,
64
, the
Development Fund
65
or third party projects of municipalities or other initiatives initiated by
Government.
Again, as a result of the important development component of black economic empowerment, there is
also the National Empowerment Fund (NEF) which supports BBBEE by anticipating future funding and
investment requirements that may be needed to assist black entrepreneurs and communities to achieve
each of the elements of the BBBEE codes of good practice, such as placing a focus on preferential
procurement and broadening the reach of equity ownership.
Although each of these support agencies have as their core mandate the development of SMMEs, there
is an overlap of activities which also leads to confusion for SMMEs. In addition, the landscape of support
63
Private sector institutions include companies and non-governmental organisations.
64
The objective of the Jobs Fund is to co-finance projects by public, private and non-governmental organisations that will
significantly contribute to job creation. This involves the use of public money to catalyse innovation and investment on
behalf of a range of economic stakeholders in activities which contribute directly to enhanced employment creation in
South Africa (Jobs Fund 2013).
65
The mission of the DBSA Development Fund is to capacitate municipalities and communities for effective and sustainable
service delivery and economic development in order to improve the quality of life (Development Bank of Southern Africa
2013).
25
structures is barely known by SMMEs, in particular in rural areas, and also differs at local level with
regard to the quality, engagement and capacity of local offices and SMME incubators.
The best known agency is SEDA, under the auspices of the Department of Trade and Industry, and one
of the most important agencies supporting SMMEs in South Africa. Currently 80% of SEDA’s support
is targeted at start-up, very small and micro enterprises and only 20% is directed at what SEDA refers
to as high-growth small and medium sized enterprises (SMEs). These are the enterprises that have been
in business for more than three years and have the potential to create more jobs.
SEDA has nine provincial offices, 42 national branches and 30 incubators.
66
Compared to its
international counterparts, the budget allocated to SEDA and its provincial offices is relatively limited
and it is required to demonstrate the quantum of its successful interventions (such as formalising
informal businesses), with less attention being given to the impact of these interventions. As with the
financiers, the risk element influences the selection of ventures that SEDA supports, and their focus has
recently shifted from very small enterprises to small and medium enterprises (SMEs). This is in line
with the National Development Plan (NDP), the New Growth Path (NGP), and national government’s
Industrial Policy Action Plan (IPAP), placing increased focus on developing programmes and support
products and services for SMEs in the high-growth agriculture, mining and beneficiation,
manufacturing, green economy and tourism sectors.
67
The lack of resources and capacity of SEDA on
the one hand, and the plethora of support agencies on the other hand, clearly reveals the need for a more
co-ordinated and consolidated paradigm for SMME development in the country.
Malawi
A similar situation is seen in Malawi where a confusing number of organisations at national, and in
particular at local, level aims at supporting SMME development in the country. Recently some of these
organisations were merged at national level and as a result the Small Enterprise Development Institute
(SMEDI), the new merger of three former support organisations, is now the responsible government
agency providing training, starting and growing SMMEs, and also providing finance to trained SMMEs
and related business advisory services. The focus of SMEDI will remain on the micro level of
enterprises, particularly with regard to vocational training. As separate institutions there was excessive
duplication of efforts
68
owing to their respective strategic drifts, but there were also gaps related to
mentoring and business advisory services, amongst others. Furthermore, training service costs are
unaffordable to potential clients.
69
Another merger in Malawi resulted in the Malawi Investment and Trade Centre (MITC) being set up
with a mandate to promote investment and export in the agriculture, agro-processing, fisheries, forestry,
manufacturing, mining and tourism sectors.
70
Furthermore, a variety of business associations support
SMME development, such as the National Association of Small and Medium Enterprises (NASME);
the National Association of Business Women (NABW); the Indigenous Business Association of Malawi
(IBAM); and the Employers Consultative Association of Malawi (ECAM). All these organisations face
limitations and constraints and thus support to SMMEs remains ineffective, often because the
associations are not available at the national level to all SMMEs.
Finally, an almost similar situation was seen with regard to access to finance. There are several finance
institutions and arrangements that have emerged in recent years, including in the Malawi Rural
Development Fund (MARDEF), Malawi Rural Finance Company (MRFC), Youth Enterprise
Development Fund (YEDEF) and BLUE Finance.
71
It is of concern, however, that some of these finance
institutions charge exorbitant interest rates.
66
Mthente 2012.
67
Ibid.
68
ILO (2011a).
69
Ibid.
70
It needs to be noted that the political and economic climate has not been encouraging for investment and export promotion
in the past five years.
71
See also ILO (2011a).
26
In Malawi and also in South Africa, a more co-ordinated effort is necessary to strengthen the work of
the various agencies and make their efforts more effective. In other countries, the support structure is
either more centralized, which means there is one central governmental organisation that offers a broad
spectrum of support, or support tasks are clearly divided among a smaller group of organisations, thereby
avoiding an overlap of support offers.
Mozambique
A more centralised approach was found in Mozambique. Based on the work of the Ministry of Industry
and Trade of Mozambique that has focused its efforts on the improvement of the business climate and
the promotion of SMMEs, the Institute for the Promotion of Small and Medium Enterprises (Instituto
para a Promoção das Pequenas e Médias Empresas - IPEME) was established in 2008.
72
Since 2010
there has also been support provided by the Netherlands Development Organization (SNV), the World
Bank (PACDE-MESE and IFC), the International Labour Organization (ILO), the Japanese
International Cooperation Agency (JICA), the United States Agency for International Development
(USAID), the German International Cooperation Agency (GIZ), the European Union, and the
International Trade Center (ITC). These organisations particularly promote the following activities:
? Business information targeted to meet the needs of entrepreneurs;
? Business consultancy provided through direct and customised monitoring of business owners
and managers of SMMEs and their support through the training and development of strategies
to grow their businesses;
? Business training through various courses (entrepreneurship, business management and skills,
marketing, access to investments), and an entrepreneurship training model monitored by a team
of professional trainers;
? Facilitating corporate financing by providing information on financial solutions;
? Creation of new businesses by providing support during the conception of the idea, business
creation, financing and first steps of the company; and
? Promoting entrepreneurship.
IPEME has established three Entrepreneurs Guidance Centres (Centros de Orientação ao Empresário -
CORE)
73
in Maputo, Chimoio and Tete provinces. In the course of 2013, three more COREs will open
in Nampula, Beira and Pemba provinces. Even with the support of international donors, IPEME does
not yet have the capacity to meet the commitment of providing a spectrum of services other than in
Maputo.
Other SMME support organisations in Mozambique provide training through the IFC-SME Toolkit (the
IFC-SME toolkit is offered in all target countries, always in collaboration with a local partner
organization);
74
access to finance through the World Bank Mechanism of Business Grants (PACDE-
MESE)
75
or the 3FP Programme of the organization Building Markets;
76
and information about quality
and standards.
Mauritius
An example of shared roles and responsibilities can be seen in Mauritius. According to the country
study, support to SMEs in this country has improved significantly and since 2005, the Ministry of
72
General information can be found at GIZ (2009).
73
IPEME (2013).
74
IFC/IBM/PACDE (2011).
75
The Mechanism of Business Grants (Mecanismo de Subsídios Empresariais MESE) was launched under the World Bank
Project to Support Competitiveness and Enterprise Development (Projecto de Apoio à Competitividade e Desenvolvimento
Empreserial PACDE), Macamo/PACDE (2011).
76
3FP works with different financial instruments to catalyze financing to local suppliers in need of capital. 3FP may offer a
number of different services, including invoice factoring to improve business liquidity through partial risk-sharing
agreements.
for loans from local bank partners. In addition, 3FP promotes growth capital for qualifying suppliers (Building Markets
2013).
27
Business Enterprises & Cooperatives (Business Enterprise Division) has formulated policies pertaining
to SMEs. The Ministry comprises three pillars: the Small and Medium Enterprise Development
Authority (SMEDA); the Mauritius Business Growth Scheme (MBGS); and the Cooperatives Division
of the Ministry. This division of responsibilities can be described as follows:
1) SMEDA is seen as the entry point for SMMEs including for business registration. The
organisation offers general training on enterprise development, including grants (for training,
counselling, mentoring services, business facilitation, marketing of local products);
the development of linkages; the promotion of technological and managerial capabilities; the
acquisition and modernisation of SMMEs’ production equipment through leasing facilities; and
finally co-ordination with other support organisations and stakeholders.
2) The Mauritius Business Growth Scheme (MBGS) aims at boosting growth support to SMMEs
around innovation, creativity, higher productivity, value addition, and mentoring.
3) The organisation Enterprise Mauritius (EM) supports SMMEs with regard to markets and in
particular exports, and therefore offers business assessment, consultancy and monitoring,
market and competitor intelligence, assistance to access regional and international markets, the
development of sector strategies, and information on technology and skills trends.
4) Whilst SMEDA is the primary organisation for SMME development, the Development Bank of
Mauritius (DBM) is the reference in terms of financial help to SMMEs, and offers an array of
financial support schemes to SMMEs with preferential rates and favourable repayment
schedules.
More organisations became involved into the support structure and while the approaches of the above
four organisations overlap to an extent, it is relatively easy to identify where to get which business
development service.
Zambia
Whilst the approaches in Mozambique and Mauritius mainly highlight the involvement of one or two
ministries, the Zambian concept includes the idea of an inter-sectoral, multi-agency approach, where the
Ministry of Commerce, Trade and Industry (MCTI) has committed to collaborate with other government
institutions and departments, local authorities and other stakeholders involved in the development of the
SMME sector, currently leading to the co-operation of the MCTI with six other ministries. A similar
approach was observed in Malawi (with the involvement of three ministries) and in South Africa (two
departments in collaboration with the Department of Agriculture as well as provincial departments).
With regard to the main governmental agency for SMME development, the Zambian Development
Agency (ZDA), the approach can be compared to the Mozambican model. ZDA is a centralised
organization covering all the aspects of capacity building, business linkages, market development (local
and export) and SMME facilitation services. There are, however, other agencies that also cover parts of
this aspect, but in a specialised way – similar to the Mauritius model. For example, the organisation
TEVETA offers technical education, vocational and entrepreneurship training, and the Zambia Chamber
of Small and Medium Business Associations (ZCSMBA) also offers capacity building and acts as a
SMME intermediary organisation. Further financial inclusion is offered by the Bank of Zambia and the
Citizens Economic Empowerment Commission (CEEC).
Compared to these three models, the concept in Malawi advocates for a district-oriented model rather
than a provincial approach, where central government resources are channelled directly to the district
administration structure with oversight by a district commissioner. Consequently, village development
committees, area development committees and district development committees are responsible for
executing development projects, including provision of support for SMME development at district level.
SMME issues receive attention under the Deepening Enterprise Development initiative of the Local
Development Fund which is implemented by the Government of Malawi at district level under the
supervision of sector ministries, including the Ministry of Industry and Trade, the Ministry of Local
Government and Rural Development, the Ministry of Agriculture and the Ministry of Finance. This
approach, however, also leads to the negative effect of an unmanageable, less formal and fragmented
28
group of business service providers that struggles in terms of individual capacities and may be drawn
into unhealthy competition to attract membership.
All the models in the target countries provide for governmental agencies to address the issue of business
linkages, supported by the regulatory framework and the relevant ministries. This does not appear to be
implemented effectively as yet, with the exception of Mauritius where, for example, government
integrates SMME interests into all aspects of work by all the ministries.
In Malawi it was observed in the desktop study that there is a deficit in linking larger firms with SMMEs.
This might be changed through the new merger of the government agency for SMMEs, SMEDI.
However, SMEDI tends to focus on micro-enterprises and will face challenges in linking these with
larger companies. A similar challenge is faced by the South African SEDA that focuses on formalisation
of start-ups rather than on linking these with business. This might change as SEDA shifts towards a
stronger focus on small businesses and reduces its interest in micro level business in the future. In South
Africa, but also in Mozambique, Zambia and Malawi, enablers such as TechnoServe, Solidaridad and
others offer their support in linking micro and small-scale enterprise with business. In South Africa,
while organizations like the National Business Initiative (NBI) have created tools for business linkages
that are also offered by the provincial agencies, overall efforts remain scattered and insufficiently co-
ordinated.
In Mozambique it is expected that the newly created Council for Inclusive Business, with a focus on the
promotion of inclusive business, could be a useful partner to more effectively link SMMEs with larger
companies. In Zambia, the Zambia Development Agency has the clear mandate of promoting business
linkages but will need support and innovative ideas, such as the inclusive business approach, to
convincingly engage the larger firms.
Promoting business linkages requires a shift in mindset of agencies and ministries with regard to the
selection of entrepreneurs, in particular for start-ups. Successful business linkages require a foundation
of strong entrepreneurial spirit. However, in 4 of the 5 target countries it has been established that small-
scale enterprises are often set up only because formal employment is not available rather than as an
outcome of individual entrepreneurial will and mindset. It is thus likely to be difficult for the
governmental SMME agencies to link those “entrepreneurs-by-chance” with large businesses.
The work of the various government agencies for SMME development is summarised below.
32
Table 5: Key public sector institutions in the target countries
COUNTRY INSTITUTION TYPE OF
SUPPORT
IMPLICATIONS
South Africa Small Business
Development
Agency (SEDA)
Non
financial
SEDA (and other development initiatives) promoted by the
government are not well communicated to SMMEs. Entrepreneurs are
therefore often not aware of all the services available to them and how
these services can be accessed. Due to issues of finance and risk
management, SEDA meanwhile shifts away from focusing on micro
and very small enterprises. A bigger challenge is based on the lack of a
co-ordinated effort of involved support agencies and the overlap in
activities.
Zambia Zambia
Development
Agency (ZDA)
Financial
and non
financial
ZDA has (at least partly) succeeded in fulfilling its mandate.
According the interviews with SMMEs, ZDA is known by formal
enterprises but not known by the informal ones. The organization did
not satisfactory manage to support SMMEs in their desired access to
markets. In addition, access to finance remains a major challenge. A
specific concern noted with respect to ZDA was the apparent trade-off
between its investment promotion and MSME development
responsibilities due to limited funding (and staffing) which may also
impact the quality of ZDA’s negotiations with foreign investors.
Malawi Small
Enterprise
Development
Institute
(SMEDI)
Financial
and non
financial
It should be noted that SMEDI is a recent merger of 3 former
organisations. It is thus too early to assess the work of SMEDI. As
three separate institutions, there has been much duplication of efforts
owing to the respective strategic goals of these three organisations.
The focus was and still is on the micro level of enterprises, particularly
with regard to vocational training. Gaps included business support
services such as mentoring and business advisory services. It is
expected that the new institution will provide services to enterprises at
all levels. In addition, the new institution is expected to fill the
identified gaps including business support services as training service
costs are unaffordable to potential clients. Until now Malawian support
organisations lack necessary investment to provide up-to-date services
and consequently, do not satisfy the SMME development needs in
industrial development. Some of the challenges include limited human
resources, centralized presence of these institutions, and use of
obsolete technologies. Thus SMMEs in Malawi cannot compete
favourably on the national and international markets.
Mozambique Instituto para a
Promoção das
Pequenas e
Médias
Empresas
(IPEME)
Non
financial
(but
providing
information
on
financial
solutions)
IPEME is a comparatively young organization. Although the programme
of IPEME seems appropriate, it has not had yet a wider impact. The
biggest challenge of IPEME lies in the lack of capacity. Therefore its work
is focused on Maputo at the moment. As a result, IPEME is not known but
all the SMMEs that have been interviewed. These SMMEs do not know
about the mechanisms that can benefit or complicate their operations.
Currently, only a few of the interviewed SMMEs feel supported by (all)
the supporting institutions, but complain about too much bureaucracy, lack
of activity and transparency (corruption). There is a demand for more
technical assistance. The main concern of the interviewed SMMEs are
about the lack of support with regard to access to markets.
Mauritius Small and
Medium
Enterprise
Development
Authority
(SMEDA)
Non
financial
SMEDA is the central, public sector body for SMME development and
the entry point for small-scale businesses. Since its inception there has
been a consistent increase in the registration and contribution of
SMMEs to the economy and employment. In an interview with
SMEDA it was mentioned that some 20,000 SMMEs are registered
and benefit from its services. The general positive feedback is also
valid for the predecessor models of SMEDA. In the interviews with
SMMEs it was suggested that SMEDA should be more involved in
following up with start-ups once the phase of starting the enterprise is
over, and that SMEDA should be more readily available to provide
advice.
33
In South Africa there is a large number of SMME supporting agencies in both the public and private
sectors, as well as donor organisations, civil society organisations and consultants. There is a
comprehensive regulatory framework in place, and a broad network of supporting agencies. This does
not, however, necessarily result in significantly successful SMME development. In other words, the
almost confusing number of public and private agencies has not contributed to reducing the failure rate
of start-ups in South Africa. One major reason is the lack of follow-up activities and support by these
agencies once the SMME has been established and its people trained. This lack of follow-up was
confirmed through interviews in other target countries such as Mauritius.
Similar to government departments, supporting agencies tend to operate in silos, strategies are not
aligned, and communication with SMMEs and with other supporting agencies requires improvement.
Duplication of the efforts of supporting agencies should be minimized and the resulting cost savings
should be utilised in a co-ordinated manner to assist SMMEs in a more comprehensive way.
A more important challenge, particularly in the rural areas, is that services of supporting agencies are
not well communicated to entrepreneurs and entrepreneurs are thus often not aware of all the services
available to them and how these services could be accessed. In South Africa, for example, this was
confirmed by a study commissioned by SEDA in 2012
77
and also by the interviews conducted in South
Africa and other target countries. The interviews reveal that many small and micro enterprises in the
peri-urban or rural areas are not aware of most parts of the regulatory framework that underpins their
initiatives, and there is a view that these regulations are excessively complicated and may constitute
barriers to success rather than drivers of success amongst SMMEs.
In Malawi, the desktop study revealed that the relevant Ministry lacked data and human resources, and
that the SMME policy required revisions to be more current. Consequently, Government has recently
undertaken measures to improve the institution’s performance including revision of the SMME policy
and collecting better data on SMMEs. These are recent initiatives and their impact is yet to be seen.
The challenges of not having sufficient data on SMMEs and thus on the impact of supporting agencies
is also in evidence in Mauritius, Zambia and Mozambique. This led to challenges within the desktop
studies to properly assess current situations and interventions by government and other stakeholders.
While supporting agencies in Mauritius and Zambia seem to be relatively successful, information is
lacking as to whether the SMMEs are doing well or not. Apart from this concern, the Zambia report
acknowledges the positive role of the Zambia Development Agency in helping SMMEs to obtain
incentives and access to finance, although access to finance and markets remain key challenges for
SMMEs.
3.6 Challenges Faced By SMMES Based on the Regulatory Frameworks and
Support Structures
The United Nations Development Programme has identified five global challenges that resonate with
SMMEs and also with the concept of inclusive business (UNDP, 2008). These global challenges relate
to the lack of (market) information, skills, resources and infrastructure, as well as existing regulatory
frameworks. The purpose of the present study was not to examine these five challenges, but rather to
analyse the challenges of the SMMEs based on the existing regulatory frameworks and support
structures, taking these five challenges into consideration in that process.
Not surprisingly, the desktop studies and interviews indicated that the challenges SMMEs face in the
five target countries are similar, with some differences in Mauritius, perhaps also because the focus of
the Mauritius study was on small-scale enterprises rather than micro-enterprises or informal
entrepreneurs and hawkers. It should also be noted that inclusive business is a relatively new concept in
Africa and there is little distinction made between key challenges hindering SMME development and
growth and inclusive business challenges faced by SMMEs.
77
Mthente 2012.
34
In all target countries, the full potential of the SMME sector has yet to be tapped due to the existence of
a number of constraints that hampering the development of the sector:
1. The regulatory framework, including its benefits and constraints, is not (fully) known by
SMMEs.
The interviews in all target countries except Mauritius gave a clear indication in this regard. This
indicated that the SMMEs are not aware of possible benefits that could support them in their activities.
As a representative example, the country study stated that: “Practically all of the small business owners
interviewed in Zambia showed little understanding of the legal provisions affecting their businesses and
were not able to describe the implications and consequences of the various laws for their decision-
making”. This speaks to the need for a programme of legal sensitisation and awareness promotion
around the rights and obligations attached to the operations undertaken by SMMEs and the products and
services they deliver. This should also serve to strengthen contract enforcement and, hence, help
promote a culture of excellence by raising the bar of expectations on the demand side.
2. The regulatory framework and, in particular its implementation is often seen as an
obstacle rather than a support.
The existing regulatory frameworks are not well implemented and in Malawi are regarded as (partly)
unfavourable because they result in overly complex, bureaucratic, non-transparent and costly procedures
and processes, as indicated in the interviews. The high costs for SMMEs were also mentioned in the
Zambia country study. The cost of compliance with regulations may discourage potential entrepreneurs
from formally setting up their businesses, while driving some existing enterprises out of business and
those working for them into unemployment.
In Mozambique, SMMEs responded in the interviews that the regulatory framework is “not helpful”,
where the framework was known at all. Bureaucratic hurdles were mentioned in interviews with SMMEs
in all the target countries.
In South Africa, the majority of interviewees from all sectors shared the view that government legislation
and policies are “world class”; the challenge lies, however, in the implementation thereof. Similarly,
SMMEs in Zambia pointed to the lack of implementation of the regulatory framework. The same
feedback was given in the country study in Malawi. It needs to be noted that especially in Malawi,
Mozambique and Zambia new policies, strategies and strategic plans have recently been approved and
may yet be amended. In South Africa, the discussion about the new BBBEE codes of good practice that
incorporate more directly the concept of inclusive business might lead to stronger implementation of
relevant steps, including SMME development.
A good first example to address these issues was implemented in Mozambique where significant
simplifications were made regarding licensing, taxes and multi-purpose services. This example was
strongly welcomed by SMMEs as well as larger firms in Mozambique.
3. There is a need to improve business development services in terms of the:
? Insufficient human resource and technical capacity of the supporting agencies to serve SMMEs
(desktop studies and interviews in all target countries);
? Scattered information that SMMEs receive on the available institutional support (this was
indicated by desk studies and interviews in all target countries except Mauritius). A survey on
SMMEs in Malawi from 2012 showed that nearly two-thirds of small businesses (62%) were
unaware of institutional support.
78
Similar results were confirmed by the interviews conducted
with SMMEs in South Africa as part of the present project. In Mozambique, SMMEs
interviewed partly knew of the (few) supporting agencies and the majority felt that the support
was inadequate.
78
FinScope (2012).
35
? Duplication of functions and activities, especially by government institutions involved in
SMME development in Malawi, South Africa, and partly in Mauritius;
? Ineffective and poorly co-ordinated institutional support, in particular in countries with a
complex support structure (South Africa, Malawi, Zambia and Mauritius). In South Africa and
Malawi, in particular, the efforts of the numerous support agencies require a more consolidated
approach, or as recently happened in Malawi, the merging of institutes. The need for better co-
ordination of institutional support was also mentioned in the desktop study in Mauritius
although the tasks of the organisations are relatively clear and do not overlap too much. In
Mozambique, in contrast to the other target countries, one agency, IPEME, is in a central
position with regard to SMME development. The challenge, however, is that this organisation
is strongly under-capacitated.
? In addition, a more co-ordinated effort among support agencies and also third parties (enablers,
educational institutes) is required to address the issue of lack of proper workforce. This
challenge was explicitly mentioned in all country studies.
? In all countries, decision-making structures for both the public and private sectors are often
located at national offices and not in the rural locations; this makes the co-ordination of
institutional support even more important since it presents obstacles and challenges in all
countries except the small country of Mauritius.
? On the lack of a more co-ordinated and joint effort towards SMME development, the challenge
of limited technical and business skills, business management capacity and financial training
being provided through the support agencies was noted in all country studies. This is because
(i) the issue of formalisation of start-ups often is more the focus of the consultation rather than
specific training; and (ii) the type of entrepreneur who receives the training varies (see below
the distinction between “entrepreneur-by-chance” and entrepreneur from choice and passion.
This broad spectrum of entrepreneurs makes it difficult for training to be provided that covers a
wide range of needs.
? The focus on the initial phase of start-ups and the lack of follow-up and support within the first
five-year life cycle of these start-ups was noted as a concern in all 5 countries;
? In Malawi, Mauritius and Zambia the lack of competitiveness against foreign companies or
imports was mentioned as a challenge. This may be as a result of inadequate support structures
on the one hand and the regulatory framework on the other hand. The Mozambican country
study does not explicitly identify this aspect even though this was perceived as a challenge. In
South Africa this challenge is also related to specific industry sectors, in particular agriculture,
because small-scale farmers are not able to compete with the highly advanced commercial
farmers of the country nor with imported subsidised agricultural products.
? Transparency of supporting agencies, in particular with regard to access to finance, and the
bureaucracy of institutions was criticised in the interviews with SMMEs in all five countries.
SMMEs also mentioned corruption (Mozambique), nepotism (Mauritius), and undue political
influence where an entrepreneur is required to be a member of a certain political party in order
to obtain support (South Africa). General turnaround times were also identified as a barrier in
the process of allocating financial support.
4. Access to finance remains the main challenge for SMMEs.
The lack of working capital was mentioned in each country study as the main barrier to SMME
development. An important logistical consideration is that many SMMEs do not have easy geographical
access to financial services. This is particularly the case for rural-based enterprises. Government would
need to step in to provide incentives, such as tax breaks, to banks and other financial service providers
for expanding their branch network into rural areas. Innovative approaches should be considered and
encouraged including greater adoption of mobile phone banking to take advantage of the unlimited
potential for financial product and market development offered by the convergence of the
telecommunications and financial services industries.
In Malawi, due to insufficient competition and inadequate information on the credit markets,
banks are discouraged from lending to SMMEs. The 2012 SMME survey of the country revealed
36
that 59% of SMMEs were excluded from financial services, as opposed to 31% that are formally served
by some type of financial system, with the balance relying on informal services. Only 22% are banked.
79
Over three-quarters do not borrow funds, primarily because they doubt their ability to repay loans. Of
those who borrow, informal credit systems tend to be the primary source of credit.
80
In 2007 the United
Nations Capital Development Fund (UNCDF) started a project, “Financial Inclusion in Malawi” (FIMA)
that “seeks to broaden access to financial services, particularly in rural areas where demand for services
often goes unmet”.
81
There is also a National Financial Inclusion Strategy.
82
Meanwhile, the Malawi
government is working on a Financial Inclusion and Financial Education Programme. This programme
will lead to the development of a Financial Inclusion Strategy. When this is implemented it will also
contribute to business inclusion since access to finance is one of the key constraints that the MSME
sector in Malawi encounters.
The Zambia country report suggests an apparent trade-off between ZDA’s investment promotion and
MSME development responsibilities due to limited funding and staffing. In addition, micro businesses
are, by definition, excluded from bank credit by the turnover thresholds defined by the banks. Certain
legislative provisions will have the effect of pushing bank credit further out of reach of MSMEs. Even
though the Companies Act No. 26 of 1994 provides the beneficial protection of limited liability for
MSME owners, from the banks’ perspective, however, limited liability introduces an element of moral
hazard and potentially increases risk for the lender. The banking sector’s response to this potential
exposure is to require physical collateral in the form of fixed plant and buildings.
In South Africa, as in Malawi, Mozambique and Zambia, most developmental public funding institutions
and also private funding institutions require surety or collateral. Such collateral as well as the interest
rates charged to SMMEs reflect their risk profiles rather than the developmental agenda of the funding
institutions.
In Mauritius SMMEs experienced problems obtaining funds and loans. They blame the banks and
government for not offering them loan facilities which are suitable to their small size. Access to finance
is also connected to high bureaucracy. The Development Bank of Mauritius intends to set up a SMME
banking institution to address the barriers to access to finance. In Mozambique, access to finance is
impacted on the one hand by a high level of corruption and on the other hand by the lack of capacity of
the supporting agency.
5. Inability to access local and international markets remains a constraint.
This challenge was mentioned in four country studies (except Mauritius), in particular as a result of the
interviews with SMMEs, even though the regulatory frameworks are in place and a support structure
exists in each of the target countries, in some cases with a partial mandate to foster business linkages.
In Mauritius, however, entrepreneurs often bypass the support agencies and engage the larger firms
themselves. It should be noted, however, that the concept of inclusive business is hardly known or
practiced in Mauritius and a clear distinction is made between formally registered small scale businesses
and informal (micro) entrepreneurs. SMMEs in the other countries emphasized the lack of willingness
and interest of larger companies to collaborate with them.
In Zambia, the VAT regime is cited as the most challenging barrier to market access for SMMEs, who
79
FinScope (2012) notes that already in 2007, a perception study on SMMEs development in Malawi was done by USAID. Of
particular relevance was that over 70% of firms rated access to finance as a major constraint while over 40% of formal firms
stated that it was a severe constraint to the operations and growth of their business. Cost of finance was ranked as the
second concern. Since the time of the survey in 2005, the cost of finance and the macro-environment have seen
considerable improvements, with the Reserve Bank of Malawi (RBM) base rate falling to 20% and expectations of further
falls. However, in terms of access to finance, the most commonly repeated issue in the survey for this study is that banks
require stringent collateral, often at levels in excess of 120% of the loan. This is very restrictive if the level of the loan is well
below the value of the asset pledge, such as a property, as this asset cannot then be used for collateral for another loan
(USAID 2007).
80
Ibid.
81
United Nations Capital Development Fund UNCDF (2013).
82
FinScope (2013).
37
explained that the threshold of K800,000 (about USD 15,650) for eligibility for VAT registration
(recently increased fourfold from K200,000) excludes the majority of MSMEs from opportunities to bid
for business with public sector organisations and large private sector and civil society organisations.
Effectively, these SMMEs can only compete for small contracts, mostly with smaller private companies.
The high VAT registration threshold also has the effect of confining the majority of small business
operators to the informal sector where they do not have to face constraints on the ability to supply goods
or services of any quantity to any client. The high VAT registration threshold thus has the unintended
effect of discouraging formalisation in the SMME sector.
6. The lack of infrastructure remains a problem.
While the lack of infrastructure presents a range of challenges for SMMEs, it was noted that activities
by the public and private sectors that address this challenge were in evidence in all the country studies
except Mauritius, due to its small size and relative wealth, where the challenge might rather occur with
regard to trade between Mauritian SMMEs and companies with suppliers from Madagascar, Zambia and
elsewhere. It needs to be mentioned that the issue of infrastructure was not a key aspect of analysis in
the present study and in any event, the deficit in infrastructure throughout the SADC region is well
known.
The country studies also identified that some of the challenges lie within SMMEs themselves The studies
on South Africa, Malawi and Mauritius highlighted that SMMEs demonstrate a lower demand for
business development services such as training even where this is offered, counselling, advising and
consultancy due to cost considerations, opportunity cost concerns and lack of knowledge on the benefits
of external services in improving competitiveness. SMMEs observed that leaving their businesses to
attend a workshop becomes very challenging, especially “when you are a one-man show or do not have
reliable employees to keep the business running during this time”. Challenges due to language barriers
and the lack of ability to understand and speak English were also identified, especially since most of the
training courses are offered in English. Furthermore, most of the training workshops were of a general
nature and do not address industry-specific training needs.
In all countries other than Mauritius, the studies revealed a lack of entrepreneurial mindset. Here it
clearly needs to be distinguished between the entrepreneur who starts an enterprise because of will and
passion (the opportunity-driven entrepreneur) and the entrepreneur who starts an enterprise due to the
lack of a job as an employee (necessity-driven entrepreneur). There is a higher likelihood of failure
within the latter group. SMMEs are often under the impression that opportunities will be given to them
because of promises made by government. They often have a lack of persistence if opportunities do not
open up immediately and may not be familiar with the hard work required to establish and grow a
business. On the other hand, the institutes of the target countries like Malawi, South Africa,
Mozambique and Zambia try to support both types of entrepreneurs, which, while it is correct and
understandable, will continue to contribute to the high rate of failure. This links to the different survival
needs of the various entrepreneurs and contributes to the challenges experienced by support agencies in
attempting to meet a diverse range of training and support requirements. There is thus a need for the
support agencies to review their approach to the different SMMEs and to provide more targeted services.
The lack of business management skills also leads to cash flow problems, for example through not
separating personal and business expenses. Interviews with companies in all the target countries also
revealed that the majority of SMMEs do not have a high level of commitment to quality assurance. The
main challenges to SMME development and growth shared by the five target countries are highlighted
below:
38
Table 6: Summary of SMME development and growth challenges in the 5 target countries
CHALLENGE COUNTIRES
EXPERIENCING THIS
CHALLENGE
PRIMARY SOURCE OF THE CHALLENGE
Limited access to
finance and
working capital
Mentioned in all target
countries
- High commercial bank lending rates
- SMMEs’ lack sufficient collateral
- Inconsistencies in cash flows of SMMEs
- Limited financial literacy
Inadequate levels
of Skills
Mentioned in all target
countries
- Inadequately educated workforce
- Many SMMEs lack basic management skills and need training
in that aspect.
- There is not enough training in business, management and
financial literacy skills, with poor knowledge of available
opportunities or the benefits of such skills by many rural
entrepreneurs.
- Training of employees is not seen to be a priority by SMMEs
Limited access to
markets
Mentioned in Mozambique
South Africa, Zambia and
less explicitly in Malawi
While in Mozambique and Zambia it is possible that opportunities
are not always available, whereas in South Africa, though these
opportunities are available, there is a lack of awareness that they
exist.
Lack of
entrepreneurial
development
Mentioned in Malawi,
Mozambique, South Africa,
and Zambia
Lack of business planning and an entrepreneurial mindset/
entrepreneurial spirit
Insufficient
regulatory
framework and
public sector
support
Mentioned in Malawi,
Mozambique, South Africa
and Zambia
- Inefficient government departments
- Duplication of functions
- Lack of co-ordination of support agencies (also mentioned in
Mauritius)
3.7 Status and Framework for Inclusive Business
The UNDP (2010b) observed that, “...inclusive businesses include low-income people on the demand
side as clients and customers and on the supply side as employees, producers and business owners at
various points in the value chain. They build bridges between business and the poor for mutual benefit.
The benefits from inclusive business models go beyond immediate profits and higher incomes. For
business, they include driving innovation, building markets and strengthening supply chains. And for
the poor, they include higher productivity, sustainable earnings and greater empowerment…”. Another
definition holds that the term “inclusive business” refers to profitable core business activity that also
tangibly expands opportunities for the people at the base of the economic pyramid (BoP). Such business
ventures engage poor people as producers, suppliers, workers, distributors, consumers and even as
innovators”.
83
Though inclusive business is a relatively new concept on the African continent and more specifically in
the SADC region, the concept of incorporating SMMEs into the value chain of any larger organization
is enhanced by the current frameworks in place for SMME development. Research within the framework
of the current research project indicates that none of the five target countries has a policy framework
specifically addressing inclusive business. As a result, the framework in place for SMME development
was interpreted as the enabling framework for inclusive business.
Inclusive business is primarily driven by the private sector, with the public sector supporting the concept
through the creation of an enabling environment. It can also be regarded as a new option for to SMME
development while the efforts from the public sector that often gets stuck based on the lack of capacity,
resources and implementation.
The frameworks and the inclusive business activities in the 5 countries are briefly introduced below.
83
Business Innovation Facility (2013a).
39
Mauritius
In Mauritius, inclusive business is linked to Corporate Social Responsibility (CSR), which in Africa is
often understood as ‘corporate giving’. The Government has established a policy with the overall
objective of mandating registered companies to pay 2% of their net profit to a CSR Fund to finance
programmes that contribute to the social and environmental development of the country. This would
include various socioeconomic development programmes that deal directly with poverty alleviation and
the creation of small enterprises.
84
Though there is little evidence that most of the CSR programmes in Mauritius qualify as inclusive
business, the country study identified a few companies that have incorporated inclusive business
activities into their operations based on the CSR Fund. The following examples for inclusive business
are acknowledged:
1) The “Chantefrais” franchise whereby the Food and Allied Group gives training to small
entrepreneurs with a proper shop that sells chicken and chicken products. These entrepreneurs
then become part of the group’s value chain and source the chicken from the Food and Allied
Group to sell to the general public as well as to hotels and large restaurants.
2) The Medine Group, which is involved in the tourism sector, supports craftsmen on the West of
the island to become professionals and enables them to derive an income from their products
through facilitating their access to hotels and specialised shops linked to tourism where they can
sell their products more easily.
Malawi
The Malawi desktop study noted that the SMME Policy of August 2012 highlighted key strategies to
encourage inclusive business if implemented. These include: (1) access to finance; (2) improving
product certification and standards; (3) knowledge and skills development; and (4) infrastructure and
technology advancement. Furthermore, the Malawi Ministry of Industry and Trade is in the early stages
of implementing a business-to-business programme that will help link SMMEs to large enterprises. This
has been interpreted by the research study as an important mechanism to promote an inclusive business
environment.
There are already some companies implementing the inclusive business concept:
1) Bakhresa Grain Milling Malawi Limited, a flour producer, sells packaged wheat flour to
commercial bakeries, small bakeries, retailers and supermarkets. The company approaches poor
communities in the rural areas and small towns and offers to supply them with affordable flour
and assist them to launch small bakery businesses. It offers its flour in small packages, which
makes it affordable for small scale retailers. “The company uses vans to reach remote rural areas
and distribute its products to bakeries, women selling home-baked goods in remote areas, and
branch sales offices. The company helps individuals, many of whom are women, launch their
own micro-businesses, offering training programmes and workshops on the business” (IFC
2012:10). Bakhresa was the only firm in the (southern) African region that won the G20
Challenge on Inclusive Business Innovation Award in June 2012.
2) RAB Processors in Malawi focuses on the export of legumes, notably to Asia, and is now also
manufacturing products such as tea, flour, rice, roasted ground nuts and baby foods. In this
regard, RAB Processors has engaged a number of SMMEs in the supply of both raw and semi-
processed materials for use in the manufacture of its various products. The company has now
set up an additional production facility in Lilongwe and SMMEs supplying various types of
inputs now have an assured and guaranteed price for their supplies. The company has created a
supply chain including enterprises that grow, supply, partly process and transport inputs.
Numerous micro and small businesses such as hawkers, restaurants and tea rooms have been
established as part of the downstream and forward linkages arising from the RAB Processors
operations.
84
National Empowerment Foundation (2013).
40
3) Carlsberg Malawi Limited, one of the few branches of Carlsberg of Denmark in the world,
supports numerous SMMEs engaged in the distribution and retailing of its products. The
company has a unique distribution and selling model which includes the provision of free
cooling units to all its retailers thereby empowering entrepreneurs engaged in the business of
running grocery stores, shops, and bars. This model removes the cost of acquiring a specialised
beer refrigerator and thereby is able to incorporate a large number of entrepreneurs into the
value chain.
4) Universal Industries manufactures a range of products including biscuits, sweets, potato crisps
and bottled water. Since its formation, Universal Industries has been producing crisps using
potatoes largely imported from South Africa. Over the last ten years the country has been facing
shortages in foreign exchange, making it difficult for manufacturing companies to import raw
materials. It therefore began engaging local smallholder farmers to produce potatoes for use as
input into the manufacture of potato crisps. The company provides the farmers with seeds,
fertilizers and chemicals in addition to providing the potato producers with extension services
focusing on good farming practices which have led to increased yields per hectare of high grade
potatoes. Universal Industries has also engaged numerous MSMEs as distributors and agents of
all its products in both the urban and rural areas. Thousands of SMMEs have set up shops that
stock a considerable number of products from Universal Industries, providing numerous
opportunities for self-employment.
In addition, Malawi is one of the five BIF pilot countries of the project “Business Innovation Facility”
(BIF) located in London and financed by DFID, which focuses on inclusive business activities (see
below). BIF draws on a global network to identify technical experts who can assess routes to market,
develop supply chains, “stress test” a business model, and take on a host of other bottlenecks that
companies face.
85
The facility also supports knowledge exchange on inclusive business at the
international level. A wide variety of inclusive business activities is supported by BIF in Malawi,
including:
86
5) MicroVentures smallholder market linkages which supports women to improve farming and
productivity. MicroVentures will now support the development of a market-linkage enterprise
which will broker linkages between the farmers and other buyers, enabling women farmers to
sell into value-added markets. The market linkages will target smallholder farmers, Malawian
wholesalers, retailers and food processors.
6) Afri-Nut will be established to process Malawian groundnuts and aims to be a benchmark
business that focuses on food safety, particularly in relation to aflatoxin control of peanuts
produced for domestic, regional and international markets. It has the potential to positively
impact on the health status of millions of people. It will be financed and co-owned by
shareholders from the commercial and development sectors: the National Association of
Smallholder Farmers of Malawi (NASFAM), TWIN, Ex-Agris (a commercial agricultural
company with interests in Malawi), Cordaid (a Dutch donor organisation) and the Waterloo
Foundation (based in Wales).
In this context there is also a Malawi Network of Practitioners that aims to share updates on projects
and provide a space for practitioners working in Malawi to connect and discuss the particular challenges,
innovations and opportunities facing inclusive business in the country.
Zambia
Apart from the comparatively recent policy measures of the government in Zambia, such as a new policy
for SMME development, the private sector has also responded. For instance, a strategy was created
addressing the credit culture and creditworthiness of SMMEs which have to some extent acquired an
unfortunate reputation for poor governance, inadequate record-keeping and accounting, and failure to
repay loans. As part of the effort to address this concern, the central Bank of Zambia has championed
85
Business Innovation Facility (2013).
86
Business innovation Facility (2013b).
41
the issuance of the National Strategy on Financial Education for Zambia, which is a framework for
improving the financial education of the population in the country in particular with regard to
knowledge, understanding, skills, motivation and confidence. The intention is to secure positive
financial outcomes by 2017.
87
These policy measures have received support from co-operating partners.
Similar to Malawi, Zambia is one of the five pilot countries in which the Business Innovation Facility
(BIF) supports inclusive business activities and the Zambia Network of (inclusive business)
Practitioners. This has resulted in a series of inclusive business projects based on this work in Zambia.
88
The following examples illustrate inclusive business activities in Zambia:
1) The Coca-Cola Company (TCCC) is replacing traditional product delivery methods (i.e.
periodic large stock delivery by trucks) with a network of Micro-Distribution Centres (MDCs)
that are independently owned and operated by local entrepreneurs. The Sales and Marketing
Division of regional TCCC bottlers such as Zambian Breweries recruits, trains and assists local
entrepreneurs as they establish MDCs and develop distribution methods appropriate to the
context in which they operate (BCTA 2013). The Coca-Cola/SABMiller value chain is
estimated to have supported around 3,741 formal and informal jobs in Zambia. The local
entrepreneurs that own MDCs realise an average monthly salary of USD 1,000 (Oxfam et al.
2011).
2) The Bank of Zambia has set “financial inclusion” as a key strategic objective and regards it as
a process which seeks to get more Zambians banked and more SMMEs accessing financial
products.
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The central bank is fully aware, however, that financial inclusion is a two-sided coin
and is taking appropriate measures. On the supply side, the central bank has taken several
measures to encourage the banking sector to make credit more accessible to SMMEs, including
the introduction of the policy rate together with a cap on lending margins above it in order to
create downward competitive or ‘moral’ pressure on lending rates. The bank is also actively
discouraging predatory lending practices. On the demand side, the bank is addressing the issues
of credit culture and creditworthiness in the MSME sector. In short, the bank is taking a
combination of short- and long-term measures on both the supply and demand sides of the
market for commercial credit, which will serve to end the traditional impasse between SMMEs
and the banking sector.
3) The Netherland Development Organisation, SNV, in collaboration with the North-Western
Beekeepers Association (NWBKA) and Mpongwe Beekeepers Enterprise (MPE), introduced
modern top-bar beehives that can be installed close to the household and are easily managed by
women. The initiative promoted women’s participation in bee-keeping through technological
innovation, where previously bee-keeping was (i) a predominantly male occupation; and (ii)
limited value addition was being realised in prevailing beekeeping practices. Linked to this,
SNV facilitated awareness-raising on the importance of enhancing women’s involvement in the
sector and supported the two associations to mobilise women beekeepers to form groups to
facilitate access to credit as well as technical and management support.
South Africa
It is the view of the South African government that in order to reduce poverty, engagement of business
and other organs of civil society is required. Some initiatives supporting this view have received
attention whereby economic development agencies, financiers and the private sector have been engaged.
Whilst some advances have been made, clear initiatives supporting this governmental view have yet to
be developed. This is in line with SEDA’s new strategy, “the client journey approach”, working together
with private sector to develop and implement a three-year and longer growth strategy for SMEs in their
supply chain.
90
87
Bank of Zambia (2012).
88
Business Innovation Facility (2013c).
89
Bank of Zambia 2012.
90
Interview with SEDA’s then acting CEO, Mr Koenie Slabbert, 23/01/12.
42
Many more recent regulations, like the New Growth Plan (which aims to significantly reduce the high
rate of unemployment), the new Broad-Based Black Economic Empowerment (BBBEE) scorecards, as
well as sectoral charters of the private sector (the Financial Sector Charter and codes of conduct in the
mining industry) are all providing better options for the commencement and implementation of inclusive
business activities.
As a result of a multi-stakeholder dialogue under the facilitation of the UNDP, the “Johannesburg
Declaration on Engaging the Private Sector in Furthering Africa’s Agribusiness, Food Security and
Nutrition Agenda” was signed on 19 October 2011, supported by the Institute of Food and Agricultural
Sciences, the UN Global Compact, UNDIDO, COMESA, FAO, NEPAD, the World Food Programme
and various civil society groups, development agencies and private sector members.
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Unlike in the other target countries, there has been a growing awareness among large companies in
South Africa about the substantial benefits of applying inclusive value chain practices, although the
evidence indicates a high level of resistance to risk, whether financial or otherwise, when participating
in such practices.
South Africa and Kenya can be seen as one of the strongholds for inclusive business in Africa.
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There
are many examples of this approach, and a non-exhaustive lists of companies that have incorporated
inclusive business activities in their core business includes Anglo American/Anglo Zimele; Rio Tinto,
Coca Cola and bottlers of Coca Cola such as ABI and Coca Cola Shanduka Beverages; SAB Miller;
Vodacom; MTN; Massmart; Woolworths; Tiger Brands; Nestlé; Pick ?n Pay; Spar; Nandos; TSB Sugar;
Hollard Financial Group; Vodacom; Standard Bank; Absa Bank; First National Bank; Nedbank;
Capitec; Eskom; Mondi Paper; SAPPI; Nampak; Aspen and Imperial, amongst a wide range of leading
companies.
Mozambique
Mozambique has made significant progress in the creation of a framework specifically for inclusive
business. The “Declaration of Maputo” pledges to give more policy support to Inclusive Business
initiatives and to make investments more inclusive.
93
In addition, the National Council for Inclusive
Business,
94
a public-private partnership, which was launched in December 2012 as a result of the
Declaration of Maputo and comprises the private sector, public institutions and civil society
organisations. The entity has the potential to significantly drive and promote inclusive business
processes.
Furthermore, in April 2012, a Memorandum of Understanding between the Confederation of Business
Association (CTA) and the Netherland Development Organisation (SNV) was signed with the of
creating a favourable business environment in Mozambique through the integration of communities and
SMMEs along the value chain in different sectors of the economy, thereby helping to reduce poverty in
all its dimensions by supporting employability and higher income.
Launched in September 2012, the ‘Best 100 SMMEs in Mozambique Award’ is a joint initiative of key
organizations in the field of SMME development and inclusive business as well as a media group95 to
identify the 100 best SMEs in Mozambique. The award is designed to:
91
UNDP (2011).
92
Southern Africa Trust (2013).
93
A national conference held in October 2011 in Maputo and organised in partnership with the United Nations Development
Programme (UNDP), the Investment Promotion Centre (Centro de Promoção de Investimentos -CPI), the Directorate for the
Promotion of Rural Development (Direcção Nacional de Promoção de Desenvolvimento Rural do Ministério da Administração
Estatal - DNPDR), the Confederation of Business Associations Mozambique (Confederacao das Associacoes Economicas de
Mocambique - CTA) and the Dutch Development Organisation - SNV,confirmed the potential for inclusive business in
Mozambique. The outcome was the “Declaration of Maputo”.
94
Conselho de Negócios Inclusivos (2013).
95
These are the Institute for the Promotion of Small and Medium Enterprises (Instituto para a Promoção das Pequenas e
Médias Empresas - IPEME), the Mozambique Media Group ‘Society of Independent Communication’ (Group Soico), the
Dutch Development Organisation - SNV, BDO Accountants Mozambique, and commercial bank Banco Mercantil e de
Investimentos (BMI) and others (SNV 2013a).
43
? publicly recognize good business practices;
? establish a research tool and guidance for policy measures;
? put in place a mechanism to standardise the classification of SMMEs;
? promote the development of Mozambique’s business environment;
? stimulate the integration of communities and/or low-income people in the business value chain;
and
? acknowledge the 100 best SMMEs in Mozambique.
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Positive examples can be found in the fields of agriculture, tourism and mining, supported by
engagement of third parties, such as SNV in agriculture and tourism, and USAID in the field of mining:
1) OLAM, one of the world’s largest cotton companies and a universal supplier of cotton to the
world’s textile markets, is working together with 70,000 small-scale farmers in the production
of cotton. Having started as a trading company, OLAM evolved into a fully integrated company
(‘from seed to shelf’) and has started to upstream and downstream their products involving the
SMME sector. OLAM has also integrated SMMEs into the value chains of several other
commodities, such as edible oils and cashew.
2) Other edible oil companies, such as Corridor Agro and Maeva Mozambique, also include small-
scale farmers in their value chain – like OLAM, they do this in co-operation with SNV.
3) Mozal is an aluminium smelter developed near Maputo, Mozambique, in a USD 2 billion joint
venture with BHP Billiton, Mitsubishi, the Government of Mozambique, and the Industrial
Development Corporation (IDC) of South Africa. The process of the MozLink SME
development programme has been implemented by Mozal and IFC in association with the
Mozambican Investment Promotion Center (CPI). MozLink bridges the needs of a large
company bound by business, operational, and technical standards with the needs of local SMEs
striving for an opportunity to build their capacity and become competitive economic players. It
trains local SMMEs and provides one-on-one mentoring to enable them to bid, win, and deliver
on construction contracts that meet Mozal standards.
4) Rio Tinto operates a large coal mine in the region of Tete and in 20912 it opened a Business
Centre to ensure that local suppliers can increasingly benefit from business opportunities
provided by the company. The centre provides a space for local suppliers to present their
products and services to Rio Tinto and to acquaint themselves with the company's needs. The
centre also helps in the registration of suppliers in Rio Tinto’s procurement system, as well as
developing a training programme to help new suppliers to succeed.
These examples for each target country demonstrate the importance of integrating the private sector, in
particular larger and medium sized companies, into the development of SMMEs. The inclusive business
approach provides an important opportunity to extend the discourse around SMME development in a
way that will promote expansion, sustainability and meaningful growth.
It should be noted that the focus for inclusive business activities differs. Whilst in Malawi, Zambia and
Mozambique, inclusive business projects are often related to agriculture, retailers, food and beverages,
tourism and mining, in South Africa a broader spectrum of industry sectors is active in this field,
covering the whole banking, finance and insurance sector, pharmaceutical products, and ICT solutions.
In Mauritius the focus of inclusive business will in the future be based on where the country imports
from and what it exports to the region, and the extent to which supply from and distribution to other
countries can be undertaken more inclusively.
With the exception of Mauritius, inclusive business practices indicate a growth trend, with some
variations in evidence in the different countries. In Malawi and Mozambique, and partly in Zambia,
activities are strongly supported by third parties and donors, such as SNV or the BIF project, whereas
in South Africa it is clearly driven by the private sector even though third parties are involved.
Governments in these 4 countries has started to create enabling environments for inclusive business.
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100 Melhores PME (2013).
44
However, challenges remain, largely due to the current regulatory framework, the limited human
capacity and the methodologies of the supporting agencies.
3.8 Inclusive Business Challenges
As a result of the linkages between the SMME development framework and the inclusive business
framework discussed in the previous sections, the desktop studies generally did not distinguish between
SMME development challenges and inclusive business challenges. This means that the barriers to
inclusive business do not significantly differ from those that affect SMME development. However, one
aspect plays a bigger role: inclusive business is still not widely known to policy makers of regulatory
frameworks and support agencies, nor is it regarded as the same concept as SMME development or
business linkages (or, as in the case of Mauritius, regarded as CSR activity). It is therefore important to
raise awareness of inclusive business practices and clearly differentiate between a pure SMME
development concept and the approach of inclusive business. In other words, specific inclusive business
characteristics that make the implementation of this concept more likely to succeed, such as innovations,
the development of new products, and the long-term profitability of inclusive business need to be better
communicated to governments and support agencies.
Inclusive business remains limited and is not consequent to a national process or consciousness in the
business community, with few exceptions such as the envisaged BBBEE codes good of practices in
South Africa. Mainstreaming inclusive business is not yet among the identified government policy
objectives for the SMME sector and there are few legal imperatives, policy requirements or incentives
to ensure or promote the adoption by large organisations and for-profit corporations of inclusive business
practices. On the other hand, however, the concept of inclusivity is becoming more strongly recognised
and accepted. This is encountered in government trends in South Africa
97
as well as in the announcement
that one of the post-2015 Millennium Development Goals (Sustainable Development Goals) will be
inclusive growth.
98
While governments and their agencies in the majority of cases are in the forefront of SMME
development, it is still the private sector that drives inclusive business practices whilst the government
and the support structures assist and facilitate the processes.
There are also barriers to the participation of large companies in supporting SMMEs, with the challenges
largely being identified as the following:
? lack of interest and/or opportunity of companies;
? perceived risk of working with SMMEs;
? competing priorities;
? low level of internal support;
? lack of necessary experience; and
? lack of information on informal markets.
These findings from the country study in Malawi were also reflected in the South African desktop study,
where it was noted that Enterprise Development (ED) and Socio-Economic Development (SED)
programmes were often not aligned to the company’s core business or industry sector.
99
Similar challenges were revealed by the Lopcal research partners in Zambia and Mozambique. In
Mozambique all interviewed companies stated that, in general, SMMEs do not have the ability to supply
on time to the desired quality or the quantity agreed, thus making them unattractive as suppliers. In the
view of these large firms, SMMEs require stronger support in business management and also access to
viable financing options.
97
Fin24 2013; South African Government 2013; KMG Attorneys & Associates/ Klopper 2013.
98
Centre for International Governance Innovation/Korea Development (2012).
99
Impact Amplifiers/NYU Center for Global Affairs (2013).
45
In Mauritius the position of many large companies towards empowering the vulnerable to help them set
up their own businesses is that, since they are already contributing 2% of their nett profits to the CSR
Fund, they are not in a position to support further initiatives, and that the development of micro-
enterprises is the responsibility of government via the CSR Fund. This suggests that the key aspect of
inclusive business, the business case, is not yet fully understood in Mauritius, and inclusive business is
interpreted as ‘just another CSR or corporate giving initiative’ rather than a legitimate business
opportunity to increase both profits and markets.
This may be influenced by the fact that the country’s size and location compels Mauritius to supply from
and distribute to other countries, rather than sourcing and distributing locally and expanding local
markets. There is no bigger national market in Mauritius that can be explored by including the poor in
the value chain, since the island and the size of the population are limited, and poverty and
unemployment are not the most pressing issues in this country.
The challenges to inclusive business in each country clearly indicate that there is a need for multi-
stakeholder dialogues to address inclusive business challenges and start the process of raising
expectations and addressing the implementation gaps.
4 Recommendations for SMME Development and Inclusive Business
4.1 Recommendations from the Five Research Studies
The recommendations presented below were drawn from the five research studies as well as the five
national and one regional policy dialogues.
There is significant scope for better aligning policies, laws, regulations, and, in particular, support
structures towards common objectives for strengthening the SMME sector in recognition of its strategic
importance as an engine for job growth, poverty alleviation and social stability. Support for the provision
of business development services to SMMEs has been popular with donors over a number of decades.
However, early interventions often involved donor and implementing agencies supplying business
services directly to SMMEs. The sustainability of interventions was not given priority, since subsidies
were regarded as investments in the future, and little consideration was given to the questions of impact,
effectiveness and efficiency. Assessments of business services interventions identified that most had
failed to provide affordable, high-quality services to a large proportion of the target population of
SMMEs.
Recommendations, especially with regard to the implementation of new policies, strategies and the
alignment of these with support agencies, are diverse and present a number of ideas. These are presented
in some detail below.
4.1.1 Regulatory Frameworks
With regard to the regulatory framework, in three of the five target countries ? Malawi, Mozambique
and Zambia ? essential new central policies and strategies have been developed and approved only
recently. In these countries it is important that the new concepts are implemented and supported by the
key stakeholders in the sector, in particular support agencies and larger businesses. Policy and
institutional alignment is necessary to strengthen goal congruence towards SMME development. The
same is needed in the case of South Africa where new developments aim to incorporate inclusive
business into the regulatory framework through the aspirational BBBEE codes of good practice. In
Mauritius, by contrast, the regulatory framework is established and effective.
The support to SMMEs and inclusive business development should be developed comprehensively,
from the creation of frameworks to market access. SMME policy and status need to be revisited and
clear goals for the SMME sector and inclusive business disseminated. This includes the revision of an
implementation plan and the development of a detailed framework for Monitoring and Evaluation that
outlines goals, implementation timelines and provisions for periodic evaluation and reporting. It should
46
also provide guidance on the alignment of the regulatory framework with existing (or required) support
agencies.
Revisions should include the simplification of laws similar to the successfully implemented process in
Mozambique with regard to licenses, taxes and administrative procedures for SMMEs. It is important
to strengthen the national Supplier Development Programmes in each of the target countries to
strengthen comprehensive and effective mechanisms for SMME development. These programmes
would specifically include and emphasize the concept of inclusive business.
4.1.2 Support Structures
Capacity
All country reports revealed that the key support agencies are under-capacitated. Thus support agencies
need to be strengthened in terms of budget, staff retention, employment, number of existing staff and
qualified personnel, and extend the reach of the organisation not only geographically, but also as regards
activities to bring these in line with global best practice (such as road shows, exhibitions and seminars).
Staff of the support agencies themselves need to be better trained and have more knowledge on technical
and management skills. This will help to alleviate the challenges of inadequate education that are
experienced in all the target countries with the exception of Mauritius.
More field offices, or even more enterprise development hubs, are required in order to reach remote
entrepreneurs. While the strengthening of support agencies will require a higher budget and more staff,
the outcomes are likely to be more effective and target-oriented developmental approaches that will be
able to provide value for money.
Understanding and selecting SMMEs
Support organisations need to build a real understanding of the needs of SMMEs. This can be achieved
by engaging with SMMEs and developing support programmes that talk to specific needs. Of greater
importance is the goal-setting and implementation plans of support agencies that work with SMMEs. It
was mentioned in all the country studies that there are two types of start-ups ? there is the entrepreneur
who willingly starts an enterprise, whereas the other type of entrepreneur does this because of a lack of
employment. It is the tendency of the government support agencies to support both types of
entrepreneurs. Consequently, the high failure rates of SMMEs are not unexpected. The present report
recommends a more strategic approach to focus on the growth of “healthy enterprises”, namely those
that are business-driven rather than needs-driven.
As well as developing a comprehensive understanding of the conditions of entrepreneurs, support
agencies should establish a screening phase of candidates who will receive support before the business
development process commences. This selection would also reduce the larger companies’ risk of failure
when working together with SMMEs. In particular, with regard to inclusive business, entrepreneurs
should be identified who have a strong understanding of business and entrepreneurship principles in the
way that these are understood and implemented by the larger firms. Support agencies that aim to create
business linkages will then enjoy greater credibility with both the large companies and the start-ups.
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In addition to the appropriate selection of entrepreneurs from the outset, a stronger communication and
information campaign targeting potential entrepreneurs and also companies is required, so as to
communicate industry-specific training solutions rather than generic approaches.
Training and education
The business development content (training), quality and capacity building of SMMEs requires review
in all five countries in order to provide SMMEs with a broader range of necessary business knowledge.
The content needs to cover a stronger focus on business skills, managerial skills and financial literacy.
100
According to the local research partners from Mauritius, Mozambique and South Africa, currently the most central
support organisations are not considered as valuable partners or enablers. In Mozambique, businesses indicated that they
do not often work together to support organisations and in Mauritius the study revealed that half of the interviewed
SMMEs bypass the support organisations and engage the companies directly.
47
In Mauritius, while organisations are already addressing different aspects of enterprise development,
there is scope for improvements.
Entrepreneurial thinking should ideally be initiated at primary and secondary school level. This was
strongly identified in some target countries, especially in the national policy dialogues. This approach
would target younger people who are not highly motivated to become entrepreneurs. Support agencies
can liaise with departments of education to jointly carry out a sensitization campaign.
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Education
curricula could then be expanded and enhanced accordingly.
Communication and dissemination of information
Information on existing laws, support programmes and the general offer of supporting agencies should
be communicated more broadly and accessibly, especially in Malawi, Mozambique, South Africa and
Zambia. It was noted that in Mauritius the regulatory framework is relatively well known to
entrepreneurs. A joint information campaign that includes SMME fairs and road shows should ensure
that information is also provided in relevant local languages.
A communications framework is required to build confidence in society regarding government policies,
and related support mechanisms. It should provide accurate and relevant information about factors
related to SMMEs development, such as:
? Regulations and policies that impact SMMEs.
? Support mechanisms including donor-funded programmes.
? Training and other business services available through the private sector.
? Markets including market assessments, demand analysis, value-chain studies to give SMMEs a
better idea of the demand they should be responding to.
? Market opportunities should also address tender distribution so SMMEs are aware of specific
opportunities, and provide assistance in preparing their offers and tenders.
? Buyers’ access to information about viable suppliers.
Different communication channels should be utilised including radio, community radio, public service
television, social media such as SMS or Twitter via cell-phone, and field teams going door-to-door.
Simplification
Support structures should establish one-stop shops, which then need to be decentralized. Administrative
barriers and transaction costs should be minimized in all countries, including Mozambique. There are a
number of viable options for simplifying administrative processes for SMMEs.
Alignment
For all countries, as well as Mozambique where a central organization is responsible for SMME
development, institutional alignment is important but will differ from country to country. It can be
implemented in the form of a one-stop shop or SMME centres or local hubs in where SMMEs can obtain
information and support from a range of supporting agencies This one-stop-shop would also be
responsible for the dissemination of information to SMMEs and to other stakeholders about the creation
of enterprises, and ways to help in the development of micro-enterprises and start-ups. Information can
be shared and opportunities publicised that would be of use to the SMME sector.
In this context, the support of the agencies should focus not only on the start-up phase and registration
of the SMMEs. It has been clearly identified that SMMEs experience a high failure rate in their first 3-
5 years, a direct correlation with the lack of follow-up support identified in the interviews in all 5
countries. There is thus a need for support agencies to strongly follow-up and support, monitor and
evaluate, strengthening the linkages between SMMES and other supporting agencies, especially with
regard to different industry sectors. Co-ordinating public and private support agencies would place the
variety of support agencies at different stages of the “life cycle” or “value chain” of the SMMEs. Such
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A pilot had already been initiated in a project of the ILO in South Africa (verbal information from Mr Jens Dyring
Chistensen, ILO South Africa, during the national workshop on SMME development and inclusive business within the
framework of the present research project (May 22, 2013, Midrand, South Africa).
48
support would then be done “hand-in-hand”, sharing the input around the first five to six years of a
specific SMMEs’ development.
A start has been made by SEDA in South Africa: its new strategy, “the client journey approach”,
proposes collaboration with the private sector to develop and implement a minimum three-year growth
strategy for SMMEs in their supply chain.
102
Even so, it must be recognised that shared work alongside
the ‘value chain’ of SMMEs requires a stronger effort involving all the public and private support
agencies including a communication programmes that will ensure SMMEs know where to go for training
and assistance.
In Mauritius, a more co-ordinated effort is already in place, since when the support agencies were
established they were given specific mandates within the ‘value chain’ of SMME development.
However, there is some degree of overlap between these mandates and related responsibilities that
requires a more streamlined and coherent approach.
It is important to note that not only support agencies need to be co-ordinated: there is also a need for a
consolidated approach by governmental programmes as well as the inter-linkage of bi- and multilateral
programmes with national programmes, such as in access to finance. This co-ordination of programmes
is an important point for countries in which donors and multilateral organizations may intervene to boost
SMME development, as it the case in Mozambique or Zambia.
4.1.3 Access to Finance
103
One of the major problems faced by SMMEs in all 5 target countries is the lack of access to financing
solutions. Apart from high interest rates, lack of creditworthiness and the request for collateral which is
hard to comply with, there are also legal constraints. In Zambia micro businesses are, by definition,
excluded from bank credit by the turnover thresholds defined by the banks. However, SMMEs clearly
need access to accessible finance options because many do not have properly audited financial
statements and/or sufficient assets and collateral. In general, governments need to provide incentives to
larger organisations to encourage loan funding at reduced interest rates. Governments should also
provide funding at more affordable rates, which will give SMMEs a better chance of survival.
In Mauritius, the current approach is the creation of a dedicated ‘SME Bank’ by the Development Bank
of Mauritius, with the intention of reducing existing bureaucratic practices and onerous lending
requirements.
It is necessary to coach SMMEs on financing tools and make them more credit-worthy. This can be done
by the support agencies within specific training courses, as is envisaged by IPEME in Mozambique. The
following steps are recommended to foster improved access to finance for SMMEs:
? Lobby the banking and financial service sectors to develop innovative products for SMMEs;
? Mitigate risk provision of financial services;
? Provide low-cost grants and co-financing.
Related mentoring programmes and financial literacy courses are crucial in promoting support for
SMMEs and strengthening their ability to meet their loan obligations. The concept of inclusive business
can play an essential role in access to finance, where large companies (after a careful selection of
SMMEs) could provide support in accessing finance based on the possibility of future contracts with the
company. Jointly with their partnering SMMEs, the companies also could apply for third party funding
for inclusive business practices, for example, the funding of innovative processes.
102
Interview with SEDA’s then acting CEO, Mr Koenie Slabbert, 23/01/12.
103
Although they are linked with the regulatory framework and the support structure, access to finance and access to
markets are treated as independent points as these two factors are seen as the key challenges by all interviewed SMMEs
and also by other key stakeholders.
49
4.1.4 Access to Markets
One of the biggest challenges for SMMEs is market access. Support agencies have the task of creating
business linkages but often encounter the challenge that companies do not want to carry the risk of bad
quality, insufficient quantity, interrupted supply and unreliable deliverables. After support agencies have
promoted SMME development for some decades, companies tend to demonstrate a certain fatigue and
may have had bad experiences in their involvement with SMMEs.
This lack of interest was raised in interviews with large companies in all five target countries. It is clear,
therefore, that the trust and motivation of the larger companies to extend their interest in business
linkages with SMMEs needs to be renewed. Inclusive business provides such an opportunity as the
concept that does not follow the same pattern as the approaches of the past. Companies are not asked to
involve micro- and small-scale enterprises into their value chain as part of their contribution to social
development but because it makes business sense to them.
104
Moreover, a key component of inclusive business is the ‘innovation’ factor, which is about new ways
of supplying, new products, new services and new ways of distributing and selling these products and
services and thus expanding markets and making profit.
It makes business sense for governments to champion the concept of inclusive business by promoting
and facilitating the approach. Support organisations should actively promote the concept to SMMEs on
the one hand, and to the companies (business linkages) on the other hand. This might give support
agencies a new impetus when linking SMMEs with larger firms that focus on the business case.
There was a critical view on the general promotion of clustering SMMEs into organization type. Whilst
clustering of SMMEs is often regarded as a solution (for example, support services can then work with
an SMME group on how to negotiate better), SMMEs in all countries have indicated that they prefer not
to work together. This is based on the lack of trust towards the persons in the cluster and the wish to act
at the individual level. In fact, initiatives by supporting agencies to cluster SMMEs in Zambia and
Mauritius failed, while in South Africa, attempts by government to promote the creation of co-operatives
in the agriculture sector have met with little success.
105
4.1.5 Business Services by the Private Sector
Donors and implementing agencies can develop a more effective approach based on the view that
achieving improved enterprise productivity and competitiveness, job creation and poverty reduction are
more likely to happen by also relying on the private sector to provide business services. This will require
that SMMEs are viewed as customers, and by judiciously targeting subsidies to avoid market distortion.
It is also important that SMMEs begin to view such support as being an entitlement that carries little
value, as has sometimes been the case in the past.
In this context, some reflection is needed as to whether and to what extent business services can be
provided on a commercial basis even for low-income SMMEs, while acknowledging that appropriate
product design, delivery and payment mechanisms must be developed. It is important to avoid a process
whereby consultants are commissioned to develop business plans for – and not with – subsidized start-
ups that do not understand these business plans and in the worse-case scenario, may not be in a position
to utilise them at all.
104
See examples for inclusive business above by companies such as Coca Cola (Zambia), Olam (Mozambique),
Chantefrais/Food and Allied Group (Mauritius), RAB processors (Malawi) and various examples in South Africa, for instance
the profitable distribution of micro-insurances by Hollard Financial Services.
105
This was mentioned in national and regional policy dialogues in the framework of the present research project.
50
4.2 Policy Dialogues – Recommendations and Action Plans
In the second part of the project, knowledge accumulated on the regulatory frameworks and support
structures, together with the key challenges and recommendations of each target country were
disseminated to stakeholders in the field of SMME development and inclusive business, and a regional
dialogue was convened in South Africa. In almost every target country the participation of media
representatives was arranged, including national TV representatives in Zambia and Mauritius. The
national policy dialogues were convened jointly with the local research partners, and the extent of
participation is listed in Table 7 below.
In all policy dialogues the participants were informed about:
? Inclusive business;
? The regulatory framework in the target country;
? The SMME support structure in the target country;
? Challenges around SMME development and inclusive business;
? Successful examples of inclusive business in the target country; and
? Recommendations.
The participants of each policy dialogue discussed possible action steps based on six key
recommendations in each target country. The agreed action steps are provided in chapter 5).
The recommendations were brought to the regional level meeting that included representatives from the
SADC Directorate’s Trade Industry Finance & Investment (TIFI), responsible for the Programme
“Industry Productive Competitiveness”. In this context, an additional concept note was shared to inform
the discussions around recommendations proposed for the SADC Industrial Development Policy
Framework (IDPF). This concept note is included as Appendix III.
In the regional dialogue, all five local researchers presented their results and recommendations based on
their research studies and the national policy dialogues. In this context and with regard to the above
concept note, the Senior Programme Officer- Industry Productive Competitiveness from the SADC
Directorate: Trade Industry Finance & Investment (TIFI) presented the SADC Industrial Development
Policy Framework (IDPF). The local researchers were requested to present positive lessons that were
learned from their country and that could be replicated in other countries or even at the regional level;
and to propose recommendations for the SADC region. The input from the five country studies and
national policy dialogues is provided in detail in Tables 7, 8 and 9 below. The country presentations
broadly encompassed:
? Major challenges for SMME development, based on the existing national regulatory framework
and the support structure;
? Major recommendations to improve SMME development and inclusive business activities in
each country;
? Lessons learnt that can be replicated; and
? Recommendations that can be elevated to the regional level.
It must be noted that the inputs on “lessons learnt” and on “recommendations for the regional level”
were not based on additional research but on the finalized research studies in each target country.
51
Table 7: Overview on the national policy dialogues within the framework of the project
Date & Place Participants Agenda topics
Port Louis,
Mauritius
May 15, 2013
Hosted by StraConsult &
Southern Africa Trust
12 delegates, amongst them representatives from
? the Mauritius Ministry of Business, Enterprise, and Co-
operatives;
? Development Bank of Mauritius
? Small and Medium Enterprise Development Authority
(SMEDA)
? Enterprise Mauritius
? University of Mauritius.
? Presentation of research objectives and inclusive business
by Southern Africa Trust
? Presentation of study results and recommendations
? Discussion of required activities to implement the study’s
recommendations
Midrand,
South Africa
May 20, 2013
Organised and implemented
by
Tushiyah Advisory Services
& Southern Africa Trust
and hosted by the South
Africa National Youth
Development Agency
(NYDA)
45 delegates, amongst them representatives from
? South Africa Department for Trade and Industry;
? Department of Economic Development;
? Small Enterprise Development Agency (SEDA);
? NYDA;
? Afrikaanse Handelsinstituut;
106
? ILO;
? Massmart
? ABSA;
? South African Institute of International Affairs (SAIIA);
? Mthente;
? University of Pretoria and GIBS; as well as a larger group
of SMME representatives.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Keynote Speech by NYDA
? Presentation of study results and recommendations
? Discussion
? Presentation of study results by Mthente
107
? Presentation by ILO
108
? Presentation by SAIIA
109
? Discussion on presentations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
Lusaka,
Zambia
May 22, 2013
Hosted by Munich Advisors
Group & Southern Africa
Trust
28 delegates , amongst them representatives from
? Permanent Secretary of the Ministry of Commerce, Trade
and Industry (MCTI);
? Zambia Development Agency (ZDA); Technical
Education, Vocational and Entrepreneurship Training
Authority (TEVETA);
? Zambia Institute for Policy Analysis and Research
(ZIPAR);
? SeedCo;
? ZANACO Bank Plc.;
as well as a larger group of SMME representatives.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Keynote speech by the Permanent secretary of MCTI
110
? Presentation of study results and recommendations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
Blantyre,
Malawi, June 6, 2013
Hosted by Employers
Consultative Association of
Malawi (ECAM) &
Southern Africa Trust
20 delegates, amongst them representatives from
? Ministry of Industry & Trade;
? Ministry of Justice;
? National Association of Business Women (NABW);
? Unilever South East Africa;
? RAB Processors Limited;
? Carlsberg Malawi Ltd.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Keynote Speech by ECAM
? Presentation of study results and recommendations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
Maputo,
Mozambique
June, 10, 2013
Hosted by Avril Consulting
& Southern Africa Trust
20 delegates, amongst them representatives from
? Ministry of Industry and Trade, the Investment
Promotion Centre (CPI) of the Ministry Planning and
Development;
? Institute for the Promotion of Small and Medium
Enterprises (IPEME);
? Confederation of Business Associations (CTA);
? Finance Institute of Development (GAPI);
? UNIDO;
? ILO;
? Netherland Development Organization (SNV);
? Building Markets,
? Vodacom;
? Sasol
as well as a larger group of SMME representatives.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Presentation of study results and recommendations
? Discussion
? Presentation by SNV
111
? Presentation by CPI
112
? Discussion on presentations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
106
“The Afrikaanse Handelsinstituut (AHI) is a multi-sectoral business organisation and one of four major chamber
organisations in South Africa, actively involved in all sectors of the economy, except primary agriculture.”http://led.co.za/organisation/afrikaanse-handelsinstituut-ahi-0
107
The presentation was about “Reporting back on Support Needs of SMMEs and Related Recommendations” by Mr Andre Le
Grange from Mthente South Africa.
108
The presentation was about “Creation of an Entrepreneurial Ecosystem in the Free State” (which was one of the research
areas of the present research project in South Africa). The presentation was held by Mr Jens Dyring Christensen from ILO South
Africa.
109
The presentation was about “SMME Development and Inclusive Business – Enabling Environment for successful
Entrepreneurship” by Mrs Lesley A Wenthworth from SAIIA.
110
The keynote speech was about “Inclusive Growth through Inclusive Business: Three I’s for a Successful Transition Towards
MSME-Led Growth in Zambia”. It was presented by the Permanent secretary of the Minister of Commerce, Trade and Industry,
the Honourable Mr Emmanuel Chenda (Annexure IV).
111
The presentation was about “Negócios Inclusivos – A experiência da SNV” (“Inclusive business – the Experience of SNV”), by
Mr Rik Overmas from SNV Mozambique.
112
The presentation was about “Desenvolvimento das PMEs e dos Negócios Inclusivos – ambiente propício para um
empreendedorismo bem sucedido” and “Development of SMEs and inclusive business – enabling environment for successful
entrepreneurship”) by Mr António Luis Macamo from CPI Mozambique.
52
Table 8: Overview on regional policy dialogue within the framework of the project
Regional
Dialogue
Sandton,
South Africa
June 28, 2013
Hosted by
Southern
Africa Trust
22 delegates from seven countries,
amongst them representatives from
the:
? SADC Secretariat ;
? Ministries of Trade and Industry,
e.g. from Mauritius, and South
Africa;
? governmental support agencies
for SMME development from
Mozambique, Zambia, Malawi
and South Africa;
? Investment Promotion Centre
(CPI) of the Mozambican
Ministry of Planning and
Development;
? NEPAD Business Foundation
? Trust Africa;
? all local research partners; and
? others
? Presentation of research objectives and inclusive
business,
by Southern Africa Trust
? Presentation by SADC on the SADC Industrial
Development Policy Framework (IDPF)
113
? Discussion
? Presentations on the results and recommendations
of the research studies and national policy
dialogues in the five target countries, by the local
researchers:
o Mauritius;
o Malawi;
o Zambia;
o Mozambique; and
o South Africa
? Discussion
? Presentation on commonalities and differences in
the target countries
? Discussion of required activities at the regional
level to implement the recommendations of the
study’s and national policy dialogues - in
working groups
? Discussion of the outcomes of the breakaway
session
? Ranking of the required activities at the regional
level
113
The presentation was about “SMME Development and Inclusive Business in the SADC Region – Enabling Environment for
successful entrepreneurship - Enhancing support to SMMEs” and was presented by Mrs. R. Alisoa Vololoniaina - Senior
Programme Officer- Industry Productive Competitiveness (SADC).
53
Table 9: Challenges, recommendations, and lessons learnt for the regional policy
Country/ Issue Malawi Mauritius Mozambique South Africa Zambia
Challenges Lack of capital.
Poor access to finance.
Lack of awareness.
Limited support in
enabling environment.
Lack of information/
poor marketing
information.
Lack of networking.
Lack of skills.
Limited attention
given to quality
assurance.
Poor managerial
capacity.
Lack of access to
information about latest
technology.
Fear of co-operation to
improve capacity –
clustering.
Lack of platforms for
interaction between
SMMEs and larger
companies.
Absence of Local
Content Tool.
Lack of incubators.
Lack of access to
information and
markets.
Difficult access to
finance.
Lack of information on marketing
support and lack of marketing
and selling skills.
Lack of access to finance, (high
interest rates; SMMEs are seen as
high risk; professional support is
lacking from support structures).
Lack of operational funding and
cash flow. SMMEs struggle to
manage cash-flow.
High import costs (textiles) and
no joining of forces to buy in
bulk (silo mentality).
Availability and affordability of
skilled labour
Lack of entrepreneurial education
as well as technical and business
skills.
Inability to deliver on time, at the
right price, quality and quantity,
(including stock and raw material
shortages).
Strict labour laws that hinder
SMMEs from employing staff.
Doing business (recent economic
recession; bureaucracy and
corruption; registration processes;
and strict tax regulations.
Inability to access local and
international markets.
Barriers to entry into some
industries.
Inability to secure start-up
or working capital finance.
Human capital: Poor
motivation, inadequate skills
and weak stewardship.
Poor technology and lack of
innovation and value-
addition or processing based
on high cost, poor quality or
non-availability of raw
material and other inputs.
High costs of doing
business.
Recommendations
& actions
Better functioning of
value chain - national
export strategy.
Create incentives for
the private sector- tax
considerations.
Educate SMMEs.
Strengthen SMME
business support
infrastructure.
Financial inclusion
through the banks.
Need for training in
industrial development
such as managerial,
entrepreneurial and
technical skills.
Need for special
schemes for provision
of management
support.
Awareness and
Information.
Support for acquisition
of technical capacity.
Government and its
agencies should
encourage clustering
efforts so that SMEs do
not work in isolation
and take advantage of
horizontal integration.
Organising a series of
buyer-seller meetings
to facilitate supply
chain linkages between
SMMEs and large
enterprises.
Improvement of
access to information
about support
programmes.
Business services
market development
(including fees for
professional
consultations).
Quality
improvement for
SMMEs products
and services to be
competitive.
Access to finance.
Local Procurement
and Local
Content.
114
Accelerating of
administration.
Co-ordination and
knowledge sharing.
Organising buyer-
sellers meetings to
facilitate linkages
between SMMEs
and large enterprises.
Urgently strengthen the abilities
of the South Africa Small
Enterprise Development Agency
(SEDA).
Work on incentivising BEE
scorecards
115
to reward
companies who make an effort to
conduct inclusive business.
Better co-ordinate the efforts of
the supporting agencies and
Institute communication
programmes that ensure SMMEs
know where to go for training
and assistance.
Arrange urgent intervention in
the South African education
system.
Address skills shortages in all
tiers of government.
Communicate the importance of
inclusive business to the
corporate sector in a way that
gives credence to its merits and
do so creatively.
Improve access to finance.
Goal congruence – Build
policy and institutional
alignment to strengthen goal
congruence towards SMME
development.
Institutional capacity –
Strengthen institutional
capacity towards MSME
development.
Investment and innovation –
Promote innovation through
partnerships and teaming to
realise economies of scale
and scope.
SMME capacity – Facilitate
capacity building in
financial literacy,
entrepreneurship and
eliminate administrative
barriers and minimise
transaction costs.
Value addition – Leverage
international agreements,
such as the recent bilateral
agreement with China to
promote entry into value
addition and high-end
services for domestic and
export markets.
114
Since the aim of increasing local procurement is to create jobs in Mozambique, then the procurement must relate to
products that are produced in Mozambique (creating manufacturing jobs) or services that are delivered in Mozambique
(creating service jobs). This relation is known as “Local Content”.
115
B-BBEE stands for Broad-Based Black Economic Empowerment. The objective of B-BBEE is to ensure that the majority of
South Africans who are defined as being black people across all socio-economic levels, are able to participate in the positive
benefits of empowerment. The concept of Broad-Based BEE was introduced by the Codes of Practice. 7 B-BBEE Elements are
now used to measure a company’s commitment to transformation. The B-BBEE Codes of Good Practice can be seen as the BEE
rule book. The Codes provide universal standards for the implementation and measurement of BEE initiatives, with the aim of
providing consistency, transparency and clear direction on BEE. Through the use of a BEE Scorecard, the Codes have thus seen
BEE become an objective discipline with quantifiable and defined criteria and rules (BEE 123: 2013).
54
Country/ Issue Malawi Mauritius Mozambique South Africa Zambia
Learning for
replication
For Malawi, not much
information on lessons
learnt was given, due
to the fact the new
SMME policy still
needs to be
implemented. Lessons
on the preceding
policies are about the
improvement of its
implementation.
Several companies are
already involved in
inclusive business and
companies from the
other target countries
can learn from their
experiences.
Diverse financial
Instruments made
available:
(a) Equity as well as
non-collateral
based loans;
(b) Acquisition of
equipment;
(c) Factoring; and
(d) Export insurance
guarantee.
Support for export
(a) Preparation for
export readiness;
(b) Carry on for
overseas
promotion; and
(c) Subsidy on travel
&
accommodation
costs.
Support for process and
product improvement.
Ease of doing business:
cut down formalities
without compromising
on due diligence.
Simplification of
procedures: tax, the
creation of the
company, the
attribution of
licences.
Public-private
dialogues, e.g. done
by the Confederation
of Business
Associations in
Mozambique (CTA).
Creation of the
Inclusive Business
Council.
The lessons learnt from South
Africa are already covered in the
recommendations. Relevant
regulations need to be
communicated more effectively.
The high number of SMME-
support agencies results in the
need to better co-ordinate these
organisations and their efforts.
For Zambia, the lessons
learnt were based on
inclusive business case
studies. Important learning
can comprise:
(a) Entrepreneur
selection;
(b) Capacity building –
training and
mentoring;
(c) Partnership for
capacity building
financing;
(d) Evidence-based
approaches;
(e) Appropriateness and
affordability of
technologies; and
(f) Social inclusion and
advocacy.
Relevance for
SADC
Inclusive business
models.
Increasing access to
finance through value
chains.
Providing incentives
to companies.
Tax reform for
SMMEs.
Registration of
businesses/formation
of associations.
Reforming
regulations.
More publicity/buyer-
seller meetings.
Access to markets.
Collecting and
disseminating reliable
data.
Infrastructure
development.
Certification.
National and regional
procurement preference
in favour of SMMEs.
SMME Development
Fund – diversified
instruments.
Activate through
willing commercial
banks and other
financial partners.
Management capacity
support through in-
house management
placement.
Fiscal incentives for
MNCs to source from
SMMEs.
Simplification and
harmonization of
laws.
Access to finance.
Access to
information and
markets.
Provide a common platform
where legislation can be accessed
- avoid duplication of support -
develop a shared portal where
support provided to SMMEs is
documented.
Cluster industry-specific training
and support together.
Financial support:
? Reduce red tape in
applying for finance;
? Reduce interest rates;
? Increase turnaround time
with approval of loans;
? Provide a combination of
grant and loan funding
especially for start-ups;
and
? Timely payment of
invoices (preferably 50%
payment upfront / 7 day
payment from date of
invoice).
Provide strong market
knowledge on pricing and
volumes and bundle
products where possible.
Provide services to bundle
produce of SMMEs and
support in negotiating frame
contract.
Negotiate financing scheme
for SMMEs and provide
collateral not available by
most SMMEs.
Provide on-the-job capacity
building training to
empower SMMEs and
ensure financial literacy and
practical tools are available.
Provide affordable ICT
solutions to access
knowledge, markets and
finance to SMMES.
Empower support
organisations in lobbying
for decreased cost with
focus on SME needs.
55
4.3 Discussion of the Recommendations
In every target country access to finance is one of the major challenges for SMMEs. It makes sense,
therefore, for governments to encourage the investment sector and foreign investors to reduce the
negative impact of one of the key challenges of SMME development in Southern Africa. For instance,
it was estimated that in Malawi about 90% of the SMMEs might not have a bank account. In Mauritius,
as a positive example, government has approached the leasing companies to give loans to SMMEs while
government shares the burden of the concessionary rate (leasing equipment modernization scheme). The
Mauritian government has also encouraged the banking sector to promote better access to finance.
Finally, within the framework of the Mauritius Youth Employment Programme, graduates can be
involved to assist SMMEs in creating their business plans and the government contributes with 50% of
the cost of using these graduates.
With regard to the lack of information on markets and opportunities, including the lack of information
on a regulatory framework of a country or the available support for SMMEs, the idea of having an online
portal was discussed in various policy dialogues, and in particular in the regional policy dialogue. This
approach still requires reflection on how to reach the SMMEs, especially in the rural areas. In
Mozambique, for example, there are challenges in terms of internet access and net coverage. In addition,
there is a need to continuously update the information on the portal. It was suggested that the business
sector should be approached to partner in addressing such technical challenges. In this context, it should
also be mentioned that, for example, the information of SADC is often highly complex and not readily
accessible to SMMEs. It should be adapted and simplified. Moreover, businesses need information that
is specific rather than general and information could be provided in conjunction with the various industry
sectors. It was suggested that a Challenge Fund be set up to build up effective sector-related information
services implemented by companies and facilitated by the governments.
In Mozambique the Centre for Investment Promotion (CPI) started a programme to improve SMMEs’
access to information and created an online platform that includes information on services, buyers,
assessments and financial systems. In South Africa, the commercial bank ABSA has introduced a
procurement portal, a virtual marketplace that the company has developed for buyers and suppliers. The
project is managed by the Enterprise Development Unit of ABSA and users do not need to be ABSA
clients.
116
At the regional level, SADC plans to establish a similar online portal.
117
4.4 Commonalities and Differences
This chapter provides a summary of results and recommendations from the five target countries that
were presented at the regional policy dialogue in South Africa in June 2013. The Southern Africa Trust
summarized the studies and the national dialogues. As a starting point, in all countries global challenges
for inclusive business that had been defined by the UNDP (2008) were confirmed. These were the lack
of market information; limited skills, limited access to financial services and a disenabling regulatory
environment. Based on these global obstacles for SMME development, the research studies then
revealed country-specific challenges and solutions.
a) Commonalities of challenges in the five target countries
For all target countries, the following issues were mentioned in addition to the general challenges which
UNDP had already identified in 2008. These are:
? Lack of working capital
? Lack of skilled employees
? High costs of doing business
? Non-co-ordinated efforts by support structures, where:
o SMMEs get disparate information
o Awareness of what support is available is limited
116
Absa (2013).
117
This portal was discussed during the regional policy dialogue of this research project in South Africa in June 2013.
56
o Reliable data are missing
o Monitoring (beyond pure figures) is missing.
? Challenges regarding the role of governments (and support structures)
? Regarding inclusive business, there is:
o Mistrust (between SMMEs and larger firms as well as between SMMEs themselves)
o Excessive bureaucracy, nepotism, depending on political party, poor turnaround time
? Lack of entrepreneurial education at an early stage of life.
b) Recommendations to overcome these challenges
For some challenges, very similar solutions and recommendations were proposed by the researchers.
For example, with regard to the unco-ordinated efforts of the support agencies, the researchers proposed
the following approaches:
? Create a co-ordinating platform(s)/hubs;
? One-stop shops;
? Service for life cycle (meaning that at different stages of the development of an SMME differing
agencies shall be responsible rather than all agencies only focusing on the start-up phase). This
approach would include the strong requirement of improved communications and working
together between the support agencies.
? Involvement of relevant chambers; and
? Decentralized training.
Regarding the role of the state in promoting inclusive business, it was recommended that governments
should:
? Facilitate;
? Champion;
? Promote;
? Monitor;
? Incentivise; and
? Simplify the processes.
Regarding the lack of access to financing of SMMEs, the majority of recommendations covered the
approaches of establishing lower interest rates and the creation of an SMME-Bank.
In relation to the point about instituting earlier entrepreneurial education, programmes for primary and
secondary school were recommended by the researchers as an outcome of the five national policy
dialogues.
c) Additional suggestions resulting from the five national policy dialogues
The following common ideas were captured in at least two policy dialogues (and were also mentioned
in some research studies):
? Introduce a screening process rather than support every start-up.
? Offer services according to industry sectors.
? Build enterprises operating in demand-driven markets.
? Use Public-Private Partnerships (PPPs) to improve the infrastructure of a country.
? Discuss whether adequate fees for services shall be introduced.
? Discuss the lack of innovation and value addition rather than have continuous predominance of
trading issues.
5 National Action Plans
In each policy dialogue the participants discussed the key recommendations of the research studies.
They were divided into working groups and were requested to propose activities (action plans) on how
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to implement these recommendations. These actions are summarized below for the one regional and five
national policy dialogues.
5.1 The Action Plan for Malawi
Box 2: Recommendations & Action Plan - SMME development and inclusive business in Malawi
Recommendation 1
Business Development Service Providers (BDSPs) shall improve their service deliveries to SMMEs particularly in the areas
of: their accessibility/availability nationwide; the cost of services; and the quality of services. BDSPs shall include training,
marketing, registration, technology, and financial institutions.
Required Action
? Sensitize BSDP’s.
? Strengthen governance and linkage with member companies of business associations (provide “real” services).
? Engage stakeholders and in particular BDSPs in dialogues to develop a more profound support to SMMEs.
? Coordinate BDSP’s to create one stop shop (e.g. using better ICT).
? Decentralize BSDP’s services.
? Start a paradigm shift in operations (client oriented).
Recommendation 2
Ministry of Industry and Trade shall improve the implementation of the SMME policy and avoid a repeat of the challenges
faced during implementation of the reviewed SMME policy.
Required Action
Lobbying and advocacy:
? Taskforce to draft a paper to lobby the policy in the cabinet.
? Stakeholders meeting to review the current SMME policy.
? Lobbying for launch of SMME Policy.
? Then launch reviewed SMME Policy.
Recommendation 3
Government must ensure accurate data to make informed decisions for SMME development.
Required Action
? Re-defined research.
? Harmonisation & validation of data to create an enhanced database.
Recommendation 4
Large companies should develop internal policies on inclusive business.
Required Action
? Awareness and sensitisation of companies so that companies will reflect on the option of using the inclusive business
model/more integrate SMMEs in their business activities to improve profitability. Companies will develop strategies how
to best implement inclusive business ideas.
? Government policy to incentivise companies. In order to comply, companies will reflect the options of inclusive business
practices.
? Monitor and evaluate mechanisms to be built into the policy that companies will be able to assess and realise the benefits
but also the risks of inclusive business activities.
Recommendation 5
Improving the operations of value chains by strengthening business to business linkages.
Required Action
? Provide assistance in finance, technical know-how and distribution models to assist in developing skilled and capacitated
SMMEs.
? Revisit the cooperative development policy to focus on inclusive business to foster SMME aggregation and more
effective SMMEs.
? Development of marketing systems – to create a linkage strategy / access to market information
? Create regular networking events for businesses and SMMEs. In particular establish inclusive business market places
and improved business linkages.
Recommendation 6
Strategies for strengthening standards and quality consciousness among SMMEs as a key component of inclusive business.
Required Action
? Create awareness and understanding of standards which might lead to better quality by:
? Training program and an awareness campaign of standards (including information of benefits of having the
right standards)
? Build a productivity center for to maintain quality and standards. This should include skills building programs
& accreditation
? Tax reduction on equipment required by SMMEs for increased capacity of SMMEs to achieve quality standards.
? Source and share SMME models from other countries.
? New approaches for standard development and knowledge about pitfalls.
Based on the findings of the research study, the following six key recommendations were discussed by
the participants to develop an action plan. The participants were split into two working groups to discuss
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the most necessary steps to implement these six recommendations. After the group work, the teams were
then given the opportunity to present back to the full delegation.
5.2 The Action Plan for Mauritius
The recommendations of the study in Mauritius were added by participants’ suggestions:
? Mainstream the policies from government, which would include the involvement of the
inclusive business concept in the next budget speech of the Finance Minister.
? Support agencies shall assist SMMEs in implementing inclusive business practices. There is
also a need for training in industrial development such as managerial, entrepreneurial and technical skills
as well as a need for special schemes for provision of management support. In addition, there should be
support for the acquisition of technical capacity.
? Awareness needs to be raised in larger companies that inclusive business is a profitable approach
and not a CSR initiative. Opportunities shall be demonstrated by Government and the support
agencies, e.g. with regard what can be sourced locally.
? An in-depth discussion with SMMEs is required that they understand the Supplier Development
Programme. SMMEs have to be trained accordingly.
? The banks should be involved, e.g. with regard to an export-import guarantee scheme. The
mainstreaming could be done by the envisaged SMME bank by DBM.
? Government and its agencies should encourage clustering efforts so that SMEs do not work in
isolation and take advantage of horizontal integration.
? Organising a series of buyer-sellers meetings to facilitate supply chain linkages between
SMMEs and large enterprises.
Based on the above first ideas, the participants discussed the issue of the Supplier Development
Programme and how to get larger firms more involved. For example, it was suggested that non-sensitive
issues can be addressed by Companies’ Supplier Development Programmes in direct exchange with
SMMEs that means at an individual level. Sensitive business items, such as quality, quantity, reliability,
regularity and thus sustainability require strong coordination and possibly a cluster approach – although
it was also mentioned that Mauritian entrepreneurs dislike being clustered. Still, there are examples
where the idea of clustering worked out well, for instance the collective marketing of craft-persons from
Rodriguez who exported their products to France.
However, companies need to develop a long-term relationship to gain the trust of the SMMEs. Currently,
it is not clear whether and how many larger companies are willing to (more) collaborate with SMMEs
and vice versa. Awareness needs to be created at different levels, in particular with regard to mutual
benefits. The research study and some findings from the present universities indicate a great willingness
of SMMEs to be integrated in the companies’ value chains, but technical and business skills are lacking.
Awareness creation shall include a clear picture on what inclusive business is about because the concept
still often is confused with corporate giving. The Southern Africa Trust was asked to bring in expertise
on inclusive business and provide clarity based on the five research studies of the project.
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Box 3: Recommendations & Action Plan - SMME development and inclusive business in
Mauritius
The participants agreed on the following Action Plan:
1) With the help of the B4D Pathfinder Barometer a survey shall be done with some 40-50
companies to be able to evaluate whether and in how far companies in Mauritius are inclusive.
The B4D Pathfinder Tools shall bring clarity on the issue of inclusive business and lead to
willingness of companies and SMMEs to be more inclusive. Priority sectors for this survey will
be the supermarkets / retailers, hotels and the IRS sector (Integrated Resort Scheme
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) and lead
to a “reality-check on the ground”. The survey shall be supported by the Ministry of Business,
Enterprises & Cooperatives. The involvement of the Ministry for Ministry of Business,
Enterprises & Cooperatives is the key for the acceptance of the Barometer by the companies and
thus crucial for the success.
2) The results will lead to a baseline for inclusive business and SMME development in the country.
3) After the companies will have filled in the B4D Pathfinder Barometer, a dialogue with the private
and public sector will be started on the benefits of inclusive business, again with the support of
the above ministry championing inclusive business rather than regulating the approach. This
dialogue will also lead to acceptance of the inclusive business concept and its incorporation in
the Mauritian Supplier Development Programme. This cannot be done by the support agencies
but shall be brought in by third parties.
4) The outcome will result in ways how to drive the processes of inclusive business and SMME
development differently, on condition that inclusive business is profitable and processes are
innovative.
5) Based on the further developed Supplier Development Programme the support agencies shall
assist the SMMEs in a coordinated form. It was suggested to establish fairs for business linkages
and innovation to foster processes, facilitating by the universities.
5.3 The Action Plan for Mozambique
Based on the findings of the research study, the following six key recommendations were discussed by
the participants to develop an action plan. The participants were split into three working groups to
discuss the most necessary steps to implement these six recommendations. The groups were requested
to only list three priority actions but were allowed to divide these into short term, medium term and long
term measures.
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Currently a landowner’s permit from Government is needed to use former sugar cane areas to construct upscale villas.
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Box 4: Recommendations & Action Plan - SMME development and inclusive business in
Mozambique
Recommendation 1
Better access to information.
Required Actions
? Develop a package on fiscal incentives and an overview on the legal framework for different sectors / fiscal obligations that affect
SMMEs.
? Create a databank profiling local SMMEs for large companies to be (more) aware of the local offer.
? Dissemination of information through TV, radio, etc.
? MOU with institutions (given support structure) and necessity of using/establishing local institutions in the various areas/provinces in
the country.
? Necessity to disseminate information through “Janela Única Electrónica”
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(the Mozambican electronic customs system) and the “e-
tributação” (the electronic taxing system).
Recommendation 2
Simplification of administration.
Required Action
? The one-stop-shop shall be combined with business development services such as IPEME-Gazeda.
? Verification of compliance of established simplification regulations.
? Technology transfer.
? The one stop shop shall be combined with the payments of taxes.
? Implementation of only one identification number for citizens.
Recommendation 3
Business services market development (incl. market information).
Required Actions
? Promotion of the demand through business development services (understanding of the demand).
? Support of service providers for SMME development that create new services (such as services to support SMMEs to apply for up to
date technologies and technical assistance) and improve the quality of the suppliers.
? Establishment of a fund for technical assistance, e.g. 'group purchasing' with the participation of companies.
Recommendation 4
Access to finance.
Required Actions
? Integration of banks that have a linkages program with the active participation of large companies; direct engagement with large
companies to support them bringing SMMEs to the banks to get a adequate credit
? Integration of MPESA in the existing finance mechanisms.
? Establishment of a ‘catalytic” fund for SMMEs.
? Integration of the stock market in the national (SMME) programme.
Recommendation 5
Quality improvement.
Required Actions
? Necessity of creating an atmosphere of mutual confidence between the government, doners and the private sector.
? Improve the access to information, in particular information on quality schemes / methods of technical improvement.
? The Government and the private sector need to improve the nationalinfrastructure.
? Certification schemes for products and services.
? There is a need to create instruments of mediation.
? Necessity to introduce standard norms at a national level.
? Technical assistance can be improved by using resources from the Dutch PUM Programme.
Recommendation 6
Local procurement and Local Content.
Required Actions
? The Government and the private sector shall discuss a form of legislation that companies must buy a certain percentage of products
that is produced in the country. That also will lead to improved skills within SMMEs.
? Companies shall contribute to education of the local working force.
? The larger firms could create a list of potential categories of goods and services which they will need in the coming two to five years
that SMMEs can prepare themselves to be able to deliver according to this demand. (There should be an aggregated demand for the
next five years). CPI, Building Markets and the consultant ICC will jointly launch this study in the year 2013.
It was suggested and agreed that the stakeholders continue their exchange and sharpen the above steps.
A loose network of key players is already working together in the field of Supplier Development
Programme as well as business linkages. However, it seems likely that two or three more policy
dialogues will be required to achieve and agree on concrete joint steps. One platform to further continue
the dialogue could be the recently established Center for Inclusive Business (CNI) and many members
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Known as the Single Electronic Window, the new tool comprises two computer systems – the integrated customs
management system and the operators’ mechanism. Via the Single Electronic Window importers are able to submit the
customs declaration and pay all fees via a retail bank before the actual unloading of the goods, which will reduce their
processing time (http://mpoverello.com/2011/12/12/new-mozambique-customs-system-will-reduce-processing-time/).
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of the CNI participated in the present policy dialogue or were informed about it. In addition, an internet
portal will be set up to enable a continuous dialogue between stakeholders.
5.4 The Action Plan in South Africa
Based on the recommendations of the research study in the national dialogue in South Africa, and
amendments which were made based on the input of the additional presentations and participants’
contributions, the following questions were selected and discussed in 2 groups.
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Box 5: Key questions & Action Plan - SMME development and inclusive business in South
Africa
Group questions 1
How can government or agencies improve co-ordination between the supporting agencies to avoid duplication?
What else can government do to support companies?
Who should make an effort to conduct inclusive business?
Required Actions
? Analyse the gaps and infrastructure.
? Involve the business chambers.
? Map/matrix (who, what, where, when of supporting agencies).
? National co-ordinating platform.
? One-stop shop (Business Place, ILO), including all players after a diagnostic first check.
? Clear communication to SMMEs on which agency is responsible for which support.
? Providing support for SMMEs in a life cycle, i.e. not all the involved agencies should focus on the start-up phase of SMMEs
but some shall be responsible to do the follow-up after different time intervals.
? Dual-zone centres (SMME support in townships and villages) need to be analysed and strongly capacitated. The reach of the
various support agencies needs to be improved.
? Tertiary education better linked to supporting agencies.
Group questions 2
What should a supplier development programme look like?
What are the key factors needed to make it successful?
How can companies develop a mindset change with regard to inclusive business?
Required Actions
Short-tem:
? Electronic database per region.
? Role of the chambers not fully utilised - Local procurement policy - strengthen initiatives at local level.
? Incentivise big business – incentives do not necessarily have to be monetary.
Mid to long-term:
? Consolidated database national, provincial and local – with custodians at local level.
? Let chambers play a role in facilitating inclusive business and supplier development and support.
Ongoing dialogue is required to jointly develop these activities, increase inclusive business practices
and strengthen the support organisations for SMME development. A high-level discussion platform of
agencies was suggested to be established and involve key players such the Presidency, the Department
of Trade and Industry and the Department of Economic Development as a co-ordinating unit as well as
other involved players. In their “SMME Economic Society” which is a colloquium of important players
of SMME development, the Department of Economic Development will identify partners for ongoing
policy dialogue. This Department has indicated its interest in working with the Southern Africa Trust
on the issue of SMME development.
5.5 The Action Plan for Zambia
Based on the findings of the research study, the following six key recommendations were presented to
the participants for their further discussion. These are summarized in the figure below.
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It needs to be noted that some participants had left the event by this stage.
62
Figure 2: Recommendations from the research study in Zambia
The participants were divided into three working groups to discuss the most necessary steps to
implement these six recommendations. The group work resulted in some overlaps and not all groups
divided the recommended steps of action into short, mid and longer term activities. Not all working
groups responded exactly on the given recommendations but discussed improvements for SMME
development more broadly.
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Box 6: Recommendations & Action Plan - SMME development and inclusive business in Zambia
Recommendation 1
Build policy and institutional alignment to strengthen goal congruence towards SMME development;
Strengthen institutional capacity towards SMME development.
Required Actions
Challenge: Due to the fragmentation of institutions, there is differing understanding of policy guidelines that contributes to poor SMME
development practices. It results in a lack of harmonisation of research and policy and a low level of collaboration between supporting
agencies. Channels to disseminate information on the existing policies are lacking.
a) For the short term it was recommended to:
? Establish improved co-ordination among the key ministries.
? Immediately implement the dissemination of information on which support agency is offering which services.
? Create actionable ideas and get back to people who are involved.
b) For the mid-term it was recommended to:
? Monitor and evaluate whether policies in place are implemented.
? Disseminate information that is harmonized involving key SMME institutions.
c) For the longer term it was recommended to:
? Form a “mother body” for the support agencies that co-ordinates the activities.
? Decentralize governmental support services.
? Reform skills training for SMMEs.
Recommendation 2
Promote innovation through partnership and teaming to realize economies of scale and scope.
Required Actions
Challenge: SMMEs are unable to innovate due to a lack of investment. The required investment cannot be attracted due to lack of trust and
contracting capacity.
a) For the short to mid-term it was recommended to:
? Build legal capacity of SMMEs through training them in contracting, legal documentation, negotiation, and arbitration.
Implement self-policing and contract enforcement mechanisms through local arbitration and related mechanisms.
? Strengthen government support: (i) underwriting markets for new products developed by SMMEs; (ii) creating a national
database of SMME products and services to enable local sourcing, equipment/capacity sharing. Use on-site and virtual business
incubation support e.g. by Empretec.
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? Strengthen financial support for SMMEs through effective, constructive engagement by the banks with the SMME sector
leveraging financial co-operatives or associations formed by the SMMEs.
b) For the longer term it was recommended to:
? Change the culture of reliance on government to one of self-reliance and community-level co-operation.
? Change the culture of disdain for products that are “Made in Zambia”.
? Change the structure of incentives in the public sector to condition SMMEs on achieving results in the private sector. For
example, ‘Cluster A’ should innovate a specific amount of new products in a given year as a condition for specific incentives
for staff of the relevant government support agency.
Recommendation 3
Entrepreneurship, financial literacy and levelling the playing field for SMMEs by eliminating administrative barriers and minimizing
transaction costs.
Mainstream cultural reorientation and introducing requirements for financial and value chain inclusion.
Required Actions
? A Business Facilitation Programme should be established to reduce administrative barriers (regarding online registration, simplified
tax compliance, registration, licencing). This will also promote ease of doing business.
? One-stop shops and/or joint road-shows are required for the support agencies to jointly train entrepreneurs.
? Support agencies need to train entrepreneurs in keeping records (financial literacy) and on how to transfer these records into a
financial format. SMMEs and start-ups should make a financial contribution to such services as there is added value and the benefit
of better returns. Support agencies also need to train entrepreneurs to re-invest their profits (financial literacy).
? Transaction costs need to be reduced for SMMEs, bringing in a flat rate, one pay-point approach. The proposed fees should be
staggered based on the specific SMME. It was suggested to include learning from other countries with regard to transaction costs.
? With regard to the lack of entrepreneurial culture, stronger sensitization is required. Pupils should already be learning about
entrepreneurship in primary school. SMMEs should be invited to schools to give talks about success stories. Families should talk
about how money is earned (as people in Asia do).
? There should be regulation of beneficiation to create opportunities for SMMEs (according to various stages of processing).
? The Supplier Development Programme needs to be further developed to avoid financial illiteracy, but should first be implemented by
government as a pilot.
? One financial requirement for inclusivity includes that the Government must champion it but not subsidize it. Government will
promote inclusive business.
? Companies must understand what is meant by social licence, and this must be properly explained when a concession/lower electricity
costs or similar are requested or expected.
? It was suggested to monitor companies on their way to more inclusivity.
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Empretec is an UNDP Programme under which entrepreneurs are given financial training and are required to market and
sell all their (new) products within a certain timeframe as a condition for obtaining certification (UNCTAD, 2013).
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Recommendation 4
Leverage bilateral agreements to promote entry into value addition and high-end services for domestic and export markets.
Required Actions
Due to the identified lack of innovation, selected SMME sectors shall be mentored through bilateral agreements and transfer technology.
a) For the short term it was recommended to:
? Indicate to the public what entrepreneurship and innovation really mean and what should be done to integrate the
SMMEs/entrepreneurs in the value chain. Identify people who can support these activities.
? Identify technology products (through stakeholders) that are ready for market. Obtain information and knowledge about
markets.
? Identify the raw materials that are available - how can value be added through beneficiation?
b) For the mid-term it was recommended to:
? Maintain continuous awareness.
? Create incentives, employment creation.
? Aim at value addition in the copper sector (e.g. specific parts required for innovative products manufactured in Japan), and at
qualifying the human capital.
c) For the longer term it was recommended to:
? Implement technology transfer.
? Inform and create awareness of the segmentation of markets.
? Create incentives (e.g. taxes) for companies that include SMMEs in their value chain.
5.6 Recommendations for Actions at the Regional Level
In the regional workshop, all five research studies were presented. In addition, the SADC Industrial
Development Policy Framework (IDPF) was presented by a SADC representative. Recommendations
from all five target countries were presented and discussed and a summary of commonalities and
differences regarding challenges and solutions in the five countries were shown. The participants were
divided into five groups to discuss the following question:
“What needs to change or be improved in the policy environment at the regional level to better equip
the private sector to be a more effective enabler of inclusive business?”
The results from the groups were clustered and ranked by the participants. This resulted in a priority list
of activities to improve the policy environment at the regional level so as to better equip the private
sector to be a more effective enabler of inclusive business.
Box 7: Key priorities for SMME development and inclusive business at the SADC level
The 4 key priorities ranked the highest by the workshop participants were:
? Cluster 1 (16 points): Improve SMMEs’ access to finance through a:
o Regional common bank for SMMEs;
o Regional fund for finance (working capital);
o Regional Fund of Foreign Direct Investment (FDI) for SMME support;
o Guarantee fund + non-bank mechanisms for SMME finance;
o Provision of non-collateral-based finance and diversified financial instruments facilitated by SADC.
? Cluster 2 (10 points): Co-operation and co-ordination of support structures for SMME development through:
o Co-operation and capacity building amongst the public institutions with the same remit;
o Regional Body for SMME development for information; financial instruments; practice, research.
? Cluster 3 (9 points): Regional Learning Centres for skills, such as regional integrated skills development centres being
implemented in a joint effort by governments and the private sector.
? Cluster 4 (7 points): Information Portal developed and facilitated by SADC, in particular with regard to information on
availability and sources of raw material.
It was agreed that these four priority areas should be addressed first at the regional level.
It was also suggested that an annual meeting should be convened with relevant chambers and
associations that represent SMMEs to (i) discuss the national regulatory framework and the conditions
of doing business at regional and national level; and (ii) to discuss (develop) programmes that respond
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to the demands of the private sector. The roles, responsibilities and co-ordination requirements were
not addressed.
Further recommendations covered regional tax tariffs and the development of a regulatory framework
for inclusive business.
6 Conclusions
This project enabled the Southern Africa Trust to gather comprehensive knowledge on the following:
? The macro-economic environment and status of SMMEs in the target countries Malawi,
Mauritius, Mozambique, South Africa and Zambia;
? The regulatory frameworks in these five target countries;
? The support structures in these five target countries;
? The factors that promote or impede the growth of SMMEs in relation to the three points above;
? The inclusive business and enabling environment;
? The recommendations to improve the current situation.
The general conclusion of the desktop studies is that both the public and the private sectors will have to
be engaged in conversation to find ways to overcome resistance to doing business with SMMEs.
Extraordinary efforts will be required to address their objections and what they see as factors that impede
the inclusion of SMMEs into their value chains.
In particular, there is a need for support agencies to better co-ordinate their activities and become more
effective in SMME development and the promotion of inclusive business activities. The study results
and policy dialogues emphasised that a screening of entrepreneurs should be done before the support of
SMMEs starts to focus more on entrepreneurs that are driven by opportunity rather than by necessity
(who are, in reality, looking for employment).
The results of the research studies in the target countries was disseminated and discussed with key
stakeholders in both SMME development and inclusive business. Recommendations were made with
regard to action plans and options to follow up the initiated processes. The policy dialogues that were
based on the present project can only be regarded as a first step in the right direction and need to be
continued.
The Southern Africa Trust has been approached in Mauritius, Mozambique and South Africa as well as
by the SADC Secretariat to continue the processes that have been initiated.
As much as small enterprises need to be educated and skilled and governmental support needs to be
reflected, the procurement functions of large companies should be sensitised to the vital role they can
play by finding creative ways in which to reduce risk and build small enterprises. More importantly,
buy-in is needed from top management, as well as from other organisational operational levels. Inclusive
business practices can be the key for this change as it offers the profitable expansion of markets based
on innovative processes, products and services.
Moreover, governments, support agencies and larger firms as well as donor and multilateral
organisations should involve inclusive business in the policies, strategies, programmes and action plans
for SMME development.
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APPENDICES
APPENDIX I
STANDARISED TABLES FOR DESKTOP STUDIES
(REGULATORY FRAMEWORK, SMME SUPPORTING AGENCIES, BARRIERS TO
SMME DEVELOPMENT)
GENERAL GUIDELINES FOR DESKTOP STUDY
Small Business development in connection with the Inclusive Business concept
This is a general guideline for the required desktop study of small business development in connection with the
inclusive business concept. The following research objectives are required to be fulfilled:
? Identify the status of and the framework for SMME development in the five target countries;
? Identify and analyse new options, in particular the extent to which the concept of inclusive business can
be applicable to SMMEs in the target countries; and
? Identify success stories which can be replicated in the other target countries.
A. REQUIRED CONTENT
The table below provides a guideline for the expected content of the desktop study.
SECTION GUIDING NOTES
REPORT INTRODUCTION This section should summarise section 2 -8 of the report.
RESEARCH PURPOSE SCOPE AND
DEFINITIONS
This section should describe the research parameters including research
objectives, key definitions and methodology.
STATUS AND FRAMEWORK FOR
SMME DEVELOPMENT
This section should outline the environment in which SMMEs operate. A
good way in which to start this section is to describe the macroeconomic
environment i.e. include key statistics that are applicable to SMME
development.
Subsection 3.1 should describe:
National government policies and/regulations that are in place to assist in
SMME development.
National government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place for SMME development.
It is very important to mention the effect (success or failure) of (a) and (b)
mentioned above.
Subsection 3.2 should describe:
Provincial government policies and regulations that are in place to assist in
SMME development.
Provincial government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place for SMME development.
National
Provincial
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It is very important to mention the effect (success or failure) of (a) and (b)
mentioned above.
Please note that section 3.1 and 3.2 should have a bias towards the fields of
food & beverages (agriculture), retailers and manufacturing.
STATUS AND FRAMEWORK FOR
INCLUSIVE BUSINESS
This section should describe the enabling environment for inclusive
business. A good way in which to start this section is to define inclusive
business and the benefits thereof.
Subsection 4.1 should describe:
National government policies and regulations that are in place and can assist
with the implementation of inclusive business.
National government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place and can assist with the implementation of inclusive business.
It is very important to explain how (a) and (b) create an enabling
environment for inclusive business.
Subsection 4.2 should describe:
Provincial government policies and regulations that are in place and can
assist with the implementation of inclusive business.
Provincial government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place for SMME development.
It is very important to explain how (a) and (b) create an enabling
environment for inclusive business.
Please note that section 4.1 and 4.2 should have a bias towards the fields of
food & beverages (agriculture), retailers and manufacturing.
National
Provincial
INCLUSIVE BUSINESS
CHALLENGES
This section should describe the challenges in linking SMMEs to larger
companies (implementing inclusive business).
To make the section more country specific:
Subsection 5.1. should briefly describe the challenges SMMEs in the
country face in working together with larger firms
Subsection 5.2. should briefly describe the challenges companies in the
country face working together with SMMEs
Subsection 5.3. should briefly describe the challenges national and
provincial government to assist the small and large companies in
implementing inclusive business
Please note that sections 5.1, 5.2 and 5.3 should have a bias towards the
fields of food & beverages (agriculture), retailers and manufacturing.
Sections 5.1, 5.2 and 5.3 will be deepened through the interviews.
SMME
s
Companies
National and Local Government
INCLUSIVE BUSINESS SUCCESS
STORIES
This section should include success stories on the implementation of
inclusive business practices given the environment described in sections 3 –
5 of the report.
RECOMMENDATIONS This section should include recommendations on how inclusive business
practices can be further implemented in the country including:
what can be done at government level (both national and provincial),
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what can be done at a company level
what can be done by civil society organisations.
CONCLUSION This section should draw conclusions based on sections 2-7 of the report.
B. ANALYSIS COMPONENT OF THE REPORT
The desktop report should be able to provide an initial answer to the following questions:
? What are the promoting and hindering factors that lead to or inhibit the growth of SMMEs in the target
countries? What are the promoting and hindering factors for SMMEs to start or extend an inclusive
business approach?
? To what extent are SMMEs using supporting factors provided by the governments, SMME-related
agencies, and the private sector, including the aspect of access to finance? Which limiting factors can
be changed at the short, medium and long-term level?
? To what extent are SMMEs linked to larger firms, in particular in the field of food, beverages and
manufactured products? What are the promoting and hindering factors? What conditions need to be in
place for larger companies to co-operate more closely with SMMEs? Which of these factors can
realistically be implemented or changed in the near future? What good practices are in evidence? What
can be learnt and replicated?
? Are there options for SMMEs to have better access to people at the Base of the Pyramid (BoP) by co-
operating with larger firms?
? What needs to be changed to create an enabling environment for SMMEs to better establish themselves
and serve these markets as part of the value chain of a larger firm?
69
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APPENDIX III - CONCEPT NOTE
“SMME Development and inclusive Business in the Region of SADC – Enabling Environment for
successful entrepreneurship”
Small, medium and micro enterprises (SMMEs) are universally acknowledged as effective instruments for
employment generation and economic growth. However, their high failure rate in Africa is indicative of the many
challenges small businesses face. Policy frameworks and supporting agencies are requested to improve the
enabling environment for SMME development in the SADC region and beyond.
Currently, the SADC Industrial Development Policy Framework (IDPF) includes a Key Intervention Area
“Enhancing support to small and medium-sized enterprises”. SADC regards the regional approach to SMME
support and development as important and therefore emphasizes the necessity of “efforts to facilitate SME access
to market and industrial information; participation in joint investment and export promotion initiatives; improved
access to SQAM services, improvements in the quality and meeting conformity requirements”. This will enable
SMMEs to participate in regional trade and global supply chains. Specific actions under this key intervention area
will include:
(i) Developing a portal for SMMEs as a tool to provide access to trade and industrial information and for
use as a marketing tool;
(ii) Facilitating joint investment and export promotion initiatives for SMMEs;
(iii) Finalising development of an SMME component in the IUMP pilot program to improve industrial
competitiveness of SMMEs in agro-food processing, mineral beneficiation and pharmaceutical sectors;
and
(iv) Organising a series of buyer meets seller to facilitate supply chain linkages between SMMEs and
large enterprises.
The question arose whether this framework is sufficient and will be sufficiently implemented to foster SMMEs
being part of local, national, regional and global value chains. In particular, at the international level “production
has undergone significant shifts with an increase in the scope and scale of fragmentation, characterised by distinct
stages of production occurring in different locations (KDI & OECD, 2013), leading to complex and interconnected
production processes that are often referred to a Global Value Chain. These Global Value Chains can have
important implications for developing countries, e.g. in form of greater opportunities for firms and SMMEs to
enter into certain segments in the value chain. However, according to KDI &OECD (2013) regional integration
and value chain activity remain relatively limited in Africa, concentrated mainly in the export of natural resources
and agricultural products, limiting their opportunities for value chain insertion, instead of possible rapid growth
and development.
In this context, the Southern Africa Trust, commissioned by the Trust Africa’s Investment Climate and Business
Environment (ICBE) Research Fund, undertook a research study with local partners to analyse SMME
development and possible options in five countries of the SADC region (Malawi, Mauritius, Maputo,
Mozambique, South Africa and Zambia). The research focussed on the enabling environment for SMME
development on the one hand, particularly analysing the existing regulatory frameworks and support structures for
SMMEs. On the other hand, it was also examined in how far SMMEs are linked and integrated into the value chain
of national and international companies. This concept is known as inclusive business and can be defined as the
profitable integration of the poor into the value chain of a company.
Apart from the common knowledge about hindering factors for the integration of entrepreneurs into value chains,
such as the lack of access to finance, market information, skills and infrastructure (UNDP 2008) the studies also
reveals in-depth knowledge on obstacles caused by the current regulatory frameworks and support structures for
SMME development. For example, currently, support structures often lack a coordinated approach to assist
SMMEs in their growth and sustainability. There is an overlap of service offers and a focus on the initiation of
start-ups rather than a structured collective concept that addresses the life cycle of SMMEs and supports them
when they face the major challenges. In addition, regulatory frameworks often are complex and not known or
understood by SMMEs – just to mention two challenges that more or less occurred in every target country. In all
these countries recommendations were discussed in the form of National Policy Dialogues.
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As one of the solutions Supplier Development Programmes and the alignment of SMME support were and will be
discussed. Supplier Development Programmes can be regarded as a broad concept aiming at strengthening the
performance of subcontracting firms not only by enabling them to acquire the skills and capacities required of
them by the main contracting enterprise but also by raising their awareness and assisting them in reducing their
costs. A Supplier Development Programme as suggested by UNIDO can, for example cover the factors of cost
control, pricing policy, technological improvements, quality management, certification, internal enterprise
organization, logistics and the environment (UNIDO 2003).
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On June 28, 2013, a Regional Policy Dialogue was held to analyse the commonalities and significant differences
of hindering factors, recommendations and steps for actions plans that were revealed and discussed in the five
countries, also with regard to the above described SADC Industrial Development Policy Framework (IDPF). The
discussion will also include a mutual learning from success stories of the involved countries. The regional Policy
Dialogue will go beyond a pure discussion of hindering factors for SMME development but will, in particular
focus inclusive business activities and the relevant enabling environment to implement this concept as part of
national, regional and global value chains. The above SADC Policy and required instruments for an
implementation that is positively impacting on the SMME will be discussed with representatives from SADC,
governments, SMME-supporting agencies, larger firms, SMMEs, regional and national business associations, civil
society organisations, academia and other players.
The Regional Policy Dialogue shall also be seen as starting points for more inclusive growth and the discussion to
improve value chain insertion in SADC countries.
122
UNIDO therefore works with so called Industrial Subcontracting and Partnership Exchanges (SPXs) that facilitate
“contacts between subcontractors and main contractors”, and also offer “services for ensuring the effective operation and
continuity of partnerships, such as solving enterprises’ problems regarding quality, delivery times, etc. or providing
investment advice”.
Furthermore, “an SPX possesses databases on enquirers for and suppliers of work and has a good knowledge of the
members” (UNIDO 2003).
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APPENDIX IV – KEY NOTE SPEECH IN ZAMBIA
INCLUSIVE GROWTH THROUGH INCLUSIVE BUSINESS: THREE I’S FOR A
SUCCESSFUL TRANSITION TOWARDS MSME-LED GROWTH IN ZAMBIA
Keynote Speech by Hon. Emmanuel Chenda, Minister of Commerce, Trade and Industry, to the “Policy Dialogue
on MSME Development and I nclusive Business in Zambia”, at the Radisson Blu Hotel, Lusaka, 22 May 2013.
? My colleagues from the Ministry of Commerce, Trade and Industry and other government
ministries;
? Representatives from the Zambia Development Agency (ZDA), Zambia Revenue Authority (ZRA),
Citizens’ Economic Empowerment commission (CEEC), Technical Education, Vocational and
Entrepreneurship Training Authority (TEVETA), Competition & Consumer Protection
Commission (CCPC), Zambia Bureau of Standards (ZABS) and other government agencies;
? Representatives from the Bank of Zambia;
? Cooperating partner representatives;
? Representatives of the Private Sector Intermediary Organisations (PSIOs);
? Private sector representatives;
? Ladies and Gentlemen.
It is my pleasure to be here with you today on the occasion of this topical Policy Dialogue on MSME
Development and Inclusive Business. I wish to extend my thanks to the organisers of this event, the Southern
Africa Trust and Munich Advisors Group, for inviting me to contribute to this important workshop as keynote
speaker.
Ladies and Gentlemen, let me begin by commending the organisers for their initiative in undertaking the research
that has culminated in this workshop. From a quick perusal of the participants here today, and the organisations
represented, I also wish to applaud the organisers for such an “inclusive” invitation list, I do understand that it
would not have been possible to include all stakeholders in MSME development. I am satisfied, however, that
each key stakeholder group is adequately represented here today. Having said that, let me be quick to caution that
the subject of MSME development has been researched and debated extensively and that many good ideas are
already on the table. My hope is that today’s workshop will be instrumental in helping to create or increase the
momentum towards implementation.
Ladies and Gentlemen, as you know, my Ministry’s stated mission is “To facilitate and promote the growth,
development and competitiveness of (the) commercial, trade and industrial sectors in order to enhance socio-
economic development”. Thus, the role of the Ministry is to “facilitate” and “promote”. The sector outcomes
expected from the Ministry’s interventions are “growth”, “development” and “competitiveness”. It is clear from
the many assessments of the small business sector in Zambia by different observers that MSMEs represent the
greatest potential for this growth and increased competitiveness.
Zambia’s record of consistent GDP growth, year-on-year, over the past ten years has been impressive from a
distance. A closer inspection, however, reveals that this growth has mainly been driven by the large companies in
our mining sector and that, across the board, MSMEs have been left behind and have not benefited sufficiently
from this economic progress. Thus, the perennial imperative to diversify the economy has had, at least, three
dimensions; namely, (1) increasing agricultural production (thus reducing reliance on mining); (2) promoting a
shift towards processing and away from trade in primary products; and, (3) stimulating MSME participation and
growth.
Depending on one’s perspective, the lack of growth and profitability among MSMEs has been caused by, or is the
cause of, their exclusion from the extraordinary growth recorded by the large operators in mining and other sectors.
Others may point to the social, cultural and structural constraints on entrepreneurship and employment in Zambia,
including issues such as low skill levels, poor work ethic, the challenges of health to productivity, lack of access
to finance, administrative barriers; and, perhaps most damningly, Zambia’s landlocked status. I want to suggest,
81
however, Ladies and Gentlemen, that there is another, more empowering, perspective that sees the problem-
solving, job-creating, and value-creating potential of innovation. The old adage, “necessity is the mother of
invention” speaks to this view in that the problems and disadvantages I have just listed are the “necessity” which
must give birth to the “innovation” required to bring about the growth, development and competitiveness we all
wish to see in the MSME sector.
Ladies and Gentlemen, against this backdrop I wish to suggest that perhaps the real question, therefore, is whether
we are not hurting badly enough yet to feel the need to invent, re-invent or innovate. This is because, my conviction
is that it is through innovation that we will be able translate our self-view from one of:
? “low employment” to “high labour supply”;
? “poor skills” to “good opportunities for education and training”; and,
? being a “land locked” country, to a “land-linked” country with all the opportunity and potential that that
represents.
Earlier, I expressed my hope that today’s workshop will be instrumental in helping to accelerate the momentum
towards implementation. That is because, apart from innovation, another important missing link in our march
towards economic and social welfare has been timely or adequate implementation of MSME policies.
My Ministry issued the MSME policy in 2009 to provide a framework for MSME policy coordination and inter-
agency cooperation. The policy was among the latest in a series of policy interventions that begun in 1981 with
the enactment of the Small Industries Development (SID) Act. The Industrial, Commercial and Trade Policy of
1994 attempted to improve the business environment for MSMEs through improvements to laws and regulations
aimed at reducing constraints and increasing incentives for MSME growth while improving service delivery and
enabling infrastructure for the sector. In 1996, the Small Enterprise Development (SED) Act, superseded the SID
Act and included various provisions aimed at better enabling the sector. This sequence of interventions partly fell
within the context of the Fourth National Development Plan 1988-1993. As noted in the MSME policy, however,
most of the incentives contained in these instruments were never implemented because the necessary supporting
institutions, procedures and systems were never put in place.
As part of the effort to strengthen implementation arrangements related to interventions affecting the business
environment, the government embarked on Phase I of the Private Sector Reform Programme 2006-2009 (PSDRP
I), which closed in March 2009. The on-going PSDRP II is a 5-year programme running from 2009 – 2014. The
aim of PSDRP I & II is to accelerate various private sector reforms and, hence, create a highly competitive business
environment in several key sectors of the economy. The programme played an important role in the development
of the MSME Policy and in the creation of the Citizen’s Economic Empowerment Commission (CEEC) and the
Zambia Development Agency (ZDA) and in the roll out of a Credit Guarantee scheme (CGS) for MSMEs. As you
can see, there have been concerted efforts to strengthen implementation but there is still a need to better focus and
sustain this momentum beyond 2014.
A substantial portion of the industrial policy interventions I alluded to earlier have had the unfortunate effect of
undermining opportunity and participation in various areas of business for small business and for Zambians
generally. Partly in response to these concerns, Statutory Instrument No. 36 of 2011 was issued to prefer bidders
who were CEEC registered companies—or who were in partnership with such CEEC registered companies—in
public procurement. The government’s emphasis on the inclusion of Zambians in business enterprise is a key
component of its policy priorities for promoting job growth, descent work and higher incomes. The quality of
support services to MSMEs is also high on the policy agenda including the need for a more focused and streamlined
SME Division at the ZDA. The government’s focus on the inclusion and empowerment of MSMEs is further
evidenced by the release of USD20 million in Eurobond money to the Development Bank of Zambia for on-lending
to 100 MSMEs in all sectors of the economy. Additionally, the government has placed strong downward pressure
on commercial bank lending rates through the introduction of the Policy Rate by the Bank of Zambia and the
capping the margins commercial bank may charge above the Policy Rate. There are also on-going policy initiatives
aimed at encouraging a more creative and less constraining approach to requirements, by the commercial banks,
for collateral.
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Ladies and Gentlemen, let me conclude by noting that the MSME sector is the key to a more sustainable growth
path for the country. MSMEs possess the highest potential for creating job opportunities for the largest socio-
economic stratum of the population. They offer the greatest potential for adding to the national store of intellectual
capital through entrepreneurial and value addition skills and offer Zambia’s greatest asset for leveraging its
unexploited export potential. There are clearly many areas of adjustment and improvement in policy and practice
that must be made to better position the MSME sector for growth and competitiveness. The fulcrum for this process
of continuous improvement in our MSME development framework constitutes the “three I’s for a successful
transition towards MSME-led growth in Zambia”; namely, Innovation, Implementation; and, Inclusion.
I am pleased to note this workshop’s focus on “Inclusion” and it is my pleasure and honour to declare the workshop
officially open.
I thank you for your attention.
doc_649407360.pdf
This research was supported by a grant from the Investment Climate and Business Environment (ICBE) Research Fund, a collaborative initiative of TrustAfrica and IDRC.
This research was supported by a grant from the Investment Climate and Business Environment (ICBE) Research
Fund, a collaborative initiative of TrustAfrica and IDRC. It’s a working paper circulated for discussion and
comments. The findings and recommendations are those of the author(s), and do not necessarily reflect the views
of the ICBE-RF Secretariat, TrustAfrica or IDRC
Small Business Development
and the Inclusive Business Concept
By
Ullrich Klins
1
Southern Africa Trust
Johannesburg, South Africa
ICBE-RF Research Report N0. 82/14
Investment Climate and Business Environment Research Fund
(ICBE-RF)
www.trustafrica.org/icbe
Dakar, January 2014
1
Contact: [email protected]
1
Table of Contents
1 INTRODUCTION ........................................................................................................................................ 2
2 PROJECT DESCRIPTION ......................................................................................................................... 2
2.1 PROJECT PURPOSE ......................................................................................................................................... 2
2.2 RESEARCH METHODOLOGY .................................................................................................................... 3
2.2.1 Research Scope...................................................................................................................................... 3
2.2.2 Research Design ................................................................................................................................ 4
2.2.3 Data Collection Method .................................................................................................................... 6
2.3 DATA ANALYSIS .................................................................................................................................... 7
2.4 CHALLENGES OF THE RESEARCH PROJECT ............................................................................................. 7
3 SUMMARY OF DESKTOP STUDY FINDINGS ..................................................................................... 8
3.1 LITERATURE REVIEW ............................................................................................................................. 8
3.1.1 Literature review on SMME development in the target countries ..................................................... 8
3.1.2 Literature review on inclusive business .......................................................................................... 12
3.2 SMME DEFINITIONS ............................................................................................................................ 13
3.3 MACRO-ECONOMIC ENVIRONMENT AND STATUS OF SMME DEVELOPMENT ...................................... 14
3.3.1 Macro-Economic Environment ....................................................................................................... 14
3.3.2 The status of SMMEs in the target countries ................................................................................... 16
3.4 REGULATORY FRAMEWORK IN PLACE TO ASSIST WITH SMME DEVELOPMENT AND BUSINESS
LINKAGES .......................................................................................................................................................... 18
3.5 INSTITUTIONS IN PLACE TO ASSIST WITH SMME DEVELOPMENT AND BUSINESS LINKAGES ................ 24
3.6 CHALLENGES FACED BY SMMES BASED ON THE REGULATORY FRAMEWORKS AND SUPPORT
STRUCTURES ..................................................................................................................................................... 33
3.7 STATUS AND FRAMEWORK FOR INCLUSIVE BUSINESS .......................................................................... 38
3.8 INCLUSIVE BUSINESS CHALLENGES ..................................................................................................... 44
4 RECOMMENDATIONS FOR SMME DEVELOPMENT AND INCLUSIVE BUSINESS................ 45
4.1 RECOMMENDATIONS FROM THE FIVE RESEARCH STUDIES ................................................................... 45
4.1.1 Regulatory Frameworks .................................................................................................................. 45
4.1.2 Support Structures ........................................................................................................................... 46
4.1.3 Access to Finance ............................................................................................................................ 48
4.1.4 Access to Markets ............................................................................................................................ 49
4.1.5 Business Services By The Private Sector......................................................................................... 49
4.2 POLICY DIALOGUES – RECOMMENDATIONS AND ACTION PLANS ......................................................... 50
4.3 DISCUSSION OF THE RECOMMENDATIONS ............................................................................................ 55
4.4 COMMONALITIES AND DIFFERENCES .................................................................................................... 55
5 NATIONAL ACTION PLANS ................................................................................................................. 56
5.1 THE ACTION PLAN FOR MALAWI ......................................................................................................... 57
5.2 THE ACTION PLAN FOR MAURITIUS ..................................................................................................... 57
5.3 THE ACTION PLAN FOR MOZAMBIQUE ................................................................................................. 59
5.4 THE ACTION PLAN IN SOUTH AFRICA .................................................................................................. 61
5.5 THE ACTION PLAN FOR ZAMBIA ........................................................................................................... 61
5.6 RECOMMENDATIONS FOR ACTIONS AT THE REGIONAL LEVEL ............................................................. 64
6 CONCLUSIONS ......................................................................................................................................... 65
APPENDIX II - REFERENCES ........................................................................................................................ 69
2
1 Introduction
Trends in developing countries over the last two decades show that the involvement of small and very
small enterprises makes a constructive contribution to building economies, especially during periods of
economic recovery (Government of South Africa, Detea et al. 2012a). Small, Medium and Micro
Enterprises (SMMEs) play a vital role in encouraging job creation and their successes are influenced
greatly by their ability to enter the value chains of larger organisations, in both the private and public
sectors.
Though valuable to the progression of African economies, the challenges facing SMMEs are many.
Lack of access to capital, limited infrastructural capacity, limited access to markets and of resources to
enable business activity as well as a lack of economic skills are some of the pervasive constraints faced
by SMMEs.
This was the background that motivated the Southern Africa Trust to successfully submit a research
proposal to Trust Africa’s Investment Climate & Business Environment (ICBE) Research Fund, and in
September 2012, the Southern Africa Trust undertook a research study entitled, “Small business
development in connection with the inclusive business concept”.
The International Finance Corporation (IFC) defines inclusive business as, “models (that) expand access
to goods, services, and livelihood opportunities for those at the base of the global economic pyramid
(BoP) in commercially viable, scalable ways” (IFC 2011:2).
As part of its core mandate through its Business for Development (B4D) Pathfinder project, the Southern
Africa Trust seeks to contribute to social, human and economic development in Southern Africa through
programmes that foster the growth of SMMEs that adopt inclusive business models. The Business for
Development (B4D) Pathfinder Project of the Southern Africa Trust is underpinned by the ethos of
inclusive business practices. B4D is responsible for the implementation of the research study.
2 Project Description
2.1 Project Purpose
The purpose of the research is to critically describe and examine the factors that either promote or hinder
the growth of SMMEs in five African countries.
This includes the analysis of options to link smaller and micro-sized enterprises with larger firms, a
concept which is known as inclusive business. In general, inclusive business means the profitable
integration of the poor into the value chain of a company.
The overall objective of the project is to provide the necessary knowledge to improve the performance
and competitiveness of SMMEs so that there are increased entrepreneurial and employment
opportunities and, based on this, wealth creation.
The project has two components, namely:
? a comprehensive research study in five target countries, and
? the convening of multi-stakeholder dialogues at a country level and regional level (SADC) to
discuss research findings with policy makers and key players.
The research examines the factors that have promoted or inhibited the growth of small businesses in the
selected countries and how success stories can be replicated in the region. The following questions
guided the research:
? How can the development of SMMEs be described in the five target countries?
? What kind of regulatory framework works best for business development?
o To what extent is such a framework supportive of business development?
3
o What are possible hindering factors or factors that have not been implemented in
practice?
? What kind of support structures exists to foster business development?
o How functional and successful are these support structures?
? What are the major factors that hinder the development of SMMEs, in particular with regard to
the regulatory framework and supporting structures?
? To what extent has the concept of inclusive business been introduced in the five countries?
o Which (regulatory) factors promote or hinder inclusive business in these countries?
o What options are available to promote SMME linkages with larger companies
(inclusive business)?
? What are the challenges that need to be overcome to achieve this, and how can this be done?
Based on preliminary research undertaken by the Southern Africa Trust it is assumed that,
a) Although SMME development is universally acknowledged as an effective instrument for
employment generation and economic growth for development, and although governments and
other key players have made various efforts to foster SMME development, countries still fail to
support the enterprises in being successful and sustainable; and
b) The concept of inclusive business currently only plays a secondary role in SMME development
and thus in the growth and development of a country, however the stronger involvement of
larger companies that implement Inclusive business practices can trigger SMME development
and lead to economic growth and employment of a country.
2.2 Research Methodology
2.2.1 Research Scope
The research scope is focused on the development of SMMEs in the SADC region, analysing the
enabling environment for SMMEs, and to deepen the study, examining the relationship between very
small enterprises and larger organisations, and the enabling environment relevant to: (1) opportunities
within the value chain for very small enterprises; and (2) the ability of very small enterprises to do
business with larger organisations. This includes research on enabling agencies and organisations and
findings on macro-economic conditions.
Consideration was also given to the sector focus as an indicator of where SMMEs are most likely to
have access. In the target countries, the agriculture, manufacturing and retail sectors play an important
role in the development plans of the countries – with the exception of Mauritius with regard to
agriculture.
The studies were conducted in Malawi, Mauritius, Mozambique, South Africa and Zambia. These
countries were selected on the basis of existing processes on SMME development in a country, or the
absence thereof; and with regard to the research focus sectors, such as food and beverages,
manufacturing and retail.
In two of the selected countries, South Africa and Mauritius, the promotion of SMME development has
been under way for some time and it is possible to share long-term experiences:
? In Mauritius, a joint enterprise development approach involved government and other key
stakeholders. Two of the four major strategies of the Mauritius Government since the
independence of the country have been (i) to provide income earning opportunities through the
creation of jobs, and (ii) to provide non-wage income opportunities through entrepreneurship,
where the government functioned as a developmental state, facilitator, operator and regulator in
promoting an enabling environment for SMMEs.
? In South Africa, various initiatives have been undertaken to foster business development by
different stakeholders like government, the banking sector, companies from other industry sectors,
SMME-related organisations and other players. In addition, several initiatives in the field of
4
inclusive business have been started in the country that will provide solid data on concepts,
successes and obstacles in relation to SMME development.
These two countries were therefore selected to provide good practice examples and information on
promoting and hindering factors for SMME growth and development, based on the experiences from
long-term processes.
Malawi, Mozambique and Zambia were selected as they are characterised by extensive agriculture
and the lack of proper infrastructure and wealth (as is the case in Mauritius). All three countries are
targeted by retailer companies which, in South Africa, have commenced inclusive business activities,
but still retain their former traditional business concept in the markets in Zambia, Malawi and
Mozambique, importing their products from their home country South Africa.
However, SMME activities still play a role in Malawi, Mozambique and Zambia and concepts of SMME
development exist. SMME-related organisations or business associations often implement these.
Inclusive business approaches are being implemented but are still in their infancy at the broader national
level. The study intends to provide a comparison of activities in countries with differing situations,
frameworks and experiences in SMME development, including inclusive business.
2.2.2 Research Design
The research examined the factors that either promote or hinder the growth of SMMEs in five African
countries, including the analysis of options for linking SMMEs to larger companies based on the
inclusive business concept.
The qualitative research method was selected to obtain an in-depth understanding of political
frameworks, policy decisions and other factors that determine the enabling environment for SMME
development and inclusive business. In selecting a qualitative research method, of greater importance
was the fact that the studies scrutinize mindsets, attitudes and reasons for the decisions that the various
stakeholders made, as well as their perceptions of the enabling environment.
Box 1: Key aspects of the Research
The following five aspects that are relevant for SMME development and inclusive business formed
the focus of the research:
? Macro-economic environment and status of SMMEs in the target countries
? Regulatory framework in the target countries
? Support structure in the target countries
? Factors based on the above three aspects that either promote or hinder SMME development
? Inclusive business and the enabling environment thereof
? Recommendations to improve the current situation
Based on these six key aspects, desktop research and qualitative interviews were conducted. The desktop
study provided an overview of the political and economic processes that result in an enabling
environment for SMME development and inclusive business and provided insights in the following
ways:
? The situation in each of the five countries that impact on SMMEs, including macro-economic
factors;
? The focus research sectors (agriculture, manufacturing and retail) in the target countries and the
selected research provinces within these countries;
? The status and legal framework for SMME development and business linkages, including
political intentions and historic developments
? Existing public and private structures that foster SMME development and business linkages
(supporting agencies);
5
? Factors that either promote or prevent SMME development and business linkages, in particular
those related to regulatory frameworks, supporting agencies and other aspects of the enabling
environment;
? Examples of successful inclusive business activities; and
? Options to improve the current situation.
This overview provided the basis for further research on the enabling environment and a “reality check”
as to whether and/or how the regulatory frameworks and the SMME-supporting agencies had improved
the development of SMMEs and business linkages in practice. This information was obtained through
interviews, using open-ended questions completed by sub-contracted local partners. The semi-structured
interview guidelines addressed the following questions:
? What are the factors that advance or inhibit the growth of SMMEs in the target countries, and
allow for SMMEs to start or extend an inclusive business approach?
? To what extent are SMMEs using supporting factors provided by the governments, SMME-
related agencies, and the private sector to foster business linkages? Which limiting factors can
be changed for short, medium and long-term impact?
? How strongly are SMMEs linked to larger firms, in particular related to food, beverages and
manufacturing? What are the enabling and disenabling factors?
? What conditions need to be in place for larger companies to co-operate more closely with
SMMEs? Which of these factors can be realistically implemented or changed in the near
future?
? What examples of good practice exist and what can be shared and replicated?
? Are there ways in which SMMEs can get better access to people at the Base of the Pyramid
(BoP) by co-operating with larger firms?
? What needs to be changed to create an enabling environment for SMMEs to better establish
themselves and serve these markets, as part of the value chain of a larger firm?
The aim of the interviews was to gain insight into the positions and perspectives of three key
stakeholder groups on the subject matter and on the dynamics that will be practical for application
within the Southern African context. The interviews also supported the desktop research with regard
to knowledge on the implementation of laws, policies and strategies to support SMME development.
Of particular interest were the levels of awareness regarding inclusive business, as well as factors that
hinder or support its expansion. The research also considered whether a parallel can be drawn between
the views of larger organisations in the private sector, government officials and the experiences of the
owners of very small enterprises.
The mixed methodology approach was selected to strengthen the validity of the data elicited and to
overcome any weaknesses inherent in either method. It allowed the research to provide greater insights,
interpretation and discovery in cases less suitable for hypothesis testing.
The basis for study findings and recommendations was the comparative results and recommendations
at a general level (cross-country/regional level) and at the national level.
In a third step, the research findings and recommendations were discussed in multi-stakeholder policy
dialogues in the five target countries and within one regional policy dialogue. While this step formed
part of the distribution strategy, the additional recommendations of each policy dialogue were
incorporated in this present study report. In the graph below the design and procedure of the project is
summarised.
6
Figure 1: Structure of the Project
2.2.3 Research Procedure
2.2.3 Data Collection Method
The desktop research consisted of national and international studies, publications on SMME
development and inclusive business in the target countries, and analysis of documents about the
regulatory framework, including White Papers, political strategies, policies, laws and guidelines.
The activities of the SMME-supporting agencies were analysed using public documents, the agencies’
websites and direct communication with representatives of these agencies. Newspaper articles were
included, for instance in the case of South Africa, so as to be updated on SMME development.
2
The sub-
contracted local researchers, where applicable, also participated in workshops in which new
developments of legal frameworks for SMMEs were discussed. In Mozambique, for example, the
researcher took part in a workshop on the follow-up Strategy for the Improvement of the Business
Environment (Estratégia de Melhoria do Ambiente de Negócios EMAN II).
In the second step, data was obtained through qualitative interviews using semi-structured interview
guidelines exploring the opinions and experiences of different stakeholders. For each of the target
countries selected, the sample of qualitative interviews included about twenty very small enterprise
owners; eight representatives from larger organisations that influence procurement processes and
policies; and four officials from national, provincial or local government that influence policy
development with regard to SMME development and inclusive business. In South Africa, the sample
also included one representative of a business chamber representing enterprises on a national level.
2
In South Africa, in 2012, the Government announced its intention to significantly change the Codes of Good Practices for
the Broad-Based Black Economic Empowerment (BBBEE) which will have an impact on SMME development in the country.
The Government provided a draft of the new Codes of Good Practice which were discussed with key stakeholders, such as
large businesses. These announcements and discussions received extensive media coverage that was taken into account by
the South African researcher.
7
Geographical Focus
In the larger target countries (South Africa, Mozambique, Zambia), the research was conducted in
geographical focus areas outside of the capital cities. For example, in Mozambique, the poorer region
of Nampula was selected for interviews with SMMEs.
The geographical focus of the South African study falls on the so-called poverty nodes,
3
incorporating
the rural and urban poor areas or communities that have been described
4
as the spatial manifestation of
the second economy, and are characterised by underdevelopment, contributing little to Gross Domestic
Product (GDP), and absorbing the largest proportion of the country’s population.
5
Therefore, the South
African part of the study looked at provinces chosen because of the incidence of prominent rural nodes
that are not close to any urban, metropolitan areas with their particular influences and because they share
relatively high populations outside of the more urban and central Gauteng Province. They also have in
common a high incidence of rural communities and high unemployment rates within those communities.
The study was mindful that, when focusing on specific geographical areas, a market-focused approach
had to be adopted; so that the realities pertaining to local environmental conditions are taken into account
(in order to avoid creating unrealistic expectations); that basic conditions in the specific rural area need
to be in place first, such as transport infrastructure, electricity and institutional capacity; and that there
is sound co-operation between the private and public sectors.
2.3 Data Analysis
The data were mainly examined using the method of content analysis. The input was not analysed for
frequencies but rather according to categories. The main categories of the content analysis were based
on the key research objectives described in the research design (see Box 1 in chapter 2.2.2), namely:
? The status of SMME development in the target countries, including the macro-economic
situation;
? The regulatory framework for SMME development and linkages between SMMEs and larger
companies;
? The support structure for SMME development and linkages between SMMEs and larger
companies;
? The factors that promote or impede SMME development and inclusive business, with a focus
on macroeconomics and linkages;
? Existing inclusive business activities; and
? Recommendations to improve the current situation.
As indicated in chapter 2.2.2., these five major research goals were sub-divided into more detailed
research aspects and questions, as described in chapter 2.2.2 and used as sub-categories to analyse the
results in a structured way.
2.4 Challenges of the Research Project
As is often the case with qualitative research, smaller but more focused samples are used and this
brings an element of subjective interpretation into the study. The qualitative method investigates the
‘why’ and ‘how’ of decision-making, not only the ‘what’, ‘where’ and ‘when’, hence smaller but
focused samples are more often needed than large samples. It is suggested that future research of this
nature should be aimed at obtaining more data to improve statistical significance.
Even though guidelines to structure the desktop research and detailed interview questions covering
guidance notes were sent to the local research partners, the results and quality of the studies varied
3
Previously referred to as Presidential Poverty Nodes: South Africa Department of Provincial and Local
Government/Business Trust, 2007.
4
South Africa Department of Cooperative Governance (DECOG)
5
Previously referred to as Presidential Poverty Nodes: South Africa Department of Provincial and Local
Government/Business Trust, 2007.
8
with regard to deciding on the country study focus (policy versus the macro economy), the length,
extent of detail, style and quality. These aspects had an unavoidable impact on the comparability of
the studies.
3 Summary of Desktop Study Findings
3.1 Literature Review
The Southern Africa Trust comprehensively gathered literature relevant to the project and also other
sources such as websites. These are listed as Appendix II. During this phase of the research project, new
literature published after the project began was also taken into consideration.
3.1.1 Literature review on SMME development in the target countries
The literature refers to SMME development including challenges, solutions, support agencies and the
regulatory frameworks of the five target countries. Very few publications focus on only one of these
issues. Most of the publications analyse the holistic picture of SMME development in a country. Recent
publications that were released during the present research project are introduced first, followed by brief
descriptions of the literature that was available before the project commenced.
It is important to note that the available literature on SMME development at national level varies
significantly. While there is already comprehensive information in countries such as South Africa and
to some extent in Mauritius and more recently in Malawi, the literature on recent processes of SMME
development in Mozambique and Zambia is limited. Even in Mauritius and Malawi, there is a lack of
statistics, especially with respect to the informal sector and business development many of the sources
were published already in the beginning or mid-2000s. The same is true for Malawi, where many studies
have become outdated, with the exception of the studies by the International Labour Organisation (ILO)
and FinScope that are described below.
6
Literature on the situation of SMME development in Malawi
In Malawi and Mozambique the recently created new key components of the legal framework for SMME
development, in particular new SMME development strategies and policies, have not yet been fully
implemented and can therefore not be properly assessed for this report.
SMME policies in Malawi have historically been strongly criticised. The International Labour
Organisation, for example, which published one of the few more recent reports on SMME development
observed that,
“Well-designed and clear regulations, including those that uphold labour and environmental standards,
are good for the promotion of start-ups and enterprise development. They facilitate formalization and
boost systemic competitiveness. The Regulatory Quality Index measures the ability of a government to
provide sound policies and regulations for the promotion of the private sector. Malawi’s performance in
this regard has been poor and below 0, shifting from -0.48 in 2005 to -0.70 in 2011, on a scale from -
2.5 to 2.5, with higher values indicating better performance. The country scores poorly, having achieved
a value lower than that of Mozambique, Tanzania and Zambia in 2011” (ILO 2013:31).
This observation refers to the period of time before the new SMME policy was implemented and it also
highlights that the ‘Ease of Doing Business -ranking in Malawi has decreased. However, when large
companies were asked to describe the regulatory environment as it affects their daily business, about
80% assessed it as “supportive” or “very supportive, whereas this picture significantly changes when
SMMEs were asked the same question (ILO 2013:31).
6
FinScope (2012), for instance, has published a list of literature on SMME development in Malawi in the annex of their
publication, indicating that most of the studies were published before the year 2006. This lack of current information was
confirmed by the local researcher of the present study.
9
The report from the ILO focuses on the enabling environment for sustainable enterprises in Malawi (ILO
2013), analysing political, economic, social and environmental factors for SMME development in the
country. It addresses, inter alia, good governance; trade; the regulatory framework; competition; access
to finance; infrastructure; entrepreneurial culture; training and education, as well as responsible
stewardship of the environment. The analysis is based on indicators for each of these aspects and draws
comparisons between Malawi, Mozambique, Tanzania and Zambia as well as the Southern African
median. The study does not, however, examine the regulatory framework and the support structures for
SMMEs, including identifying their challenges. The findings of the ILO study supported to a large extent
the findings of the Southern Africa Trust in the Malawi country study.
There have been other recent releases in this field in Malawi. For example, in 2012 FinScope, which is
a FinMark Trust initiative, disseminated a series of survey results on SMME development in Malawi,
via a survey that was supported by the Malawi Ministry of Industry and Trade and the Reserve Bank of
Malawi as well as the United Nations Development Programme (UNDP) and the Department for
International Development (DFID) (FinScope 2012). This survey provides an overview of the size and
scope of SMMEs in Malawi, the profile of the small business owners, their financial capability and
money management, constraints and support mechanisms and, in particular, reveals comprehensive
knowledge about the current situation and options of financial inclusion in Malawi (FinScope 2012).
Additional studies conducted in Malawi by FinScope focus on women in small business – analyzing the
extent of their financial inclusion (FinScope 2012a), and the issue of education regarding the educational
profile of business owners and the options of financial inclusion (FinScope 2012b).
Literature on the situation of SMME development in Zambia
In Zambia, more recent reports focus on specific aspects of SMME development, such as the mining
and agriculture sectors. Relatively few recent publications analyse the situation of SMMEs in Zambia,
including the regulatory framework of the country and its support structure for SMMEs. Based on
specific projects, the ILO has published brief articles on business linkages in agriculture (ILO 2009) and
the Broad Based Wealth and Job Creation Programme (ILO 2011). Chisala (2008) examined the SMEs
performance in the country and identified practical lessons from South-East Asian countries that Zambia
can draw on to facilitate industrial development through unlocking the potential of its SMEs sector.
Literature on the situation of SMME development in Mozambique
Mwanza (2012) prepared a review for USAID on the “Mozambique Support Program for Economic and
Enterprise Development (SPEED)”
7
which was established by USAID in Mozambique. The review
refers to the Mozambican ‘flagship’ programmes of business linkages and business development that
are called MozLink I and Mozlink II.
8
Mwanza recommends stronger investment by the public sector in
SMME development and calls for improvement of, and investment in, the manufacturing sector. The
report also calls for more joint ventures between larger companies from neighbouring South Africa and
SMMEs from Mozambique and recommends donor programmes to foster business linkages (Mwanza
2012).
In line with this comprehensive review by Mwanza, a number of publications on recent SMME-related
processes focus on the approach and effects of MozLink I and MozLink II. For instance, there are brief
overviews by MozLink (2013) and an online presentation by BHP Billiton (2010).
A recent publication on SMME development in Mozambique was released by UNCTAD in 2012 and
focuses on Foreign Direct Investment (FDI) for SMEs in the country, the investment framework and
7
SPEED’s approach to improving the climate for private sector trade and investment divides into four broad topics:doing
business, competitiveness, macroeconomics, and governance. (USAID/SPEED 2013)
8
Both programmes bridge the needs of a large company bound by business, operational, and technical standards with the
needs of local SMEs striving for an opportunity to build their capacity and become competitive economic players. Whilst
MozLink I was implemented by BHP Billiton’s Mozambican company ‘Mozal’, MozLink II was implemented by the four
companies Mozal, Sasol, SABMiller and Coca Cola. Both programmes were supported by the International Finance
Corporation (IFC) and the Mozambican Investment Promotion Centre (Centro de Promoção de Investimentos - CPI).
10
suggested strategy (UNCTAD 2012). The ILO survey (ILO 2013) also provides useful information on
aspects of the regulatory framework in Mozambique and the SMME support structure. None of them,
however, analyse these in depth as was done in the present research project. One study analysed the key
governmental support agency of Mozambique, the Instituto Para a Promoção das Pequenas e Médias
Empresas (IPEME). It analyses the capacity and activities of IPEME at an early stage after its
establishment, the envisaged implementation matrix to support SMMEs in Mozambique, provides input
with regard to international experiences that can be replicated and makes recommendations to improve
the enabling environment for SMMEs in the country (GTZ 2009). Results of the study were used and
compared to the actual state of IPEME’s current activities and impact.
In the target countries of Mozambique and South Africa there were some political discussions on new
movements regarding SMME development and inclusive business during the phase of the present
research project. In Mozambique, public discussion on the new Strategy for the Improvement of the
Business Environment (Estratégia de Melhoria do Ambiente de Negócios, EMAN II) commenced in
August 2013 and, the relevant local research partner participated in related information workshops
(Southern African IDEAS 2013; StarAfrica.com 2013).
Literature on the situation of SMME development in South Africa
In South Africa, current discussions focus on the call for more inclusivity and the change of the codes
or regulations relating to Broad Based Black Economic Development which will foster a stronger
involvement of SMMEs into the value chains of larger companies. Media releases were followed up and
incorporated in the present studies (Fin24 2013; South African Government 2013; KMG Attorneys &
Associates/ Klopper 2013).
A general overview on the situation of SMMEs in South Africa (basic data) was provided by FinScope
(2010). The research project also covered the SME Toolkits by IFC and IBM for South Africa (IFC/IBM
2011), and Zambia (IFC/IBM 2013).
A recent report of the Small Business Project (SBP 2013) confirmed many findings of the South African
desktop study calling for the reduction of bureaucratic processes related to the “compliance burden” for
small scale companies (SBP 2013:43). In both the SPB study and the present study, small scale
companies named their need to be “integrated into value chains in the broader economy, with a firm eye
on firms’ abilities to make a productive contribution” as their main concern (SBP 2013:45). The SBP
highlighted that, “as a group, SMEs are frequently spoken about, but seldom spoken to” (ibid).
Consequently, another strong hindering factor is the lack of knowledge of governments, supporting
agencies and also larger firms regarding the specific needs and conditions of SMMEs, and this lack of
knowledge can be the basis for failure of SMME development from the outset.
A recent study commissioned by the South Africa Small Enterprise Development Agency (SEDA)
focused on the needs, state and performance of SMEs in various industry sectors in South Africa and
provided a valuable resource (Mthente 2012). The study provides a comprehensive overview of the
barriers that SMMEs face in the above sectors in South Africa and provides highly relevant
recommendations for SEDA as the central governmental support agency for SMME development in
South Africa. These recommendations include, amongst others:
? The establishment of more satellite offices of SMME supporting agencies to improve the reach
of programmes, products and services;
? Improving the alignment of these agencies’ support strategies with the context and needs of
SMMEs operating in rural areas of the country;
? The use of other official languages in addition to English;
? The introduction of sector-specific business advisors, with expertise in designated sectors;
? Avoiding a numbers-driven approach that is only focused on the quantity of SMMEs;
? The provision of follow-up support services.
11
In addition, in South Africa, the Department of Economic Development, Tourism and Environmental
Affairs of the Free State Province in South Africa (Detea), together with the ILO and the University of
the Free State, published a series of reports titled “South Africa SME Observatory – Review of the
efficiency and effectiveness of past and ongoing SME development initiatives in the Free State
province” (Detea et al. 2012a). This synthesis report is accompanied by a Literature Review (Detea et
al. 2012a) and an Annotated Biography (Detea et al. 2012b), as well as Field Work (Detea et al. 2012c).
These four reports were published only after the present research project had started, but were included
in the desktop study for South Africa because research for this project ahd been undertaken in the Free
State Province.
9
The reports by Detea et al. focus on the following aspects:
? The literature review reflects on the most important service providers at national and provincial
level, and on the role and context of SMEs in South Africa and the Free State in four selected
industry sectors. This review also includes the key problems and challenges related to SMEs
drawn from comparative research.
? The annotated biography summarises literature relevant to the SME and SMME sectors in South
Africa.
? The fieldwork report analyses the efficiency and effectiveness of past and ongoing initiatives
concerning Business Development Support (BDS) to SMEs that are taking place in two
municipalities in the Free State province.
? The synthesis report provides an overview of the business development services, training and
education, marketing and markets, administration and regulations, funding, entrepreneurial
development as well as recommendations. It integrates the various findings of the three reports
mentioned above and reflects on the key themes that run through the three reports.
Literature on the situation of SMME development in Mauritius
In Mauritius, recent publications on SMME development are scarce. The desktop study for Mauritius
identified few publications in this field that were more recent than 2000, other than Jenders (2008) and
local research partner StraConsult (2002). This may be because enterprise development in Mauritius has
been implemented for about 35 years and policy changes are characterized by the involvement of various
stakeholders. The publications do not analyse the regulatory framework for SMME development or the
support structure in Mauritius, but rather focus on motivation of entrepreneurs and the youth in Mauritius
to become more interested in entrepreneurship.
Literature on the situation of SMME development in the Sub-Sahara region
UNIDO et al. (2008) reveals five structural deficits of the Sub-Saharan region’s enterprise structure,
namely rising informality; a “missing middle” and lacking upward mobility of enterprises; weak inter-
company linkages; low levels of export competitiveness; and a lack of innovation capabilities. The
publication also explains the characteristics of the regulatory framework. Its recommendations include:
? Reforms to ease business registration and the acquisition of licences;
? Property titling programmes; and
? Simplification of labour regulations.
These recommendations are supported with regard to the target countries by the findings of the present
research project. The study by UNIDO et al. provides a series of recommendations that have been
followed up in the present research project and have contributed to the recommendations in the research
9
For this reason, the ILO was also invited to present their study results within the national policy dialogue on SMME
development and inclusive business in South Africa, which was part of the second component of the present research
project.
12
studies in the five target countries (see Chapters 4 and 5). The specific suggestions made by UNIDO et
al. (2008) are:
? Providing active government support for private sector development;
? Ensuring good practices of service delivery;
? Selecting policy interventions for private sector development;
? Improving state-business relations;
? Supporting innovative entrepreneurship, which has a strong relation to the inclusive business
concept analysed in the five target countries in the present research project;
? Strengthening inter-firm specialization and linkages;
? Promoting exports; and
? Developing financial services for SMEs.
3.1.2 Literature review on inclusive business
Literature on inclusive business at the global level
There is an extensive list of literature and websites with regard to inclusive business. UNDP has
published a series of more than 120 case studies on their websites that are linked with their Growing
Inclusive Markets (GIM) initiative, initiated in 2006 (UNDP 2013). The case studies are classified
according to sectors and countries, and the first publications became available in 2008, including the
Heat Map Methodology.
10
In addition, in 2010, UNDP and its African Facility of Inclusive Markets (AFIM) published various
documents on inclusive business that connect Millennium Development Goals (MDGs) to the approach
of inclusive business or support companies and other stakeholders to assess (inclusive) markets, (UNDP
2010a). The UNDP also moved towards providing guidance around brokering (UNDP 2010b) as well
as a manual (UNDP 2010c). The UNDP publications also become more strongly sector-focused (UNDP
2010d). The recent publication of the UNDP’s, “Realizing Africa’s Wealth – Building Inclusive
Businesses for Shared Prosperity” analyses the so-called ‘ecosystem’ of inclusive business in Africa and
the role of enabling organisations for inclusive business (UNDP 2013a). This publication provides
complementary information on support structures for SMME development.
All the recent UNDP publications illustrate that the concept of inclusive business can be regarded as a
globally accepted approach and newer publications therefore focus on the “how to implement” aspects
by developing tools and methodologies and sharing in-depths knowledge for specific industry sectors.
In this regard, Wach (2012) published a summary of methods and tools that are related to the
measurement of inclusive buisiness.
The World Business Council for Sustainable Development (WBCSD) in alliance with the Netherland
Development Organisation (SNV), is an important international publisher with a focus on inclusive
business. Both organisations became closely involved in inclusive business activities in Latin America,
and are now active globally. WBCSD and SNV have established a website that (amongst many others)
provides the reader with case studies (categorised into industry sectors, events, advocacy, reporting) as
well as regular updates on inclusive business activities and processes, recommended links and best
practice (WBCSD & SNV 2013). In addition, WBCSD has published a comprehensive toolkit that
includes case studies and a field guide for inclusive business: “Doing business with the poor - a field
guide” (WBCSD 2010).
Connected to UNDP, WBCSD/SNV and many other organisations is the United Nations initiative
Business Call to Action (BCtA), that has published a series of 13 case studies involving companies that
are active in Africa, various briefs on inclusive business, and also convenes regular information webinars
(BCtA 2013).
10
Heat Maps are an analytical tool that provides detailed information on the nature and composition of markets pertinent
to human development. Their visually compelling combination of information allows for a quick read of market
inclusiveness (UNDP 2008).
13
There is a strong link between WBCSD and the World Economic Forum (WEF) which has published
documents on “The Next Billions”, emphasizing that the untapped markets will play an important role
in promoting the growth of companies in the future (WEF 2009; WEF 2010). In addition, a specific
online discussion forum called “Next Billion” was created by the World Resources Institute in
partnership with the Acumen Fund (Next Billion 2013), bringing together business leaders, social
entrepreneurs, civil society organisations, policy makers and academics for networking and knowledge
sharing purposes.
Another internet platform, which is the world’s largest community of professionals who are “harnessing
business for social impact” is provided by Business Fighting Poverty. This platform provides knowledge
to about 11,000 members, of which 50% are from the private sector. The organisation sends out weekly
newsletters to its members on specific topics in the field of social impact, and often provide information
and updates on inclusive business activities (Business Fighting Poverty 2013).
The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) has published sector-oriented
studies on inclusive business activities such as agribusiness (GIZ 2012).
Literature on inclusive business in Africa
Kubzansky et al. (2011) had already identified in 2009 about 430 examples of inclusive business in nine
African countries, the majority of them including SMMEs.
A recent publication by GIZ addresses value chain management and inclusive business in Africa (GIZ
2013) and GIZ also produced industry-specific factsheets in partnership with large companies.
Two main internet platforms provide comprehensive information on inclusive business in Africa. One
was developed by the Business Innovation Facility (BIF) as an online forum, “The Practitioner Hub for
Inclusive Business” that currently covers project descriptions of 48 inclusive business projects in
Zambia and Malawi (Business Innovation Facility 2013b and 2013c). The other main African internet
platform is provided by Business Action for Africa since 2005, “for harnessing the collective energy of
business in support of Africa’s development (Business Action for Africa 2013), and appeals to business
partners and development organisations to “advocate” for policy changes; encourage business-to-
business partnerships to drive on-the-ground action on business issues; and share and disseminate
practical knowledge including between practitioners.
The organisation Reciprocity provides case studies for the South African context and has produced 24
fact sheets of companies implementing inclusive business in South Africa (Reciprocity 2013).
In Mozambique, the Netherland Development Organisation SNV provides information in the field of
agriculture, water and sanitation as well as renewable energy (SNV Mozambique 2013).
11
The focus of the study was on SMME development and therefore the Southern Africa Trust mainly used
sources that were relevant for this issue. In summary, all local research partners were provided with
sufficient information with regard to inclusive business at the national, regional and global level with
the exception of the research partner in Mauritius, where the concept of inclusive business has not yet
been fully adopted.
3.2 SMME Definitions
SMMEs are generally defined by revenue, assets or the number of employees (see table below). In
Zambia, the Small Enterprise Development Act of 1996 does not provide the definition of medium
enterprise, and even though there is specific legislation in place for SMME development, unlike the
other four target countries, there is no nationally accepted definition for SMMEs in Zambia. In the
11
Consequently, in the second phase of the present research project, SNV Mozambique also co-presented in the national
policy dialogue on inclusive business in the country.
14
absence of an accepted national definition, many SMMEs are not able to access the financial and other
services provided for in law, as their eligibility is not officially recognized.
Table 2: Definitions of micro and small enterprises in the target countries
Country Micro enterprises /
Employment
Micro enterprises /
Income
Small enterprises /
Employment
Small enterprises /
Income
Malawi
(Malawi’s MSME
policy)
Employs up to 4
persons.
-- Employs 5 to 20
persons.
--
Mauritius
(Small and Medium
Enterprises
Development
Authority
(SMEDA) Act
2009)
It is important to note that the concept of micro-
enterprise is not stated in the law and therefore all
official reference to this sector relates to small
and medium enterprises.
-- Annual turnover of
not more than 10
million Rupees (USD
330,000).
Mozambique
(Official Gazette -
Boletim da
República - BR No.
38 of 21st of
September 2011)
Employs up to 4
persons.
Up to 1, 200 000 Meticais
Mtn. (USD 41,551) annual
turnover.
Employs 5 to 49
persons.
Annual turnover more
than Mtn. 1,2 million
and less than or equal
to Mtn. 14,7 million
(USD 509,002);
South Africa
(South African
Department of
Trade and Industry
(1996)
Part of the formal
economy, use
technology,
employs less than
ten (10) paid
employees in
agriculture and
less than twenty
(20) in
manufacturing.
Turnover of less than
R 500,000 (approximately
US$ 56,600) for
enterprises in the
agricultural sector, and
less than
R 5,000,000
(approximately US$
566,000) for businesses in
manufacturing”.
Depending on the
industry sector:
Agriculture: 11-50
persons
Manufacturing: 21-
50 persons
Retail: 21-50
persons.
Depending on the
industry sector:
Agriculture: up to
R 3 million
(approximately US$
309,600)
Manufacturing:
R 13 million
(approximately US$
1,301,800)
Retail:
R 19 million
(approximately US$
2,150,800)
Zambia
(Small Enterprise
Development Act of
1996)
Employs up to 10
persons.
Total investment,
excluding land and
buildings, does not exceed
ZMK 80 million (USD
16,000); annual turnover
that does not exceed ZMK
150 million (USD 30,000)
Employs 11 to 50
people.
Total investment,
excluding land and
buildings: ZMK 80 to
200 million
(approximately US$
16,000 to US$
40,000), for
manufacturing and
processing
enterprises; and for
trading and service
enterprises: ZMK 150
to 250 million (USD
30,000 to USD
50,000).
3.3 Macro-Economic Environment and Status of SMME Development
3.3.1 Macro-Economic Environment
Africa is considered the second fastest growing continent in the world after Asia. Growth in Africa has
been driven by the boom in minerals, agriculture, transport, telecommunication and retail. In Southern
Africa, the continent’s largest recipient of Foreign Direct Investment, the average real GDP for 2011
and 2012 was 3.5% and 4% respectively.
12
Desktop studies reveal that South Africa was the only country
(of the five target countries) to perform below the average real GDP growth rates experienced in Africa
12
African Economic Outlook (2013), Estimation for 2011 and projection for 2012.
15
at -1.5%,
13
largely as a consequence of high exposure to the global economic downturn. None of the
other target countries in the study experienced an economic recession. The macroeconomic indicators
in the five target countries are presented below.
Table 3: Summary of macro-economic indicators
Country GDP
Growth
(%) -
2011
GDP
Growth
(%) – 2012
Unemploy
ment Rate
(%) - 2012
SMME
Contrib-
ution to
GDP –
2012
(Estimate)
Agricultur
e (% Of
GDP) -
2012
Manu-
facturing
(% of
GDP) -
2012
Retail
(% of
GDP) –
2012
South
Africa
2.5 3.2 25.5 54 2.4 9 12%
Zambia 6.8 6.9** 14 Not known 20 9.1** 17.5**
Mauritius 3.8 4
14
** 8 30.9 3.5 6 55
Mozam-
Bique
7.2 7.5 27** Below 15
***
30.9** 13.2** 17.9**
Malawi 4 5
15
** Not known 17 31.6
16
** 11.3
17
** 23.5
18
**
*In cases where official data could not be found, the symbol (–) has been in inserted in the table.
** statistics obtained from African Economic Outlook 2013c for Mozambique and African Economic Outlook 2013d for Zambia).
*** Data of World Bank found in SME World (2013).
Mozambique has the highest reported unemployment rate (27%) in the 5 target countries. However, its
GDP growth rate was 7.5 in 2012, the highest of the 5 target countries. According to the Mozambique
desktop study, GDP growth was largely driven by infrastructure spending and Foreign Direct Investment
(FDI). In contrast, Mauritius experienced a GDP growth rate of 4% in 2012, the second lowest reported
GDP growth rate. The unemployment rate was 8% in 2012 (lowest of all 5 countries), and the Mauritius
desktop study indicates that the contribution of SMMEs to employment has been materially responsible
for this relatively low rate. For example, the contribution of small and micro enterprises to employment
increased by 17.5% between 2002 and 2007. The contribution of SMMEs to GDP is 30.9%. In contrast
to Mauritius, South Africa, which experienced the second highest reported unemployment rate of 25.5%
in 2012, had the highest reported contribution of SMMEs to GDP, estimated at 54%.
South Africa and Mauritius are similar in a sense that both countries are relatively exposed to the
international economy in comparison with the other target countries. These two countries are therefore
vulnerable to global economic growth cycles. Furthermore, both South Africa and Mauritius illustrate
that the contribution of SMMEs to GDP does not automatically translate into real GDP growth, given
the unfavourable global economic climate over the past few years. In addition, there was no direct
correlation observed between the high GDP growth rate in Mozambique and the contribution of SMMEs
to the economy.
In Zambia, official figures are not available on SMME contribution to GDP. Furthermore, Zambia was
reported to have the second highest GDP growth rate (6.9%) of all the five target countries. However,
unlike Mozambique, Zambia has attributed its growth in the economy to the increase in the growth of
the SMME sector. A further driver of the 6.9% GDP growth was the agricultural sector, which
contributed 20% towards GDP.
Malawi, on the other hand, whose agricultural sector has the highest reported contribution to GDP
(31.6%) and is the country’s main economic activity accounting for 80% of employment
19
has the
13
African Economic Outlook (2013)
14
African Economic Outlook (2013b), Projection for 2012.
15
African Economic Outlook (2013b), Projection for 2012.
16
African Economic Outlook (2013a), Projection for 2012.
17
African Economic Outlook (2013a), Projection for 2012.
18
African Economic Outlook (2013a), Projection for 2012.
19
African Economic Outlook (2013a).
16
second lowest recorded SMME contribution to GDP at 17%. Though the importance of SMME
development is highlighted in government policy, the desktop study did not indicate a direct correlation
between GDP growth and SMME contribution to GDP.
South Africa (which had the highest contribution of SMMEs to GDP) had the lowest level of agricultural
sector contribution to the economy at 2.4%. The agricultural and manufacturing sectors are reported to
have the highest multiplier effect of all the sectors in the economy.
20
The study also draws a direct
correlation between agriculture and manufacturing, stating that a boost in the manufacturing sector,
through agro-processing, could lead to further growth in the agricultural sector.
A further illustration of the correlation between agriculture and manufacturing is seen in Zambia, which
experienced the second highest recorded GDP growth rate, and attributes its growth in the manufacturing
sector of 9.1% of GDP to the agro-processing sector. In addition, continuous investment in the
manufacturing sector is important to the country’s long-term growth and employment strategy.
In direct contrast to Zambia, Mauritius does not consider the agricultural sector as a priority. Agricultural
activity is therefore not recorded by the Census of Economic Activities. The study indicates that
Statistics Mauritius has reported a consistent decline in most agricultural activities between 2010 and
2011, mainly due to the decline in the demand for sugar from that country. The growth in the
manufacturing sector was largely due to the expansion of the textile industry, which grew by 7% in
2011; this was offset by a 6.8% contraction in sugar milling (agro-processing).
21
The manufacturing
sector in Mauritius contributes only 6% to the GDP. The experiences from these three countries are a
clear indication that the correlation between the manufacturing and the agricultural sectors’ contribution
to GDP and their multiplier effect needs to be explored further.
The retail sector in Mauritius accounts for 55% of GDP, the highest sector contribution towards GDP
of its category. Due to the country’s export-oriented industry and exposure to the Euro Debt crisis from
2008 to 2012, GDP growth remained flat at 3.8% and 4% between 2010 and 2011 respectively. As a
result, the retail sector had a minimal effect on positive economic growth. This is further illustrated by
findings in Malawi in which the retail sector contribution to GDP was comparatively the second highest
reported (23.5%), although mining and agriculture are reported as the key drivers of economic growth.
22
In addition to Malawi, the Mozambique retail sector represents 17.9% (see Table 3) and has also not
been mentioned as a key driver of economic growth. This trend is observed in all five target countries
of the study. This indicates that relations between the positive economic growth of GDP and SMME
development cannot simply be assumed. The same is true for the often assumed correlation between
SMME expansion and a strong contribution of the labour-intensive sector of agribusiness to GDP.
3.3.2 The status of SMMEs in the target countries
There are significant differences in SMMEs and SMME development between the five target countries.
For instance, there are differences in the entrepreneurial mindset, in the establishment of SMMEs, and
also in the size. The Mauritian legal framework, for example, does not cover micro enterprises, yet a
vibrant sector of small and medium-sized enterprises was established over decades.
Mauritius has seen a significant increase in SMMEs in the last decade. There have been notable increases
in the wholesale and retail trade business and in transport, storage and communications. These and the
business of personal and household goods top the list of sectors with 55% of business activity while
manufacturing only has 6% of the sector.
23
However, leather and garments, food and beverages as well
as the profession/vocation/occupation category are the subsectors where more enterprises have started
operations. With the higher level of educational attainment in Mauritius, many entrepreneurs are
20
For instance, a R1 (R1 or $0.1132) investment spending in the agriculture and manufacturing sectors will lead to more
than a R1 value, R1.8 ($0.20) and R1.13 ($0.13) respectively in overall output (Manufacturing Circle of SA 2012).
21
African Economic Outlook (2013b).
22
African Economic Outlook (2012a).
23
Statistics Mauritius (2012).
17
opening offices to provide services to SMMEs such as consultancy, legal advice and company secretarial
services.
24
The agribusiness sector does not play a significant role in Mauritius itself, in particular due to imports
and the decline in sugar production. There is a strong culture of entrepreneurship, although this is not
emulated by younger adults, who are particularly opposed to careers as planters or farmers. With the
overall rise in the education level, people tend to aspire to ‘white collar jobs’. There is also a net
regression in the number of women who engage in entrepreneurship not as employees but as employers
or own-account workers. In 2002 the proportion of women stood at 16.6% of total number of employers
and own account workers; by 2007 this had fallen to a modest 6%.
25
The major challenges for SMMEs
in Mauritius can been seen in the access to finance, in particular working capital, the availability of
skilled labour and competition with foreign countries.
In Malawi, there were some 758,118 small business owners in the country, operating 987,480 enterprises
in the year 2012 and creating jobs for about 1,050,320 people.
26
They are overwhelmingly involved in
retailing, although almost 1 in 8 (13%) were involved in service provision. SMMEs generate revenue of
some US$ 2 billion. Due to Malawi’s highly rural population, most SMMEs in Malawi are linked in
some way to agriculture, and operate on small pieces of land. Some 30% of these businesses sell
agricultural products, and a further 23% conduct general trade and vending. Many are rural, family-run,
husband-and-wife firms that operate only on a part-time basis outside of the agricultural production
cycle, and are largely stagnant, and used to provide subsistence income.
27
In contrast to many SMMEs
in Mauritius, these people are driven by necessity. They are established mostly as a result of the decline
in formal employment rather than as a response to opportunities in times of economic growth. Many
such businesses have a short lifespan, and thus do not benefit from economies of scale and experience
accumulated over time.
Previous efforts by government have fallen short and many Malawians thus remain in unprofitable
businesses, while foreign investors dominate in larger, profitable firms, with a lack of vibrant businesses
in the central space that could link and eventually upscale enterprises across the country.
28
Common
barriers to the development and growth of SMMEs include the high cost of doing business; weak value
chain integration; lack of specific policies aimed at women and the youth; limited access to credit and
business development services; lack of a strong, coherent and organised MSME voice to represent the
sector; inability to meet production standards; and few opportunities to engage in export.
29
In Mozambique, 86% of the companies are sole proprietorships (one owner only) and 89% are micro or
small enterprises with less than 10 employees, whereas 14% are corporations. However corporations
hire 65% of the workers and contribute to 69% of the annual turnover of the private sector. Large firms,
with 100 or more employees, represent only 1% of firms in Mozambique but they provide 54% of the
work positions and contribute to 44% of the annual turnover.
30
As in Malawi, most SMMEs in Mozambique, especially the informal ones, are created either as a
response to a lack of well-paid formal employment or as a source of additional income. They appear
when given market opportunities. These entrepreneurs usually have no prior knowledge about business
management or entrepreneurship and generally avoid the risk of long-term investment that would result
in quality improvement and structuring the enterprise.
The deficit of entrepreneurship and risk-taking exists also in Zambia, where many enterprises are
primarily engaged in the supply of traditional goods and services to the domestic market. Many business
owners in this category lack the self-belief, innovation and foresight required to envision a growth
24
Ibid.
25
Statistics Mauritius (2013).
26
FinScope (2012).
27
Ibid.
28
Government of Malawi/ UNDP (2012).
29
Ibid, as well as UNIDO et al (2008).
30
Instituto Nacional de Estatística (2009).
18
trajectory for their enterprise that goes beyond the fulfilment of their basic income requirements. The
lack of innovation also implies that the sector is challenged by inefficient business practice that does
little to improve quality, reduce costs and improve their competitiveness.
Despite the SMME proliferation that resulted from economic liberalisation in 1991, the predominance
of the informal sector in Zambia (approximately 90%) and the consequent lack of documentation,
accounting and reporting makes it difficult to quantify the sector’s contribution to economic growth and
development. The majority of the SMMEs are active in the field of manufacturing, trading and
services.
31
In South Africa, on the other hand, the situation appears different at first glance. In its “rankings on the
ease of doing business”, the World Bank/IFC ranked South Africa 39 in the global comparison.
32
Despite
these relatively high rankings, the Global Entrepreneurship Monitor report for South Africa predicts that
nine out of ten start-up initiatives in South Africa fail very quickly.
33
Thus the vast majority of SMMEs
do not reach their full potential and fail to grow, resulting in lost jobs and diminished wealth for the
region in which they are based. Nonetheless, South Africa is home to 5,979,510 small enterprises.
34
There has been a significant increase in the number of registered enterprises from the reported 800,000
that were originally recorded in 1995.
35
Similar to the above countries, other than Mauritius, the SMME environment is dominated by retail,
which comprises 78% of the sector, and is mainly emerging enterprises that are not globally competitive
or integrated into global manufacturing and supply chains, as well as poorly skilled, less innovative and
under-capitalised enterprises, particularly in terms of technology and capital.
36
Limited beneficiation
by the manufacturing, mining and agricultural sectors as well as the dominance of a few large firms in
critical intermediate industries affects the creation of SMMEs downstream. However, there are potential
markets such as, for example, the manufacturing sector, which currently represents over 76% of the
country’s exports and 13.4% of its GDP.
37
Scope for growth can also be found in the agricultural sector which currently represents about 9% of the
country’s exports and contributes 2.4% to its GDP
38
. Although large areas of unutilized arable land are
available and South Africa covers less than 4% of the African continent, the country has the most rapidly
transforming food sector on the continent and is one of the six net food exporting nations in the world.
39
Regardless of other interventions that need to take place in South Africa, the spotlight falls on education
as an aspect that deserves critical attention. The World Economic Forum, cited in the GEM 2012 report,
indicates that, in terms of the quality of mathematics and science education, South Africa rates 143 out
of 144 against other efficiency-driven economies.
40
3.4 Regulatory Framework in place to assist with SMME Development and
Business Linkages
For most SADC countries, SMME development as a means of economic growth and job creation is a
recent realisation. Having a regulatory framework in place to foster SMME development is characterised
by:
? A specific government macroeconomic policy or strategy in place that has led to legislative
and/or financial and/or non-financial interventions; and/or
31
Government of Zambia/Ministry of Commerce, Trade and Industry (2007).
32
World Bank/IFC (2013).
33
Herrington et al (2012).
34
FinScope (2010).
35
Lloyd (2002).
36
Herrington et al. (2012).
37
World Bank 2011.
38
See also Index Mundi (2013).
39
International Trade Centre (2010).
40
World Economic Forum (2011); see also Herrington et al. (2012).
19
? Specific legislation(s) in place that lead to financial and/or non-financial interventions.
The desktop studies reveal that the regulatory frameworks in place to foster SMME development in the
target countries came into effect as a result of a new political dispensation or a country’s increased level
of involvement in the international economy.
Mauritius, for example, began its legislative interventions for the purposes of small business
development with the Small Scale Industries Act of 1988 which was formed as a result of a 20-year
industrialisation process and import substitution strategy. Even before this Act, SME development was
promoted by government, starting in the 1960s and in 1976, the Small Scale Industry Unit (SSIU) was
established under the aegis of the then Ministry of Commerce and Industry. The outcome has been a
stable exporting country that is well integrated into the global economy.
41
In keeping with the trend followed by Mauritius, albeit only to a certain extent, Zambia, which
liberalised its economy in 1991, effected its Small Enterprise Development Act in 1996. Already in
1981 the Small Industries Development Organisation (SIDO) was created through the Small Industries
Development (SID) Act. SIDO was charged with promoting the MSMEs sector by, inter alia, addressing
the financing needs of small-scale companies as defined in the Act. In other words, the key issue of
access to finance for small scale businesses was already discussed in Zambia before other target
countries (except Mauritius) had established any significant legislation on SMME development at all.
Notwithstanding all these efforts and pronouncements in the early 1980s, there was little impact on
SMME development as significant gaps remained in the implementation, funding management of the
supporting institutions.
42
There was furthermore the added constraint of a history of state dominance in productive enterprise that
had, over a period of nearly three decades, inculcated a culture of state dependency into the population
and resulted in a near complete lack of entrepreneurial spirit.
43
Following the liberalisation of the
economy in Zambia in 1991, the Industrial, Commercial and Trade Policy was issued in December 1994
to encourage private enterprise.
44
In South Africa, however, though well integrated in the international economy today, the
commencement of SMME development was heavily influenced by what happened during the apartheid
era.
45
The change in the political landscape after 1994 led to more focused attention on SMME business
development, and the National Small Business Act of 1996 was promulgated.
The end of the apartheid era also led to a concept that today is known as Broad-Based Black Economic
Empowerment (BBBEE). The BBBEE Act aims at increasing the number of historically disadvantaged
persons who have an ownership stake in, and control of, enterprises assets as well as their indirect
empowerment through preferential procurement and enterprise development, mainly by government.
The regulatory framework focusing on BBBEE has a significant impact on the SMME development in
the country. It clearly fosters SMME development, but also leads to a more complex situation as legal
approaches of BBBEE and SMME development might overlap. Whilst BBBEE leads to (indirect)
empowerment through preferential procurement and enterprise development of SMMEs, the general
concept of SMME development does not only address formerly disadvantaged persons, but all potential
entrepreneurs. To properly understand and foster SMME development in South Africa, entrepreneurs,
start-ups, larger companies and other stakeholders must be aware of the complex regulatory framework
that can be synergic but may also present obstacles for entrepreneurs.
46
Although Mozambique and Malawi have no legislation specifically for the purpose of SMME
development, there are government policies and strategies in place.
41
Lal/Peedoly (2006).
42
Mauzu (2013).
43
SME World (2013).
44
Government of Zambia/Ministry of Commerce, Trade and Industry MCIT (2007).
45
Stanton/Polatajko (2001).
46
Herrington/Overmeyer (2006).
20
In Malawi, the government approved a first Small and Medium Enterprise Policy in 1998. In 2012, the
government introduced a new MSME policy for the period 2013 to 2017. This new policy was approved
to better enhance policy implementation and integration; strengthen the capacity of the Ministry of
Industry and Trade; foster business-to-business linkages and support high potential value chains in
export promotion and import substitution crops; and promote an enabling environment for SMME
development. The SMME Policy is one way of safeguarding government’s role of promoting a market
economy for SMME development by ensuring that there is less direct intervention. In this regard, the
government of Malawi through its Ministry of Industry and Trade is in the process of reviewing all
economic laws to ensure that the entire legal framework is business-friendly. This process will ensure
that economic laws complement each other and are not in conflict. This development will go a long way
to facilitate business activity in the country and augurs well for the MSME sector.
Mozambique has a Strategy for the Improvement of the Business Environment (Estratégia de Melhoria
do Ambiente de Negócios EMAN I) which was approved in 2008 and terminated in 2012. EMAN II
was approved in 2013and focuses on the further reform of the legal and institutional framework and the
refinement of the processes. In 2007 the Mozambican government approved a strategy for the
development of Small and Medium Enterprises known as the “Estratégia para o Desenvolvimento das
Pequenas e Médias Empresas em Moçambique” which provided the foundation for the creation of the
Institute for the Development of Small and Medium Enterprises (Instituto Para Promoção de Pequenas
e Médias Empresas IPEME). EMAN I and II complement this strategy. In 2010, Mozambique developed
Procurement Act No. 15 that covers the legislation of public tendering from small scale enterprises.
In all the target countries, government macroeconomic policies and strategies have led to specific
interventions in the form of legislation and/or financial support and/or non-financial support for
SMMEs. Key government macroeconomic policies/strategies in the target countries include:
? South Africa: Integrated Small Business Development Strategy (2003)
47
? Zambia: Micro Small and Medium Enterprise Policy (2009)
48
? Mozambique: Strategy for the Promotion of Small and Medium Enterprises (2008)
49
? Malawi: Micro Small and Medium Enterprise Policy (1998, revised 2012)
50
The prevailing trend in the four countries mentioned previously is that, within the regulatory framework,
an SMME development macroeconomic policy is generally followed by specific legislative
intervention(s) put in place to foster SMME development. In Mozambique, for example, the creation of
a solid tax regime for SMMEs was mentioned as an SMME development measure in the ‘Strategy for
the Promotion of Small and Medium Enterprises’ (EMAN I) of 2007. In 2009, the Simplified Tax for
Small Contributors (Imposto Simplificado para Pequenas Contribuentes (ISPC)) was introduced. The
ISPC applies to some small and micro enterprises and constitutes 3% of turnover. Businesses that qualify
for ISPC are also exempt from VAT and other taxes.
Tax incentives in Zambia are provided for by the Zambia Development Agency (ZDA) incorporated as
a result of the ZDA Act of 2006. The ZDA also provides SMMEs with access to markets and financial
support. The ZDA Act of 2006 is the main legal provision for development of the SMME sector in
Zambia and is the principal legislation under which the SMME development policy is implemented.
47
The primary objective of this strategy is to create an enabling environment for the accelerated growth of small businesses
following a history characterised by the dominance of large, capital-intensive firms and the continued neglect of small
enterprises.
48
The primary objective of this policy is to create a vibrant, dynamic sector that contributes 20% towards GDP and 30%
towards the creation of decent employment annually by the year 2015.
49
The primary objective of this strategy is to facilitate SMME development by (1) improving the business environment; (2)
capacity building; and (3) the development of strategic support for SMMEs.
50
The primary objective of this policy is to create a conducive environment in which SMMEs can operate by (1) enhancing
policy implementation and integration; (2) improving the operations of value chains; (3) improving business development
services; (4) improving information, skills and technology standards; and (5) promoting an enabling environment.
21
Unlike Zambia, with one specific law pertaining to the implementation of SMME development, the legal
framework for SMME development in South Africa under the Integrated Small Business Development
Strategy (ISBDS) is relatively broad.
51
For example, one of the key targets for development support in
the ISBDS is the promotion of black-owned SMMEs. The proposed intervention to these is underpinned
by at least 5 different laws: (1) Preferential Procurement Act of 2000; (2) Public Finance Management
Act of 1999; (3) Broad Based Black Economic Empowerment (BBBEE) Act of 2003; (4) Co-operatives
Act of 2005; and (5) Competition Act of 1998.
In contrast to the other four countries, the regulatory framework in Mauritius, a country in which SMME
development contributes 30.9% of GDP, only makes use of specific legislative interventions that foster
SMME development. The SMEDA Act of 2009 is the focal law in place for SMME development. It
provides for the establishment of the Small and Medium Enterprise Development Authority (SMEDA)
in Mauritius. Furthermore, the SMEDA Act provides for a number of strategic interventions similar to
those in the Micro Small and Medium Enterprise Policy of Malawi. The SMEDA Act also provides for
interventions similar to those in the Mozambican Strategy for the Promotion of Small and Medium
Enterprises
52
which has led to the establishment of over 500,000 SMMEs. The legal framework in
Mauritius, which regulates business operations including SMME operation, is comprehensive and each
piece of legislation serves a specific role with the SMME-related activities being regulated by only four
major laws. The laws are complementary and clearly define the role of institutions in facilitating
business operations.
The desktop studies on Malawi and Mauritius indicate that within a regulatory framework the
macroeconomic policy specifically designed for the development of SMMEs does not necessarily need
to precede a focal law for the development of SMMEs in order to yield positive results. The opposite is
also true. The existence of a (comprehensive) regulatory framework does not necessarily mean that the
framework in place is successful. In particular in South Africa, a country with an extensive network of
plans, policies, strategies and laws in place, the challenge of limited capacity and proper implementation
means that in spite of all efforts made and South Africa being ranked in the best 40 countries globally
regarding the “ease of doing business”,
53
70%-75% of the SMMEs have to close down again within the
first years,
54
with most SMMEs being unaware of the strategies, policies and laws that are in place.
55
While there was no information on the exact number of failures of start-ups in the other target countries,
it can be assumed that the failure rate of SMMEs in Mauritius is comparably low as SM(M)Es are
regarded as an important component of the economy.
In Zambia, SMMEs have emphasised weaknesses and threats of the regulatory framework, but the
relevant ministry, the Ministry of Commerce, Trade and Industry (MCTI) has responded to these
concerns and developed a Strategic Plan addressing these issues. Thus, several instruments are up for
review including the Zambian Development Agency (ZDA) Act, the Weights and Measures Act, the
Standards Act and the Companies Act, all of which should have been reviewed by December 2012 in
accordance with the timeframes contained in the MCTI Strategic Plan. Due to delays and challenges in
implementing this Strategy Plan, and due to various factors including poor intra and inter-agency co-
ordination, lack of policy alignment across institutions and sectors, deficiencies in implementation
capacity and inadequate, or untimely, resource allocation, many of the benefits have not yet been felt
“on the ground” by the small business owners and other stakeholders.
51
The research partner identified over 20 laws pertaining to the legal framework for SMME development.
52
The SMEDA Act Provides for (1) the promotion of SMMEs; (2) the provision of support services; (3) the implementation of
a registration scheme for SMEs; (4) facilitation of access to productive resources; (5) facilitation of networking among SMMEs
and business linkages between SMMEs and large companies; (6) devising and reviewing policies relating to SMMEs; and (7)
the co-ordination of public and private sector initiatives relating to SMEs.
53
The newest World Bank Report ranks South Africa 39 (World Bank/IFC 2013).
54
Herrington et al (2012).
55
This has been confirmed through the interviews with SMMEs that were conducted by the local research partner in South
Africa.
22
In Mozambique many parts of the regulatory framework are not known to the SMMEs, some of whom
have indicated that they do not regard the framework as helpful. A significant exception to this applies
to the more recent simplification of laws and regulations which have been well communicated by the
government and thus are known and valued by SMMEs. This can be regarded as a success story which
could also be replicated in other countries.
In Malawi, the current awareness of SMMEs about the regulatory framework is difficult to assess as the
policies were recently reviewed with the intention of improving their implementation. Up to now the
challenges of the regulatory framework have been perceived as being complex. The business
development services and the lack of access to finance are also seen as being bureaucratic and costly
and place MSMEs at a greater disadvantage than their counterparts that are larger in size. One example
is the high cost of compliance with regulations which may discourage potential entrepreneurs from
formally setting up a business, while driving some existing enterprises out of business and those working
for them into unemployment.
In Mauritius, on the contrary, SMMEs are aware of the four main laws that affect them and concede the
legal framework as important for them to operate but explained that business laws do not influence their
decision-making about their business. These business laws are rather seen as entry points that allow
SMMEs to be officially recognised and therefore to obtain access to grants, to loans and to market spaces
dedicated to SMMEs or hawkers. SMMEs indicated that there are enough laws to regulate business
operations and most of them stated that reforms of the Companies Act and the Business Facilitation Act
are not necessary.
Support to the SME sector is ongoing. It is worth noting that, in his latest budget speech, the Minister
of Finance and Economic Development viewed SMEs as crucial to the Government’s resolve to
democratise the Mauritian economy. The democratisation of the economy has been the motto of the
government since coming into power in 2005. In that respect a series of measures to boost the SME
sector was announced. These measures are a continuation of measures of previous government
budgets:
56
? Banks will now loan an amount of 250 million rupees (USD 8,333,300) annually to micro and
small enterprises with turnover under 10 million rupees (USD 333,300).
? The VAT registration threshold is increased from a turnover of 2 million rupees (USD 66,600)
to 4 million rupees (USD 133,300) per annum, thereby allowing SMEs with turnover lower than
4 million rupees to forego administrative costs which accompany VAT computation.
? One of the main reasons why few SMEs do not participate in Government tenders is because of
the need for performance bonds and other bank guarantees. Most SMEs do not have the
necessary funds to obtain a performance bond. In that respect, government has decided that
performance bonds for government tenders will not be required for contracts of up to 5 million
rupees (approximately USD 166,667). The requirement to provide advance payment guarantees
will also be considerably overhauled. This is meant to allow more SMEs to tender for
Government contracts.
In all the other target countries the interviews revealed that SMMEs and the private sector feel excluded
from the design and development of legislation and policies. The request is that governments should
engage them more proactively in the process and communicate the legislation more clearly.
56
Doubling the amount of refund to SMEs for participation in international fairs from 100,000 to 200,000 rupees and
providing a grant for freight expenses of up to 20,000 rupees is yet another measure proposed by the Minister of Finance in
his budget speech (Laporte 2012).
23
Table 4: Regulatory frameworks in the target countries
INDICATOR MALAWI MAURITIUS MOZAMBIQUE SOUTH
AFRICA
ZAMBIA
Start of
framework
1998 1976 2007 1994 1981
Type of core
regulation that
targets SMME
development
Policy
57
Law
58
Strategies
59
Laws, policies,
strategies, plans
and frameworks
60
Law
61
but also a
SMME Policy, a
Strategic Plan and
a Development
Programme
Complexity of
framework
Low Low Low High Medium
Awareness of
SMMEs on
framework
(Based on
interviews)
Low High Low in general,
but medium-high
with regard to
simplifications
Low Low, but this
might be changed
through the new
Strategy Plan
Appreciation by
SMMEs (Based
on interviews)
Low until now Mainly positive
feedback
Low, but high
with regard to
simplification of
administration
Varies, but due to
lack of
knowledge and
failure rate ranked
as low
Low up to now
Attempt for
business linkages/
inclusive business
For example the
revised Policy
from (2012)
Through the
SMEDA Act
(2009)
Through the
Strategy of the
Support for
SMMEs (2007)
Through various
regulations, e.g.
the Integrated
Small Business
Development
Strategy (2003)
Through the
Zambian
Development
Agency Act & the
new Strategic
Plan
Success/impact
(est.)
Low
62
until now,
the new SMME
Policy is only in
place for a short
time. The
preceding
regulatory
framework was
criticized due to
the lack of
implementation
High as the
awareness of
SMMEs of the
regulatory
framework is
high and a
significant
number of
(sustainable)
enterprises have
been created.
Low, changes
might happen due
to new Strategy
Plan.
Simplification for
SMMEs can be
seen as success
that even can be
replicated in other
countries.
Varies, but low in
terms of failure
rate of SMMEs.
Higher impact
through Black
Economic
Empowerment,
but also led to
confusion on
which framework
is applicable.
Low until now,
the new SMME
Strategy is only in
place for a short
time. The
preceding
framework was
criticized with
regard to capacity
issues and lack of
policy alignment.
In terms of business linkages/inclusive business there are no specific laws in place although the
regulatory framework in each target country offers opportunities mainly through the creation of
supporting agencies.
It needs to be noted that the implementation of a given regulatory framework is often one of the major
challenges in relation to SMME development and inclusive business. For example, though it is the legal
mandate of SMEDA in Mauritius to create linkages between smaller and larger business, about half of
the interviewed SMMEs in Mauritius prefer to link with the larger companies by themselves. In other
57
Amongst others, this policy is embedded in growth strategies and poverty reduction strategies as well as laws that
regulate the operational level (taxes etc).
58
There are only 4 major laws covering SMME development, namely the Companies Act; the SMEDA Act (which regulates
the major SMME-supporting agency of the government; Business Facilitation Act which covers administrative aspects such
as registration or classification; and the Mauritius Revenue Authority Act which among others covers the issue of taxes.
59
In Mozambique, laws are used to target specific issues such as taxes, procurement/tendering, single attendance counters,
licensing, etc. For SMMEs these laws simplify administrative processes.
60
In South Africa, there is a complex mix of White Papers, frameworks, strategies, policies and laws that regulate SMME
development. In addition, SMME development is also strongly influenced by the Broad-Based Black Economic
Empowerment Act (BBBEE 2003) and a related framework.
61
The law is embedded as National Development Plans, SMME policy of the year 2009 and accompanied by laws on funding
and taxes as well as the Companies Act. Recent approaches also cover a new Strategic Plan by the Ministry of Commerce,
Trade and Industry (MCTI) and a Private Sector Development Reform Programme.
62
Malawi and Mozambique were ranked lower in the current World Bank ranking “Ease of doing business” compared with
the report from last year (World Bank/IFC 2012 and World Bank/IFC 2011).
24
countries, the approach of business linkages often requires a more co-ordinated effort from the
stakeholders involved, in particular the SMME-supporting agencies.
3.5 Institutions in place to assist with SMME Development and Business
Linkages
The establishment of public sector institutions specifically offering financial and non-financial support
to SMMEs is based on the promulgation of specific legislation or the implementation of government
policy. Private sector institutions
63
offering the same support take advantage of the regulatory
framework in place for SMME development. Business development support initiatives should assist
enterprises in overcoming hindrances to start-up, growth and survival.
South Africa
Legislation in support of SMMEs has made inroads in promoting change on the economic landscape. In
1995 a White Paper was published as a national strategy for the development and promotion of small
business in South Africa. This paper addressed the establishment of a support framework in the form of
enabling legislation, institutional reform and leveraging financial and other forms of assistance for small
business development. SMME support structures were formed as a result of such national and provincial
strategies. The landscape of the SMME support structure in this country is almost as complex as its
regulatory framework.
The South African Departments of Trade and Industry (DTI) and the Department of Economic
Development (EDD), as custodians of SMME development, play the most significant role in developing
policy and support structures to grow enterprises in the country. The support structure in South Africa
covers a variety of organisations, training institutions, facilitators, consultants and government
departments at national, regional and local level. It is offered by public and private organizations in the
form of a more general support, but also covering industry sector-specific support.
National and provincial departments and government agencies such as the Industrial Development
Corporation (IDC), Small Enterprise Development Agency (SEDA, also see below) and the Small
Enterprise Finance Agency (SEFA) offer support to SMMEs and facilitate access to markets and
finance; beneficiation and value addition of products and services; promote regional production; equity
and economic participation; and support knowledge-intensity and services integration. There is also the
National Youth Development Agency (NYDA) which advances youth development and promotes the
participation of youth in small business activities. The Development Bank of Southern Africa (DBSA)
is another player that offers support to SMME development although this is done in an indirect way,
namely through the financial support of governmental programmes such as the Jobs Fund,
64
, the
Development Fund
65
or third party projects of municipalities or other initiatives initiated by
Government.
Again, as a result of the important development component of black economic empowerment, there is
also the National Empowerment Fund (NEF) which supports BBBEE by anticipating future funding and
investment requirements that may be needed to assist black entrepreneurs and communities to achieve
each of the elements of the BBBEE codes of good practice, such as placing a focus on preferential
procurement and broadening the reach of equity ownership.
Although each of these support agencies have as their core mandate the development of SMMEs, there
is an overlap of activities which also leads to confusion for SMMEs. In addition, the landscape of support
63
Private sector institutions include companies and non-governmental organisations.
64
The objective of the Jobs Fund is to co-finance projects by public, private and non-governmental organisations that will
significantly contribute to job creation. This involves the use of public money to catalyse innovation and investment on
behalf of a range of economic stakeholders in activities which contribute directly to enhanced employment creation in
South Africa (Jobs Fund 2013).
65
The mission of the DBSA Development Fund is to capacitate municipalities and communities for effective and sustainable
service delivery and economic development in order to improve the quality of life (Development Bank of Southern Africa
2013).
25
structures is barely known by SMMEs, in particular in rural areas, and also differs at local level with
regard to the quality, engagement and capacity of local offices and SMME incubators.
The best known agency is SEDA, under the auspices of the Department of Trade and Industry, and one
of the most important agencies supporting SMMEs in South Africa. Currently 80% of SEDA’s support
is targeted at start-up, very small and micro enterprises and only 20% is directed at what SEDA refers
to as high-growth small and medium sized enterprises (SMEs). These are the enterprises that have been
in business for more than three years and have the potential to create more jobs.
SEDA has nine provincial offices, 42 national branches and 30 incubators.
66
Compared to its
international counterparts, the budget allocated to SEDA and its provincial offices is relatively limited
and it is required to demonstrate the quantum of its successful interventions (such as formalising
informal businesses), with less attention being given to the impact of these interventions. As with the
financiers, the risk element influences the selection of ventures that SEDA supports, and their focus has
recently shifted from very small enterprises to small and medium enterprises (SMEs). This is in line
with the National Development Plan (NDP), the New Growth Path (NGP), and national government’s
Industrial Policy Action Plan (IPAP), placing increased focus on developing programmes and support
products and services for SMEs in the high-growth agriculture, mining and beneficiation,
manufacturing, green economy and tourism sectors.
67
The lack of resources and capacity of SEDA on
the one hand, and the plethora of support agencies on the other hand, clearly reveals the need for a more
co-ordinated and consolidated paradigm for SMME development in the country.
Malawi
A similar situation is seen in Malawi where a confusing number of organisations at national, and in
particular at local, level aims at supporting SMME development in the country. Recently some of these
organisations were merged at national level and as a result the Small Enterprise Development Institute
(SMEDI), the new merger of three former support organisations, is now the responsible government
agency providing training, starting and growing SMMEs, and also providing finance to trained SMMEs
and related business advisory services. The focus of SMEDI will remain on the micro level of
enterprises, particularly with regard to vocational training. As separate institutions there was excessive
duplication of efforts
68
owing to their respective strategic drifts, but there were also gaps related to
mentoring and business advisory services, amongst others. Furthermore, training service costs are
unaffordable to potential clients.
69
Another merger in Malawi resulted in the Malawi Investment and Trade Centre (MITC) being set up
with a mandate to promote investment and export in the agriculture, agro-processing, fisheries, forestry,
manufacturing, mining and tourism sectors.
70
Furthermore, a variety of business associations support
SMME development, such as the National Association of Small and Medium Enterprises (NASME);
the National Association of Business Women (NABW); the Indigenous Business Association of Malawi
(IBAM); and the Employers Consultative Association of Malawi (ECAM). All these organisations face
limitations and constraints and thus support to SMMEs remains ineffective, often because the
associations are not available at the national level to all SMMEs.
Finally, an almost similar situation was seen with regard to access to finance. There are several finance
institutions and arrangements that have emerged in recent years, including in the Malawi Rural
Development Fund (MARDEF), Malawi Rural Finance Company (MRFC), Youth Enterprise
Development Fund (YEDEF) and BLUE Finance.
71
It is of concern, however, that some of these finance
institutions charge exorbitant interest rates.
66
Mthente 2012.
67
Ibid.
68
ILO (2011a).
69
Ibid.
70
It needs to be noted that the political and economic climate has not been encouraging for investment and export promotion
in the past five years.
71
See also ILO (2011a).
26
In Malawi and also in South Africa, a more co-ordinated effort is necessary to strengthen the work of
the various agencies and make their efforts more effective. In other countries, the support structure is
either more centralized, which means there is one central governmental organisation that offers a broad
spectrum of support, or support tasks are clearly divided among a smaller group of organisations, thereby
avoiding an overlap of support offers.
Mozambique
A more centralised approach was found in Mozambique. Based on the work of the Ministry of Industry
and Trade of Mozambique that has focused its efforts on the improvement of the business climate and
the promotion of SMMEs, the Institute for the Promotion of Small and Medium Enterprises (Instituto
para a Promoção das Pequenas e Médias Empresas - IPEME) was established in 2008.
72
Since 2010
there has also been support provided by the Netherlands Development Organization (SNV), the World
Bank (PACDE-MESE and IFC), the International Labour Organization (ILO), the Japanese
International Cooperation Agency (JICA), the United States Agency for International Development
(USAID), the German International Cooperation Agency (GIZ), the European Union, and the
International Trade Center (ITC). These organisations particularly promote the following activities:
? Business information targeted to meet the needs of entrepreneurs;
? Business consultancy provided through direct and customised monitoring of business owners
and managers of SMMEs and their support through the training and development of strategies
to grow their businesses;
? Business training through various courses (entrepreneurship, business management and skills,
marketing, access to investments), and an entrepreneurship training model monitored by a team
of professional trainers;
? Facilitating corporate financing by providing information on financial solutions;
? Creation of new businesses by providing support during the conception of the idea, business
creation, financing and first steps of the company; and
? Promoting entrepreneurship.
IPEME has established three Entrepreneurs Guidance Centres (Centros de Orientação ao Empresário -
CORE)
73
in Maputo, Chimoio and Tete provinces. In the course of 2013, three more COREs will open
in Nampula, Beira and Pemba provinces. Even with the support of international donors, IPEME does
not yet have the capacity to meet the commitment of providing a spectrum of services other than in
Maputo.
Other SMME support organisations in Mozambique provide training through the IFC-SME Toolkit (the
IFC-SME toolkit is offered in all target countries, always in collaboration with a local partner
organization);
74
access to finance through the World Bank Mechanism of Business Grants (PACDE-
MESE)
75
or the 3FP Programme of the organization Building Markets;
76
and information about quality
and standards.
Mauritius
An example of shared roles and responsibilities can be seen in Mauritius. According to the country
study, support to SMEs in this country has improved significantly and since 2005, the Ministry of
72
General information can be found at GIZ (2009).
73
IPEME (2013).
74
IFC/IBM/PACDE (2011).
75
The Mechanism of Business Grants (Mecanismo de Subsídios Empresariais MESE) was launched under the World Bank
Project to Support Competitiveness and Enterprise Development (Projecto de Apoio à Competitividade e Desenvolvimento
Empreserial PACDE), Macamo/PACDE (2011).
76
3FP works with different financial instruments to catalyze financing to local suppliers in need of capital. 3FP may offer a
number of different services, including invoice factoring to improve business liquidity through partial risk-sharing
agreements.
for loans from local bank partners. In addition, 3FP promotes growth capital for qualifying suppliers (Building Markets
2013).
27
Business Enterprises & Cooperatives (Business Enterprise Division) has formulated policies pertaining
to SMEs. The Ministry comprises three pillars: the Small and Medium Enterprise Development
Authority (SMEDA); the Mauritius Business Growth Scheme (MBGS); and the Cooperatives Division
of the Ministry. This division of responsibilities can be described as follows:
1) SMEDA is seen as the entry point for SMMEs including for business registration. The
organisation offers general training on enterprise development, including grants (for training,
counselling, mentoring services, business facilitation, marketing of local products);
the development of linkages; the promotion of technological and managerial capabilities; the
acquisition and modernisation of SMMEs’ production equipment through leasing facilities; and
finally co-ordination with other support organisations and stakeholders.
2) The Mauritius Business Growth Scheme (MBGS) aims at boosting growth support to SMMEs
around innovation, creativity, higher productivity, value addition, and mentoring.
3) The organisation Enterprise Mauritius (EM) supports SMMEs with regard to markets and in
particular exports, and therefore offers business assessment, consultancy and monitoring,
market and competitor intelligence, assistance to access regional and international markets, the
development of sector strategies, and information on technology and skills trends.
4) Whilst SMEDA is the primary organisation for SMME development, the Development Bank of
Mauritius (DBM) is the reference in terms of financial help to SMMEs, and offers an array of
financial support schemes to SMMEs with preferential rates and favourable repayment
schedules.
More organisations became involved into the support structure and while the approaches of the above
four organisations overlap to an extent, it is relatively easy to identify where to get which business
development service.
Zambia
Whilst the approaches in Mozambique and Mauritius mainly highlight the involvement of one or two
ministries, the Zambian concept includes the idea of an inter-sectoral, multi-agency approach, where the
Ministry of Commerce, Trade and Industry (MCTI) has committed to collaborate with other government
institutions and departments, local authorities and other stakeholders involved in the development of the
SMME sector, currently leading to the co-operation of the MCTI with six other ministries. A similar
approach was observed in Malawi (with the involvement of three ministries) and in South Africa (two
departments in collaboration with the Department of Agriculture as well as provincial departments).
With regard to the main governmental agency for SMME development, the Zambian Development
Agency (ZDA), the approach can be compared to the Mozambican model. ZDA is a centralised
organization covering all the aspects of capacity building, business linkages, market development (local
and export) and SMME facilitation services. There are, however, other agencies that also cover parts of
this aspect, but in a specialised way – similar to the Mauritius model. For example, the organisation
TEVETA offers technical education, vocational and entrepreneurship training, and the Zambia Chamber
of Small and Medium Business Associations (ZCSMBA) also offers capacity building and acts as a
SMME intermediary organisation. Further financial inclusion is offered by the Bank of Zambia and the
Citizens Economic Empowerment Commission (CEEC).
Compared to these three models, the concept in Malawi advocates for a district-oriented model rather
than a provincial approach, where central government resources are channelled directly to the district
administration structure with oversight by a district commissioner. Consequently, village development
committees, area development committees and district development committees are responsible for
executing development projects, including provision of support for SMME development at district level.
SMME issues receive attention under the Deepening Enterprise Development initiative of the Local
Development Fund which is implemented by the Government of Malawi at district level under the
supervision of sector ministries, including the Ministry of Industry and Trade, the Ministry of Local
Government and Rural Development, the Ministry of Agriculture and the Ministry of Finance. This
approach, however, also leads to the negative effect of an unmanageable, less formal and fragmented
28
group of business service providers that struggles in terms of individual capacities and may be drawn
into unhealthy competition to attract membership.
All the models in the target countries provide for governmental agencies to address the issue of business
linkages, supported by the regulatory framework and the relevant ministries. This does not appear to be
implemented effectively as yet, with the exception of Mauritius where, for example, government
integrates SMME interests into all aspects of work by all the ministries.
In Malawi it was observed in the desktop study that there is a deficit in linking larger firms with SMMEs.
This might be changed through the new merger of the government agency for SMMEs, SMEDI.
However, SMEDI tends to focus on micro-enterprises and will face challenges in linking these with
larger companies. A similar challenge is faced by the South African SEDA that focuses on formalisation
of start-ups rather than on linking these with business. This might change as SEDA shifts towards a
stronger focus on small businesses and reduces its interest in micro level business in the future. In South
Africa, but also in Mozambique, Zambia and Malawi, enablers such as TechnoServe, Solidaridad and
others offer their support in linking micro and small-scale enterprise with business. In South Africa,
while organizations like the National Business Initiative (NBI) have created tools for business linkages
that are also offered by the provincial agencies, overall efforts remain scattered and insufficiently co-
ordinated.
In Mozambique it is expected that the newly created Council for Inclusive Business, with a focus on the
promotion of inclusive business, could be a useful partner to more effectively link SMMEs with larger
companies. In Zambia, the Zambia Development Agency has the clear mandate of promoting business
linkages but will need support and innovative ideas, such as the inclusive business approach, to
convincingly engage the larger firms.
Promoting business linkages requires a shift in mindset of agencies and ministries with regard to the
selection of entrepreneurs, in particular for start-ups. Successful business linkages require a foundation
of strong entrepreneurial spirit. However, in 4 of the 5 target countries it has been established that small-
scale enterprises are often set up only because formal employment is not available rather than as an
outcome of individual entrepreneurial will and mindset. It is thus likely to be difficult for the
governmental SMME agencies to link those “entrepreneurs-by-chance” with large businesses.
The work of the various government agencies for SMME development is summarised below.
32
Table 5: Key public sector institutions in the target countries
COUNTRY INSTITUTION TYPE OF
SUPPORT
IMPLICATIONS
South Africa Small Business
Development
Agency (SEDA)
Non
financial
SEDA (and other development initiatives) promoted by the
government are not well communicated to SMMEs. Entrepreneurs are
therefore often not aware of all the services available to them and how
these services can be accessed. Due to issues of finance and risk
management, SEDA meanwhile shifts away from focusing on micro
and very small enterprises. A bigger challenge is based on the lack of a
co-ordinated effort of involved support agencies and the overlap in
activities.
Zambia Zambia
Development
Agency (ZDA)
Financial
and non
financial
ZDA has (at least partly) succeeded in fulfilling its mandate.
According the interviews with SMMEs, ZDA is known by formal
enterprises but not known by the informal ones. The organization did
not satisfactory manage to support SMMEs in their desired access to
markets. In addition, access to finance remains a major challenge. A
specific concern noted with respect to ZDA was the apparent trade-off
between its investment promotion and MSME development
responsibilities due to limited funding (and staffing) which may also
impact the quality of ZDA’s negotiations with foreign investors.
Malawi Small
Enterprise
Development
Institute
(SMEDI)
Financial
and non
financial
It should be noted that SMEDI is a recent merger of 3 former
organisations. It is thus too early to assess the work of SMEDI. As
three separate institutions, there has been much duplication of efforts
owing to the respective strategic goals of these three organisations.
The focus was and still is on the micro level of enterprises, particularly
with regard to vocational training. Gaps included business support
services such as mentoring and business advisory services. It is
expected that the new institution will provide services to enterprises at
all levels. In addition, the new institution is expected to fill the
identified gaps including business support services as training service
costs are unaffordable to potential clients. Until now Malawian support
organisations lack necessary investment to provide up-to-date services
and consequently, do not satisfy the SMME development needs in
industrial development. Some of the challenges include limited human
resources, centralized presence of these institutions, and use of
obsolete technologies. Thus SMMEs in Malawi cannot compete
favourably on the national and international markets.
Mozambique Instituto para a
Promoção das
Pequenas e
Médias
Empresas
(IPEME)
Non
financial
(but
providing
information
on
financial
solutions)
IPEME is a comparatively young organization. Although the programme
of IPEME seems appropriate, it has not had yet a wider impact. The
biggest challenge of IPEME lies in the lack of capacity. Therefore its work
is focused on Maputo at the moment. As a result, IPEME is not known but
all the SMMEs that have been interviewed. These SMMEs do not know
about the mechanisms that can benefit or complicate their operations.
Currently, only a few of the interviewed SMMEs feel supported by (all)
the supporting institutions, but complain about too much bureaucracy, lack
of activity and transparency (corruption). There is a demand for more
technical assistance. The main concern of the interviewed SMMEs are
about the lack of support with regard to access to markets.
Mauritius Small and
Medium
Enterprise
Development
Authority
(SMEDA)
Non
financial
SMEDA is the central, public sector body for SMME development and
the entry point for small-scale businesses. Since its inception there has
been a consistent increase in the registration and contribution of
SMMEs to the economy and employment. In an interview with
SMEDA it was mentioned that some 20,000 SMMEs are registered
and benefit from its services. The general positive feedback is also
valid for the predecessor models of SMEDA. In the interviews with
SMMEs it was suggested that SMEDA should be more involved in
following up with start-ups once the phase of starting the enterprise is
over, and that SMEDA should be more readily available to provide
advice.
33
In South Africa there is a large number of SMME supporting agencies in both the public and private
sectors, as well as donor organisations, civil society organisations and consultants. There is a
comprehensive regulatory framework in place, and a broad network of supporting agencies. This does
not, however, necessarily result in significantly successful SMME development. In other words, the
almost confusing number of public and private agencies has not contributed to reducing the failure rate
of start-ups in South Africa. One major reason is the lack of follow-up activities and support by these
agencies once the SMME has been established and its people trained. This lack of follow-up was
confirmed through interviews in other target countries such as Mauritius.
Similar to government departments, supporting agencies tend to operate in silos, strategies are not
aligned, and communication with SMMEs and with other supporting agencies requires improvement.
Duplication of the efforts of supporting agencies should be minimized and the resulting cost savings
should be utilised in a co-ordinated manner to assist SMMEs in a more comprehensive way.
A more important challenge, particularly in the rural areas, is that services of supporting agencies are
not well communicated to entrepreneurs and entrepreneurs are thus often not aware of all the services
available to them and how these services could be accessed. In South Africa, for example, this was
confirmed by a study commissioned by SEDA in 2012
77
and also by the interviews conducted in South
Africa and other target countries. The interviews reveal that many small and micro enterprises in the
peri-urban or rural areas are not aware of most parts of the regulatory framework that underpins their
initiatives, and there is a view that these regulations are excessively complicated and may constitute
barriers to success rather than drivers of success amongst SMMEs.
In Malawi, the desktop study revealed that the relevant Ministry lacked data and human resources, and
that the SMME policy required revisions to be more current. Consequently, Government has recently
undertaken measures to improve the institution’s performance including revision of the SMME policy
and collecting better data on SMMEs. These are recent initiatives and their impact is yet to be seen.
The challenges of not having sufficient data on SMMEs and thus on the impact of supporting agencies
is also in evidence in Mauritius, Zambia and Mozambique. This led to challenges within the desktop
studies to properly assess current situations and interventions by government and other stakeholders.
While supporting agencies in Mauritius and Zambia seem to be relatively successful, information is
lacking as to whether the SMMEs are doing well or not. Apart from this concern, the Zambia report
acknowledges the positive role of the Zambia Development Agency in helping SMMEs to obtain
incentives and access to finance, although access to finance and markets remain key challenges for
SMMEs.
3.6 Challenges Faced By SMMES Based on the Regulatory Frameworks and
Support Structures
The United Nations Development Programme has identified five global challenges that resonate with
SMMEs and also with the concept of inclusive business (UNDP, 2008). These global challenges relate
to the lack of (market) information, skills, resources and infrastructure, as well as existing regulatory
frameworks. The purpose of the present study was not to examine these five challenges, but rather to
analyse the challenges of the SMMEs based on the existing regulatory frameworks and support
structures, taking these five challenges into consideration in that process.
Not surprisingly, the desktop studies and interviews indicated that the challenges SMMEs face in the
five target countries are similar, with some differences in Mauritius, perhaps also because the focus of
the Mauritius study was on small-scale enterprises rather than micro-enterprises or informal
entrepreneurs and hawkers. It should also be noted that inclusive business is a relatively new concept in
Africa and there is little distinction made between key challenges hindering SMME development and
growth and inclusive business challenges faced by SMMEs.
77
Mthente 2012.
34
In all target countries, the full potential of the SMME sector has yet to be tapped due to the existence of
a number of constraints that hampering the development of the sector:
1. The regulatory framework, including its benefits and constraints, is not (fully) known by
SMMEs.
The interviews in all target countries except Mauritius gave a clear indication in this regard. This
indicated that the SMMEs are not aware of possible benefits that could support them in their activities.
As a representative example, the country study stated that: “Practically all of the small business owners
interviewed in Zambia showed little understanding of the legal provisions affecting their businesses and
were not able to describe the implications and consequences of the various laws for their decision-
making”. This speaks to the need for a programme of legal sensitisation and awareness promotion
around the rights and obligations attached to the operations undertaken by SMMEs and the products and
services they deliver. This should also serve to strengthen contract enforcement and, hence, help
promote a culture of excellence by raising the bar of expectations on the demand side.
2. The regulatory framework and, in particular its implementation is often seen as an
obstacle rather than a support.
The existing regulatory frameworks are not well implemented and in Malawi are regarded as (partly)
unfavourable because they result in overly complex, bureaucratic, non-transparent and costly procedures
and processes, as indicated in the interviews. The high costs for SMMEs were also mentioned in the
Zambia country study. The cost of compliance with regulations may discourage potential entrepreneurs
from formally setting up their businesses, while driving some existing enterprises out of business and
those working for them into unemployment.
In Mozambique, SMMEs responded in the interviews that the regulatory framework is “not helpful”,
where the framework was known at all. Bureaucratic hurdles were mentioned in interviews with SMMEs
in all the target countries.
In South Africa, the majority of interviewees from all sectors shared the view that government legislation
and policies are “world class”; the challenge lies, however, in the implementation thereof. Similarly,
SMMEs in Zambia pointed to the lack of implementation of the regulatory framework. The same
feedback was given in the country study in Malawi. It needs to be noted that especially in Malawi,
Mozambique and Zambia new policies, strategies and strategic plans have recently been approved and
may yet be amended. In South Africa, the discussion about the new BBBEE codes of good practice that
incorporate more directly the concept of inclusive business might lead to stronger implementation of
relevant steps, including SMME development.
A good first example to address these issues was implemented in Mozambique where significant
simplifications were made regarding licensing, taxes and multi-purpose services. This example was
strongly welcomed by SMMEs as well as larger firms in Mozambique.
3. There is a need to improve business development services in terms of the:
? Insufficient human resource and technical capacity of the supporting agencies to serve SMMEs
(desktop studies and interviews in all target countries);
? Scattered information that SMMEs receive on the available institutional support (this was
indicated by desk studies and interviews in all target countries except Mauritius). A survey on
SMMEs in Malawi from 2012 showed that nearly two-thirds of small businesses (62%) were
unaware of institutional support.
78
Similar results were confirmed by the interviews conducted
with SMMEs in South Africa as part of the present project. In Mozambique, SMMEs
interviewed partly knew of the (few) supporting agencies and the majority felt that the support
was inadequate.
78
FinScope (2012).
35
? Duplication of functions and activities, especially by government institutions involved in
SMME development in Malawi, South Africa, and partly in Mauritius;
? Ineffective and poorly co-ordinated institutional support, in particular in countries with a
complex support structure (South Africa, Malawi, Zambia and Mauritius). In South Africa and
Malawi, in particular, the efforts of the numerous support agencies require a more consolidated
approach, or as recently happened in Malawi, the merging of institutes. The need for better co-
ordination of institutional support was also mentioned in the desktop study in Mauritius
although the tasks of the organisations are relatively clear and do not overlap too much. In
Mozambique, in contrast to the other target countries, one agency, IPEME, is in a central
position with regard to SMME development. The challenge, however, is that this organisation
is strongly under-capacitated.
? In addition, a more co-ordinated effort among support agencies and also third parties (enablers,
educational institutes) is required to address the issue of lack of proper workforce. This
challenge was explicitly mentioned in all country studies.
? In all countries, decision-making structures for both the public and private sectors are often
located at national offices and not in the rural locations; this makes the co-ordination of
institutional support even more important since it presents obstacles and challenges in all
countries except the small country of Mauritius.
? On the lack of a more co-ordinated and joint effort towards SMME development, the challenge
of limited technical and business skills, business management capacity and financial training
being provided through the support agencies was noted in all country studies. This is because
(i) the issue of formalisation of start-ups often is more the focus of the consultation rather than
specific training; and (ii) the type of entrepreneur who receives the training varies (see below
the distinction between “entrepreneur-by-chance” and entrepreneur from choice and passion.
This broad spectrum of entrepreneurs makes it difficult for training to be provided that covers a
wide range of needs.
? The focus on the initial phase of start-ups and the lack of follow-up and support within the first
five-year life cycle of these start-ups was noted as a concern in all 5 countries;
? In Malawi, Mauritius and Zambia the lack of competitiveness against foreign companies or
imports was mentioned as a challenge. This may be as a result of inadequate support structures
on the one hand and the regulatory framework on the other hand. The Mozambican country
study does not explicitly identify this aspect even though this was perceived as a challenge. In
South Africa this challenge is also related to specific industry sectors, in particular agriculture,
because small-scale farmers are not able to compete with the highly advanced commercial
farmers of the country nor with imported subsidised agricultural products.
? Transparency of supporting agencies, in particular with regard to access to finance, and the
bureaucracy of institutions was criticised in the interviews with SMMEs in all five countries.
SMMEs also mentioned corruption (Mozambique), nepotism (Mauritius), and undue political
influence where an entrepreneur is required to be a member of a certain political party in order
to obtain support (South Africa). General turnaround times were also identified as a barrier in
the process of allocating financial support.
4. Access to finance remains the main challenge for SMMEs.
The lack of working capital was mentioned in each country study as the main barrier to SMME
development. An important logistical consideration is that many SMMEs do not have easy geographical
access to financial services. This is particularly the case for rural-based enterprises. Government would
need to step in to provide incentives, such as tax breaks, to banks and other financial service providers
for expanding their branch network into rural areas. Innovative approaches should be considered and
encouraged including greater adoption of mobile phone banking to take advantage of the unlimited
potential for financial product and market development offered by the convergence of the
telecommunications and financial services industries.
In Malawi, due to insufficient competition and inadequate information on the credit markets,
banks are discouraged from lending to SMMEs. The 2012 SMME survey of the country revealed
36
that 59% of SMMEs were excluded from financial services, as opposed to 31% that are formally served
by some type of financial system, with the balance relying on informal services. Only 22% are banked.
79
Over three-quarters do not borrow funds, primarily because they doubt their ability to repay loans. Of
those who borrow, informal credit systems tend to be the primary source of credit.
80
In 2007 the United
Nations Capital Development Fund (UNCDF) started a project, “Financial Inclusion in Malawi” (FIMA)
that “seeks to broaden access to financial services, particularly in rural areas where demand for services
often goes unmet”.
81
There is also a National Financial Inclusion Strategy.
82
Meanwhile, the Malawi
government is working on a Financial Inclusion and Financial Education Programme. This programme
will lead to the development of a Financial Inclusion Strategy. When this is implemented it will also
contribute to business inclusion since access to finance is one of the key constraints that the MSME
sector in Malawi encounters.
The Zambia country report suggests an apparent trade-off between ZDA’s investment promotion and
MSME development responsibilities due to limited funding and staffing. In addition, micro businesses
are, by definition, excluded from bank credit by the turnover thresholds defined by the banks. Certain
legislative provisions will have the effect of pushing bank credit further out of reach of MSMEs. Even
though the Companies Act No. 26 of 1994 provides the beneficial protection of limited liability for
MSME owners, from the banks’ perspective, however, limited liability introduces an element of moral
hazard and potentially increases risk for the lender. The banking sector’s response to this potential
exposure is to require physical collateral in the form of fixed plant and buildings.
In South Africa, as in Malawi, Mozambique and Zambia, most developmental public funding institutions
and also private funding institutions require surety or collateral. Such collateral as well as the interest
rates charged to SMMEs reflect their risk profiles rather than the developmental agenda of the funding
institutions.
In Mauritius SMMEs experienced problems obtaining funds and loans. They blame the banks and
government for not offering them loan facilities which are suitable to their small size. Access to finance
is also connected to high bureaucracy. The Development Bank of Mauritius intends to set up a SMME
banking institution to address the barriers to access to finance. In Mozambique, access to finance is
impacted on the one hand by a high level of corruption and on the other hand by the lack of capacity of
the supporting agency.
5. Inability to access local and international markets remains a constraint.
This challenge was mentioned in four country studies (except Mauritius), in particular as a result of the
interviews with SMMEs, even though the regulatory frameworks are in place and a support structure
exists in each of the target countries, in some cases with a partial mandate to foster business linkages.
In Mauritius, however, entrepreneurs often bypass the support agencies and engage the larger firms
themselves. It should be noted, however, that the concept of inclusive business is hardly known or
practiced in Mauritius and a clear distinction is made between formally registered small scale businesses
and informal (micro) entrepreneurs. SMMEs in the other countries emphasized the lack of willingness
and interest of larger companies to collaborate with them.
In Zambia, the VAT regime is cited as the most challenging barrier to market access for SMMEs, who
79
FinScope (2012) notes that already in 2007, a perception study on SMMEs development in Malawi was done by USAID. Of
particular relevance was that over 70% of firms rated access to finance as a major constraint while over 40% of formal firms
stated that it was a severe constraint to the operations and growth of their business. Cost of finance was ranked as the
second concern. Since the time of the survey in 2005, the cost of finance and the macro-environment have seen
considerable improvements, with the Reserve Bank of Malawi (RBM) base rate falling to 20% and expectations of further
falls. However, in terms of access to finance, the most commonly repeated issue in the survey for this study is that banks
require stringent collateral, often at levels in excess of 120% of the loan. This is very restrictive if the level of the loan is well
below the value of the asset pledge, such as a property, as this asset cannot then be used for collateral for another loan
(USAID 2007).
80
Ibid.
81
United Nations Capital Development Fund UNCDF (2013).
82
FinScope (2013).
37
explained that the threshold of K800,000 (about USD 15,650) for eligibility for VAT registration
(recently increased fourfold from K200,000) excludes the majority of MSMEs from opportunities to bid
for business with public sector organisations and large private sector and civil society organisations.
Effectively, these SMMEs can only compete for small contracts, mostly with smaller private companies.
The high VAT registration threshold also has the effect of confining the majority of small business
operators to the informal sector where they do not have to face constraints on the ability to supply goods
or services of any quantity to any client. The high VAT registration threshold thus has the unintended
effect of discouraging formalisation in the SMME sector.
6. The lack of infrastructure remains a problem.
While the lack of infrastructure presents a range of challenges for SMMEs, it was noted that activities
by the public and private sectors that address this challenge were in evidence in all the country studies
except Mauritius, due to its small size and relative wealth, where the challenge might rather occur with
regard to trade between Mauritian SMMEs and companies with suppliers from Madagascar, Zambia and
elsewhere. It needs to be mentioned that the issue of infrastructure was not a key aspect of analysis in
the present study and in any event, the deficit in infrastructure throughout the SADC region is well
known.
The country studies also identified that some of the challenges lie within SMMEs themselves The studies
on South Africa, Malawi and Mauritius highlighted that SMMEs demonstrate a lower demand for
business development services such as training even where this is offered, counselling, advising and
consultancy due to cost considerations, opportunity cost concerns and lack of knowledge on the benefits
of external services in improving competitiveness. SMMEs observed that leaving their businesses to
attend a workshop becomes very challenging, especially “when you are a one-man show or do not have
reliable employees to keep the business running during this time”. Challenges due to language barriers
and the lack of ability to understand and speak English were also identified, especially since most of the
training courses are offered in English. Furthermore, most of the training workshops were of a general
nature and do not address industry-specific training needs.
In all countries other than Mauritius, the studies revealed a lack of entrepreneurial mindset. Here it
clearly needs to be distinguished between the entrepreneur who starts an enterprise because of will and
passion (the opportunity-driven entrepreneur) and the entrepreneur who starts an enterprise due to the
lack of a job as an employee (necessity-driven entrepreneur). There is a higher likelihood of failure
within the latter group. SMMEs are often under the impression that opportunities will be given to them
because of promises made by government. They often have a lack of persistence if opportunities do not
open up immediately and may not be familiar with the hard work required to establish and grow a
business. On the other hand, the institutes of the target countries like Malawi, South Africa,
Mozambique and Zambia try to support both types of entrepreneurs, which, while it is correct and
understandable, will continue to contribute to the high rate of failure. This links to the different survival
needs of the various entrepreneurs and contributes to the challenges experienced by support agencies in
attempting to meet a diverse range of training and support requirements. There is thus a need for the
support agencies to review their approach to the different SMMEs and to provide more targeted services.
The lack of business management skills also leads to cash flow problems, for example through not
separating personal and business expenses. Interviews with companies in all the target countries also
revealed that the majority of SMMEs do not have a high level of commitment to quality assurance. The
main challenges to SMME development and growth shared by the five target countries are highlighted
below:
38
Table 6: Summary of SMME development and growth challenges in the 5 target countries
CHALLENGE COUNTIRES
EXPERIENCING THIS
CHALLENGE
PRIMARY SOURCE OF THE CHALLENGE
Limited access to
finance and
working capital
Mentioned in all target
countries
- High commercial bank lending rates
- SMMEs’ lack sufficient collateral
- Inconsistencies in cash flows of SMMEs
- Limited financial literacy
Inadequate levels
of Skills
Mentioned in all target
countries
- Inadequately educated workforce
- Many SMMEs lack basic management skills and need training
in that aspect.
- There is not enough training in business, management and
financial literacy skills, with poor knowledge of available
opportunities or the benefits of such skills by many rural
entrepreneurs.
- Training of employees is not seen to be a priority by SMMEs
Limited access to
markets
Mentioned in Mozambique
South Africa, Zambia and
less explicitly in Malawi
While in Mozambique and Zambia it is possible that opportunities
are not always available, whereas in South Africa, though these
opportunities are available, there is a lack of awareness that they
exist.
Lack of
entrepreneurial
development
Mentioned in Malawi,
Mozambique, South Africa,
and Zambia
Lack of business planning and an entrepreneurial mindset/
entrepreneurial spirit
Insufficient
regulatory
framework and
public sector
support
Mentioned in Malawi,
Mozambique, South Africa
and Zambia
- Inefficient government departments
- Duplication of functions
- Lack of co-ordination of support agencies (also mentioned in
Mauritius)
3.7 Status and Framework for Inclusive Business
The UNDP (2010b) observed that, “...inclusive businesses include low-income people on the demand
side as clients and customers and on the supply side as employees, producers and business owners at
various points in the value chain. They build bridges between business and the poor for mutual benefit.
The benefits from inclusive business models go beyond immediate profits and higher incomes. For
business, they include driving innovation, building markets and strengthening supply chains. And for
the poor, they include higher productivity, sustainable earnings and greater empowerment…”. Another
definition holds that the term “inclusive business” refers to profitable core business activity that also
tangibly expands opportunities for the people at the base of the economic pyramid (BoP). Such business
ventures engage poor people as producers, suppliers, workers, distributors, consumers and even as
innovators”.
83
Though inclusive business is a relatively new concept on the African continent and more specifically in
the SADC region, the concept of incorporating SMMEs into the value chain of any larger organization
is enhanced by the current frameworks in place for SMME development. Research within the framework
of the current research project indicates that none of the five target countries has a policy framework
specifically addressing inclusive business. As a result, the framework in place for SMME development
was interpreted as the enabling framework for inclusive business.
Inclusive business is primarily driven by the private sector, with the public sector supporting the concept
through the creation of an enabling environment. It can also be regarded as a new option for to SMME
development while the efforts from the public sector that often gets stuck based on the lack of capacity,
resources and implementation.
The frameworks and the inclusive business activities in the 5 countries are briefly introduced below.
83
Business Innovation Facility (2013a).
39
Mauritius
In Mauritius, inclusive business is linked to Corporate Social Responsibility (CSR), which in Africa is
often understood as ‘corporate giving’. The Government has established a policy with the overall
objective of mandating registered companies to pay 2% of their net profit to a CSR Fund to finance
programmes that contribute to the social and environmental development of the country. This would
include various socioeconomic development programmes that deal directly with poverty alleviation and
the creation of small enterprises.
84
Though there is little evidence that most of the CSR programmes in Mauritius qualify as inclusive
business, the country study identified a few companies that have incorporated inclusive business
activities into their operations based on the CSR Fund. The following examples for inclusive business
are acknowledged:
1) The “Chantefrais” franchise whereby the Food and Allied Group gives training to small
entrepreneurs with a proper shop that sells chicken and chicken products. These entrepreneurs
then become part of the group’s value chain and source the chicken from the Food and Allied
Group to sell to the general public as well as to hotels and large restaurants.
2) The Medine Group, which is involved in the tourism sector, supports craftsmen on the West of
the island to become professionals and enables them to derive an income from their products
through facilitating their access to hotels and specialised shops linked to tourism where they can
sell their products more easily.
Malawi
The Malawi desktop study noted that the SMME Policy of August 2012 highlighted key strategies to
encourage inclusive business if implemented. These include: (1) access to finance; (2) improving
product certification and standards; (3) knowledge and skills development; and (4) infrastructure and
technology advancement. Furthermore, the Malawi Ministry of Industry and Trade is in the early stages
of implementing a business-to-business programme that will help link SMMEs to large enterprises. This
has been interpreted by the research study as an important mechanism to promote an inclusive business
environment.
There are already some companies implementing the inclusive business concept:
1) Bakhresa Grain Milling Malawi Limited, a flour producer, sells packaged wheat flour to
commercial bakeries, small bakeries, retailers and supermarkets. The company approaches poor
communities in the rural areas and small towns and offers to supply them with affordable flour
and assist them to launch small bakery businesses. It offers its flour in small packages, which
makes it affordable for small scale retailers. “The company uses vans to reach remote rural areas
and distribute its products to bakeries, women selling home-baked goods in remote areas, and
branch sales offices. The company helps individuals, many of whom are women, launch their
own micro-businesses, offering training programmes and workshops on the business” (IFC
2012:10). Bakhresa was the only firm in the (southern) African region that won the G20
Challenge on Inclusive Business Innovation Award in June 2012.
2) RAB Processors in Malawi focuses on the export of legumes, notably to Asia, and is now also
manufacturing products such as tea, flour, rice, roasted ground nuts and baby foods. In this
regard, RAB Processors has engaged a number of SMMEs in the supply of both raw and semi-
processed materials for use in the manufacture of its various products. The company has now
set up an additional production facility in Lilongwe and SMMEs supplying various types of
inputs now have an assured and guaranteed price for their supplies. The company has created a
supply chain including enterprises that grow, supply, partly process and transport inputs.
Numerous micro and small businesses such as hawkers, restaurants and tea rooms have been
established as part of the downstream and forward linkages arising from the RAB Processors
operations.
84
National Empowerment Foundation (2013).
40
3) Carlsberg Malawi Limited, one of the few branches of Carlsberg of Denmark in the world,
supports numerous SMMEs engaged in the distribution and retailing of its products. The
company has a unique distribution and selling model which includes the provision of free
cooling units to all its retailers thereby empowering entrepreneurs engaged in the business of
running grocery stores, shops, and bars. This model removes the cost of acquiring a specialised
beer refrigerator and thereby is able to incorporate a large number of entrepreneurs into the
value chain.
4) Universal Industries manufactures a range of products including biscuits, sweets, potato crisps
and bottled water. Since its formation, Universal Industries has been producing crisps using
potatoes largely imported from South Africa. Over the last ten years the country has been facing
shortages in foreign exchange, making it difficult for manufacturing companies to import raw
materials. It therefore began engaging local smallholder farmers to produce potatoes for use as
input into the manufacture of potato crisps. The company provides the farmers with seeds,
fertilizers and chemicals in addition to providing the potato producers with extension services
focusing on good farming practices which have led to increased yields per hectare of high grade
potatoes. Universal Industries has also engaged numerous MSMEs as distributors and agents of
all its products in both the urban and rural areas. Thousands of SMMEs have set up shops that
stock a considerable number of products from Universal Industries, providing numerous
opportunities for self-employment.
In addition, Malawi is one of the five BIF pilot countries of the project “Business Innovation Facility”
(BIF) located in London and financed by DFID, which focuses on inclusive business activities (see
below). BIF draws on a global network to identify technical experts who can assess routes to market,
develop supply chains, “stress test” a business model, and take on a host of other bottlenecks that
companies face.
85
The facility also supports knowledge exchange on inclusive business at the
international level. A wide variety of inclusive business activities is supported by BIF in Malawi,
including:
86
5) MicroVentures smallholder market linkages which supports women to improve farming and
productivity. MicroVentures will now support the development of a market-linkage enterprise
which will broker linkages between the farmers and other buyers, enabling women farmers to
sell into value-added markets. The market linkages will target smallholder farmers, Malawian
wholesalers, retailers and food processors.
6) Afri-Nut will be established to process Malawian groundnuts and aims to be a benchmark
business that focuses on food safety, particularly in relation to aflatoxin control of peanuts
produced for domestic, regional and international markets. It has the potential to positively
impact on the health status of millions of people. It will be financed and co-owned by
shareholders from the commercial and development sectors: the National Association of
Smallholder Farmers of Malawi (NASFAM), TWIN, Ex-Agris (a commercial agricultural
company with interests in Malawi), Cordaid (a Dutch donor organisation) and the Waterloo
Foundation (based in Wales).
In this context there is also a Malawi Network of Practitioners that aims to share updates on projects
and provide a space for practitioners working in Malawi to connect and discuss the particular challenges,
innovations and opportunities facing inclusive business in the country.
Zambia
Apart from the comparatively recent policy measures of the government in Zambia, such as a new policy
for SMME development, the private sector has also responded. For instance, a strategy was created
addressing the credit culture and creditworthiness of SMMEs which have to some extent acquired an
unfortunate reputation for poor governance, inadequate record-keeping and accounting, and failure to
repay loans. As part of the effort to address this concern, the central Bank of Zambia has championed
85
Business Innovation Facility (2013).
86
Business innovation Facility (2013b).
41
the issuance of the National Strategy on Financial Education for Zambia, which is a framework for
improving the financial education of the population in the country in particular with regard to
knowledge, understanding, skills, motivation and confidence. The intention is to secure positive
financial outcomes by 2017.
87
These policy measures have received support from co-operating partners.
Similar to Malawi, Zambia is one of the five pilot countries in which the Business Innovation Facility
(BIF) supports inclusive business activities and the Zambia Network of (inclusive business)
Practitioners. This has resulted in a series of inclusive business projects based on this work in Zambia.
88
The following examples illustrate inclusive business activities in Zambia:
1) The Coca-Cola Company (TCCC) is replacing traditional product delivery methods (i.e.
periodic large stock delivery by trucks) with a network of Micro-Distribution Centres (MDCs)
that are independently owned and operated by local entrepreneurs. The Sales and Marketing
Division of regional TCCC bottlers such as Zambian Breweries recruits, trains and assists local
entrepreneurs as they establish MDCs and develop distribution methods appropriate to the
context in which they operate (BCTA 2013). The Coca-Cola/SABMiller value chain is
estimated to have supported around 3,741 formal and informal jobs in Zambia. The local
entrepreneurs that own MDCs realise an average monthly salary of USD 1,000 (Oxfam et al.
2011).
2) The Bank of Zambia has set “financial inclusion” as a key strategic objective and regards it as
a process which seeks to get more Zambians banked and more SMMEs accessing financial
products.
89
The central bank is fully aware, however, that financial inclusion is a two-sided coin
and is taking appropriate measures. On the supply side, the central bank has taken several
measures to encourage the banking sector to make credit more accessible to SMMEs, including
the introduction of the policy rate together with a cap on lending margins above it in order to
create downward competitive or ‘moral’ pressure on lending rates. The bank is also actively
discouraging predatory lending practices. On the demand side, the bank is addressing the issues
of credit culture and creditworthiness in the MSME sector. In short, the bank is taking a
combination of short- and long-term measures on both the supply and demand sides of the
market for commercial credit, which will serve to end the traditional impasse between SMMEs
and the banking sector.
3) The Netherland Development Organisation, SNV, in collaboration with the North-Western
Beekeepers Association (NWBKA) and Mpongwe Beekeepers Enterprise (MPE), introduced
modern top-bar beehives that can be installed close to the household and are easily managed by
women. The initiative promoted women’s participation in bee-keeping through technological
innovation, where previously bee-keeping was (i) a predominantly male occupation; and (ii)
limited value addition was being realised in prevailing beekeeping practices. Linked to this,
SNV facilitated awareness-raising on the importance of enhancing women’s involvement in the
sector and supported the two associations to mobilise women beekeepers to form groups to
facilitate access to credit as well as technical and management support.
South Africa
It is the view of the South African government that in order to reduce poverty, engagement of business
and other organs of civil society is required. Some initiatives supporting this view have received
attention whereby economic development agencies, financiers and the private sector have been engaged.
Whilst some advances have been made, clear initiatives supporting this governmental view have yet to
be developed. This is in line with SEDA’s new strategy, “the client journey approach”, working together
with private sector to develop and implement a three-year and longer growth strategy for SMEs in their
supply chain.
90
87
Bank of Zambia (2012).
88
Business Innovation Facility (2013c).
89
Bank of Zambia 2012.
90
Interview with SEDA’s then acting CEO, Mr Koenie Slabbert, 23/01/12.
42
Many more recent regulations, like the New Growth Plan (which aims to significantly reduce the high
rate of unemployment), the new Broad-Based Black Economic Empowerment (BBBEE) scorecards, as
well as sectoral charters of the private sector (the Financial Sector Charter and codes of conduct in the
mining industry) are all providing better options for the commencement and implementation of inclusive
business activities.
As a result of a multi-stakeholder dialogue under the facilitation of the UNDP, the “Johannesburg
Declaration on Engaging the Private Sector in Furthering Africa’s Agribusiness, Food Security and
Nutrition Agenda” was signed on 19 October 2011, supported by the Institute of Food and Agricultural
Sciences, the UN Global Compact, UNDIDO, COMESA, FAO, NEPAD, the World Food Programme
and various civil society groups, development agencies and private sector members.
91
Unlike in the other target countries, there has been a growing awareness among large companies in
South Africa about the substantial benefits of applying inclusive value chain practices, although the
evidence indicates a high level of resistance to risk, whether financial or otherwise, when participating
in such practices.
South Africa and Kenya can be seen as one of the strongholds for inclusive business in Africa.
92
There
are many examples of this approach, and a non-exhaustive lists of companies that have incorporated
inclusive business activities in their core business includes Anglo American/Anglo Zimele; Rio Tinto,
Coca Cola and bottlers of Coca Cola such as ABI and Coca Cola Shanduka Beverages; SAB Miller;
Vodacom; MTN; Massmart; Woolworths; Tiger Brands; Nestlé; Pick ?n Pay; Spar; Nandos; TSB Sugar;
Hollard Financial Group; Vodacom; Standard Bank; Absa Bank; First National Bank; Nedbank;
Capitec; Eskom; Mondi Paper; SAPPI; Nampak; Aspen and Imperial, amongst a wide range of leading
companies.
Mozambique
Mozambique has made significant progress in the creation of a framework specifically for inclusive
business. The “Declaration of Maputo” pledges to give more policy support to Inclusive Business
initiatives and to make investments more inclusive.
93
In addition, the National Council for Inclusive
Business,
94
a public-private partnership, which was launched in December 2012 as a result of the
Declaration of Maputo and comprises the private sector, public institutions and civil society
organisations. The entity has the potential to significantly drive and promote inclusive business
processes.
Furthermore, in April 2012, a Memorandum of Understanding between the Confederation of Business
Association (CTA) and the Netherland Development Organisation (SNV) was signed with the of
creating a favourable business environment in Mozambique through the integration of communities and
SMMEs along the value chain in different sectors of the economy, thereby helping to reduce poverty in
all its dimensions by supporting employability and higher income.
Launched in September 2012, the ‘Best 100 SMMEs in Mozambique Award’ is a joint initiative of key
organizations in the field of SMME development and inclusive business as well as a media group95 to
identify the 100 best SMEs in Mozambique. The award is designed to:
91
UNDP (2011).
92
Southern Africa Trust (2013).
93
A national conference held in October 2011 in Maputo and organised in partnership with the United Nations Development
Programme (UNDP), the Investment Promotion Centre (Centro de Promoção de Investimentos -CPI), the Directorate for the
Promotion of Rural Development (Direcção Nacional de Promoção de Desenvolvimento Rural do Ministério da Administração
Estatal - DNPDR), the Confederation of Business Associations Mozambique (Confederacao das Associacoes Economicas de
Mocambique - CTA) and the Dutch Development Organisation - SNV,confirmed the potential for inclusive business in
Mozambique. The outcome was the “Declaration of Maputo”.
94
Conselho de Negócios Inclusivos (2013).
95
These are the Institute for the Promotion of Small and Medium Enterprises (Instituto para a Promoção das Pequenas e
Médias Empresas - IPEME), the Mozambique Media Group ‘Society of Independent Communication’ (Group Soico), the
Dutch Development Organisation - SNV, BDO Accountants Mozambique, and commercial bank Banco Mercantil e de
Investimentos (BMI) and others (SNV 2013a).
43
? publicly recognize good business practices;
? establish a research tool and guidance for policy measures;
? put in place a mechanism to standardise the classification of SMMEs;
? promote the development of Mozambique’s business environment;
? stimulate the integration of communities and/or low-income people in the business value chain;
and
? acknowledge the 100 best SMMEs in Mozambique.
96
Positive examples can be found in the fields of agriculture, tourism and mining, supported by
engagement of third parties, such as SNV in agriculture and tourism, and USAID in the field of mining:
1) OLAM, one of the world’s largest cotton companies and a universal supplier of cotton to the
world’s textile markets, is working together with 70,000 small-scale farmers in the production
of cotton. Having started as a trading company, OLAM evolved into a fully integrated company
(‘from seed to shelf’) and has started to upstream and downstream their products involving the
SMME sector. OLAM has also integrated SMMEs into the value chains of several other
commodities, such as edible oils and cashew.
2) Other edible oil companies, such as Corridor Agro and Maeva Mozambique, also include small-
scale farmers in their value chain – like OLAM, they do this in co-operation with SNV.
3) Mozal is an aluminium smelter developed near Maputo, Mozambique, in a USD 2 billion joint
venture with BHP Billiton, Mitsubishi, the Government of Mozambique, and the Industrial
Development Corporation (IDC) of South Africa. The process of the MozLink SME
development programme has been implemented by Mozal and IFC in association with the
Mozambican Investment Promotion Center (CPI). MozLink bridges the needs of a large
company bound by business, operational, and technical standards with the needs of local SMEs
striving for an opportunity to build their capacity and become competitive economic players. It
trains local SMMEs and provides one-on-one mentoring to enable them to bid, win, and deliver
on construction contracts that meet Mozal standards.
4) Rio Tinto operates a large coal mine in the region of Tete and in 20912 it opened a Business
Centre to ensure that local suppliers can increasingly benefit from business opportunities
provided by the company. The centre provides a space for local suppliers to present their
products and services to Rio Tinto and to acquaint themselves with the company's needs. The
centre also helps in the registration of suppliers in Rio Tinto’s procurement system, as well as
developing a training programme to help new suppliers to succeed.
These examples for each target country demonstrate the importance of integrating the private sector, in
particular larger and medium sized companies, into the development of SMMEs. The inclusive business
approach provides an important opportunity to extend the discourse around SMME development in a
way that will promote expansion, sustainability and meaningful growth.
It should be noted that the focus for inclusive business activities differs. Whilst in Malawi, Zambia and
Mozambique, inclusive business projects are often related to agriculture, retailers, food and beverages,
tourism and mining, in South Africa a broader spectrum of industry sectors is active in this field,
covering the whole banking, finance and insurance sector, pharmaceutical products, and ICT solutions.
In Mauritius the focus of inclusive business will in the future be based on where the country imports
from and what it exports to the region, and the extent to which supply from and distribution to other
countries can be undertaken more inclusively.
With the exception of Mauritius, inclusive business practices indicate a growth trend, with some
variations in evidence in the different countries. In Malawi and Mozambique, and partly in Zambia,
activities are strongly supported by third parties and donors, such as SNV or the BIF project, whereas
in South Africa it is clearly driven by the private sector even though third parties are involved.
Governments in these 4 countries has started to create enabling environments for inclusive business.
96
100 Melhores PME (2013).
44
However, challenges remain, largely due to the current regulatory framework, the limited human
capacity and the methodologies of the supporting agencies.
3.8 Inclusive Business Challenges
As a result of the linkages between the SMME development framework and the inclusive business
framework discussed in the previous sections, the desktop studies generally did not distinguish between
SMME development challenges and inclusive business challenges. This means that the barriers to
inclusive business do not significantly differ from those that affect SMME development. However, one
aspect plays a bigger role: inclusive business is still not widely known to policy makers of regulatory
frameworks and support agencies, nor is it regarded as the same concept as SMME development or
business linkages (or, as in the case of Mauritius, regarded as CSR activity). It is therefore important to
raise awareness of inclusive business practices and clearly differentiate between a pure SMME
development concept and the approach of inclusive business. In other words, specific inclusive business
characteristics that make the implementation of this concept more likely to succeed, such as innovations,
the development of new products, and the long-term profitability of inclusive business need to be better
communicated to governments and support agencies.
Inclusive business remains limited and is not consequent to a national process or consciousness in the
business community, with few exceptions such as the envisaged BBBEE codes good of practices in
South Africa. Mainstreaming inclusive business is not yet among the identified government policy
objectives for the SMME sector and there are few legal imperatives, policy requirements or incentives
to ensure or promote the adoption by large organisations and for-profit corporations of inclusive business
practices. On the other hand, however, the concept of inclusivity is becoming more strongly recognised
and accepted. This is encountered in government trends in South Africa
97
as well as in the announcement
that one of the post-2015 Millennium Development Goals (Sustainable Development Goals) will be
inclusive growth.
98
While governments and their agencies in the majority of cases are in the forefront of SMME
development, it is still the private sector that drives inclusive business practices whilst the government
and the support structures assist and facilitate the processes.
There are also barriers to the participation of large companies in supporting SMMEs, with the challenges
largely being identified as the following:
? lack of interest and/or opportunity of companies;
? perceived risk of working with SMMEs;
? competing priorities;
? low level of internal support;
? lack of necessary experience; and
? lack of information on informal markets.
These findings from the country study in Malawi were also reflected in the South African desktop study,
where it was noted that Enterprise Development (ED) and Socio-Economic Development (SED)
programmes were often not aligned to the company’s core business or industry sector.
99
Similar challenges were revealed by the Lopcal research partners in Zambia and Mozambique. In
Mozambique all interviewed companies stated that, in general, SMMEs do not have the ability to supply
on time to the desired quality or the quantity agreed, thus making them unattractive as suppliers. In the
view of these large firms, SMMEs require stronger support in business management and also access to
viable financing options.
97
Fin24 2013; South African Government 2013; KMG Attorneys & Associates/ Klopper 2013.
98
Centre for International Governance Innovation/Korea Development (2012).
99
Impact Amplifiers/NYU Center for Global Affairs (2013).
45
In Mauritius the position of many large companies towards empowering the vulnerable to help them set
up their own businesses is that, since they are already contributing 2% of their nett profits to the CSR
Fund, they are not in a position to support further initiatives, and that the development of micro-
enterprises is the responsibility of government via the CSR Fund. This suggests that the key aspect of
inclusive business, the business case, is not yet fully understood in Mauritius, and inclusive business is
interpreted as ‘just another CSR or corporate giving initiative’ rather than a legitimate business
opportunity to increase both profits and markets.
This may be influenced by the fact that the country’s size and location compels Mauritius to supply from
and distribute to other countries, rather than sourcing and distributing locally and expanding local
markets. There is no bigger national market in Mauritius that can be explored by including the poor in
the value chain, since the island and the size of the population are limited, and poverty and
unemployment are not the most pressing issues in this country.
The challenges to inclusive business in each country clearly indicate that there is a need for multi-
stakeholder dialogues to address inclusive business challenges and start the process of raising
expectations and addressing the implementation gaps.
4 Recommendations for SMME Development and Inclusive Business
4.1 Recommendations from the Five Research Studies
The recommendations presented below were drawn from the five research studies as well as the five
national and one regional policy dialogues.
There is significant scope for better aligning policies, laws, regulations, and, in particular, support
structures towards common objectives for strengthening the SMME sector in recognition of its strategic
importance as an engine for job growth, poverty alleviation and social stability. Support for the provision
of business development services to SMMEs has been popular with donors over a number of decades.
However, early interventions often involved donor and implementing agencies supplying business
services directly to SMMEs. The sustainability of interventions was not given priority, since subsidies
were regarded as investments in the future, and little consideration was given to the questions of impact,
effectiveness and efficiency. Assessments of business services interventions identified that most had
failed to provide affordable, high-quality services to a large proportion of the target population of
SMMEs.
Recommendations, especially with regard to the implementation of new policies, strategies and the
alignment of these with support agencies, are diverse and present a number of ideas. These are presented
in some detail below.
4.1.1 Regulatory Frameworks
With regard to the regulatory framework, in three of the five target countries ? Malawi, Mozambique
and Zambia ? essential new central policies and strategies have been developed and approved only
recently. In these countries it is important that the new concepts are implemented and supported by the
key stakeholders in the sector, in particular support agencies and larger businesses. Policy and
institutional alignment is necessary to strengthen goal congruence towards SMME development. The
same is needed in the case of South Africa where new developments aim to incorporate inclusive
business into the regulatory framework through the aspirational BBBEE codes of good practice. In
Mauritius, by contrast, the regulatory framework is established and effective.
The support to SMMEs and inclusive business development should be developed comprehensively,
from the creation of frameworks to market access. SMME policy and status need to be revisited and
clear goals for the SMME sector and inclusive business disseminated. This includes the revision of an
implementation plan and the development of a detailed framework for Monitoring and Evaluation that
outlines goals, implementation timelines and provisions for periodic evaluation and reporting. It should
46
also provide guidance on the alignment of the regulatory framework with existing (or required) support
agencies.
Revisions should include the simplification of laws similar to the successfully implemented process in
Mozambique with regard to licenses, taxes and administrative procedures for SMMEs. It is important
to strengthen the national Supplier Development Programmes in each of the target countries to
strengthen comprehensive and effective mechanisms for SMME development. These programmes
would specifically include and emphasize the concept of inclusive business.
4.1.2 Support Structures
Capacity
All country reports revealed that the key support agencies are under-capacitated. Thus support agencies
need to be strengthened in terms of budget, staff retention, employment, number of existing staff and
qualified personnel, and extend the reach of the organisation not only geographically, but also as regards
activities to bring these in line with global best practice (such as road shows, exhibitions and seminars).
Staff of the support agencies themselves need to be better trained and have more knowledge on technical
and management skills. This will help to alleviate the challenges of inadequate education that are
experienced in all the target countries with the exception of Mauritius.
More field offices, or even more enterprise development hubs, are required in order to reach remote
entrepreneurs. While the strengthening of support agencies will require a higher budget and more staff,
the outcomes are likely to be more effective and target-oriented developmental approaches that will be
able to provide value for money.
Understanding and selecting SMMEs
Support organisations need to build a real understanding of the needs of SMMEs. This can be achieved
by engaging with SMMEs and developing support programmes that talk to specific needs. Of greater
importance is the goal-setting and implementation plans of support agencies that work with SMMEs. It
was mentioned in all the country studies that there are two types of start-ups ? there is the entrepreneur
who willingly starts an enterprise, whereas the other type of entrepreneur does this because of a lack of
employment. It is the tendency of the government support agencies to support both types of
entrepreneurs. Consequently, the high failure rates of SMMEs are not unexpected. The present report
recommends a more strategic approach to focus on the growth of “healthy enterprises”, namely those
that are business-driven rather than needs-driven.
As well as developing a comprehensive understanding of the conditions of entrepreneurs, support
agencies should establish a screening phase of candidates who will receive support before the business
development process commences. This selection would also reduce the larger companies’ risk of failure
when working together with SMMEs. In particular, with regard to inclusive business, entrepreneurs
should be identified who have a strong understanding of business and entrepreneurship principles in the
way that these are understood and implemented by the larger firms. Support agencies that aim to create
business linkages will then enjoy greater credibility with both the large companies and the start-ups.
100
In addition to the appropriate selection of entrepreneurs from the outset, a stronger communication and
information campaign targeting potential entrepreneurs and also companies is required, so as to
communicate industry-specific training solutions rather than generic approaches.
Training and education
The business development content (training), quality and capacity building of SMMEs requires review
in all five countries in order to provide SMMEs with a broader range of necessary business knowledge.
The content needs to cover a stronger focus on business skills, managerial skills and financial literacy.
100
According to the local research partners from Mauritius, Mozambique and South Africa, currently the most central
support organisations are not considered as valuable partners or enablers. In Mozambique, businesses indicated that they
do not often work together to support organisations and in Mauritius the study revealed that half of the interviewed
SMMEs bypass the support organisations and engage the companies directly.
47
In Mauritius, while organisations are already addressing different aspects of enterprise development,
there is scope for improvements.
Entrepreneurial thinking should ideally be initiated at primary and secondary school level. This was
strongly identified in some target countries, especially in the national policy dialogues. This approach
would target younger people who are not highly motivated to become entrepreneurs. Support agencies
can liaise with departments of education to jointly carry out a sensitization campaign.
101
Education
curricula could then be expanded and enhanced accordingly.
Communication and dissemination of information
Information on existing laws, support programmes and the general offer of supporting agencies should
be communicated more broadly and accessibly, especially in Malawi, Mozambique, South Africa and
Zambia. It was noted that in Mauritius the regulatory framework is relatively well known to
entrepreneurs. A joint information campaign that includes SMME fairs and road shows should ensure
that information is also provided in relevant local languages.
A communications framework is required to build confidence in society regarding government policies,
and related support mechanisms. It should provide accurate and relevant information about factors
related to SMMEs development, such as:
? Regulations and policies that impact SMMEs.
? Support mechanisms including donor-funded programmes.
? Training and other business services available through the private sector.
? Markets including market assessments, demand analysis, value-chain studies to give SMMEs a
better idea of the demand they should be responding to.
? Market opportunities should also address tender distribution so SMMEs are aware of specific
opportunities, and provide assistance in preparing their offers and tenders.
? Buyers’ access to information about viable suppliers.
Different communication channels should be utilised including radio, community radio, public service
television, social media such as SMS or Twitter via cell-phone, and field teams going door-to-door.
Simplification
Support structures should establish one-stop shops, which then need to be decentralized. Administrative
barriers and transaction costs should be minimized in all countries, including Mozambique. There are a
number of viable options for simplifying administrative processes for SMMEs.
Alignment
For all countries, as well as Mozambique where a central organization is responsible for SMME
development, institutional alignment is important but will differ from country to country. It can be
implemented in the form of a one-stop shop or SMME centres or local hubs in where SMMEs can obtain
information and support from a range of supporting agencies This one-stop-shop would also be
responsible for the dissemination of information to SMMEs and to other stakeholders about the creation
of enterprises, and ways to help in the development of micro-enterprises and start-ups. Information can
be shared and opportunities publicised that would be of use to the SMME sector.
In this context, the support of the agencies should focus not only on the start-up phase and registration
of the SMMEs. It has been clearly identified that SMMEs experience a high failure rate in their first 3-
5 years, a direct correlation with the lack of follow-up support identified in the interviews in all 5
countries. There is thus a need for support agencies to strongly follow-up and support, monitor and
evaluate, strengthening the linkages between SMMES and other supporting agencies, especially with
regard to different industry sectors. Co-ordinating public and private support agencies would place the
variety of support agencies at different stages of the “life cycle” or “value chain” of the SMMEs. Such
101
A pilot had already been initiated in a project of the ILO in South Africa (verbal information from Mr Jens Dyring
Chistensen, ILO South Africa, during the national workshop on SMME development and inclusive business within the
framework of the present research project (May 22, 2013, Midrand, South Africa).
48
support would then be done “hand-in-hand”, sharing the input around the first five to six years of a
specific SMMEs’ development.
A start has been made by SEDA in South Africa: its new strategy, “the client journey approach”,
proposes collaboration with the private sector to develop and implement a minimum three-year growth
strategy for SMMEs in their supply chain.
102
Even so, it must be recognised that shared work alongside
the ‘value chain’ of SMMEs requires a stronger effort involving all the public and private support
agencies including a communication programmes that will ensure SMMEs know where to go for training
and assistance.
In Mauritius, a more co-ordinated effort is already in place, since when the support agencies were
established they were given specific mandates within the ‘value chain’ of SMME development.
However, there is some degree of overlap between these mandates and related responsibilities that
requires a more streamlined and coherent approach.
It is important to note that not only support agencies need to be co-ordinated: there is also a need for a
consolidated approach by governmental programmes as well as the inter-linkage of bi- and multilateral
programmes with national programmes, such as in access to finance. This co-ordination of programmes
is an important point for countries in which donors and multilateral organizations may intervene to boost
SMME development, as it the case in Mozambique or Zambia.
4.1.3 Access to Finance
103
One of the major problems faced by SMMEs in all 5 target countries is the lack of access to financing
solutions. Apart from high interest rates, lack of creditworthiness and the request for collateral which is
hard to comply with, there are also legal constraints. In Zambia micro businesses are, by definition,
excluded from bank credit by the turnover thresholds defined by the banks. However, SMMEs clearly
need access to accessible finance options because many do not have properly audited financial
statements and/or sufficient assets and collateral. In general, governments need to provide incentives to
larger organisations to encourage loan funding at reduced interest rates. Governments should also
provide funding at more affordable rates, which will give SMMEs a better chance of survival.
In Mauritius, the current approach is the creation of a dedicated ‘SME Bank’ by the Development Bank
of Mauritius, with the intention of reducing existing bureaucratic practices and onerous lending
requirements.
It is necessary to coach SMMEs on financing tools and make them more credit-worthy. This can be done
by the support agencies within specific training courses, as is envisaged by IPEME in Mozambique. The
following steps are recommended to foster improved access to finance for SMMEs:
? Lobby the banking and financial service sectors to develop innovative products for SMMEs;
? Mitigate risk provision of financial services;
? Provide low-cost grants and co-financing.
Related mentoring programmes and financial literacy courses are crucial in promoting support for
SMMEs and strengthening their ability to meet their loan obligations. The concept of inclusive business
can play an essential role in access to finance, where large companies (after a careful selection of
SMMEs) could provide support in accessing finance based on the possibility of future contracts with the
company. Jointly with their partnering SMMEs, the companies also could apply for third party funding
for inclusive business practices, for example, the funding of innovative processes.
102
Interview with SEDA’s then acting CEO, Mr Koenie Slabbert, 23/01/12.
103
Although they are linked with the regulatory framework and the support structure, access to finance and access to
markets are treated as independent points as these two factors are seen as the key challenges by all interviewed SMMEs
and also by other key stakeholders.
49
4.1.4 Access to Markets
One of the biggest challenges for SMMEs is market access. Support agencies have the task of creating
business linkages but often encounter the challenge that companies do not want to carry the risk of bad
quality, insufficient quantity, interrupted supply and unreliable deliverables. After support agencies have
promoted SMME development for some decades, companies tend to demonstrate a certain fatigue and
may have had bad experiences in their involvement with SMMEs.
This lack of interest was raised in interviews with large companies in all five target countries. It is clear,
therefore, that the trust and motivation of the larger companies to extend their interest in business
linkages with SMMEs needs to be renewed. Inclusive business provides such an opportunity as the
concept that does not follow the same pattern as the approaches of the past. Companies are not asked to
involve micro- and small-scale enterprises into their value chain as part of their contribution to social
development but because it makes business sense to them.
104
Moreover, a key component of inclusive business is the ‘innovation’ factor, which is about new ways
of supplying, new products, new services and new ways of distributing and selling these products and
services and thus expanding markets and making profit.
It makes business sense for governments to champion the concept of inclusive business by promoting
and facilitating the approach. Support organisations should actively promote the concept to SMMEs on
the one hand, and to the companies (business linkages) on the other hand. This might give support
agencies a new impetus when linking SMMEs with larger firms that focus on the business case.
There was a critical view on the general promotion of clustering SMMEs into organization type. Whilst
clustering of SMMEs is often regarded as a solution (for example, support services can then work with
an SMME group on how to negotiate better), SMMEs in all countries have indicated that they prefer not
to work together. This is based on the lack of trust towards the persons in the cluster and the wish to act
at the individual level. In fact, initiatives by supporting agencies to cluster SMMEs in Zambia and
Mauritius failed, while in South Africa, attempts by government to promote the creation of co-operatives
in the agriculture sector have met with little success.
105
4.1.5 Business Services by the Private Sector
Donors and implementing agencies can develop a more effective approach based on the view that
achieving improved enterprise productivity and competitiveness, job creation and poverty reduction are
more likely to happen by also relying on the private sector to provide business services. This will require
that SMMEs are viewed as customers, and by judiciously targeting subsidies to avoid market distortion.
It is also important that SMMEs begin to view such support as being an entitlement that carries little
value, as has sometimes been the case in the past.
In this context, some reflection is needed as to whether and to what extent business services can be
provided on a commercial basis even for low-income SMMEs, while acknowledging that appropriate
product design, delivery and payment mechanisms must be developed. It is important to avoid a process
whereby consultants are commissioned to develop business plans for – and not with – subsidized start-
ups that do not understand these business plans and in the worse-case scenario, may not be in a position
to utilise them at all.
104
See examples for inclusive business above by companies such as Coca Cola (Zambia), Olam (Mozambique),
Chantefrais/Food and Allied Group (Mauritius), RAB processors (Malawi) and various examples in South Africa, for instance
the profitable distribution of micro-insurances by Hollard Financial Services.
105
This was mentioned in national and regional policy dialogues in the framework of the present research project.
50
4.2 Policy Dialogues – Recommendations and Action Plans
In the second part of the project, knowledge accumulated on the regulatory frameworks and support
structures, together with the key challenges and recommendations of each target country were
disseminated to stakeholders in the field of SMME development and inclusive business, and a regional
dialogue was convened in South Africa. In almost every target country the participation of media
representatives was arranged, including national TV representatives in Zambia and Mauritius. The
national policy dialogues were convened jointly with the local research partners, and the extent of
participation is listed in Table 7 below.
In all policy dialogues the participants were informed about:
? Inclusive business;
? The regulatory framework in the target country;
? The SMME support structure in the target country;
? Challenges around SMME development and inclusive business;
? Successful examples of inclusive business in the target country; and
? Recommendations.
The participants of each policy dialogue discussed possible action steps based on six key
recommendations in each target country. The agreed action steps are provided in chapter 5).
The recommendations were brought to the regional level meeting that included representatives from the
SADC Directorate’s Trade Industry Finance & Investment (TIFI), responsible for the Programme
“Industry Productive Competitiveness”. In this context, an additional concept note was shared to inform
the discussions around recommendations proposed for the SADC Industrial Development Policy
Framework (IDPF). This concept note is included as Appendix III.
In the regional dialogue, all five local researchers presented their results and recommendations based on
their research studies and the national policy dialogues. In this context and with regard to the above
concept note, the Senior Programme Officer- Industry Productive Competitiveness from the SADC
Directorate: Trade Industry Finance & Investment (TIFI) presented the SADC Industrial Development
Policy Framework (IDPF). The local researchers were requested to present positive lessons that were
learned from their country and that could be replicated in other countries or even at the regional level;
and to propose recommendations for the SADC region. The input from the five country studies and
national policy dialogues is provided in detail in Tables 7, 8 and 9 below. The country presentations
broadly encompassed:
? Major challenges for SMME development, based on the existing national regulatory framework
and the support structure;
? Major recommendations to improve SMME development and inclusive business activities in
each country;
? Lessons learnt that can be replicated; and
? Recommendations that can be elevated to the regional level.
It must be noted that the inputs on “lessons learnt” and on “recommendations for the regional level”
were not based on additional research but on the finalized research studies in each target country.
51
Table 7: Overview on the national policy dialogues within the framework of the project
Date & Place Participants Agenda topics
Port Louis,
Mauritius
May 15, 2013
Hosted by StraConsult &
Southern Africa Trust
12 delegates, amongst them representatives from
? the Mauritius Ministry of Business, Enterprise, and Co-
operatives;
? Development Bank of Mauritius
? Small and Medium Enterprise Development Authority
(SMEDA)
? Enterprise Mauritius
? University of Mauritius.
? Presentation of research objectives and inclusive business
by Southern Africa Trust
? Presentation of study results and recommendations
? Discussion of required activities to implement the study’s
recommendations
Midrand,
South Africa
May 20, 2013
Organised and implemented
by
Tushiyah Advisory Services
& Southern Africa Trust
and hosted by the South
Africa National Youth
Development Agency
(NYDA)
45 delegates, amongst them representatives from
? South Africa Department for Trade and Industry;
? Department of Economic Development;
? Small Enterprise Development Agency (SEDA);
? NYDA;
? Afrikaanse Handelsinstituut;
106
? ILO;
? Massmart
? ABSA;
? South African Institute of International Affairs (SAIIA);
? Mthente;
? University of Pretoria and GIBS; as well as a larger group
of SMME representatives.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Keynote Speech by NYDA
? Presentation of study results and recommendations
? Discussion
? Presentation of study results by Mthente
107
? Presentation by ILO
108
? Presentation by SAIIA
109
? Discussion on presentations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
Lusaka,
Zambia
May 22, 2013
Hosted by Munich Advisors
Group & Southern Africa
Trust
28 delegates , amongst them representatives from
? Permanent Secretary of the Ministry of Commerce, Trade
and Industry (MCTI);
? Zambia Development Agency (ZDA); Technical
Education, Vocational and Entrepreneurship Training
Authority (TEVETA);
? Zambia Institute for Policy Analysis and Research
(ZIPAR);
? SeedCo;
? ZANACO Bank Plc.;
as well as a larger group of SMME representatives.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Keynote speech by the Permanent secretary of MCTI
110
? Presentation of study results and recommendations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
Blantyre,
Malawi, June 6, 2013
Hosted by Employers
Consultative Association of
Malawi (ECAM) &
Southern Africa Trust
20 delegates, amongst them representatives from
? Ministry of Industry & Trade;
? Ministry of Justice;
? National Association of Business Women (NABW);
? Unilever South East Africa;
? RAB Processors Limited;
? Carlsberg Malawi Ltd.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Keynote Speech by ECAM
? Presentation of study results and recommendations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
Maputo,
Mozambique
June, 10, 2013
Hosted by Avril Consulting
& Southern Africa Trust
20 delegates, amongst them representatives from
? Ministry of Industry and Trade, the Investment
Promotion Centre (CPI) of the Ministry Planning and
Development;
? Institute for the Promotion of Small and Medium
Enterprises (IPEME);
? Confederation of Business Associations (CTA);
? Finance Institute of Development (GAPI);
? UNIDO;
? ILO;
? Netherland Development Organization (SNV);
? Building Markets,
? Vodacom;
? Sasol
as well as a larger group of SMME representatives.
? Presentation of research objectives and inclusive business,
by Southern Africa Trust
? Presentation of study results and recommendations
? Discussion
? Presentation by SNV
111
? Presentation by CPI
112
? Discussion on presentations
? Discussion of required activities to implement the study’s
recommendations in working groups
? Discussion of the outcomes of the breakaway session
106
“The Afrikaanse Handelsinstituut (AHI) is a multi-sectoral business organisation and one of four major chamber
organisations in South Africa, actively involved in all sectors of the economy, except primary agriculture.”http://led.co.za/organisation/afrikaanse-handelsinstituut-ahi-0
107
The presentation was about “Reporting back on Support Needs of SMMEs and Related Recommendations” by Mr Andre Le
Grange from Mthente South Africa.
108
The presentation was about “Creation of an Entrepreneurial Ecosystem in the Free State” (which was one of the research
areas of the present research project in South Africa). The presentation was held by Mr Jens Dyring Christensen from ILO South
Africa.
109
The presentation was about “SMME Development and Inclusive Business – Enabling Environment for successful
Entrepreneurship” by Mrs Lesley A Wenthworth from SAIIA.
110
The keynote speech was about “Inclusive Growth through Inclusive Business: Three I’s for a Successful Transition Towards
MSME-Led Growth in Zambia”. It was presented by the Permanent secretary of the Minister of Commerce, Trade and Industry,
the Honourable Mr Emmanuel Chenda (Annexure IV).
111
The presentation was about “Negócios Inclusivos – A experiência da SNV” (“Inclusive business – the Experience of SNV”), by
Mr Rik Overmas from SNV Mozambique.
112
The presentation was about “Desenvolvimento das PMEs e dos Negócios Inclusivos – ambiente propício para um
empreendedorismo bem sucedido” and “Development of SMEs and inclusive business – enabling environment for successful
entrepreneurship”) by Mr António Luis Macamo from CPI Mozambique.
52
Table 8: Overview on regional policy dialogue within the framework of the project
Regional
Dialogue
Sandton,
South Africa
June 28, 2013
Hosted by
Southern
Africa Trust
22 delegates from seven countries,
amongst them representatives from
the:
? SADC Secretariat ;
? Ministries of Trade and Industry,
e.g. from Mauritius, and South
Africa;
? governmental support agencies
for SMME development from
Mozambique, Zambia, Malawi
and South Africa;
? Investment Promotion Centre
(CPI) of the Mozambican
Ministry of Planning and
Development;
? NEPAD Business Foundation
? Trust Africa;
? all local research partners; and
? others
? Presentation of research objectives and inclusive
business,
by Southern Africa Trust
? Presentation by SADC on the SADC Industrial
Development Policy Framework (IDPF)
113
? Discussion
? Presentations on the results and recommendations
of the research studies and national policy
dialogues in the five target countries, by the local
researchers:
o Mauritius;
o Malawi;
o Zambia;
o Mozambique; and
o South Africa
? Discussion
? Presentation on commonalities and differences in
the target countries
? Discussion of required activities at the regional
level to implement the recommendations of the
study’s and national policy dialogues - in
working groups
? Discussion of the outcomes of the breakaway
session
? Ranking of the required activities at the regional
level
113
The presentation was about “SMME Development and Inclusive Business in the SADC Region – Enabling Environment for
successful entrepreneurship - Enhancing support to SMMEs” and was presented by Mrs. R. Alisoa Vololoniaina - Senior
Programme Officer- Industry Productive Competitiveness (SADC).
53
Table 9: Challenges, recommendations, and lessons learnt for the regional policy
Country/ Issue Malawi Mauritius Mozambique South Africa Zambia
Challenges Lack of capital.
Poor access to finance.
Lack of awareness.
Limited support in
enabling environment.
Lack of information/
poor marketing
information.
Lack of networking.
Lack of skills.
Limited attention
given to quality
assurance.
Poor managerial
capacity.
Lack of access to
information about latest
technology.
Fear of co-operation to
improve capacity –
clustering.
Lack of platforms for
interaction between
SMMEs and larger
companies.
Absence of Local
Content Tool.
Lack of incubators.
Lack of access to
information and
markets.
Difficult access to
finance.
Lack of information on marketing
support and lack of marketing
and selling skills.
Lack of access to finance, (high
interest rates; SMMEs are seen as
high risk; professional support is
lacking from support structures).
Lack of operational funding and
cash flow. SMMEs struggle to
manage cash-flow.
High import costs (textiles) and
no joining of forces to buy in
bulk (silo mentality).
Availability and affordability of
skilled labour
Lack of entrepreneurial education
as well as technical and business
skills.
Inability to deliver on time, at the
right price, quality and quantity,
(including stock and raw material
shortages).
Strict labour laws that hinder
SMMEs from employing staff.
Doing business (recent economic
recession; bureaucracy and
corruption; registration processes;
and strict tax regulations.
Inability to access local and
international markets.
Barriers to entry into some
industries.
Inability to secure start-up
or working capital finance.
Human capital: Poor
motivation, inadequate skills
and weak stewardship.
Poor technology and lack of
innovation and value-
addition or processing based
on high cost, poor quality or
non-availability of raw
material and other inputs.
High costs of doing
business.
Recommendations
& actions
Better functioning of
value chain - national
export strategy.
Create incentives for
the private sector- tax
considerations.
Educate SMMEs.
Strengthen SMME
business support
infrastructure.
Financial inclusion
through the banks.
Need for training in
industrial development
such as managerial,
entrepreneurial and
technical skills.
Need for special
schemes for provision
of management
support.
Awareness and
Information.
Support for acquisition
of technical capacity.
Government and its
agencies should
encourage clustering
efforts so that SMEs do
not work in isolation
and take advantage of
horizontal integration.
Organising a series of
buyer-seller meetings
to facilitate supply
chain linkages between
SMMEs and large
enterprises.
Improvement of
access to information
about support
programmes.
Business services
market development
(including fees for
professional
consultations).
Quality
improvement for
SMMEs products
and services to be
competitive.
Access to finance.
Local Procurement
and Local
Content.
114
Accelerating of
administration.
Co-ordination and
knowledge sharing.
Organising buyer-
sellers meetings to
facilitate linkages
between SMMEs
and large enterprises.
Urgently strengthen the abilities
of the South Africa Small
Enterprise Development Agency
(SEDA).
Work on incentivising BEE
scorecards
115
to reward
companies who make an effort to
conduct inclusive business.
Better co-ordinate the efforts of
the supporting agencies and
Institute communication
programmes that ensure SMMEs
know where to go for training
and assistance.
Arrange urgent intervention in
the South African education
system.
Address skills shortages in all
tiers of government.
Communicate the importance of
inclusive business to the
corporate sector in a way that
gives credence to its merits and
do so creatively.
Improve access to finance.
Goal congruence – Build
policy and institutional
alignment to strengthen goal
congruence towards SMME
development.
Institutional capacity –
Strengthen institutional
capacity towards MSME
development.
Investment and innovation –
Promote innovation through
partnerships and teaming to
realise economies of scale
and scope.
SMME capacity – Facilitate
capacity building in
financial literacy,
entrepreneurship and
eliminate administrative
barriers and minimise
transaction costs.
Value addition – Leverage
international agreements,
such as the recent bilateral
agreement with China to
promote entry into value
addition and high-end
services for domestic and
export markets.
114
Since the aim of increasing local procurement is to create jobs in Mozambique, then the procurement must relate to
products that are produced in Mozambique (creating manufacturing jobs) or services that are delivered in Mozambique
(creating service jobs). This relation is known as “Local Content”.
115
B-BBEE stands for Broad-Based Black Economic Empowerment. The objective of B-BBEE is to ensure that the majority of
South Africans who are defined as being black people across all socio-economic levels, are able to participate in the positive
benefits of empowerment. The concept of Broad-Based BEE was introduced by the Codes of Practice. 7 B-BBEE Elements are
now used to measure a company’s commitment to transformation. The B-BBEE Codes of Good Practice can be seen as the BEE
rule book. The Codes provide universal standards for the implementation and measurement of BEE initiatives, with the aim of
providing consistency, transparency and clear direction on BEE. Through the use of a BEE Scorecard, the Codes have thus seen
BEE become an objective discipline with quantifiable and defined criteria and rules (BEE 123: 2013).
54
Country/ Issue Malawi Mauritius Mozambique South Africa Zambia
Learning for
replication
For Malawi, not much
information on lessons
learnt was given, due
to the fact the new
SMME policy still
needs to be
implemented. Lessons
on the preceding
policies are about the
improvement of its
implementation.
Several companies are
already involved in
inclusive business and
companies from the
other target countries
can learn from their
experiences.
Diverse financial
Instruments made
available:
(a) Equity as well as
non-collateral
based loans;
(b) Acquisition of
equipment;
(c) Factoring; and
(d) Export insurance
guarantee.
Support for export
(a) Preparation for
export readiness;
(b) Carry on for
overseas
promotion; and
(c) Subsidy on travel
&
accommodation
costs.
Support for process and
product improvement.
Ease of doing business:
cut down formalities
without compromising
on due diligence.
Simplification of
procedures: tax, the
creation of the
company, the
attribution of
licences.
Public-private
dialogues, e.g. done
by the Confederation
of Business
Associations in
Mozambique (CTA).
Creation of the
Inclusive Business
Council.
The lessons learnt from South
Africa are already covered in the
recommendations. Relevant
regulations need to be
communicated more effectively.
The high number of SMME-
support agencies results in the
need to better co-ordinate these
organisations and their efforts.
For Zambia, the lessons
learnt were based on
inclusive business case
studies. Important learning
can comprise:
(a) Entrepreneur
selection;
(b) Capacity building –
training and
mentoring;
(c) Partnership for
capacity building
financing;
(d) Evidence-based
approaches;
(e) Appropriateness and
affordability of
technologies; and
(f) Social inclusion and
advocacy.
Relevance for
SADC
Inclusive business
models.
Increasing access to
finance through value
chains.
Providing incentives
to companies.
Tax reform for
SMMEs.
Registration of
businesses/formation
of associations.
Reforming
regulations.
More publicity/buyer-
seller meetings.
Access to markets.
Collecting and
disseminating reliable
data.
Infrastructure
development.
Certification.
National and regional
procurement preference
in favour of SMMEs.
SMME Development
Fund – diversified
instruments.
Activate through
willing commercial
banks and other
financial partners.
Management capacity
support through in-
house management
placement.
Fiscal incentives for
MNCs to source from
SMMEs.
Simplification and
harmonization of
laws.
Access to finance.
Access to
information and
markets.
Provide a common platform
where legislation can be accessed
- avoid duplication of support -
develop a shared portal where
support provided to SMMEs is
documented.
Cluster industry-specific training
and support together.
Financial support:
? Reduce red tape in
applying for finance;
? Reduce interest rates;
? Increase turnaround time
with approval of loans;
? Provide a combination of
grant and loan funding
especially for start-ups;
and
? Timely payment of
invoices (preferably 50%
payment upfront / 7 day
payment from date of
invoice).
Provide strong market
knowledge on pricing and
volumes and bundle
products where possible.
Provide services to bundle
produce of SMMEs and
support in negotiating frame
contract.
Negotiate financing scheme
for SMMEs and provide
collateral not available by
most SMMEs.
Provide on-the-job capacity
building training to
empower SMMEs and
ensure financial literacy and
practical tools are available.
Provide affordable ICT
solutions to access
knowledge, markets and
finance to SMMES.
Empower support
organisations in lobbying
for decreased cost with
focus on SME needs.
55
4.3 Discussion of the Recommendations
In every target country access to finance is one of the major challenges for SMMEs. It makes sense,
therefore, for governments to encourage the investment sector and foreign investors to reduce the
negative impact of one of the key challenges of SMME development in Southern Africa. For instance,
it was estimated that in Malawi about 90% of the SMMEs might not have a bank account. In Mauritius,
as a positive example, government has approached the leasing companies to give loans to SMMEs while
government shares the burden of the concessionary rate (leasing equipment modernization scheme). The
Mauritian government has also encouraged the banking sector to promote better access to finance.
Finally, within the framework of the Mauritius Youth Employment Programme, graduates can be
involved to assist SMMEs in creating their business plans and the government contributes with 50% of
the cost of using these graduates.
With regard to the lack of information on markets and opportunities, including the lack of information
on a regulatory framework of a country or the available support for SMMEs, the idea of having an online
portal was discussed in various policy dialogues, and in particular in the regional policy dialogue. This
approach still requires reflection on how to reach the SMMEs, especially in the rural areas. In
Mozambique, for example, there are challenges in terms of internet access and net coverage. In addition,
there is a need to continuously update the information on the portal. It was suggested that the business
sector should be approached to partner in addressing such technical challenges. In this context, it should
also be mentioned that, for example, the information of SADC is often highly complex and not readily
accessible to SMMEs. It should be adapted and simplified. Moreover, businesses need information that
is specific rather than general and information could be provided in conjunction with the various industry
sectors. It was suggested that a Challenge Fund be set up to build up effective sector-related information
services implemented by companies and facilitated by the governments.
In Mozambique the Centre for Investment Promotion (CPI) started a programme to improve SMMEs’
access to information and created an online platform that includes information on services, buyers,
assessments and financial systems. In South Africa, the commercial bank ABSA has introduced a
procurement portal, a virtual marketplace that the company has developed for buyers and suppliers. The
project is managed by the Enterprise Development Unit of ABSA and users do not need to be ABSA
clients.
116
At the regional level, SADC plans to establish a similar online portal.
117
4.4 Commonalities and Differences
This chapter provides a summary of results and recommendations from the five target countries that
were presented at the regional policy dialogue in South Africa in June 2013. The Southern Africa Trust
summarized the studies and the national dialogues. As a starting point, in all countries global challenges
for inclusive business that had been defined by the UNDP (2008) were confirmed. These were the lack
of market information; limited skills, limited access to financial services and a disenabling regulatory
environment. Based on these global obstacles for SMME development, the research studies then
revealed country-specific challenges and solutions.
a) Commonalities of challenges in the five target countries
For all target countries, the following issues were mentioned in addition to the general challenges which
UNDP had already identified in 2008. These are:
? Lack of working capital
? Lack of skilled employees
? High costs of doing business
? Non-co-ordinated efforts by support structures, where:
o SMMEs get disparate information
o Awareness of what support is available is limited
116
Absa (2013).
117
This portal was discussed during the regional policy dialogue of this research project in South Africa in June 2013.
56
o Reliable data are missing
o Monitoring (beyond pure figures) is missing.
? Challenges regarding the role of governments (and support structures)
? Regarding inclusive business, there is:
o Mistrust (between SMMEs and larger firms as well as between SMMEs themselves)
o Excessive bureaucracy, nepotism, depending on political party, poor turnaround time
? Lack of entrepreneurial education at an early stage of life.
b) Recommendations to overcome these challenges
For some challenges, very similar solutions and recommendations were proposed by the researchers.
For example, with regard to the unco-ordinated efforts of the support agencies, the researchers proposed
the following approaches:
? Create a co-ordinating platform(s)/hubs;
? One-stop shops;
? Service for life cycle (meaning that at different stages of the development of an SMME differing
agencies shall be responsible rather than all agencies only focusing on the start-up phase). This
approach would include the strong requirement of improved communications and working
together between the support agencies.
? Involvement of relevant chambers; and
? Decentralized training.
Regarding the role of the state in promoting inclusive business, it was recommended that governments
should:
? Facilitate;
? Champion;
? Promote;
? Monitor;
? Incentivise; and
? Simplify the processes.
Regarding the lack of access to financing of SMMEs, the majority of recommendations covered the
approaches of establishing lower interest rates and the creation of an SMME-Bank.
In relation to the point about instituting earlier entrepreneurial education, programmes for primary and
secondary school were recommended by the researchers as an outcome of the five national policy
dialogues.
c) Additional suggestions resulting from the five national policy dialogues
The following common ideas were captured in at least two policy dialogues (and were also mentioned
in some research studies):
? Introduce a screening process rather than support every start-up.
? Offer services according to industry sectors.
? Build enterprises operating in demand-driven markets.
? Use Public-Private Partnerships (PPPs) to improve the infrastructure of a country.
? Discuss whether adequate fees for services shall be introduced.
? Discuss the lack of innovation and value addition rather than have continuous predominance of
trading issues.
5 National Action Plans
In each policy dialogue the participants discussed the key recommendations of the research studies.
They were divided into working groups and were requested to propose activities (action plans) on how
57
to implement these recommendations. These actions are summarized below for the one regional and five
national policy dialogues.
5.1 The Action Plan for Malawi
Box 2: Recommendations & Action Plan - SMME development and inclusive business in Malawi
Recommendation 1
Business Development Service Providers (BDSPs) shall improve their service deliveries to SMMEs particularly in the areas
of: their accessibility/availability nationwide; the cost of services; and the quality of services. BDSPs shall include training,
marketing, registration, technology, and financial institutions.
Required Action
? Sensitize BSDP’s.
? Strengthen governance and linkage with member companies of business associations (provide “real” services).
? Engage stakeholders and in particular BDSPs in dialogues to develop a more profound support to SMMEs.
? Coordinate BDSP’s to create one stop shop (e.g. using better ICT).
? Decentralize BSDP’s services.
? Start a paradigm shift in operations (client oriented).
Recommendation 2
Ministry of Industry and Trade shall improve the implementation of the SMME policy and avoid a repeat of the challenges
faced during implementation of the reviewed SMME policy.
Required Action
Lobbying and advocacy:
? Taskforce to draft a paper to lobby the policy in the cabinet.
? Stakeholders meeting to review the current SMME policy.
? Lobbying for launch of SMME Policy.
? Then launch reviewed SMME Policy.
Recommendation 3
Government must ensure accurate data to make informed decisions for SMME development.
Required Action
? Re-defined research.
? Harmonisation & validation of data to create an enhanced database.
Recommendation 4
Large companies should develop internal policies on inclusive business.
Required Action
? Awareness and sensitisation of companies so that companies will reflect on the option of using the inclusive business
model/more integrate SMMEs in their business activities to improve profitability. Companies will develop strategies how
to best implement inclusive business ideas.
? Government policy to incentivise companies. In order to comply, companies will reflect the options of inclusive business
practices.
? Monitor and evaluate mechanisms to be built into the policy that companies will be able to assess and realise the benefits
but also the risks of inclusive business activities.
Recommendation 5
Improving the operations of value chains by strengthening business to business linkages.
Required Action
? Provide assistance in finance, technical know-how and distribution models to assist in developing skilled and capacitated
SMMEs.
? Revisit the cooperative development policy to focus on inclusive business to foster SMME aggregation and more
effective SMMEs.
? Development of marketing systems – to create a linkage strategy / access to market information
? Create regular networking events for businesses and SMMEs. In particular establish inclusive business market places
and improved business linkages.
Recommendation 6
Strategies for strengthening standards and quality consciousness among SMMEs as a key component of inclusive business.
Required Action
? Create awareness and understanding of standards which might lead to better quality by:
? Training program and an awareness campaign of standards (including information of benefits of having the
right standards)
? Build a productivity center for to maintain quality and standards. This should include skills building programs
& accreditation
? Tax reduction on equipment required by SMMEs for increased capacity of SMMEs to achieve quality standards.
? Source and share SMME models from other countries.
? New approaches for standard development and knowledge about pitfalls.
Based on the findings of the research study, the following six key recommendations were discussed by
the participants to develop an action plan. The participants were split into two working groups to discuss
58
the most necessary steps to implement these six recommendations. After the group work, the teams were
then given the opportunity to present back to the full delegation.
5.2 The Action Plan for Mauritius
The recommendations of the study in Mauritius were added by participants’ suggestions:
? Mainstream the policies from government, which would include the involvement of the
inclusive business concept in the next budget speech of the Finance Minister.
? Support agencies shall assist SMMEs in implementing inclusive business practices. There is
also a need for training in industrial development such as managerial, entrepreneurial and technical skills
as well as a need for special schemes for provision of management support. In addition, there should be
support for the acquisition of technical capacity.
? Awareness needs to be raised in larger companies that inclusive business is a profitable approach
and not a CSR initiative. Opportunities shall be demonstrated by Government and the support
agencies, e.g. with regard what can be sourced locally.
? An in-depth discussion with SMMEs is required that they understand the Supplier Development
Programme. SMMEs have to be trained accordingly.
? The banks should be involved, e.g. with regard to an export-import guarantee scheme. The
mainstreaming could be done by the envisaged SMME bank by DBM.
? Government and its agencies should encourage clustering efforts so that SMEs do not work in
isolation and take advantage of horizontal integration.
? Organising a series of buyer-sellers meetings to facilitate supply chain linkages between
SMMEs and large enterprises.
Based on the above first ideas, the participants discussed the issue of the Supplier Development
Programme and how to get larger firms more involved. For example, it was suggested that non-sensitive
issues can be addressed by Companies’ Supplier Development Programmes in direct exchange with
SMMEs that means at an individual level. Sensitive business items, such as quality, quantity, reliability,
regularity and thus sustainability require strong coordination and possibly a cluster approach – although
it was also mentioned that Mauritian entrepreneurs dislike being clustered. Still, there are examples
where the idea of clustering worked out well, for instance the collective marketing of craft-persons from
Rodriguez who exported their products to France.
However, companies need to develop a long-term relationship to gain the trust of the SMMEs. Currently,
it is not clear whether and how many larger companies are willing to (more) collaborate with SMMEs
and vice versa. Awareness needs to be created at different levels, in particular with regard to mutual
benefits. The research study and some findings from the present universities indicate a great willingness
of SMMEs to be integrated in the companies’ value chains, but technical and business skills are lacking.
Awareness creation shall include a clear picture on what inclusive business is about because the concept
still often is confused with corporate giving. The Southern Africa Trust was asked to bring in expertise
on inclusive business and provide clarity based on the five research studies of the project.
59
Box 3: Recommendations & Action Plan - SMME development and inclusive business in
Mauritius
The participants agreed on the following Action Plan:
1) With the help of the B4D Pathfinder Barometer a survey shall be done with some 40-50
companies to be able to evaluate whether and in how far companies in Mauritius are inclusive.
The B4D Pathfinder Tools shall bring clarity on the issue of inclusive business and lead to
willingness of companies and SMMEs to be more inclusive. Priority sectors for this survey will
be the supermarkets / retailers, hotels and the IRS sector (Integrated Resort Scheme
118
) and lead
to a “reality-check on the ground”. The survey shall be supported by the Ministry of Business,
Enterprises & Cooperatives. The involvement of the Ministry for Ministry of Business,
Enterprises & Cooperatives is the key for the acceptance of the Barometer by the companies and
thus crucial for the success.
2) The results will lead to a baseline for inclusive business and SMME development in the country.
3) After the companies will have filled in the B4D Pathfinder Barometer, a dialogue with the private
and public sector will be started on the benefits of inclusive business, again with the support of
the above ministry championing inclusive business rather than regulating the approach. This
dialogue will also lead to acceptance of the inclusive business concept and its incorporation in
the Mauritian Supplier Development Programme. This cannot be done by the support agencies
but shall be brought in by third parties.
4) The outcome will result in ways how to drive the processes of inclusive business and SMME
development differently, on condition that inclusive business is profitable and processes are
innovative.
5) Based on the further developed Supplier Development Programme the support agencies shall
assist the SMMEs in a coordinated form. It was suggested to establish fairs for business linkages
and innovation to foster processes, facilitating by the universities.
5.3 The Action Plan for Mozambique
Based on the findings of the research study, the following six key recommendations were discussed by
the participants to develop an action plan. The participants were split into three working groups to
discuss the most necessary steps to implement these six recommendations. The groups were requested
to only list three priority actions but were allowed to divide these into short term, medium term and long
term measures.
118
Currently a landowner’s permit from Government is needed to use former sugar cane areas to construct upscale villas.
60
Box 4: Recommendations & Action Plan - SMME development and inclusive business in
Mozambique
Recommendation 1
Better access to information.
Required Actions
? Develop a package on fiscal incentives and an overview on the legal framework for different sectors / fiscal obligations that affect
SMMEs.
? Create a databank profiling local SMMEs for large companies to be (more) aware of the local offer.
? Dissemination of information through TV, radio, etc.
? MOU with institutions (given support structure) and necessity of using/establishing local institutions in the various areas/provinces in
the country.
? Necessity to disseminate information through “Janela Única Electrónica”
119
(the Mozambican electronic customs system) and the “e-
tributação” (the electronic taxing system).
Recommendation 2
Simplification of administration.
Required Action
? The one-stop-shop shall be combined with business development services such as IPEME-Gazeda.
? Verification of compliance of established simplification regulations.
? Technology transfer.
? The one stop shop shall be combined with the payments of taxes.
? Implementation of only one identification number for citizens.
Recommendation 3
Business services market development (incl. market information).
Required Actions
? Promotion of the demand through business development services (understanding of the demand).
? Support of service providers for SMME development that create new services (such as services to support SMMEs to apply for up to
date technologies and technical assistance) and improve the quality of the suppliers.
? Establishment of a fund for technical assistance, e.g. 'group purchasing' with the participation of companies.
Recommendation 4
Access to finance.
Required Actions
? Integration of banks that have a linkages program with the active participation of large companies; direct engagement with large
companies to support them bringing SMMEs to the banks to get a adequate credit
? Integration of MPESA in the existing finance mechanisms.
? Establishment of a ‘catalytic” fund for SMMEs.
? Integration of the stock market in the national (SMME) programme.
Recommendation 5
Quality improvement.
Required Actions
? Necessity of creating an atmosphere of mutual confidence between the government, doners and the private sector.
? Improve the access to information, in particular information on quality schemes / methods of technical improvement.
? The Government and the private sector need to improve the nationalinfrastructure.
? Certification schemes for products and services.
? There is a need to create instruments of mediation.
? Necessity to introduce standard norms at a national level.
? Technical assistance can be improved by using resources from the Dutch PUM Programme.
Recommendation 6
Local procurement and Local Content.
Required Actions
? The Government and the private sector shall discuss a form of legislation that companies must buy a certain percentage of products
that is produced in the country. That also will lead to improved skills within SMMEs.
? Companies shall contribute to education of the local working force.
? The larger firms could create a list of potential categories of goods and services which they will need in the coming two to five years
that SMMEs can prepare themselves to be able to deliver according to this demand. (There should be an aggregated demand for the
next five years). CPI, Building Markets and the consultant ICC will jointly launch this study in the year 2013.
It was suggested and agreed that the stakeholders continue their exchange and sharpen the above steps.
A loose network of key players is already working together in the field of Supplier Development
Programme as well as business linkages. However, it seems likely that two or three more policy
dialogues will be required to achieve and agree on concrete joint steps. One platform to further continue
the dialogue could be the recently established Center for Inclusive Business (CNI) and many members
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Known as the Single Electronic Window, the new tool comprises two computer systems – the integrated customs
management system and the operators’ mechanism. Via the Single Electronic Window importers are able to submit the
customs declaration and pay all fees via a retail bank before the actual unloading of the goods, which will reduce their
processing time (http://mpoverello.com/2011/12/12/new-mozambique-customs-system-will-reduce-processing-time/).
61
of the CNI participated in the present policy dialogue or were informed about it. In addition, an internet
portal will be set up to enable a continuous dialogue between stakeholders.
5.4 The Action Plan in South Africa
Based on the recommendations of the research study in the national dialogue in South Africa, and
amendments which were made based on the input of the additional presentations and participants’
contributions, the following questions were selected and discussed in 2 groups.
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Box 5: Key questions & Action Plan - SMME development and inclusive business in South
Africa
Group questions 1
How can government or agencies improve co-ordination between the supporting agencies to avoid duplication?
What else can government do to support companies?
Who should make an effort to conduct inclusive business?
Required Actions
? Analyse the gaps and infrastructure.
? Involve the business chambers.
? Map/matrix (who, what, where, when of supporting agencies).
? National co-ordinating platform.
? One-stop shop (Business Place, ILO), including all players after a diagnostic first check.
? Clear communication to SMMEs on which agency is responsible for which support.
? Providing support for SMMEs in a life cycle, i.e. not all the involved agencies should focus on the start-up phase of SMMEs
but some shall be responsible to do the follow-up after different time intervals.
? Dual-zone centres (SMME support in townships and villages) need to be analysed and strongly capacitated. The reach of the
various support agencies needs to be improved.
? Tertiary education better linked to supporting agencies.
Group questions 2
What should a supplier development programme look like?
What are the key factors needed to make it successful?
How can companies develop a mindset change with regard to inclusive business?
Required Actions
Short-tem:
? Electronic database per region.
? Role of the chambers not fully utilised - Local procurement policy - strengthen initiatives at local level.
? Incentivise big business – incentives do not necessarily have to be monetary.
Mid to long-term:
? Consolidated database national, provincial and local – with custodians at local level.
? Let chambers play a role in facilitating inclusive business and supplier development and support.
Ongoing dialogue is required to jointly develop these activities, increase inclusive business practices
and strengthen the support organisations for SMME development. A high-level discussion platform of
agencies was suggested to be established and involve key players such the Presidency, the Department
of Trade and Industry and the Department of Economic Development as a co-ordinating unit as well as
other involved players. In their “SMME Economic Society” which is a colloquium of important players
of SMME development, the Department of Economic Development will identify partners for ongoing
policy dialogue. This Department has indicated its interest in working with the Southern Africa Trust
on the issue of SMME development.
5.5 The Action Plan for Zambia
Based on the findings of the research study, the following six key recommendations were presented to
the participants for their further discussion. These are summarized in the figure below.
120
It needs to be noted that some participants had left the event by this stage.
62
Figure 2: Recommendations from the research study in Zambia
The participants were divided into three working groups to discuss the most necessary steps to
implement these six recommendations. The group work resulted in some overlaps and not all groups
divided the recommended steps of action into short, mid and longer term activities. Not all working
groups responded exactly on the given recommendations but discussed improvements for SMME
development more broadly.
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Box 6: Recommendations & Action Plan - SMME development and inclusive business in Zambia
Recommendation 1
Build policy and institutional alignment to strengthen goal congruence towards SMME development;
Strengthen institutional capacity towards SMME development.
Required Actions
Challenge: Due to the fragmentation of institutions, there is differing understanding of policy guidelines that contributes to poor SMME
development practices. It results in a lack of harmonisation of research and policy and a low level of collaboration between supporting
agencies. Channels to disseminate information on the existing policies are lacking.
a) For the short term it was recommended to:
? Establish improved co-ordination among the key ministries.
? Immediately implement the dissemination of information on which support agency is offering which services.
? Create actionable ideas and get back to people who are involved.
b) For the mid-term it was recommended to:
? Monitor and evaluate whether policies in place are implemented.
? Disseminate information that is harmonized involving key SMME institutions.
c) For the longer term it was recommended to:
? Form a “mother body” for the support agencies that co-ordinates the activities.
? Decentralize governmental support services.
? Reform skills training for SMMEs.
Recommendation 2
Promote innovation through partnership and teaming to realize economies of scale and scope.
Required Actions
Challenge: SMMEs are unable to innovate due to a lack of investment. The required investment cannot be attracted due to lack of trust and
contracting capacity.
a) For the short to mid-term it was recommended to:
? Build legal capacity of SMMEs through training them in contracting, legal documentation, negotiation, and arbitration.
Implement self-policing and contract enforcement mechanisms through local arbitration and related mechanisms.
? Strengthen government support: (i) underwriting markets for new products developed by SMMEs; (ii) creating a national
database of SMME products and services to enable local sourcing, equipment/capacity sharing. Use on-site and virtual business
incubation support e.g. by Empretec.
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? Strengthen financial support for SMMEs through effective, constructive engagement by the banks with the SMME sector
leveraging financial co-operatives or associations formed by the SMMEs.
b) For the longer term it was recommended to:
? Change the culture of reliance on government to one of self-reliance and community-level co-operation.
? Change the culture of disdain for products that are “Made in Zambia”.
? Change the structure of incentives in the public sector to condition SMMEs on achieving results in the private sector. For
example, ‘Cluster A’ should innovate a specific amount of new products in a given year as a condition for specific incentives
for staff of the relevant government support agency.
Recommendation 3
Entrepreneurship, financial literacy and levelling the playing field for SMMEs by eliminating administrative barriers and minimizing
transaction costs.
Mainstream cultural reorientation and introducing requirements for financial and value chain inclusion.
Required Actions
? A Business Facilitation Programme should be established to reduce administrative barriers (regarding online registration, simplified
tax compliance, registration, licencing). This will also promote ease of doing business.
? One-stop shops and/or joint road-shows are required for the support agencies to jointly train entrepreneurs.
? Support agencies need to train entrepreneurs in keeping records (financial literacy) and on how to transfer these records into a
financial format. SMMEs and start-ups should make a financial contribution to such services as there is added value and the benefit
of better returns. Support agencies also need to train entrepreneurs to re-invest their profits (financial literacy).
? Transaction costs need to be reduced for SMMEs, bringing in a flat rate, one pay-point approach. The proposed fees should be
staggered based on the specific SMME. It was suggested to include learning from other countries with regard to transaction costs.
? With regard to the lack of entrepreneurial culture, stronger sensitization is required. Pupils should already be learning about
entrepreneurship in primary school. SMMEs should be invited to schools to give talks about success stories. Families should talk
about how money is earned (as people in Asia do).
? There should be regulation of beneficiation to create opportunities for SMMEs (according to various stages of processing).
? The Supplier Development Programme needs to be further developed to avoid financial illiteracy, but should first be implemented by
government as a pilot.
? One financial requirement for inclusivity includes that the Government must champion it but not subsidize it. Government will
promote inclusive business.
? Companies must understand what is meant by social licence, and this must be properly explained when a concession/lower electricity
costs or similar are requested or expected.
? It was suggested to monitor companies on their way to more inclusivity.
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Empretec is an UNDP Programme under which entrepreneurs are given financial training and are required to market and
sell all their (new) products within a certain timeframe as a condition for obtaining certification (UNCTAD, 2013).
64
Recommendation 4
Leverage bilateral agreements to promote entry into value addition and high-end services for domestic and export markets.
Required Actions
Due to the identified lack of innovation, selected SMME sectors shall be mentored through bilateral agreements and transfer technology.
a) For the short term it was recommended to:
? Indicate to the public what entrepreneurship and innovation really mean and what should be done to integrate the
SMMEs/entrepreneurs in the value chain. Identify people who can support these activities.
? Identify technology products (through stakeholders) that are ready for market. Obtain information and knowledge about
markets.
? Identify the raw materials that are available - how can value be added through beneficiation?
b) For the mid-term it was recommended to:
? Maintain continuous awareness.
? Create incentives, employment creation.
? Aim at value addition in the copper sector (e.g. specific parts required for innovative products manufactured in Japan), and at
qualifying the human capital.
c) For the longer term it was recommended to:
? Implement technology transfer.
? Inform and create awareness of the segmentation of markets.
? Create incentives (e.g. taxes) for companies that include SMMEs in their value chain.
5.6 Recommendations for Actions at the Regional Level
In the regional workshop, all five research studies were presented. In addition, the SADC Industrial
Development Policy Framework (IDPF) was presented by a SADC representative. Recommendations
from all five target countries were presented and discussed and a summary of commonalities and
differences regarding challenges and solutions in the five countries were shown. The participants were
divided into five groups to discuss the following question:
“What needs to change or be improved in the policy environment at the regional level to better equip
the private sector to be a more effective enabler of inclusive business?”
The results from the groups were clustered and ranked by the participants. This resulted in a priority list
of activities to improve the policy environment at the regional level so as to better equip the private
sector to be a more effective enabler of inclusive business.
Box 7: Key priorities for SMME development and inclusive business at the SADC level
The 4 key priorities ranked the highest by the workshop participants were:
? Cluster 1 (16 points): Improve SMMEs’ access to finance through a:
o Regional common bank for SMMEs;
o Regional fund for finance (working capital);
o Regional Fund of Foreign Direct Investment (FDI) for SMME support;
o Guarantee fund + non-bank mechanisms for SMME finance;
o Provision of non-collateral-based finance and diversified financial instruments facilitated by SADC.
? Cluster 2 (10 points): Co-operation and co-ordination of support structures for SMME development through:
o Co-operation and capacity building amongst the public institutions with the same remit;
o Regional Body for SMME development for information; financial instruments; practice, research.
? Cluster 3 (9 points): Regional Learning Centres for skills, such as regional integrated skills development centres being
implemented in a joint effort by governments and the private sector.
? Cluster 4 (7 points): Information Portal developed and facilitated by SADC, in particular with regard to information on
availability and sources of raw material.
It was agreed that these four priority areas should be addressed first at the regional level.
It was also suggested that an annual meeting should be convened with relevant chambers and
associations that represent SMMEs to (i) discuss the national regulatory framework and the conditions
of doing business at regional and national level; and (ii) to discuss (develop) programmes that respond
65
to the demands of the private sector. The roles, responsibilities and co-ordination requirements were
not addressed.
Further recommendations covered regional tax tariffs and the development of a regulatory framework
for inclusive business.
6 Conclusions
This project enabled the Southern Africa Trust to gather comprehensive knowledge on the following:
? The macro-economic environment and status of SMMEs in the target countries Malawi,
Mauritius, Mozambique, South Africa and Zambia;
? The regulatory frameworks in these five target countries;
? The support structures in these five target countries;
? The factors that promote or impede the growth of SMMEs in relation to the three points above;
? The inclusive business and enabling environment;
? The recommendations to improve the current situation.
The general conclusion of the desktop studies is that both the public and the private sectors will have to
be engaged in conversation to find ways to overcome resistance to doing business with SMMEs.
Extraordinary efforts will be required to address their objections and what they see as factors that impede
the inclusion of SMMEs into their value chains.
In particular, there is a need for support agencies to better co-ordinate their activities and become more
effective in SMME development and the promotion of inclusive business activities. The study results
and policy dialogues emphasised that a screening of entrepreneurs should be done before the support of
SMMEs starts to focus more on entrepreneurs that are driven by opportunity rather than by necessity
(who are, in reality, looking for employment).
The results of the research studies in the target countries was disseminated and discussed with key
stakeholders in both SMME development and inclusive business. Recommendations were made with
regard to action plans and options to follow up the initiated processes. The policy dialogues that were
based on the present project can only be regarded as a first step in the right direction and need to be
continued.
The Southern Africa Trust has been approached in Mauritius, Mozambique and South Africa as well as
by the SADC Secretariat to continue the processes that have been initiated.
As much as small enterprises need to be educated and skilled and governmental support needs to be
reflected, the procurement functions of large companies should be sensitised to the vital role they can
play by finding creative ways in which to reduce risk and build small enterprises. More importantly,
buy-in is needed from top management, as well as from other organisational operational levels. Inclusive
business practices can be the key for this change as it offers the profitable expansion of markets based
on innovative processes, products and services.
Moreover, governments, support agencies and larger firms as well as donor and multilateral
organisations should involve inclusive business in the policies, strategies, programmes and action plans
for SMME development.
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APPENDICES
APPENDIX I
STANDARISED TABLES FOR DESKTOP STUDIES
(REGULATORY FRAMEWORK, SMME SUPPORTING AGENCIES, BARRIERS TO
SMME DEVELOPMENT)
GENERAL GUIDELINES FOR DESKTOP STUDY
Small Business development in connection with the Inclusive Business concept
This is a general guideline for the required desktop study of small business development in connection with the
inclusive business concept. The following research objectives are required to be fulfilled:
? Identify the status of and the framework for SMME development in the five target countries;
? Identify and analyse new options, in particular the extent to which the concept of inclusive business can
be applicable to SMMEs in the target countries; and
? Identify success stories which can be replicated in the other target countries.
A. REQUIRED CONTENT
The table below provides a guideline for the expected content of the desktop study.
SECTION GUIDING NOTES
REPORT INTRODUCTION This section should summarise section 2 -8 of the report.
RESEARCH PURPOSE SCOPE AND
DEFINITIONS
This section should describe the research parameters including research
objectives, key definitions and methodology.
STATUS AND FRAMEWORK FOR
SMME DEVELOPMENT
This section should outline the environment in which SMMEs operate. A
good way in which to start this section is to describe the macroeconomic
environment i.e. include key statistics that are applicable to SMME
development.
Subsection 3.1 should describe:
National government policies and/regulations that are in place to assist in
SMME development.
National government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place for SMME development.
It is very important to mention the effect (success or failure) of (a) and (b)
mentioned above.
Subsection 3.2 should describe:
Provincial government policies and regulations that are in place to assist in
SMME development.
Provincial government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place for SMME development.
National
Provincial
67
It is very important to mention the effect (success or failure) of (a) and (b)
mentioned above.
Please note that section 3.1 and 3.2 should have a bias towards the fields of
food & beverages (agriculture), retailers and manufacturing.
STATUS AND FRAMEWORK FOR
INCLUSIVE BUSINESS
This section should describe the enabling environment for inclusive
business. A good way in which to start this section is to define inclusive
business and the benefits thereof.
Subsection 4.1 should describe:
National government policies and regulations that are in place and can assist
with the implementation of inclusive business.
National government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place and can assist with the implementation of inclusive business.
It is very important to explain how (a) and (b) create an enabling
environment for inclusive business.
Subsection 4.2 should describe:
Provincial government policies and regulations that are in place and can
assist with the implementation of inclusive business.
Provincial government institutions (including Developmental Finance
institutions and Enterprise development agencies if any) and/or incentives in
place for SMME development.
It is very important to explain how (a) and (b) create an enabling
environment for inclusive business.
Please note that section 4.1 and 4.2 should have a bias towards the fields of
food & beverages (agriculture), retailers and manufacturing.
National
Provincial
INCLUSIVE BUSINESS
CHALLENGES
This section should describe the challenges in linking SMMEs to larger
companies (implementing inclusive business).
To make the section more country specific:
Subsection 5.1. should briefly describe the challenges SMMEs in the
country face in working together with larger firms
Subsection 5.2. should briefly describe the challenges companies in the
country face working together with SMMEs
Subsection 5.3. should briefly describe the challenges national and
provincial government to assist the small and large companies in
implementing inclusive business
Please note that sections 5.1, 5.2 and 5.3 should have a bias towards the
fields of food & beverages (agriculture), retailers and manufacturing.
Sections 5.1, 5.2 and 5.3 will be deepened through the interviews.
SMME
s
Companies
National and Local Government
INCLUSIVE BUSINESS SUCCESS
STORIES
This section should include success stories on the implementation of
inclusive business practices given the environment described in sections 3 –
5 of the report.
RECOMMENDATIONS This section should include recommendations on how inclusive business
practices can be further implemented in the country including:
what can be done at government level (both national and provincial),
68
what can be done at a company level
what can be done by civil society organisations.
CONCLUSION This section should draw conclusions based on sections 2-7 of the report.
B. ANALYSIS COMPONENT OF THE REPORT
The desktop report should be able to provide an initial answer to the following questions:
? What are the promoting and hindering factors that lead to or inhibit the growth of SMMEs in the target
countries? What are the promoting and hindering factors for SMMEs to start or extend an inclusive
business approach?
? To what extent are SMMEs using supporting factors provided by the governments, SMME-related
agencies, and the private sector, including the aspect of access to finance? Which limiting factors can
be changed at the short, medium and long-term level?
? To what extent are SMMEs linked to larger firms, in particular in the field of food, beverages and
manufactured products? What are the promoting and hindering factors? What conditions need to be in
place for larger companies to co-operate more closely with SMMEs? Which of these factors can
realistically be implemented or changed in the near future? What good practices are in evidence? What
can be learnt and replicated?
? Are there options for SMMEs to have better access to people at the Base of the Pyramid (BoP) by co-
operating with larger firms?
? What needs to be changed to create an enabling environment for SMMEs to better establish themselves
and serve these markets as part of the value chain of a larger firm?
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APPENDIX III - CONCEPT NOTE
“SMME Development and inclusive Business in the Region of SADC – Enabling Environment for
successful entrepreneurship”
Small, medium and micro enterprises (SMMEs) are universally acknowledged as effective instruments for
employment generation and economic growth. However, their high failure rate in Africa is indicative of the many
challenges small businesses face. Policy frameworks and supporting agencies are requested to improve the
enabling environment for SMME development in the SADC region and beyond.
Currently, the SADC Industrial Development Policy Framework (IDPF) includes a Key Intervention Area
“Enhancing support to small and medium-sized enterprises”. SADC regards the regional approach to SMME
support and development as important and therefore emphasizes the necessity of “efforts to facilitate SME access
to market and industrial information; participation in joint investment and export promotion initiatives; improved
access to SQAM services, improvements in the quality and meeting conformity requirements”. This will enable
SMMEs to participate in regional trade and global supply chains. Specific actions under this key intervention area
will include:
(i) Developing a portal for SMMEs as a tool to provide access to trade and industrial information and for
use as a marketing tool;
(ii) Facilitating joint investment and export promotion initiatives for SMMEs;
(iii) Finalising development of an SMME component in the IUMP pilot program to improve industrial
competitiveness of SMMEs in agro-food processing, mineral beneficiation and pharmaceutical sectors;
and
(iv) Organising a series of buyer meets seller to facilitate supply chain linkages between SMMEs and
large enterprises.
The question arose whether this framework is sufficient and will be sufficiently implemented to foster SMMEs
being part of local, national, regional and global value chains. In particular, at the international level “production
has undergone significant shifts with an increase in the scope and scale of fragmentation, characterised by distinct
stages of production occurring in different locations (KDI & OECD, 2013), leading to complex and interconnected
production processes that are often referred to a Global Value Chain. These Global Value Chains can have
important implications for developing countries, e.g. in form of greater opportunities for firms and SMMEs to
enter into certain segments in the value chain. However, according to KDI &OECD (2013) regional integration
and value chain activity remain relatively limited in Africa, concentrated mainly in the export of natural resources
and agricultural products, limiting their opportunities for value chain insertion, instead of possible rapid growth
and development.
In this context, the Southern Africa Trust, commissioned by the Trust Africa’s Investment Climate and Business
Environment (ICBE) Research Fund, undertook a research study with local partners to analyse SMME
development and possible options in five countries of the SADC region (Malawi, Mauritius, Maputo,
Mozambique, South Africa and Zambia). The research focussed on the enabling environment for SMME
development on the one hand, particularly analysing the existing regulatory frameworks and support structures for
SMMEs. On the other hand, it was also examined in how far SMMEs are linked and integrated into the value chain
of national and international companies. This concept is known as inclusive business and can be defined as the
profitable integration of the poor into the value chain of a company.
Apart from the common knowledge about hindering factors for the integration of entrepreneurs into value chains,
such as the lack of access to finance, market information, skills and infrastructure (UNDP 2008) the studies also
reveals in-depth knowledge on obstacles caused by the current regulatory frameworks and support structures for
SMME development. For example, currently, support structures often lack a coordinated approach to assist
SMMEs in their growth and sustainability. There is an overlap of service offers and a focus on the initiation of
start-ups rather than a structured collective concept that addresses the life cycle of SMMEs and supports them
when they face the major challenges. In addition, regulatory frameworks often are complex and not known or
understood by SMMEs – just to mention two challenges that more or less occurred in every target country. In all
these countries recommendations were discussed in the form of National Policy Dialogues.
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As one of the solutions Supplier Development Programmes and the alignment of SMME support were and will be
discussed. Supplier Development Programmes can be regarded as a broad concept aiming at strengthening the
performance of subcontracting firms not only by enabling them to acquire the skills and capacities required of
them by the main contracting enterprise but also by raising their awareness and assisting them in reducing their
costs. A Supplier Development Programme as suggested by UNIDO can, for example cover the factors of cost
control, pricing policy, technological improvements, quality management, certification, internal enterprise
organization, logistics and the environment (UNIDO 2003).
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On June 28, 2013, a Regional Policy Dialogue was held to analyse the commonalities and significant differences
of hindering factors, recommendations and steps for actions plans that were revealed and discussed in the five
countries, also with regard to the above described SADC Industrial Development Policy Framework (IDPF). The
discussion will also include a mutual learning from success stories of the involved countries. The regional Policy
Dialogue will go beyond a pure discussion of hindering factors for SMME development but will, in particular
focus inclusive business activities and the relevant enabling environment to implement this concept as part of
national, regional and global value chains. The above SADC Policy and required instruments for an
implementation that is positively impacting on the SMME will be discussed with representatives from SADC,
governments, SMME-supporting agencies, larger firms, SMMEs, regional and national business associations, civil
society organisations, academia and other players.
The Regional Policy Dialogue shall also be seen as starting points for more inclusive growth and the discussion to
improve value chain insertion in SADC countries.
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UNIDO therefore works with so called Industrial Subcontracting and Partnership Exchanges (SPXs) that facilitate
“contacts between subcontractors and main contractors”, and also offer “services for ensuring the effective operation and
continuity of partnerships, such as solving enterprises’ problems regarding quality, delivery times, etc. or providing
investment advice”.
Furthermore, “an SPX possesses databases on enquirers for and suppliers of work and has a good knowledge of the
members” (UNIDO 2003).
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APPENDIX IV – KEY NOTE SPEECH IN ZAMBIA
INCLUSIVE GROWTH THROUGH INCLUSIVE BUSINESS: THREE I’S FOR A
SUCCESSFUL TRANSITION TOWARDS MSME-LED GROWTH IN ZAMBIA
Keynote Speech by Hon. Emmanuel Chenda, Minister of Commerce, Trade and Industry, to the “Policy Dialogue
on MSME Development and I nclusive Business in Zambia”, at the Radisson Blu Hotel, Lusaka, 22 May 2013.
? My colleagues from the Ministry of Commerce, Trade and Industry and other government
ministries;
? Representatives from the Zambia Development Agency (ZDA), Zambia Revenue Authority (ZRA),
Citizens’ Economic Empowerment commission (CEEC), Technical Education, Vocational and
Entrepreneurship Training Authority (TEVETA), Competition & Consumer Protection
Commission (CCPC), Zambia Bureau of Standards (ZABS) and other government agencies;
? Representatives from the Bank of Zambia;
? Cooperating partner representatives;
? Representatives of the Private Sector Intermediary Organisations (PSIOs);
? Private sector representatives;
? Ladies and Gentlemen.
It is my pleasure to be here with you today on the occasion of this topical Policy Dialogue on MSME
Development and Inclusive Business. I wish to extend my thanks to the organisers of this event, the Southern
Africa Trust and Munich Advisors Group, for inviting me to contribute to this important workshop as keynote
speaker.
Ladies and Gentlemen, let me begin by commending the organisers for their initiative in undertaking the research
that has culminated in this workshop. From a quick perusal of the participants here today, and the organisations
represented, I also wish to applaud the organisers for such an “inclusive” invitation list, I do understand that it
would not have been possible to include all stakeholders in MSME development. I am satisfied, however, that
each key stakeholder group is adequately represented here today. Having said that, let me be quick to caution that
the subject of MSME development has been researched and debated extensively and that many good ideas are
already on the table. My hope is that today’s workshop will be instrumental in helping to create or increase the
momentum towards implementation.
Ladies and Gentlemen, as you know, my Ministry’s stated mission is “To facilitate and promote the growth,
development and competitiveness of (the) commercial, trade and industrial sectors in order to enhance socio-
economic development”. Thus, the role of the Ministry is to “facilitate” and “promote”. The sector outcomes
expected from the Ministry’s interventions are “growth”, “development” and “competitiveness”. It is clear from
the many assessments of the small business sector in Zambia by different observers that MSMEs represent the
greatest potential for this growth and increased competitiveness.
Zambia’s record of consistent GDP growth, year-on-year, over the past ten years has been impressive from a
distance. A closer inspection, however, reveals that this growth has mainly been driven by the large companies in
our mining sector and that, across the board, MSMEs have been left behind and have not benefited sufficiently
from this economic progress. Thus, the perennial imperative to diversify the economy has had, at least, three
dimensions; namely, (1) increasing agricultural production (thus reducing reliance on mining); (2) promoting a
shift towards processing and away from trade in primary products; and, (3) stimulating MSME participation and
growth.
Depending on one’s perspective, the lack of growth and profitability among MSMEs has been caused by, or is the
cause of, their exclusion from the extraordinary growth recorded by the large operators in mining and other sectors.
Others may point to the social, cultural and structural constraints on entrepreneurship and employment in Zambia,
including issues such as low skill levels, poor work ethic, the challenges of health to productivity, lack of access
to finance, administrative barriers; and, perhaps most damningly, Zambia’s landlocked status. I want to suggest,
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however, Ladies and Gentlemen, that there is another, more empowering, perspective that sees the problem-
solving, job-creating, and value-creating potential of innovation. The old adage, “necessity is the mother of
invention” speaks to this view in that the problems and disadvantages I have just listed are the “necessity” which
must give birth to the “innovation” required to bring about the growth, development and competitiveness we all
wish to see in the MSME sector.
Ladies and Gentlemen, against this backdrop I wish to suggest that perhaps the real question, therefore, is whether
we are not hurting badly enough yet to feel the need to invent, re-invent or innovate. This is because, my conviction
is that it is through innovation that we will be able translate our self-view from one of:
? “low employment” to “high labour supply”;
? “poor skills” to “good opportunities for education and training”; and,
? being a “land locked” country, to a “land-linked” country with all the opportunity and potential that that
represents.
Earlier, I expressed my hope that today’s workshop will be instrumental in helping to accelerate the momentum
towards implementation. That is because, apart from innovation, another important missing link in our march
towards economic and social welfare has been timely or adequate implementation of MSME policies.
My Ministry issued the MSME policy in 2009 to provide a framework for MSME policy coordination and inter-
agency cooperation. The policy was among the latest in a series of policy interventions that begun in 1981 with
the enactment of the Small Industries Development (SID) Act. The Industrial, Commercial and Trade Policy of
1994 attempted to improve the business environment for MSMEs through improvements to laws and regulations
aimed at reducing constraints and increasing incentives for MSME growth while improving service delivery and
enabling infrastructure for the sector. In 1996, the Small Enterprise Development (SED) Act, superseded the SID
Act and included various provisions aimed at better enabling the sector. This sequence of interventions partly fell
within the context of the Fourth National Development Plan 1988-1993. As noted in the MSME policy, however,
most of the incentives contained in these instruments were never implemented because the necessary supporting
institutions, procedures and systems were never put in place.
As part of the effort to strengthen implementation arrangements related to interventions affecting the business
environment, the government embarked on Phase I of the Private Sector Reform Programme 2006-2009 (PSDRP
I), which closed in March 2009. The on-going PSDRP II is a 5-year programme running from 2009 – 2014. The
aim of PSDRP I & II is to accelerate various private sector reforms and, hence, create a highly competitive business
environment in several key sectors of the economy. The programme played an important role in the development
of the MSME Policy and in the creation of the Citizen’s Economic Empowerment Commission (CEEC) and the
Zambia Development Agency (ZDA) and in the roll out of a Credit Guarantee scheme (CGS) for MSMEs. As you
can see, there have been concerted efforts to strengthen implementation but there is still a need to better focus and
sustain this momentum beyond 2014.
A substantial portion of the industrial policy interventions I alluded to earlier have had the unfortunate effect of
undermining opportunity and participation in various areas of business for small business and for Zambians
generally. Partly in response to these concerns, Statutory Instrument No. 36 of 2011 was issued to prefer bidders
who were CEEC registered companies—or who were in partnership with such CEEC registered companies—in
public procurement. The government’s emphasis on the inclusion of Zambians in business enterprise is a key
component of its policy priorities for promoting job growth, descent work and higher incomes. The quality of
support services to MSMEs is also high on the policy agenda including the need for a more focused and streamlined
SME Division at the ZDA. The government’s focus on the inclusion and empowerment of MSMEs is further
evidenced by the release of USD20 million in Eurobond money to the Development Bank of Zambia for on-lending
to 100 MSMEs in all sectors of the economy. Additionally, the government has placed strong downward pressure
on commercial bank lending rates through the introduction of the Policy Rate by the Bank of Zambia and the
capping the margins commercial bank may charge above the Policy Rate. There are also on-going policy initiatives
aimed at encouraging a more creative and less constraining approach to requirements, by the commercial banks,
for collateral.
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Ladies and Gentlemen, let me conclude by noting that the MSME sector is the key to a more sustainable growth
path for the country. MSMEs possess the highest potential for creating job opportunities for the largest socio-
economic stratum of the population. They offer the greatest potential for adding to the national store of intellectual
capital through entrepreneurial and value addition skills and offer Zambia’s greatest asset for leveraging its
unexploited export potential. There are clearly many areas of adjustment and improvement in policy and practice
that must be made to better position the MSME sector for growth and competitiveness. The fulcrum for this process
of continuous improvement in our MSME development framework constitutes the “three I’s for a successful
transition towards MSME-led growth in Zambia”; namely, Innovation, Implementation; and, Inclusion.
I am pleased to note this workshop’s focus on “Inclusion” and it is my pleasure and honour to declare the workshop
officially open.
I thank you for your attention.
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