By Josef Kefas Sheehama
The backbone of national economies and the primary generator of new jobs worldwide are small and medium-sized businesses (SMEs).
According to a preliminary estimate, the SME sector contributes between 12% and 20% of the GDP, and roughly 20% of the labour force is employed full-time in this industry. The industry is still in its infancy. In its SME policy from 1997, the Namibian Ministry of Trade and Industry (MTI) defined SMEs as manufacturing firms with less than 10 employees, a revenue of less than N$1,000,000, and a capital foundation of less than N$500,000. According to the Ministry of Trade and Industry, estimated that almost 40,000 SMEs are currently registered in Namibia. SMEs in Namibia contribute to the national economy of Namibia in various ways, such as employment creation, adding value to the gross domestic product of the country, and assisting in the realization of the government’s 2030 vision agenda”. Furthermore, many SMEs are young enterprises, which, when combined with their small scale, makes them a weaker counterpart for many standard market players, not only in terms of funding access but also for customers who might perceive small suppliers as too risky. Risk aversion, fear of failure, and lack of capabilities can be just as significant barriers as a lack the regulatory and institutional support. Several governments have attempted to develop an entrepreneurial mindset among their citizens.
Moreover, the pertinent challenge that SMEs face in Namibia remains the lack of access to affordable finance to support the development and growth of their businesses. Although these enterprises account for a considerable share of employed persons, small business owners encounter difficulties to access credit from banks, more so in rural areas where such financial services are constrained. The failure of most enterprises to formalize their business operations exacerbates this problem. So, to prevent closure, SMEs need to look for ways to cut costs, such as reducing staff, renegotiating lease agreements or suppliers, and taking other measures.
Another study indicates the limited market outreach due to the nature of the businesses and the products. Nearly half of the businesses providing information on their major business difficulty mentioned high competition or a lack of customers. One major reason is that those businesses are often selling the same products or services without much product or service differentiation. This reduces the competitive edge and negatively influences businesses’ performance. More than 60% identified competition as the major reason that contains their growth. Only 12% of the businesses mentioned that lack of money or cash flow problems constituted a major reason for not expanding or for low business performance, concluded the study.
There is an urgent need to address the employment crisis using a multi-faceted approach towards business growth and job creation. One way is to improve or support the SME sector which employs a huge population and has the potential to employ more. The SMEs sector faces a myriad of challenges and fails to live up to expectations. Several studies have been done on SMEs in different countries including Namibia, but the sector remains depressed or incapacitated. SMEs are central in the promotion of entrepreneurship and competition, that they are equitable in income distribution, much more productive and enhance employment creation. Their potential provides room to strengthen local linkages and pave way for informal businesses to formalize in the country which can also lead to the government broadening the tax base. For more meaningful and inclusive growth of these businesses, this will require proper coordination by the government and various private sectors that can lift SMEs to levels where they can compete favourably both locally and internationally. Therefore, the Government to ensure the delivery of the broad-based education and skills development agenda to create a critical mass of entrepreneurs, especially among the youth.
It is also important to note that there are many things in common in the same sector and a policy implemented in one country or region may possibly work in others. However, as the variation between countries across the continent may be huge data uncertainty is high. The country needs to invest in research and not copy from other countries. Furthermore, a belief is not merely an opinion, as research has shown that out of every 100 Namibia adults, 35 are involved in some sort of entrepreneurial activity. Despite having positive perceptions about business, many businesses do not last in Namibia. Entrepreneurs are believed to be solutions to achieving sustainable economic growth in our country. Yet, without enabling environment, small and medium enterprises will continue to face obstacles that limit their potential contributions to their economies.
In conclusion, the government should play a proactive role in helping SMEs access external finance. By investing in infrastructure and providing financial assistance, the government can help ensure that these businesses don’t face an uphill battle regarding financing their operations.
In addition, policymakers should look for ways to incentivize lenders, making them more likely to provide SME financing. These measures could make a real difference in helping SMEs survive and thrive during difficult economic times.
By doing so, the government can help ensure that SMEs remain part of the global economy and contribute to economic growth. And, after all, that is the key to financial stability and prosperity.
Therefore, the SME’s inability to meet the stringent requirements of financial institutions makes these sectors unviable unless there is a total change in the financial institutions’ lending methodologies, which will relax the criteria of these institutions to allow SMEs easy access to loans.
