Development Bank of Namibia’s Head of Marketing and Corporate Communication, Jerome Mutumba, on the informal and micro-enterprise.
The recent emphasis on empowering informal and microenterprises is a necessary affirmation for Namibia’s economic development. Development of new market spaces, as well as ongoing management and upgrades to SME parks, are seen as positive indicators for the future.
An examination of Namibia’s recent business history reveals three major sources of new ventures. The first type is the local start-up, which is usually an unregistered or registered, regulatory-compliant micro-enterprise. The second is a South African adjunct, which is a business that supplements the South African parent. An international start-up is a third and rare type.
The informal or formal micro-enterprise is arguably the most productive of the three for Namibia. Many of Namibia’s best-known brands and companies have local, micro origins, according to a survey of large Namibian enterprises.
The roots of these enterprises’ success and sustainability can be found in their small, relatively low-cost beginnings, as well as their owners’ persistence in learning, adapting, and diversifying. Thus, by example and inference, a broad base of informal or formal micro enterprises must be fostered in order to develop large, economically significant, and sustainable Namibian enterprises.
However, the value of the progression from an informal enterprise to a large formal enterprise is difficult to predict, especially given the attrition of informal enterprises in particular.
The economic value of informal and micro enterprises becomes more apparent when evaluated according to current development needs.
Firstly, the informal enterprise is a major employer. Recent findings by the International Labour Organisation (ILO), as reported in the Namibian newspaper on 6 September 2022, show that 56% of Namibia’s workforce is employed in the informal sector. According to Tangeni Shindondola, Director of the Dynamic Informal Traders’ Association (DITA), as reported in the Namibian newspaper on 15 February 2022, the informal enterprise becomes an employment provider in the event of retrenchments.
Secondly, the informal enterprise is known to be a sole form of income for many households, or augments household incomes, particularly where those households are in poverty or on the verge of poverty.
Thirdly, informal and microenterprises are important elements of the value chain as off-takers and distributors of goods and services. This is true of goods and services produced by large and medium-sized enterprises, with attendant impacts on formal enterprise revenues and employment. Informal and micro enterprises also generate network business on a peer level, creating their ecosystem.
To reap longer-term benefits from the informal and micro-enterprise sector, activities need to be viewed and planned in four phases.
Firstly, the nascent informal enterprise needs to be nurtured and enabled. Secondly, those informal enterprises with a potential need to be encouraged to transition to formalised, registered, regulatory-compliant microenterprises. Thirdly, microenterprises need to be nurtured to the activity level of SMEs. Finally, the most successful SMEs need to graduate to larger enterprises.
What is obvious is that the process of growth of informal and micro enterprises requires support and inducements.
A first inducement is a welcoming approach to start-ups. This requires the liberalisation of the regulatory environment for informal enterprises and the removal of early barriers. Although regulation is required, that regulation should be exerted gradually, post-start-up based on the impact on the community as well as the level of activity of the informal enterprises.
A second phase will be required to induce the formalisation of the informal enterprise to become a fully-fledged micro-enterprise, including full regulatory compliance.
The shift from informal enterprise to registered microenterprise entails costs which must be offset, including taxation and regulatory costs. To reduce the immediate burden, the enterprise will be required to grow, which will come at an expense. This can be offset with short-term bridging finance for stock and regulatory costs, and longer-term mezzanine finance to grow the asset base. This might be paired with concessional interest rates and the use of assets financed as collateral.
What is also apparent is that formalisation requires an augmented skill set to manage finance in a borrowing environment, as well as administer the regulatory aspects. This can be addressed with mentoring and coaching of the type envisaged by the Bank of Namibia’s SME Financing Strategy.
What is implicit in a policy that nurtures informal and microenterprises is the need for a suitable agency to administer and coordinate finance, mentoring and coaching.
The further benefits of an agency of this nature are that it will set the standards for services, and act as a control against predatory providers of microfinance. In addition, it may become a reference point for conducive regulatory practices. Finally, it may become a repository of knowledge and a brains-trust for the informal and microenterprise sectors.
Development Bank of Namibia, by design, is intended to finance large enterprises in the first place, as well as SMEs. It does however provide finance through its Apex microfinance facility for qualifying microfinance providers. In this way, the Bank currently complements the development impact of micro-lenders.
As much as Namibia’s future depends on policy-based lending to finance renewable energy, serviced land, affordable housing and young entrepreneurs, it will also need to develop policy-based stimulus for informal enterprises and microenterprises.