MSMEs - both a choice and a reality for Bangladesh

In a country like Bangladesh, where there is no dearth of manpower, policymakers and entrepreneurs need to focus on the national strength while setting up industries or initiating a business venture. That strength could be the enterprises that ensure maximum national welfare including creation of jobs alongside sustainable business.

"What is called MSMEs (micro, small and medium enterprises) are both a choice and a reality for Bangladesh.

It is the largest segment of the national economy. The MSMEs together account for 25 per cent of Bangladesh's gross domestic product (GDP) and employ 87 per cent of the civilian population. They are also playing an important role in resource utilisation and income generation for a large portion of the society.

As they are of vital importance for economic development of the country, the government of Bangladesh has attached priority to the MSMEs in National Industrial Policy 2016, SME Policy Strategies 2005 and upcoming drafts of both the policies.

Bangladesh Small and Cottage Industries Corporation (BSCIC) was formed in 1957, Small and Medium Enterprise Foundation (SME Foundation) established in 2007. A number of development projects have also been implemented to facilitate establishment and promotion of MSMEs in Bangladesh.

According to the National Industrial Policy 2016, the MSMEs are defined as follows:

Micro Industry: In manufacturing, micro industry will be deemed to comprise enterprises with either the value (replacement cost) of fixed assets, excluding land and building, between Tk one million and Tk 7.5 million, or with workers numbering between 16 and 30, or below. In service, the micro industry will include enterprises with either the value of fixed assets, excluding land and building, of less than Tk one million, or with less than 15 workers.

Small Industry: In manufacturing, small industry will be deemed to comprise enterprises with either the value of fixed assets excluding land and building between Tk 7.5 million and Tk 150 million, or with 31-120 workers. For services, the 'small industry' will correspond to enterprises with either the value of fixed assets between Tk. one million and Tk. 20 million, or with 16-50 workers.

Medium Industry: In manufacturing, medium industry will include enterprises with either the value of fixed assets excluding land and building between Tk 150 million and Tk 500 million, or with 121-300 workers. For services, the 'medium industry' will correspond to enterprises with either the value of fixed assets between Tk 20 million and Tk 300 million,  or with 51-120 workers.

According to National Economic Census 2013, there are 104,007 micro, 859,318 small and 7,106 medium enterprises in the country.  Contributions of MSMEs to the Bangladesh economy could be narrated in the following manner:

Employment Generation: Bangladeshi MSMEs are generating a significant number of employment. There are about 558,870 people involved with micro, 6,600,685 with small and 706,112 people with medium enterprises in Bangladesh. That means about 7.86 million jobs are directly created by the MSMEs. Their effects on employment generation elsewhere might be higher.

Accelerating GDP Growth: Contribution of the MSMEs to the GDP is about 25 per cent. They account for 40 per cent of the manufacturing outputs. Their contribution to the GDP (25 per cent) may look smaller but if we take into account the overall contribution of the industrial sector at 31 per cent to the Bangladesh GDP, we can easily understand the significance of the MSMEs. And it we calculate the contribution of the service sector SMEs (small and medium enterprises)  then the total contribution of the MSMEs to the Bangladesh GDP would be much higher than statistics show at present.

Utilisation of Local Resources: Large industries can import raw materials for manufacturing products while the MSMEs are dependent upon locally available raw materials. So, it can be said that, the MSMEs are contributing to the value addition to the local resources for producing goods and delivering services.

As most of the agricultural crops are yet to undergo agro-processing, the MSMEs have enormous potential to manufacture industrial or consumer products by processing agricultural crops.

Increases National Savings: The MSMEs are not capital-or-technology-intensive in nature. The people who engage themselves in the MSMEs have a tendency to save a significant portion of their earnings for the purpose of reinvestment. Thus, the MSMEs are contributing to increasing national savings, as well.

Utilisation of Local Technologies: Heavy industries are generally technology-intensive and often import machineries to set up large factories. On the other hand the MSMEs are labour-intensive and use local technologies to produce their outputs.

Regional Balance and Rural Development: Among 8.1 million enterprises active in Bangladesh, some 5.8 million are located in rural areas and 2.3 million operate in urban areas. About 32.2 per cent of total active enterprises operate in the capital city of Dhaka, followed by the second largest city of Chattagram with 17.1 per cent such enterprises, Rajshahi with 15.1 per cent, Rangpur with 13.5 per cent, Khulna with 12.8 per cent, Barishal with 4.8 per cent, and Sylhet with 4.5 per cent. Since the majority of enterprises are the MSMEs located in the rural areas, they are playing important role in rural development.

Contribution to Export Earnings: Bangladesh's total exported goods represent 5.6 per cent of its overall GDP for 2018 ($761.7 billion valued in purchasing power parity [PPP] US dollars). While the readymade garment (RMG) is the top contributor in Bangladesh's export earnings, most of the RMG factories are categorised as the MSMEs. Similarly, the second largest export earning sector is leather and leather goods that is also dominated by the MSMEs. In fact, the country's overall exports are led by the MSMEs.

Decentralisation: Bangladesh's economy is broadly Dhaka and Chattogram-centric. However, there are 177 SME clusters identified in 51 districts. The SME Foundation is working with these SME clusters to promote them further. If at least some of them could be developed to a certain extent, the process will ensure decentralisation of the Bangladesh economy. It will then contributing to balanced economic development.

Graduation to Large Industries: The MSMEs are considered as the mother of large industries. Large industries could be directly established by capitalist entrepreneurs but many of them have graduated from the medium enterprises.

Increased Productivity: The Bangladeshi MSMEs are competing with each other on quality of products and market price. Productivity is one of the contributory factors to be competitive in the market. The MSMEs are trying to sustain business challenges coming from both local and international markets.

The MSMEs may be seen as small, as compared to large industrial units, but they contributes more to the economic development. Therefore; the government and other stakeholders should pay due attention to development of MSMEs not just in terms of policy support but also in addressing all practical issues.

The government is planning introduction of One Stop Service (OSS) and Single Window Services to the investors and exporters. If these initiatives succeed, it will improve Bangladesh's position in the ease of doing business index, prepared by the World Bank.

The government also needs to nurture other important factors-geographical, demographic, political, economic, social, technological and legal issues that affect the business environment.

We can hope that the government will implement all its positive policies and address pending issues for the sake of the growth of the MSME and overall economic development of Bangladesh.

Md. Joynal Abdin is acting Secretary, Dhaka Chamber of Commerce & Industry (DCCI)