The Financial Express
Swasti Lankabangla Swasti Lankabangla

SMEs need to stand strong and tall  

SMEs need to stand strong and tall   

Small and Medium Enterprises (SMEs), believed to be the main driving force of the economy in most countries, are not currently well poised to deliver in many regions. Bangladesh, no exception to this, is faced with many problems that restrict the SMEs in a variety of ways to rise up to their potential.

A study conducted by the International Cooperation Organisation for Small and Medium Enterprises in Asia (ICOSA) has analysed the Bangladesh situation in detail. The findings of the study, disseminated by the Japan Bangladesh Chamber of Commerce and Industry (JBCCI) sometime ago, show that despite the apparently all-pervasive presence of SMEs in the country, the sector is far from assuming a really significant role in terms of its contribution to the economy.

The ICOSA study says SMEs are yet to be fully utilised in Bangladesh in order to reap benefits of employment generation and myriad products and services that they are potentially capable of delivering. The contribution of SMEs to the GDP is only 20.25 per cent in Bangladesh, whereas it is 80 per cent in India, 60 per cent in China, and 69.50 per cent in Japan. The sector accounts for 35.49 per cent of the total employment in Bangladesh and its share in all enterprises is 80 per cent as against 97.60 per cent in India, 99 per cent in China and 99.70 per cent in Japan, the study said.

The study found that Bangladesh has 17,384 micro enterprises, 15,666 small ones, 6,103 medium and 3,639 large scale enterprises, where a total of 5.02 million people are engaged. The SMEs constitute 50.91 per cent of the total number of micro-economic units, the ICOSA study said. The study identified policy inconsistency, dearth of institutional finance, inadequate training and technological support, lack of systematic product development and adaptation, time consuming bureaucracy as some of the major challenges for development of SMEs.

Although the Bangladesh situation is less attractive than many of its neighbours, it is true that SMEs across the world are now on the margins of international trade. While this genre of business activity, being  hugely diverse in nature, has been recognised as one requiring facilitation for establishing itself as a key player in trade arena, it's yet to come out of infancy, especially in developing and poorer regions.

 This brings to question the participation of SMEs in international trade in a bigger way in the prevailing uneven and asymmetric trading scene. World Trade Organisation (WTO) Director General Roberto Azevêdo, in one of his SME engagements recently, acknowledged this as a reality, saying, "Trade is sometimes thought of as an economic activity that only favours the big companies. And while we may disagree with that, we cannot deny that trading internationally is often much more costly and difficult for SMEs. The smaller the business, the bigger the barriers can seem." While non-tariff barriers are a perennial problem for small traders, tariffs also impinge highly on their trading, given the smaller volume of traded goods. The fixed costs required for meeting particular standards or other non-tariff barriers can be particularly difficult for SMEs. But tariffs are also a major issue. SMEs see tariffs as a greater obstacle than larger firms do, because they are more sensitive to changes in tariff levels. In addition, SMEs often struggle to access trade finance. Globally, banks reject over 50 per cent of all requests for trade financing placed by these firms - compared to just 7.0 per cent for big or multinational companies.

As for Bangladesh, it is more about doing the basics to enable the small and medium businesses to find the right space in the economy by way of creating opportunities for growth. Most SMEs in the country rely on domestic consumption of their goods and services which conversely is a constraining factor. The captive nature of the market, hardly prompts standardisation and expansion of production base. Those engaged in exports mostly cater for the low-end segments of the markets-again a deterrent to quality standardisation and innovative product development and adaptation.

The government, reportedly, is in the final stage of formulating the country's first SME policy with some key provisions including establishment of an incubation centre to groom entrepreneurs. According to official sources, the policy emphasises expansion of skill development, education and training programmes as many SMEs could not sustain for lack of such trainings and skills.

The country is in dire need of a SME policy because despite their contribution to the economy -- particularly in domestic market supplies and employment -- these small units scattered all over the country in myriad shapes and forms are, for the most part, lack proper direction. Moreover, although they are recognised for their potential for growth in both domestic and overseas markets, a majority of them are yet to come out of infancy. The key areas where the policy should focus may include facilitating SME's access to finance, technology, innovation, market, training, business support services and so on.

It is pertinent here to refer to the SME Foundation, an apex institution for SME development that has been functioning in the country for sometime. It appears that this institution, despite its official mandate to address most of the key areas where the country's SME sector needs intervention, is still not well placed to deliver in a desirable way. It is expected that the SME policy awaiting finalisation will provide the Foundation with an effective handle to deliver better -- in a targeted manner.




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