SMMEs struggle to stay afloat in 2023
Inflationary pressures, low market disposable income and lack of access to finance have been a perennial stranglehold on the growth and survival of Small, Medium and Micro Enterprises (SMMEs), in 2023, according to a new report.
Despite government’s efforts through policy interventions and ramped up funding opportunities, SMMEs growth and survival rates have been plummeting with many of them protracted to playing only in the informal sector.
An evaluation of SMMEs performance for this year revealed that many enterprises are having a difficult time leaping from the informal to formal sector. The study, which was published last year, revealed that for the year 2023, the services provision sector dominated with enterprises in the informal sector with over 49, 000 enterprises failing to transition to formal enterprises.
“There is an increased number of informal SMMEs, which could be due to necessity-driven entrepreneurship as opposed to opportunity driven. Services top informal sector dominance with 49, 251 (74.1%) of informal sector enterprises,” the report read. The report further revealed that small enterprises are failing to grow due to fragmentation in services offered leading to saturation of services offered in the market.
“Fragmented services leading to duplication of efforts, low business culture, inadequate access to market, and inadequate access to credit have made it hard for SMMEs to thrive in 2023,” the report added. Government this year introduced an association for SMMEs, as part of its efforts to empower the sector. The association, which is yet to take form, was expected to improve skills training, the sourcing of capital and technical assistance for SMMEs. Giving a brief on the association early this year, Entrepreneurship minister, Karabo Gare said government has realised the crucial importance played by SMMEs in growing the economy and offering an avenue for employment creation.
He added that creating supportive mechanisms that enhance the role of SMMEs is crucial citing the import ban as an example of policy efforts to empower enterprises in the agriculture sector.
However, other analysts and critics have cautioned against judging the success of the import ban by looking at import values alone, as this may not always indicate greater local capacity. In some instances, Batswana have either given up on certain vegetables due to local shortages or opted for the canned variety whose imports are allowed and have surged since the ban was imposed.
Another study by LEA on SMMEs published this year revealed that SMMEs are saddled with a wide array of challenges; all of them are linked to a lack of appealing finance options from lenders and investors. According to the study, the lack of finance options for the different stages of the organisations’ development in Botswana, is widening the finance gap in the local market. The finance gap refers to the gulf between the funding options availed to SMMES and their actual needs. According to the handbook, Botswana’s finance gap as a percentage of Gross Domestic Product (GDP) stands at 18.55% ranking the country third amongst SADC states.
Local finance institutions have traditionally taken a very conservative approach when it comes to lending to SMMEs, citing a lack of bankable collateral and the inability to monitor SMMEs operations.The World Bank reports that SMMEs dominate emerging market economies and account for 50% of employment in these markets.
Locally, figures provided by Statistics Botswana indicate that 50% of private sector employment in Botswana is created through SMME activity with their contribution accounting for 15-25% of the Gross Domestic Product.