Hemorrhaging MSMEs
The high cost of doing business
POLICY coherence, scaled investment and eco-system development approach of the current Government, has the potential to increase future micro, small & medium enterprises (MSME) contribution to national gross domestic product (GDP) beyond the current 18 per cent.
This is very different from the $1000 handouts and long-on-goals and short-on-strategy of the last government.
The in-draft MSME Bill, inrevision National Employment Policy, pipeline Women's Economic Empowerment National Action Plan and the to be developed MSME Strategic Plan are some up-stream policies that, when implemented, will potentially contribute to an enabling business environment. There has been a substantial increase in access to finance for MSMEs particularly triggered by COVID-19 and the current national budget has more than $80m spread across relevant ministries to support MSME start-up and acceleration. Just before last Christmas, one international agency dropped $800,000 in payable grants in the accounts of green MSMEs.
The launch of BusinessNOW platform has been welcomed by MSMEs as an excellent initiative to improve the ease of doing business. There is an increase in ecosystem actors in the MSME development space with some doing better than the traditional ones and capitalising on gaps in the ecosystem by introducing niche initiatives such as innovative/ blended financing. This month will see another new entrant, introducing a Trade Finance Vehicle (TFV) for women MSMEs.
At the same time, the cost of doing business is increasing and hemorrhaging MSME operations.
The increase in VAT by 6 per cent consequently increased some business service fees while still maintaining many archaic business processes. The projected six per cent inflation by the end of 2023 was said to “impact savings, spending and loan repayment”.
The season for the repayment of concessional loans taken by MSMEs during COVID-19 is upon them. The loan guarantees offered by the last Government in the last budget, only covers for a portion of the principal and that after the bank has exhausted all recovery avenues.
Our top bank, the Reserve Bank of Fiji in its November 2023 Economic Review, explicitly highlights the “high cost of doing business” as a risk.
MSMEs have not been spared from the challenges of labour and skills shortages. They have also had on-the-job trained staff, resigning to head to Australia and New Zealand to pick fruits.
The Asian Development Bank (ADB) says that “the recent brain drain also made it increasingly difficult for MSMEs to find employees for their operations”. This means that MSMEs are having to invest more than before in sourcing, attracting and retaining workers, from the limited and diminishing labour pool, competing among themselves and against large businesses and even the Government.
Similar to large businesses, MSMEs are not excluded in the restoration of the 18 per cent superannuation contribution as of January 1, 2024. This means that MSME owners will need to front up an additional three per cent for every person they employ.
Then midway through the cyclone season, the announcement (2) of the review of the national minimum wage sobered many MSME owners from their holiday hangover. Yes, even for those MSMEs linked to the tourism industry, as their businesses feel the little slow down in income as a result of low visitor numbers.
According to the National Development Plan (NDP) committee, the new minimum wage should be announced within the next five months.
From April 2022 to January 2023 (nine months), there were four incremental increases (from $2.68 to $4) to the national minimum wage. This translates to an accumulative increase of 33 per cent on the wage bill of those MSMEs, who were already struggling to pay their staff $2.68 per hour.
MSME owners are not against decent and fair wages or better superannuation for their employees. Generally, businesses buffer this cost by transferring it to consumers.
However, even before the new increase in the minimum wage is announced, MSMEs have already experienced about 10-15 per cent increase in the cost of doing business, in the last six months. If we add to this equation the last minimum wage increases, we are potentially looking at a high 3540 per cent in the last two years and post COVID-19.
New Zealand, the number one country in the world for ease of doing business, is signalling the same worry. Business New Zealand, the equivalent of our Fiji Commerce & Employers Federation (FCEF), has said that “the high cost of doing business is the stand-out issue for New Zealand businesses (3)”. Certainly a worrying sign for MSMEs who represent 97 per cent of New Zealand businesses, but hopeful through the pro-active advocacy of their private sector organisation.
Better policies, increased access to finance and improving the ease of doing business may buffer some indirect cost for MSMEs in the short to medium term. To record any impact investment and outcomes, the increasing cost of doing business that is hemorrhaging MSMEs, needs equal consideration.
■ EDWARD BERNARD is a regional development consultant specialising in private sector/ MSME development and disaster assessment and recovery. He has completed his Masters in Business Administration from the University of the South Pacific and has more than 20 years of experience working for the United Nations, Fiji Government, University of the South Pacific, Fiji National University and private sector. The views expressed in this article are his and not necessarily shared by this newspaper.