By KC Soares, ContributorLAST WEEK, I attended a roundtable conference for small and micro-enterprises on strategic plan and co-ordinating mechanisms put on by the Caribbean Community (CARICOM) Secretariat. The conference ran for three days (Monday to Wednesday) and had in attendance representatives from at least 14 CARICOM member states along with representatives from organisations such as USAID and UNDP.
I was more than just a member of the audience as I presented a paper entitled, 'Financing and Incentives Legislations Relating to Small and Micro-Enterprises (SMEs)'. Today, I will share with you some of the revelations of this roundtable conference.
PROBLEMS FACING SMES
To begin with, while the definition of small and micro-enterprises differed from country to country, the problems facing the SMEs is more or less common throughout the region. These problems are mainly that of relatively high interest rates, lack of marketable collateral and limited managerial capabilities. In reference to interest rates, I have used the word "relatively" as high interest rates in most countries ranged from 16 per cent to 19 per cent. In Jamaica, we have interest rates above 100 per cent. Where are we going? Can we be competitive at these rates?
All countries in attendance agreed that the growth and development of SMEs are crucial to the development of the national economics as this sector is effectively a conduit for economic opportunities for the many workers displaced by redundancy. SMEs tend to be predominant in labour intensive activities and as such play an important role in employment. One would therefore expect that great efforts would be made to protect and promote the growth of this sector.
NO INCENTIVE
In this respect, it is amazing that in Jamaica there is no incentive legislation to promote the growth of the small business sector. This is even in light of the fact that in 2002, SMEs account for approximately 31 per cent of the total employed labour force. In 1998, the percentage of the employed labour force that SMEs accounted for peaked at 36.1 per cent and since then there has been a steady decline. Shouldn't we, at this time, have a close look at this sector with a view to implementing legislation as one way to promote growth of the sector?
Most businesses that fail do so within the first three years of operation. Why not have a tax break to SMEs for the first six years of operation? Why not have a mandatory 12-month moratorium on principal payments on all loans to the sector?
The CARICOM region is divided into two categories the More Developed Countries (MDCs) and the Less Developed Countries (LDCs). Examples of MDCs are Jamaica, Trinidad and Tobago and Barbados. LDCs are countries like St. Kitts, Montserrat and St. Lucia. In some of the LDCs legislation is in place to protect and promote SMEs. Yet in Jamaica there is no such legislation. Are we thinking progressively? Is there any wonder that we are far behind the other MDCs in terms of economic growth?
My suggestion to the powers-that-be is that they immediately have a close look at the small business sector. Consider the following facts. In the year 2000, total disbursements of funds to the sector amounted to $822 million. In 2001, it was $802.7 million, a decline of 2.6 per cent. However, in 2002 total disbursements to the sector amounted to $545.4 million, a decline of 32 per cent. Moreover, total number of persons employed as a result of funds channelled to the sector was 17,193 in 2000, 16,932 in 2001 but only 11,495 in 2002. Aren't we going backwards?
SUCCESSFUL BORROWING
Furthermore, the trading sub-sector accounts for approximately 65 per cent of the total amount of money disbursed to SMEs. This sub-sector is made up mostly of what are termed Informal Commerical Importers (ICIs) or more commonly, higglers. These are the only group of persons who have a chance of successfully borrowing at the prevailing high interest rates. But what exactly is happening here? When a higgler buys goods abroad for resale here we are actually creating incomes abroad. What we should be doing is encouraging production here at home so that our own people may gain employment.
From all indications, more people are leaving the small business sector than those entering as businesses are being closed at a faster rate than the rate of establishment. Something has to be done and the time is now. Not next year, next month or next week but today. If we continue in the present mode, our unemployment will keep rising with the attendant negative effects on the economy and on the social welfare of us all.
KC Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com.
