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SMEs Between Devil And Deep Sea

By:Josef Kefas Sheehama
Small and medium-sized enterprises (SMEs) are the engine of worldwide economies and the main source of job creation.
The contribution of the SME sector to the Gross Domestic Product (GDP) is between 12% to 20% and the share of the labour force employed full-time in this sector is about 20%, a rough estimation.
The sector remains underdeveloped. The ministry of trade and industry (MTI) in its SME policy defines SMEs as manufacturing companies, employing less than 10 people, reaching a turnover of less than N$1000000 and having a capital basis of less than N$500 000.
MIT estimated that almost 40000 SMEs are currently registered in Namibia.
According to the MIT, “The Namibian SMEs contribute to the economy, such as employment creation, adding value to the gross domestic product of the country, and assisting in the realisation of the government’s 2030 vision agenda”.
Furthermore, many SMEs are young enterprises, which, when combined with their small scale, makes them a weaker counterpart for many standard market players, not only in terms of funding access but also for customers who might perceive small suppliers as too risky.
Risk aversion, fear of failure, and lack of capabilities can be just as significant barriers as lacking the regulatory and institutional support. Several governments have attempted to develop an entrepreneurial mindset among their citizens.
Moreover, the pertinent challenges that SMEs face in Namibia remains the lack of access to affordable finance to support the development and growth of their businesses. Although these enterprises account for a considerable share of employed persons, small business owners encounter difficulties to access credit from banks, more so in rural areas where such financial services are constrained. The failure of most enterprises to formalise their business operations, exacerbates this problem. So, to prevent closure, SMEs need to look for ways to cut costs, such as reducing staff, renegotiating lease agreements or suppliers, and taking other measures.
Another study indicates the limited market outreach due to the nature of the businesses and the products. Nearly half of the businesses providing information on their major business difficulty mentioned high competition or a lack of customers. One major reason is that those businesses are often selling the same products or services without much product or service differentiation. This reduces the competitive edge and negatively influences businesses performance. More than 60% identified competition as the major reason that contains their growth. Only 12% of the businesses mentioned that lack of money or cash flow problems constituted a major reason for not expanding or for low business performance, concluded the study.
There is an urgent need to address the employment crisis using a multi-faceted approach towards business growth and job creation. One way is to improve or support the SMEs sector that employs a huge population and has potential to employ more. The SMEs sector faces a myriad of challenges and fails to live up to expectations.
Several studies have been done on SMEs in different countries including Namibia, but the sector remains depressed or incapacitated. SMEs are central in the promotion of entrepreneurship and competition, that they are equitable in income distribution, much more productive and enhance employment creation. Their potential provides room to strengthen local linkages and pave way for informal businesses to formalise in the country which can also lead to the government broadening the tax base. For more meaningful and inclusive growth of these businesses, this will require proper coordination by the government and various private sectors that can lift SMEs to levels that they can compete favourably both locally and internationally. Therefore, government ensures delivery of the broad-based education and skills development agenda to create a critical mass of entrepreneurs especially among the youths.
Despite having positive perceptions about business, many businesses do not last in Namibia. Entrepreneurs are believed to be solutions to achieving sustainable economic growth in our country. Yet, without an enabling environment, small and medium enterprises will continue to face obstacles that limit their potential contributions to their economies.
In conclusion, government should play a proactive role in helping SMEs access external finance. By investing in infrastructure and providing financial assistance, the government can help ensure that these businesses don’t face an uphill battle regarding financing their operations.

Josef Kefas Sheehama

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