SMEs are Businesses  and not charities

Prominent Industrialist, the late Dr. James Mulwana (Rest in Peace) was once quoted by the media, calling on government to force foreign companies to support SMEs, for the latter to overcome the many challenges they face, especially competition against foreign big companies. Whereas they do need support, SMEs are first and foremost businesses. They are not charities, to expect and live on hand-outs.

SMEs are first and foremost businesses. They are not charities, to expect and live on hand-outs.

Yet going by reports of ‘receiving grants’, ‘accessing technical support’, ’capacity building’, the growing attitude and mentality seems to treat SMEs as charities. Today, it is this association receiving a grant for ‘export systems training’, the next day it’s another getting funding to sensitise members on accessing foreign markets. The latest in the arena are the banks, each seeking to capture a share of the SME customer segment, thus we read of …’20 million donated towards SMEs to improve their business practices’… and similar stories.

While these numerous initiatives by the blue-chip multinationals geared towards SME support are commendable, we need a conceptual and attitudinal clarity from the beginning, namely that SMEs are in the market to make profits, suffer losses. Foreign companies support can only go thus far. The whole task of SME growth lies with government. And it is government’s foremost duty to delete the charity-mentality from its bureaucrats.

The last report I read recommending the creation of an SME authority was out of a donor funded study, based on the experience of SMEs in USA and Serbia. What determined the choice of benchmark countries is obvious. But how much in common would Ugandan SMEs have with those in the USA, for example? The key criterion for classification is usually annual turn-over. And going by this, what goes for an SME in the USA would be several times bigger than our mega corporations here.

Government Must Play her Role

It all bounces back to government. The government has the primary responsibility in formalizing and supporting SMEs in the following key areas:

1. Registration

The first step is to decentralise the Uganda Registration Services Bureau to the sub county level. The recent initiative of on-line registration will have limited impact. URSB needs physical presence among citizens more than the Electoral Commission.

If we can get funds to decentralise and finance Electoral Commission operations, including computerisation, then URSB needs even more, since it serves the cash cow of the economy: the entrepreneurs.

The only attempt at URSB decentralisation has been delegating Assistant CAOs at gombololas to do birth, death and marriage registration. We need a business registration desk manned by a trained para-legal, with basics of Company Law, to register every business, however small. The data can then be fed into the URSB data base, to avoid duplicity and keep track of ‘dying and rising’ businesses.

Besides distance, the other impediment to SMEs going formal is the cost of registration. It has been high because of the paucity of companies registering. Once spread over a large number, the costs should go down, limited to a nominal fee. After all, we don’t pay the Electoral Commission to register as voters.

2. Capacity Development

This is the area where the sector has been treated as a charity. Hardly a week passes without a seminar, workshop, or conference to build the capacity of SMEs. Despite all this, the sector remains informal and unstructured.

Government therefore has the duty to take up this task. Uganda Management Institute, Colleges of Commerce, MUBS, can spearhead this as part of their practical teaching projects: students and their supervisors setting up basic corporate governance systems, structures and processes for SMEs in such vital areas as finance, human resource, et al, depending on the size and complexity of the SME. A government stipend for students on attachment would facilitate and sustain this vital initiative.

3. Surrogate Entrepreneur

Sectors that need huge initial capital outlay against a long break-even period and low internal rates of return are not attractive to the private sector, with its limited capital. They can only come in as value chain suppliers to government enterprises, and through lateral integration, these SMEs will acquire key skills essential to their businesses as suppliers to large corporations.

Research, Innovation and Development at SMEs would be supported by their bigger partners, the corporations. I have met successful Jua Kali fabricators in Kenya, who perfected their innovations through links with large manufacturers.

One success story is of a polytechnic graduate who supplies suspension springs and window latches to bus assemblers. He started real jua kali, rejected by several vehicle assemblers, till the Local Content Development Manager in one vehicle assembling plant took interest and supported him to perfect his products.

Today, he has patented his innovations and the rest is history. UIRI innovations need to go outside the laboratory, to large scale commercial production. And only government can lead this.

4. Financing

Affordable credit, at various stages is one the major constraint to SMEs in Uganda. Government must rethink the current policy of spreading credit finance thinly in commercial banks and microfinance institutions. The revelation by the finance minister that only 12% of the Agricultural Credit Facility was used last financial year, tells a lot.

No economy has ever developed through commercial banks, much less foreign ones. These take their policies from elsewhere, and are not always in tandem with government policy goals and strategies.

All government credit funds should be pooled centrally into UDB, with branches all over the country. SMEs need development financing, not commercial, speculative, trade financing. The current policies and lending terms at government lending institutions are not different from those of commercial banks. Most of those ‘soft terms’ loans to support SMEs from the various lenders will make no real impact.

5. Quality Assurance(UNBS)

As we have argued here before, UNBS needs empowerment and strengthening, to assist quality assurance to SME manufacturers and processors. This assurance needs to take a ‘carrot and stick’ strategy, with persistent quality defaulters closed indefinitely.

Photo credit: https://pixabay.com/photos/uganda-transport-banana-fruit-5005579/

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