Md. Joynal Abdin
The Financial Express on October 31, 2012
At the conference titled “D-8 Taskforce Meeting on SME”, held in Dhaka on October 09, 2012, Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria and Turkey presented papers on SME (Small and Medium Enterprise) Development in their countries. Let us have a look at the notable features of the presentations and identify the best practices of the D-8 member-states that Bangladesh may replicate for quicker SME growth to promote sustainable industrial development and poverty alleviation.
The Bangladesh case: The Bangladesh presenter mentioned in his paper:
1. Distribution of enterprises in the Bangladesh economy (according to his study) is 87 per cent small, 6 per cent medium, and 7 per cent large industries.
2. The present status: 84 per cent of SMEs took loans from commercial banks. Almost all of them needed collateral except some trading and service for which hypothecation served as collaterals. Guarantors were needed for 93 per cent of SMEs, 41 days were required to process applications, with two more weeks to actually get the loans. In total, it took 55 days to get the loans. Loans received meet demand of only less than one-third (31 per cent), while most are met from one’s own and other sources.
3. Constrains of SME development are lack of running capital, high production costs/low profits, lack of access to finance, inadequate loan size, repayment before generating cash flows, low production due to shortage of fuel/electricity, lack of information on technical/marketing aspects, women with little access to financing / refinancing, many of them finding it difficult to comply with collateral requirements.
4. Recommendations for SME development: The SMEF/SME Cell should be strengthened, SMEF (Small and Medium Enterprise Foundation) personnel need to have practical experience, increase workforce in SMEF, create infrastructural facilities (roads, electricity, gas, water etc), establish industrial parks at various locations, create subcontracting facilities, so that specialisation takes place.
Making a brief comment on the Bangladesh Paper, I would say it was a nice presentation but with a partial information about the overall SME development in Bangladesh. The paper emphasised only the bank loan part of the SME support. It might have covered the other areas like technological upgrading that SMEs experienced during last decade, government initiatives (though covered by a separate presentation made by the ‘focal point’ of that group) for SME development, increasing role of SMEs in GDP (gross domestic product), greater role of SMEs in employment generation, exportable products of our SMEs, technical collaboration that our SMEs are searching for, potential fields for joint venture investment from D-8 member-states, regulatory barriers of SMEs hindering growth etc. Such a paper may represent Bangladesh positively and achieved a lot from that meeting.
A distressing aspect of the whole thing was none from Bangladesh attended the previous meetings of this working group held earlier in different countries. As a result, the Bangladesh side was completely unaware of the previous progress of the working group. My request to our policy makers is to attend all possible meetings of the working groups to have a fruitful result from this very important multilateral bloc.
The Egyptian case: The Egyptian presenter mentioned:
1. Egypt has a vision to become the leading industrial country in the Middle East and North Africa by 2025.
2. Major SME industries in Egypt are related to textile products: (‘ginning’ of cotton – spinning and textile dyeing and preparation – ready-made garments), food industries: (sugar refining – tobacco – juices – medical herbs preparation – grinds and rice millers), chemical industries: (plastic and rubber – fertilisers – cement), leather industries: (tannery – shoes – leather products – leather wares)
3. SME-related public organisations in Egypt are Social Fund for Development (SFD), Industrial Development Authority (IDA), SMEs Exports Development Sector (SEDS), Productivity and Vocational Training Department (PVTD), General Authority for Investment (GAFI), Industrial Modernisation Program (IMP)
The Egyptian Paper emphasised the country’s Vision 2025. The presenter highlighted mainly the SME sectors and different initiatives taken by the Egyptian government to promote SMEs.
The Indonesian case: The presenter from Indonesia mentioned:
1. The main areas of competence in the Indonesian SMEs are R&D, design, engineering, financial support, production, distribution and marketing.
2. The Indonesian SMEs are crossing a creative economic age. The paper pointed out that the country had been in economic agricultural age up to 1945, followed by economic industrial age during the late 70s, and economic information age in the early 90s and now the nation is passing through the age of creative economic industrial age.
3. Indonesia is working on four pillars for SME development. Pillar 1 – Cluster Development (Creative Industry, Networking, Common Service Facilities) Pillar 2- Entrepreneurship (by ‘design incubators’), Fast Track (franchising) Pillar 3- One Village One Product, Pillar 4-Initiative (International Cooperation and Promotion, Machinery)
4. Cluster Scheme: Identifying, Collaboration, Forum Group Discussion, Action Plan, Implementation
Indonesia is a D-8 member working intensively on SME development and they have achieved remarkable progress. Presently, they are passing through an innovative SME age and have crossed three other stages from 1945 to the 1990s. They came to this position by working upon 4 pillars, namely, cluster development, entrepreneurship development, ‘one village one product’ and finally, international cooperation and promotion.
Bangladesh may replicate two things from Indonesia. Number 1: Setting up of SME visions of different stages with deadline. Number 2: Working upon the 4-pillar model for sustainable SME development.
The Iranian case: The Iranian Paper focused on:
1. About 92 per cent of Iranian industries are SMEs.
2. The Iran Small Industries & Industrial Parks Organisation (ISIPO) is working with Establishment and Development of Infrastructure and Support Services to SMEs.
3. Facilities in Iranian Industrial Parks are Single Contract, Single Commission, Providing Infrastructure (water, gas, communication facilities, waste water treatment), Payments in Installments (30 per cent cash, 70 per cent in 3 years), facilitating and speeding up the implementation by decreasing bureaucracy, Gaining ISIPO supports.
4. ISIPO’s entrepreneurship supports are: supporting training courses for improving the scientific and professional skills of SMEs’ workforce, supporting training courses for promotion of business skills of entrepreneurs, organising and holding industrial tours, developing engineering and consultancy services of entrepreneurs and SMEs, improving business environment.
5. ISOPO support in technology enhancement of SMEs are IT development in SMEs, establishing IT & software services centres, creating technology parks adjacent to the industrial parks, establishing business and technology service centres, supporting R&D activities in SMEs.
6. Market development and international cooperation supports are: improving international cooperation for creating new markets in the framework of bilateral and multilateral cooperation, supporting access to international markets, supporting SMEs’ participation in the national and international fairs and exhibitions, facilitating international relations for SMEs, cooperating with international organisations for partnership between Iran and foreign SMEs, organising and facilitating business trips for SMEs, holding and taking part in international seminars for exchanging experiences among SMEs.
7. Consultancy supports are: creating a network of more than 140 highly experienced and professional consultants in different fields such as management, market development, innovation, R&D technology development, productivity and quality improvement, human resource, subsidising some parts of SMEs consultancy expenses.
8. Iran is offering the following services to its international counterparts: establishing industrial parks (consultancy, study, design, building), establishing technology parks (consultancy, study, design, building), studying waste water refineries establishment, designing SPX systems for SMEs, establishing technology and business service centres (consultancy, study, design, building), designing and implementing industrial cluster development projects, compiling industrial cluster development country map.
9. Iran is offering the following training facilities for its international counterparts: Industrial cluster developments pre-feasibility studies, compiling industrial cluster country map, implementation of industrial cluster development projects, training industrial cluster development agents.
Comment: Iran is a role model for SME development and has achieved self-sufficiency with so many embargos from the ‘developed’ world. Today Iran is offering training, technology, and joint venture investment in many fields mainly in cluster development and refinery industries. Bangladesh may take the opportunity of Iranian training on cluster development to foster cluster development in Bangladesh. Last year, SME Foundation identified 177 SME clusters throughout the country. Now the government may assist them in undertaking and implementing cluster development projects and Iranian expertise may be used here.
The Nigerian case: Nigerian presenter mentioned:
1. There are about 17,284,671 Micro, Small and Medium Enterprises (MSMEs) in Nigeria employing about 32,414,884 workers. MSMEs are contributing about 75 per cent of employment, 3.0 per cent of export earnings and 46.5 per cent of Nigerian GDP.
2. Constrains towards SME development in Nigeria are: poor access to affordable finance leading to inadequate working capital, lack of work space, poor access to local, regional and international markets leading to poor business turnover, obsolete technology leading to inability to compete globally, inadequate government support and encouragement, weak infrastructure leading to high cost of doing business, inconsistency in government policies/ programmes etc.
3. The major SME development agencies in Nigeria are the Industrial Development Centres (IDCs), the National Directorate of Employment (NDE), the Bank of Industry (BoI), the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the microfinance banks.
4. The government of Nigeria is implementing some programmes for SME development. These are the N200-billion Intervention Fund for re-financing and restructuring of banks’ loans to the manufacturing sector, the establishment of the N200-billion Small and Medium Enterprise Credit Guarantee Scheme (SMECGS), the Agricultural Credit Guarantee Scheme Fund (ACGSF), the Nigerian Incentive-based Risk Sharing System (NIRSAL) for agricultural lending, the National Economic Reconstruction Fund (NERFUND) etc.
The Nigerian government is distributing SME loans and supporting industrial expansion through different government schemes. Development partners are supporting Nigeria with various schemes including credit guarantee schemes and reconstruction funds etc. The Bangladesh government may assist SMEs with such credit guarantee schemes and venture capital in collaboration with the development partners.
The Turkish case: The Turkish presenter mentioned:
1. Distribution of enterprises in Turkish economy having a share of 95.54 per cent are micro, 4.03 per cent small, 0.35 per cent medium and 0.08 per cent large industries (definition with higher capital and employment)
2. Among the enterprises 13 per cent are manufacturing, 42 per cent trading, 42 per cent service, 4.7 per cent construction, 1 per cent mining and 0.1 per cent energy.
3. Turkish SME Development Agency (KOSGEB) works with Entrepreneurship Development, Regional and Local Development, SME Market Research And Export Promotion, SME Training And Consultancy, SME Finance Research, Project Coordination, Technology and Innovation Supports Coordination Issues.
Turkish SME development agencies are working on a few innovative issues like regional and local development, SME market research and export promotion, Project coordination etc. Bangladeshi SME development agencies like SME Foundation, BSCIC, and BITAC etc can undertake similar programmes for better output.
The best practices: In conclusion, we can say that the best practices of D-8 countries that Bangladesh can replicate may be as follows:
1. Establishing SMEs Exports Development Authority (SEDA) like SMEs Exports Development Sector (SEDS) of Egypt. Questions may arise that EPB is working for export promotion in Bangladesh. But EPB is working with overall industries including micro, cottage, small, medium, and large. But due to comparative advantages, large industries are mainly enjoying EPB’s support. So a dedicated entity may have more results in creating an export market for Bangladeshi SME products abroad.
2. Setting up a SME vision by determining different stages of development with time-frame like Indonesia.
3. Working upon 4 pillars for SME development like Indonesia.
4. Emphasising cluster development like Iran.
5. Supporting SMEs with different guarantee schemes and loan products like Nigeria.
6. Balancing central and regional SME developments, emphasising market development and export promotion like Turkey.
If we can replicate any one of the above models, it will, undoubtedly, add value to our current movement of SME development in Bangladesh.