Vision-2021: The role of small and medium enterprises

Vision-2021: The role of small and medium enterprises

Md Joynal Abdin

The Financial Express on 05 July 2014

The present ruling party declared Vision-2021 before the 9th parliamentary election. It is not understandable why Vision-2021 is not much highlighted now. Maybe, it is because some of the goals of the document were supposed to be achieved by this time and they failed to do it.

Vision-2021 is the first document of its kind in Bangladesh which presents a roadmap for the country’s economic development. It projects that contribution of the industrial sector to the Gross Domestic Product (GDP) would increase from 28 per cent (2008) to 40 per cent, contribution of the agriculture and services sectors would fall from 22 per cent and 50 per cent (in 2008) to 15 per cent and 45 per cent respectively by 2021. That means emphasis would be put on local industrialisation and rehabilitating the surplus labour force of the agriculture sector in the industrial sector.

To implement Vision-2021 the Planning Commission has drawn up the Perspective Plan of Bangladesh (2010-21). Perspective Plan target of achieving the annual GDP (gross domestic product) growth rate of 10 per cent by 2021 is premised on a competitive manufacturing sector growing at or nearly a double-digit rate during the 2010-21 decade. Consequently, the broad industrial sector will continue to  account  for  a  much  larger  share  of  GDP, approaching  37 per cent by  2021,  compensating  for  the decline  in  the  share  of the agricultural  sector,  which will fall to 15 per cent.

For  Bangladesh to reach the middle income threshold by 2021, industrial  expansion  must move hand-in-hand with  highly  productive  farm  and  non-farm  agriculture. Furthermore, a strong and competitive manufacturing sector is especially important for generating productive and high income jobs.  

Manufacturing is the predominant and leading sector within the broad industry which also includes such activities as power generation, water and sewerage, and mining and quarrying. Manufacturing is and will remain the driver of industrial growth and employment for years to come.

Vision 2021 stipulates the middle income status for Bangladesh by 2021 with the achievement of an annual GDP growth rate of 10 per cent by that year and averaging 9.2 per cent for the period of 2011-21. Fulfilment of this vision requires good performance of the manufacturing sector to take its share in the GDP to 27 per cent by 2021 and that of the industrial sector to 37 per cent.  

The small and medium enterprises (SMEs) sector was given priority in the National Industrial Policy-2010. It was stated that achieving the recently-announced Digital Bangladesh goal by 2021 and creating employment opportunities for at least one person from each household in order to reduce poverty and unemployment were among the central policy objectives of the government. There is no alternative to creating an environment conducive to development of small and medium enterprises for attaining that goal. Attaching priority to this very fact, the National Industrial Policy-2010 has considered the SMEs as the thrust sector, given the planned and balanced development of these labour-intensive industries as the engine of growth.

DEFINITION OF SMES: According to the National Industrial Policy-2010 medium industrial units in the manufacturing sector are enterprises with either the value (replacement cost) of fixed assets, excluding land and building, ranging between Tk 100 million and Tk 300 million or the number of workers ranging between 100 and 250. In the services sector, a ‘medium industry’ is an enterprise with either the value (replacement cost) of fixed assets, excluding land and building, ranging between Tk 10 million and Tk 150 million or the number of workers ranging between 50 and 100.

In the manufacturing sector, a small industry is an enterprise with either the value (replacement cost) of fixed assets, excluding land and building, ranging between Tk 5 million and Tk 100 million or the number of workers ranging between 25 and 99. In the services sector, a ‘small industry’ is an enterprise with either the value (replacement cost) of fixed assets, excluding land and building, ranging between Tk 0.5 million and Tk 10 million or the number of workers ranging between 10 and 25.

If a firm is in the ‘small’ category as per a certain criterion and in the ‘medium’ category based on another criterion, the firm will be deemed a ‘medium’ category one.

ROLE OF SMES IN BANGLADESH’S ECONOMY: Currently the economy of Bangladesh is witnessing transformation from an agro-based economy to an industrial one. As per the Word Development Indicators Study Report published by the Word Bank, the contributions of industry and agriculture to GDP were respectively 21.7 per cent and 30.4 per cent in 1991, 25.9 per cent and 24.1 per cent in 2001, 28.5 per cent and 18.6 per cent in 2010. As per recent statistics of Bangladesh Economic Review-2014 the contributions of agriculture and industry to the GDP were 13.09 per cent and 29 per cent respectively in the fiscal year 2012-13.

Small and medium enterprises (SMEs) proved their potentiality in productivity, employment generation and poverty reduction as a reliable tool. As a result, policymakers throughout the world emphasise SMEs as the engine of growth and reduction of unemployment and poverty. SMEs are generating more jobs with comparatively nominal investments.

SME CLUSTER DEVELOPMENT: There are 177 SME clusters all over Bangladesh. It is easy to transform these SME clusters into SME export processing zones, if the government and development organisations pay proper attention to it. A balanced development is possible, if the SME clusters are developed, because the clusters are located in different districts, upzilas, unions and even in villages throughout the country. It requires minimum resources to ensure all industrial facilities and utility services available in a specific area to develop an industrial cluster and get maximum output from it.

DIVERSIFICATION OF EXPORTS: There are only a few products in the export basket of Bangladesh. Therefore, it is necessary to identify products having export potential and diversify the products in the export basket. Development of export-oriented SMEs could lead to robust employment generation, increase in export earnings and poverty alleviation.

INTRODUCING AN INDUSTRY-FRIENDLY TAX REGIME AND JUSTIFICATION OF THE EXISTING TARIFF STRUCTURE: Export and import are linked with industrialisation. Export without import of raw materials is quite difficult. Therefore, an industry-friendly tax regime should be introduced to promote local investments and attract foreign direct investment (FDI). The existing tariff structure should also be justified to promote local industrialisation.

EXPLORING PROSPECTIVE EXPORT MARKETS AND SIGNING FREE TRADE AGREEMENTS: The government should take necessary measures to explore the prospective export markets for Bangladeshi products and sign free trade agreements with them to ensure Bangladeshi products’ duty-free and quota-free market access there.

TECHNOLOGICAL UPGRADATION AND INCREASING PRODUCTIVITY: Most of the industries in Bangladesh are lagging behind in terms of technology and productivity. As a result, we are unable to produce high-quality products for sale at competitive prices. Therefore, it is the government’s duty to take necessary fiscal and monetary measures to facilitate technological upgradation to increase productivity of the local firms.

ESTABLISHING TESTING LABORATORY AND ASSISTING IN ACHIEVING INTERNATIONAL QUALITY CERTIFICATION: Most of the industrial sectors are suffering from the lack of proper testing facilities for their products to ensure their world class quality. Therefore, Bangladeshi companies are not getting international quality certificates. As a result, foreign buyers are not accepting our products on a large scale in the absence of quality assurance. So, it is the government who could help local entrepreneurs establish sector-specific testing laboratories and get international quality certificates and thus increase the acceptance of Bangladeshi products to foreign buyers. It will help to build the brand image and charge premium prices for quality products.

ENSURING ADEQUATE SUPPLY OF RAW MATERIALS AND INTRODUCING A SYNDICATE CONTROL MECHANISM: Most of the industrial sectors are somehow dependent on foreign raw materials. Maximum SME entrepreneurs are unable to import raw materials directly for many reasons. By capitalising on this limitation, a small group of importers import raw materials and charge irrational prices. It makes our products uncompetitive in the international market. For this reason, the government should allow sectoral trade bodies or owners’ associations to import raw materials together in a group or introduce a syndicate control mechanism to ensure rational prices for raw materials in the local market.

SUPPLY OF INDUSTRIAL LOAN AS PER SECTORAL/LOCAL DEMAND: The demand for loan packages differs based on sectors and locations of firms. A single loan package of any of the existing commercial banks cannot meet the demand from all sectors. Therefore, the government may encourage the scheduled banks to design sector-specific loan products to meet the local or sectoral demand.

It is necessary to develop SME clusters, SME sector and export-oriented SMEs throughout the country to implement Vision-2021 and achieving the middle income status by 2021.

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Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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