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Boosting SMEs competitiveness within SADC member states

PANEL data examined recently as part of an ongoing research on what will catapult small and medium sized enterprises to the next level suggest the region is not yet a cost-friendly setting to conduct business.

Based on the data and comparing with other published studies, for each component of sales made, majority of small and medium sized enterprises use almost half of it on costs, as much as up to 20 per cent when compared to businesses in other parts of the world such as China, India, Vietnam to mention a few, where the starring role and prominence of small and medium enterprises is given attention it deserve.

In one of my earlier contribution, indicated that accessing finance is not a major constraints for small and medium sized enterprises, but overtime it has become clear that to access credit, businesses pay not only higher interest rates but also involve higher guarantee whereas competitiveness is dented also by logistical costs and unfavourable regulatory environment.

Research quoted in the media suggests that in many countries, labour costs are an important cause of poor competitiveness. Industrial labour costs in sub-Saharan Africa as stated in the media are far higher than might be estimated on the basis of GDP per capita.

Research indicates that low income countries such as India and Bangladesh, have annual industrial labour costs evenly in line with GDP per head 0.98 for Bangladesh and 1.41 for India.

At a similar income level, Kenya, that is not a member of SADC, has ratio of labour costs to GDP of 4.37. The average wage premium in Africa, as whole is put at 50 per cent.

Tanzania is going to host 4th SADC industrialisation week this week under the theme of `Conducive Business Environment for Inclusive and Sustainable Industrial Development.’

Among activities during the week will be a number of presentations that will for example consist of; unpacking SADC industrialization strategy and roadmap, building strong partnerships with the private sector to foster inclusive and sustainable industrial development; a conducive business environment for inclusive and sustainable industrial development; challenges in financing industrialization and the role of local DFIs etc.

Much as all these issues are timely and are important, I think a good presentation is one thing and performance is another. My appeal to our leaders is that, it is time to change and walk the talk. Despite the fact acknowledging the interest of speeded industrialization, policymakers in all 16 SADC member states need also to accept the obstacles and difficulties in their setting without icing the cake.

The upsurge of geo-political risks will, in my opinion, in one hand, act on against FDI while on the other hand, high-tech progress has meant that the advantages of low-wage labour are fading promoting re-shoring and near-shoring.

It might be a question of discussion and debate amongst academics, experts and policy makers, but in my understanding, industrialization is a function of the healthiness or otherwise of private enterprise in an economy.

Reaching the industrialization hierarchy is an excursion of discovery with businesses branch out into new and different products and processes, as well as a function of the births and deaths of businesses.

Amidst this journey of discovery, a substantial element of innovation is driven by new firms substituting older ones that have nose-dived to innovate and keep up with their competitors and above all what the competitive market desires.

Looking back at SADC’s years journey, it is a matter of thoughtful concern in SADC that, based on incomplete and inadequate data, it give the impression that in manufacturing, more firms die young.

Professionals may come to an agreement with me that industrial strategy cannot be detached from a country’s market size and resource endowments as well as its layout location.

Combination within SADC suggests that there can be no one-size-fits-all industrialization approach. Generally, it has been proven and many experts have documented this that highly populated nations have industrialized faster than small states, while resourcerich nations have industrialized more slowly than their resource-poor counterparts.

Coastline markets of Angola, Namibia, South Africa, Mozambique, Tanzania, Madagascar, Mauritius and Seychelles, all together have logistical benefits over their land-locked peers, while strong, well-established institutions are correlated with industrial success.

Come together on nations as the crucial units of examination and strategy implies that a nation can effectively create the competences for producing complex goods that can compete in the global open market.

To my opinion, imports are then seen as signs of domestic weakness and exports as strength.

It is in this setting that a mind-set change is necessary to ensure atmosphere to help aggregate the competitiveness of small and medium sized enterprises within SADC member states is achieved.

Where domestic inputs are more costly or are of a lower quality than imported inputs, the sustainability of domestic producers both for the home and export markets is at risk.

World Trade Organization research discovered that greater integration into global supply chains is correlated with improved export performance because imported inputs not only improve competitiveness but also ensure that domestic output for home consumption is cheaper and more efficient.

National policies that target domestic selfsufficiency in the sense of the entire value chain being located in a single country militate not just against regional and global value chain participation but also industrial competitiveness.

A study commissioned to scan the operationalization of the SADC regional development fund, dated 2015, has identified main issues holding back SADC development initiatives.

Concisely, ten issues acknowledged consist of: - structural weaknesses in SADC economies, the SADC economies are highly differentiated, partly reflecting different resource endowment patterns and adjustments to exogenous shocks to the economy with spill over into fiscal revenues and the balance- of-payments, countries are after different industrialization models, with some members bank on on import substitution while others are seeking to exploit export-led expansion by way of export processing zones, increased value chain participation and resource-driven strategies, partly fuelled by FDI, and some states are trying to reverse premature de-industrialization by seeking new strategies that will lift them out of the current industrial development impasse, to mention a few.

Close analysis of the operationalization of the SADC regional development fund report presents constraints that to my opinion are common, if not all, to most SADC Member States that require a strategy to move forward.

Whereas a scarcity of the skills necessary for a modern, high-technology industrial economy is missing the region is overwhelmed with infrastructure deficits.

It implies that finance for industry and infrastructure is core issue, an issue the leaders need to earnestly come out with robust strategy.

In Tanzania, for example, a World Bank survey found that during 2006-2010 only 3% of enterprises accessed financial institutions compared to about 60% in China and Vietnam.

Development Finance Institutions in some SADC member states, based on their annual available reports are truly undercapitalized, and to be able to fund stern mega strategic project(s) remains a challenge.

Much as consortium is common exercise amongst banks, at all times, there are costs and risks and importantly loss of control on returns linked to such financial transactions.

Establishing an Industrialization Development Fund for the SADC Region as a vehicle for enhanced resource mobilization cannot be circumvented.

A FORMER sports editor with the ‘Daily News’ ...

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Author: Dr Hilderbrand Shayo

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