MSMEs play a vital role in poverty eradication, greater stakeholder collaboration and financial awareness are needed to build capacity, improve stability and reduce non-performing loans. Reduced costs and banking processes for micro, small and medium enterprises (MSMEs) will support future expansion in the sector.
The importance of the Micro, Small and Medium Enterprises (MSMEs) sector is well recognised worldwide due to its significant contribution to various socioeconomic objectives, such as higher growth of employment, output, promotion of exports and fostering entrepreneurship.
Moreover, innovation has been incremental and driven by global technological developments, government policy, new market opportunities, and changes in lifestyle and society. Developing countries have gained access to state-of-the-art technology, consumer, energy bills have been lowered due to more energy-efficient appliances, innovation has been fostered, and a more equitable market for greener products has been created, allowing the manufacturers to maintain their competitiveness.
Nevertheless, the COVID-19 pandemic has led to unprecedented economic disruptions across private sector entities including the MSMEs. The sudden stop in economic activity places the MSMEs at a greater risk of collapse due to various causes including, higher levels of vulnerability and lower financial resilience owing to insufficient cash reserves to survive for a few months.
In spite of swift responses from policymakers to minimise macroeconomic supply and demand imbalances, as well as ensuring stable financial systems, the nature and characteristics of MSMEs make these broader policy responses critical to address their specific challenges.
In contrast, the International Finance Corporation (IFC) revealed that on average, 30 per cent of MSMEs in all developing countries are fully constrained while 14 per cent are partially constrained [Chart above]. Sub-Saharan Africa has the largest proportion of financially constrained MSMEs, both fully and partially at 54 per cent.
The government have placed the development of the MSME sector at the centre of the economic development agenda for the country. MSMEs’ favourable environment in Eswatini that allowed development of policies, regulatory frameworks and creation of support institutions.
Since Eswatini’s era of rapid growth, which lasted from 1980-1989, with the economy growing at 8.3% per annum which was amongst the highest in the world, the Matsapha industrial site was home to many foreign firms that provided employment to emaSwati, and generated tax revenue and foreign exchange.
These firms introduced sophisticated business processes, allowed for the transfer and diffusion of technology, and facilitated skills transfer impacting the Eswatini economy positively.
The sector provides jobs to 92,643 people, which is equivalent to 43.7% of the 212,130 employed persons in the country, according to the 2017 Finmark Trust Report. Currently, MSME’s create 32 percent of jobs and contribute as much as 45 percent to gross domestic product in Eswatini [Chart above]. The FinScope MSME Eswatini 2017 National Survey, indicate that Eswatini has 59,289 MSMEs. The survey further established that out of this number, only 10 per cent of the MSMEs have borrowed money from formal financial institutions.
In 2019, Eswatini ranks among the best in the registration of Micro, Small and Medium Enterprises (MSMEs) when compared to five countries in the Southern African Development Community (SADC).
Around E140 million has been set aside for Micro Small medium Enterprises (MSMEs) by the government through the Loan Guarantee Scheme in 2019. Credible business, character, sufficient capital, collateral and industry have an impact on the loan application approval. MSMEs or borrowers must have a good credit history and provide proof that the business exists. Those in the watch-list industries, such as mining, may face closer scrutiny to assess the potential risks that they pose to the environment.
Their impact on employment, income and economic growth; their role in combatting poverty, reducing income and gender-based inequalities and building economic resilience; and the contribution they could make towards the Sustainable Development Goals (SDGs), were very substantial.
The unemployment rate declined from 28.1% (2014) to 23% (2016)[Chart above]; youth unemployment from 51.65% to 47.4 % [Chart below]; In 2018, the National MSME Policy was ensuring increased access to finance for the youth; establishment of Royal Scientific and Technology Park for promoting innovation and MSME incubation, special economic zones for FDI, and a peaceful nation.
While the majority of the country’s employment is provided by its agricultural and manufacturing sectors. Within the agriculture sector in Eswatini, MSMEs play a crucial role in the provision of food and employment as well as sustaining the livelihoods of many Swatis.
The Government of Eswatini has been working towards the development of the Micro, Small and Medium Enterprises (MSME) sector. This is clear from the SMME Policy (2009), Micro Finance policy, Financial Sector Development Implementation Plan, Financial Sector Development Strategy and National Financial Inclusion Strategy.
The strategic importance of the MSME sector in the Kingdom of Eswatini is well recognized by the government, which has mainstreamed MSME development in its Vision 2022 and the National Development Strategy, which aims to turn the country into a vibrant industrial-led economy within a generation.
However, a review of the country’s economic policies reveals that historically, very little investment has gone towards the development of a strong base of micro small and medium enterprises (MSMEs).
While previous policy statements highlighted the importance of MSMEs, not least the creation of the Small Enterprise Development Company (SEDCO) and other institutions to promote MSMEs, in reality more effort tended to go towards attracting foreign direct investment (FDI). Government’s focus on attracting FDIs is justified in many cases: FDIs provide jobs, expertise, technology, government revenue, and help to transfer skills through learning-by-doing.
MSMEs sustainability constraints in Eswatini
Focusing on the importance of MSMEs in achieving the SDGs, particularly in promoting innovation, creativity and decent work for all and implementation of an effective financing model for MSMEs as will contribute significantly to, the achievement of the Sustainable Development Goals (SDGs) through economic growth and employment creation (SDG8); fostering innovation (SDG9); reducing waste through recycling (SDG12); poverty reduction (SDG1); food security (SDG2) and many other SDGs.
Lack of access to financial services is one of the key if not the most important barrier to the growth of MSMEs in the region and indeed the entire continent and Eswatini is no exception. Constraints felt in the sector to have access to finance included lack of education, grant syndrome and high collateral and threshold banking requirements.
On November 2019, the Minister for Commerce Industry and Trade Senator Manqoba Khumalo, said: “only 10 percent of Eswatini’s 60,000 MSMEs have taken out loans from formal financial service providers, adding that leveraging technology and alternative financing could provide solutions.”
To address this issue, it is crucial to clearly understand the financing needs of MSMEs. Meanwhile, the development of an effective financial model that could address the needs and challenges of Micro, Small and Medium Enterprises (MSMEs) in the Kingdom of Eswatini.
The Eswatini MSMEs strategy
The MSMEs financing model includes a revolving fund, enactment of the Citizen Empowerment Bill expected to strengthen the framework for meaningful participation of citizens in high-impact enterprises and training in development programmes and government tax incentives.
The Eswatini MSME strategy was to decentralize support institutions such as the Centre for Financial Inclusion (CFI), Small Enterprise Development Corporation (SEDCO) and the Eswatini Development Finance Corporation (FINCORP). CFI was an agency of the Ministry of Finance to co-ordinate the implementation of the National Financial Inclusion Strategy.
This National Financial Inclusion Strategy (NFIS) for Eswatini represents the commitment of the Government, particularly the Ministry of Finance (MoF) to transform the local financial system to be more relevant to the needs of the wider segments of the Swazi society. The key strategic financial inclusion focus of the country under the NFIS is to facilitate access and usage of the affordable financial services and products, particularly for the low-income groups and the un-banked population.
While SEDCO was meant to facilitate access to finance through training, business plans, cash flow projections and business incubation, FINCORP provided similar services through access to credit for MSMEs, promoted development of Eswatini-owned enterprises and facilitated access to institutional development services.
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