Revitalisation of SME sector

Bangladesh’s economy is growing fast. In the last decade or so, the economic growth has steadily accelerated and most importantly, remained very stable. This growth has been driven by judicious socio-economic policies of the government, an influx in the domestic and foreign capital and rise in disposable income and consumption among many other positive attributes. One other major factor that is being touted as the backbone of the country’s economy is Small and Medium Enterprises (SME) sector. Whether it is agriculture, manufacturing or service industry, SMEs are mushrooming in a myriad of sectors across the country. At least that was the story before the pandemic spread its deadly tentacles.

However, there is no question that the SMEs have taken a battering during the last two years with most sale outlets remaining closed and exports coming to a halt. Fund crunch forced many enterprises to pull down shutters permanently with owners shifting to easier sources of earning to survive. Thousands of workers lost jobs and became unemployed overnight.

It needs to be stressed that once the devastating spell of Covid-19 comes to an end, the economy of Bangladesh will need full support from all concerned to register meaningful growth, as was happening in the pre-covid days. And this has to happen at both micro and macro levels because both contribute significantly to the economy.

While big money has to be pumped into the big industries, sufficient amounts of funds also need to be earmarked for the small and medium level enterprises (SMEs) to keep their wheels running. We must keep in mind that this sector employs about 25 million workers.

According to the Bangladesh Bureau of Statistics, in the pre-covid days there were about 7.8 million SMEs operational in Bangladesh. They not only enjoyed good domestic markets their export earnings also remained significant. In other words, the SME sector in its heydays contributed to 25 per cent of the overall GDP.  But, since the pandemic, there has been a gradual fall in the earnings of the SME enterprises, about 66 per cent to be exact.

According to the Small and Medium Enterprises (SME) Foundation, there are 78,18,565 enterprises across the country. Of them, 68,42,884 (87.52 per cent) were in the cottage category, 1,04,007 (1.33 per cent) in micro, 8,59,318 (10.99 per cent) in small and 7,106 (0.09 per cent) in medium, and 5,250 (0.07 per cent) in large category. Of the total enterprises, 55,89,019 were located in rural areas and 22,29,546 urban zones. Besides, a recent study conducted by Japan Bangladesh Chamber of Commerce and Industry (JBCCI), found that Bangladesh has 17,384 micro enterprises, 15,666 small ones, 6,103 medium and 3,639 large scale enterprises.

The SME sector plays a key role in Bangladesh’s economy. The importance of small and medium enterprises in the country’s economic progress and their role in employment generation is immense. While the SME sector entrepreneurs basically begin their businesses with family members, they later formally appointed new employees. Thus, this sector becomes a large area of employment. The SME sector is considered to be the backbone of any economy. No country has achieved sustainable economic growth and created jobs without promoting SMEs. It is generally estimated by many experts that SMEs create nine out of every 10 jobs. They are an integral part of the supply chains in the economic sector. However, the businesses’ access to credit is constrained by a number of factors such as higher loan losses, high-cost bank finance models, low usage of technology and the lack of collateral for security. This impedes their growth and ability to become bigger.

In a bid to jack up the sector, the government and Bangladesh Bank had announced stimulus packages during the pandemic to help the SME sector survive and sustain. But, it seems, mishandling of the policy somewhere down the line did not bring results as was expected. The SME Policy-2019 is only on the books and it failed to provide the desired support to the enterprises hit hard by the pandemic.

It is disconcerting to note that even after two years of its formulation, authorities are yet to finalise the working strategy for the policy implementation, which was supposed to address important issues such as fund shortages, lack of technical expertise and market expansion strategies. The SME Policy-2019 envisaged creating 1.5 crore employment opportunities by modernizing factories, providing skill training and arranging technological support to SMEs to help them grow further. The government aims to increase the sector’s contribution to the country’s GDP from 25 per cent to 32 per cent by 2024.

In Bangladesh enterprises with employees between 31 and 120 are classified as small, while medium enterprises constitute employees between 121 and 300, as per the 2016 national industrial policy. Those with employees between 16 and 30 are termed as micro enterprises, and those below 16 are cottage enterprises. This is not consistent with the international practice, which classifies firms with employees of up to 9 as micro. Firms between 10 and 49 employees are small, while medium enterprises constitute those that employ between 50 and 249. According to many pertinent observers, the cottage and micro enterprises need to be separated from the small and medium enterprises in policymaking.

It has become apparent that stakeholders in the cottage, micro, small and medium enterprises (CMSMEs) sector worry that the slow progress of the implementation of the SME Policy-2019 will drastically reduce their contribution to employment and other areas of the economy. Experts feel that the policy will ultimately fail to achieve its objectives by June 2024 due to the delay.

The authorities concerned should do more strengthen the SME sector to boost the economy. SMEs play a key role in reshaping national growth strategies, generating employment, and paving the way for social cohesion by improving the standard of living of the most vulnerable segment of society. In most developing countries, SMEs constitute more than 90 per cent of all enterprises and significantly contribute towards economic growth. SMEs contribute to development in multiple ways: create employment for an expanding labour force, provide much-needed flexibility and innovation in the economy, and contribute to value addition in GDP.

SMEs can reduce the urban migration in the capital and other major cities, increase cash flow in rural areas, and thereby enhance the standard of living of the rural people. SMEs are widely distributed all over the country which means developing SMEs will play a major role in bridging the urban-rural income gap and contribute towards inclusive growth. In a way, inclusive growth can only be achieved through a vibrant SME sector in a country like Bangladesh.

As the pandemic is slowing down, the government must be ready with the stimulus package for the enterprises so that owners can resume production and also go for exports. The government should allocate separate plots of land for SMEs in the main cities. There can be a SME industrial zone like the BSCIC industrial zone. As the SME industries are growing randomly here and there, the entrepreneurs feel insecure.

The writer is Senior Assistant Editor at The Business Post