Governments Should Quit Business

Published on 13th December 2005

Early studies of entrepreneurship concluded that entrepreneurship is in – born.  Empirical evidence reveals that certain communities are known to possess more entrepreneurs than others. The Japanese and Germans for example, are better entrepreneurs than the other nations. However, some people believe that these nations’ entrepreneurship was born out of necessity: the need to survive after the wars these nations fought and lost, and then “beat their swords into ploughshares.” It has also been proven through modern research that entrepreneurship can also be acquired either through training (hence the concept of entrepreneurship development) or through exposure to a conducive environment.

Societies have many successful business people who say that they had no interest in going into business until they were forced to attend a certain entrepreneurship development programme, or live within a certain business environment.  Entrepreneurship is both in-born and can also be acquired through life’s experiences.

Africa is not poor because it is deprived of entrepreneurship by predestination. Through determination, deliberate planning, and above all, resolve to succeed, we can conquer poverty. The rich nations are only richer because they recognized that principle earlier than us. The important factor is that entrepreneurs can be made. Africans should accept the fact that they possess the ability to create wealth for their communities and provide the “The Midas touch.” They must accept the fact that they have a responsibility to society hence shun the denial syndrome and provide goods and services. The rest of the society will provide the market as consumers. This will spur profit and addition of value to the society.

From the onset, the use of the words “small” and “medium” in Small to Medium Enterprises (SMEs) create a problem in defining the sector. The words “small” and “medium” are relative terms which can only be understood in context. In my study of the sector in Canada for example, I found out that I was dealing with business organizations that could be described as medium to big in my country. Why define the sector? When a community depends on limited resources to satisfy its needs, the need for proper planning cannot be underestimated. This categorization of institutions is, therefore, an essential aspect of planning, as only in this way can the limited resources be channeled to the most essential and needy areas.

In an effort to achieve correct categorization of enterprises in my country, the number of employees in an enterprise was used to determine the category of the business. Those employing up to ten people were categorized as small. The ones employing up to 50 people were described as medium while those with more than 50 people were termed as large. The inadequacies of this method are many. Currently, technological developments have drastically reduced the size of labor force in industry making the method to cease making sense. Companies that employed ten people, now only have one who is producing a similar output to ten people, by use of machines. However, the method is still applicable in less developed societies where the sector is still labor intensive as it cannot access high technology equipment and machinery.

Another school of thought describes the sector by value of capital investment. This school of thought recognizes the inadequacies of the use of the number of employees and assumes that comparing the sizes of enterprises by value of capital invested is the panacea. This too is not without its short comings as some small businesses can be so heavily capitalized in spite of their low turn-over rate. The method is, therefore, not full-proof.

For a proper categorization of enterprises for purposes of adequate resource allocation, we need a combination of all methods. Whether one categorizes enterprises by the number of employees, value of capital investment, or whatever means, the bottom line is to correctly identify this essential/critical instrument of economic development. 

SME and entrepreneurship are synonymous. Therefore, the development of entrepreneurship in a country results in the development of the SME sector as SMEs the world over are owned by entrepreneurs. Therefore, support given to SMEs or entrepreneurship is support given to wealth creation which results into poverty alleviation. The SME sector is labor intensive and not capital intensive.  For starters, it employs most members of the family hence reducing the cost of labor and creating employment for relatives and people in the community. The SME sector reduces the cost of living in the country because goods and services are produced and delivered more cheaply than in bigger industries. This makes goods and services more accessible, resulting in improved savings and accumulation of wealth. SMEs save foreign currency as they mainly utilize local materials or resources in producing goods and services. This is why their goods and services are cheaper and affordable in the market.

The major let-down on SME’s is their reluctance to grow. They are like a poorly fertilized crop that can only bear small fruits. Often the level of production is at subsistence level for too long with little ambition for growth. Unless properly supported and nurtured SMEs’ contribution to the economy is unsustainable.

The major reason for failure to grow by SMEs, which ultimately leads to the frustration of entrepreneurship and its attendant wealth creating capabilities, is reluctance to take advantage of available credit facilities. If at all they borrow, it will be only in small amounts like a farmer who applies less than the recommended quantities of fertilizer to his crop resulting in doing more harm than good as under-capitalization is damaging to an enterprise.  I have learnt this characteristic of the SME from my many years working with SMEs. They are often over cautious when it comes to borrowing.

A very sad scenario arises when the few who understand and appreciate the need for loan funding to grow their businesses are turned down by established financial institutions like banks for lack of collateral security.  Even more depressing is a situation where loans are given by banks and the SME fails to appreciate or understand the concept of integrity of the borrower and goes ahead to default, hence losing credit worthiness or property. Some SMEs compromise quality of goods and services in the interest of making quick bucks. Due to the inadequacy of technology SMEs are unable to compete on the international market as they cannot produce large enough quantities to meet international demand, hence their limited capacity to earn foreign currency. Also related to the problem of inadequacy of equipment is the SME’s inability to standardize production thus limiting competitiveness on the market. By reason of inadequate capitalization SME’s are unable to benefit from economies of scale as their purchases of raw materials or goods for resale are often limited in quantity.

In spite of all its limitations, the SME sector is still a vital economic factor in Africa’s quest for a way to conquer poverty. African countries should develop policies that are supportive of the SME sector. The SMEs should not be left to emerge and fend for themselves, and grow by chance. National Policies should be put in place to provide training in business management skills, consultancy and funding

Like little babies learning how to walk, SMEs need parental care. Consultancy services should include identifying larger companies willing to sub-contract SMEs for certain  jobs. In this manner, they will improve their skills under supervision by the contractor.  This will also help to reduce cost of production which results in cheaper goods and services. Governments can help SME’s to improve the quality of their goods and services by making tax concessions for the bigger companies who take in SME’s for attachment or providing free consultancy services to improve quality of goods and services. Governments should desist from making punitive taxes on SMEs, but exempt them from certain taxes to allow for growth. Cumbersome regulatory instruments should be removed.


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