Bangladesh’s SMEs facing so many challenges
Md. Joynal Abdin
The Daily Independent on August01, 2010
Without a few fertilizer factories, pharmaceuticals companies, cement factories, and telecom companies all other business entities in Bangladesh are SMEs. An estimated number of these SMEs in Bangladesh are about 6.0 million (60 Lac). These are producing around 50 per cent of our industrial output each year, generates highest number of employment and contributing in import substitution and saving foreign currencies. SMEs are contributing in so many ways like emplacement generation, producing low cost quality products, producing import substitute products, saving foreign currencies, and many more but what the government is doing to boost up SMEs.
There are a few initiatives visible from the government side to boost SMEs, dealing with their problems and facilitating them, promoting them. Major achievement of the government for SME support is to establish SME Foundation for advocating in favor of them, to guide them, facilitating SME loan for the poor SMEs. Strengthened SME foundation with a very dynamic leader from the private sector (for the first time government came out of the hurdle of bureaucracy but how much and for how long? This question remains there). There are so many things to do for the SMEs which are not covered by SME Foundation’s mandate. They have limited resources, bindings of mandate and many more. But hope for the best that SME Foundation will contribute in SME promotion, guide the SMEs into export orientation and bargain with government with there problems.
Now let us turn our attention to the challenges and barriers our SME sector is fighting with? This list can be so long but in this write up I would like to concentrate on the major barriers only. These barriers deserve immediate action from the government for boosting up the SMEs. These are as follows:
01. Poor Infrastructure and utility supply: There is a tendency of urbanized industrialization in Bangladesh. Everything is Dhaka based to create one more hours of traffic jam and pollute the Boriganga once again. But why is it happening? This is because infrastructure facility is so measurable in any rural destination of Bangladesh. Utility mainly electricity and gas supply is impossible to get connected in any rural even sub urban areas. Existing SMEs are suffering badly due to load shedding of electricity. Production oriented SMEs are incurring losses by paying idle workers wages during long load shedding period. In one particular period of each year gas pressure remains so little that it makes no sense. So poor infrastructure and disrupted utility supply is the major barrier for our SMEs.
02. Unavailability of collateral free bank loan: Maximum SME initiatives come from single brain without any institutional orientation and they are with holy motive of self employment and revenue generation for the family expenditure not for being bank defaulters. They do not afford providing a collateral or guarantor to produce before bank to get a small loan. They are only dream sellers sometime with excellent ideas. Financing those ideas to bring the dreams into reality should be there. Government has to take some risk of distributing collateral free bank loan to the SME entrepreneurs is essential here. I am fully confident that thousands of SME defaulters can not be equal to a single bank defaulter in large industry of Bangladesh. But good news is that small loans pay back record in Bangladesh is hundred times better than the large scale investment loans.
03. Limited access to information: I have an idea to produce a very useful items I do produce it but information is not available on demand of this product is highest in which location. I can not place the product into a demand full market in right time. Then loss incurs and SMEs suffers badly from lack of operating capital. In such case government has to take initiative so that SME information goes to general peoples reach. Only one SMEWP is not sufficient to distribute SME information to the whole nation. Because how many SME entrepreneurs know to browse internet is a big question? Rigorous promotional campaign is necessary here.
04. Traditional Technology: SME owners generally use local technology to produce goods but these are not productive enough to fulfill market demand, or not producing quality / beautiful products to compete with the low cost Indian & Chinese products freely available in our local market. As a result our SME entrepreneurs are losing their livelihood due to poor technical know-how. Immediate actions should be taken for replicating global success stories in SME. Before 2013 Bangladesh is weaved from TRIPS agreement implementing under WTO. So this weaver facility should be utilized by us to strengthen technical base of our SMEs. Sector specific technical institute can be established or
05. Low productivity of labor: Bangladeshi SME sector is employing about 82% of workforce and producing around 50% of industrial output. This statistics proves that our labors are low productive. It may be for their inefficiency, may be for poor technology or what ever it is. But if we can deploy adequate technology and train up the workforce then our SME can produce twice output with their existing manpower. Training for the existing manpower is essential for greater output.
06. Lack of entrepreneurship development program: In Malaysia there is a Ministry called Ministry of Entrepreneur and Cooperative Development. They have different divisions and wings for operating training, motivation, innovative support for entrepreneurship development. But in Bangladesh there is no agency even not a single educational institution called Entrepreneurship Development Institute. Basically to create entrepreneurs there is no hard and fast faculty but for effective entrepreneurship generation entrepreneurship education is very necessary. For the SMEs government can establish an SME Entrepreneurship Institution under SME Foundation or enlarge BITAC to serve the purpose.
07. Lack of sector specific skilled manpower: There is not educational institute or technical college in Bangladesh equip with modern technologies of our fast growing industrial sector for training up people to employ in that sector. For example there is not plastic and rubber faculty in Bangladesh though it’s a growing sector with tremendous export potentials. Scenario is same in other promising sectors as well. Our polytechnic institutions should be equipped with machinery and faculty of our most promising sectors to produce skilled manpower to meet up their labor crisis.
08. Complicated bureaucratic procedures: To start a manufacturing plant we need a series of license, registrations and clearances. For example to start an SME we need a. Trade license issued by the local government office (UP Chairman, City Corporation office) b. Trademark registration register by the Office of Patent, Design and Trademark Register under the Ministry of Industry c. TIN Number from NBR or Income tax Office under ministry of Finance, d. VAT registration from the same authority, e. Membership of any trade body (district chamber or sectoral association), f. Import registration certificate from CCI & E under ministry of commerce g. Export Registration Certificate from the previous office. h. Environment Clearance from the ministry of environment i. Fire clearance from the fire Bridget and many more. Completing all these formality is not so easy and every desk needs bribe to be passing out with your file. This time consuming and corruption promoting system should be making easier. Any SME owners can start his / her business without any prior permission and concern local agency will go to him collect government prescribed revenue and provide his registration or clearance. Thus SME entrepreneurs can get relief from harassment and real SME promotion will take place.
09. Lack of marketing knowledge: One of the major problems of our SMEs is not to know the market. Where and when his / her product should be sold? They do not know how to get export market access. Even how their products have to be promoted for consumer’s attraction with low cost promotion is not known to them. Government can take the lead to promote our SME products in home and abroad. All our missions abroad should have one SME product display and sales center for introducing our SME products in abroad. All our international airports, tourist spots and five star hotels should have one SME product display and sales center for the same. Marketing training can be given to the small entrepreneurs to educate them in marketing techniques.
10. High Bank interest rate: To make profit with 13% bank loan, employing people, paying rents, and other utility charges SMEs have to do sales products with a 50% plus rate of their manufacturing cost. But with 5 – 7% bank interest rate our competitors in India or China will not take the market vacant for Bangladeshi SMEs. To sustain in a competitive global market we have no option but to produce quality goods in a cheap rate. But by paying double digit interest it is not possible. As a result to remain us competitive we have to reduce bank interest rate up to single digit. Especially for the SMEs the interest rate should be – – Investment amount of TK. 50 thousand – 5 lac should be completely collateral free and the interest rate would be not more than 3 per cent. – Investment amount of TK. 5.5 lac – 50 lac with collateral or a guarantor’s recommendation with less than 5 per cent interest rate. – Investment amount of Tk. 51 lac – 10 crore and above with all shorts of collaterals with less than 7 per cent interest rate.
11. Lack of government support to search export market: Our poor SME owners are not capable to search their products market in abroad. Government has to take the lead here through SME Foundation to search new export market and facilitating access to that markets. If primarily government plays the match makers role then individual or collective platform will be raised to continue the effort to export into those markets. Thus government can help in SME development result will be more employment generation, increase in revenue earnings, and earning foreign currencies. All our economic ministers and commercial counselors abroad can be given special assignment in this regard. At the same time assignments will have to be analyses based on their performance and providing reward or punishment.
12. High competition from cheap Indian & Chinese products due to liberalization: With the stronger flow of free market economy and globalization of trade extensive competition have to face by our SME products in our native market as well. There is no option but to produce quality goods in a cheaper price. Updating technology and skill manpower is essential to do so. Today is the time to make us more competitive and enlarge our market share in globalizing free market around the globe.
13. Lack of testing facility: Day by day private standards of the importing countries are becoming toughest. To get access to any western market we must have to comply with WTO SPS requirements and other international standards. In Bangladesh we are till not having facility to test many sectoral products. So upgrading our testing laboratories according to current need is important. BSTI should take lead to ensure all accreditations and testing facilities to all promising export oriented sectors in this regard. Obviously BSTI deserves strong financial support to execute this program. More standard service providing firms should be there from private sectors as well to provide ISO, HAACP, Credit rating and other international standard certification in Bangladesh so that our SME products get international recognition from the standard view point.
14. Loose imposition of IP law: Today we look into the IP implementation as a barrier but days will come up when we will have to take it as a weapon to protect our IP right world wide. Strong IP law imposition can help us in Branding Bangladesh as well. Without a recognized Trademark, a secured industrial design, a granted patent right how we will go forward with the copy tendency international market. So for the sake of our SMEs government should go for strong imposition of IP law but one or two sectors can get relief under fare use like education purpose, health care etc.
15. Absence of skilled channel of distribution to ensure fare price of growers: If we look into the cottage industry in rural Bangladesh we are producing many diversified products in different sectors. But producers are not getting the deserving price for these due to lack of market orientation. A strong market platform can help producers to deserve price and inspire to produce more. Gramen Check took and initiative to marketing hand loom products, Arong, Agura are marketing some fashion products but nation wide or export oriented initiative is lagging behind. SME Foundation can enlarge there mandate to establish such an SME Channel of Distribution for the shack of the SME sector.
16. Lack of veterinary / animal health care facility: SME is not limited with only industrial products; it includes farming, hatching and growing as well. But veterinary health care or plant healthcare facility is rarely available in Bangladesh. Government should take active initiative to facilitate such services through livestock and poultry wings of the government. Thus agro farming can be booted up at the same time country nutrition problem can be solved.
17. Absence of SME support centers: Till now a few consulting firms are providing consultation services but with high charges. We should have more SME support centers to give advice to the potential entrepreneurs to prepare project proposal, formulating marketing strategy, designing products, upgrading products quality for the SMEs.
18. Absence of an individual SME Policy: There is an SME policy strategy 2005. But many of its articles become obsolete today. So drafting and implementing an individual SME policy based on current need is very much essential today. It should be conform to our import policy and export policy for greater benefit out of it.
Now come to the point why government should do so many things to promote SMEs and attract Investors from home and abroad. This is because we have some opportunities to offer like – 11 Thrust sectors: we have eleven booster sectors for SMEs comprising of Electronics and electrical; Software-development; Light engineering and metal-working; Agro-processing/agri-business/plantation agriculture/ specialist farming/tissue-culture; Leather-making and leather goods ; Knitwear and ready-made garments; Plastics and other synthetics; Healthcare & diagnostics; Educational services; Pharmaceuticals/cosmetics/toiletries; Designer, aesthetically-challenging, personal wear and effects sectors.
Low cost unlimited manpower: We have unlimited low cost labor but at the same time they are low productive as well. So government should reshuffle our polytechnics with modern technologies of the prioritized sectors for producing technical hand for the industries. Short term trade courses may be offered to skilled up existing labor working in the industries for increasing there productivity.
Low cost land, labor, and other utilities of production: One recent study shows that Bangladesh is the cheapest country in Asia for all factors of production like cost of land, labor, house rent, office rent, mid level executives salary, labor wage, and utility bills. So we have every opportunity to grow with these competitive advantages.
Incentives for FDI Investors: Bangladesh is offering series of fiscal and non-fiscal incentives for FDI investors but till now we are under performing in FDI attraction. But why is this? This is because we are not targeting project base investors. EPZ Facilities: We are offering a world class investment environment in EPZ areas but EPZ are located in different locations around the country. How these products will be carried out towards the nearby port is important here. Developing highway capability is essential here. All the EPZ should be connected with the nearby port by a four lane highway.
Large domestic market: Our SMEs can perform better due to large domestic market demand. At the same time we have comparative advantage to access into Indian seven sisters market even more than that through SAFTA agreement. SAFTA, BIMSTEC and APTA comprising more than half of the world population.
That means we have easy access to the half demand of world market in our hand. Just we are in need of a better quality production with a competitive pricing range. GSP in EU countries: Bangladesh is getting duty free access into the EU market under EVA scheme. This may offer a special advantage to our exporting products into the EU (One of the largest and richest market of the world). As an LDC we are supposed to get special preference around the world under WTO if DDA implemented soon. So we have every opportunity to promote our SME for export oriented production.
Now is the time to prepare our self to utilize the opportunity in home and abroad. I am confident that government is keen to accept all the positive advice from the civil society and researchers for a better future of Bangladesh. Just a fresh mind and skill hand with strong political motive is necessary to start a development journey with SME industries of Bangladesh.