Economy of Bangladesh

Role of Micro, Small and Medium Enterprises in Economic Development

Role of Micro, Small and Medium Enterprises in Economic Development  

Md. Joynal Abdin

The Daily Sun on August 16, 2019

Micro, Small and Medium Enterprises (MSMEs) are the largest segment of an economy. They accounts for 25 percent of Bangladesh GDP and employed 87% of civilian population. MSMEs are playing a very important role in employment generation, resource utilization and income generation to a large segment of the society. Therefore; they are vital for economic development of any country. As a result the government of Bangladesh provided significant importance to MSMEs in National Industrial Policy 2016, SME Policy Strategies 2005 and upcoming drafts of both the policies. Bangladesh Small and Cottage Industries Corporation (BSCIC) was established in 1957, Small and Medium Enterprise Foundation (SME Foundation) was established in 2007 and a significant number of development projects were implemented to facilitate establishment and promotion of MSMEs in Bangladesh.

According to the National Industrial Policy 2016, MSMEs are defined as follows:

Micro Industry:

In manufacturing, micro industry will be deemed to comprise enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. one and Tk. 7.5 million, or with between 16 and 30, or smaller number of workers. In service, micro industry will be deemed to comprise enterprises with either the value (replacement cost) of fixed assets excluding land and building less than Tk. One million, or with less than 15 smaller number of workers.

 

Small Industry:

In manufacturing, small industry will be deemed to comprise enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. 7.5 million and Tk. 150 million, or with between 31 and 120 workers. For services, ‘small industry’ will correspond to enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. one million and Tk. 20 million, or with between 16 and 50 workers.

Medium Industry:

In manufacturing, medium industry will be deemed to comprise enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. 150 million and Tk. 500 million, or with between 121 and 300 workers. For services, ‘medium industry’ will correspond to enterprises with either the value (replacement cost) of fixed assets excluding land and building between Tk. 20 million and Tk. 300 million,  or with between 51 and 120 workers.

According to National Economic Census 2013, there are 1, 04,007 micro, 8, 59,318 small and 7,106 medium enterprises in Bangladesh.  Contribution of MSMEs in Bangladesh Economy could be narrated as –

1. Employment Generation:

Bangladeshi MSMEs are generating a significant number of employment in economy. There are about 5,58,870 people involved with micro, 66,00,685 people involved with small and 7,06,112 people involved with small enterprises in Bangladesh. That means about 7.86 million jobs are directly created by MSMEs of Bangladesh. Indirectly this figure could be even larger than that.

2. Increasing GDP Growth:

Contribution of MSMEs in Bangladesh GDP is about 25% and produce 40% of manufacturing outputs. 25% contribution of MSMEs looks smaller but if we compare it with the 31% contribution of industries to Bangladesh GDP then we can recognize significant of MSME contribution. If we can calculate contribution of Service sector SMEs then the total contribution of MSMEs to Bangladesh GDP will be much more than the current available statistics.

 

3. Utilization of Local Resources:

Large industries can import raw materials to manufacture products while MSMEs are dependents upon local available raw materials. Therefore it could be said that, MSMEs are contributing in value addition with local resources to produce their outputs. Most of the agricultural crops are yet to be processed, therefore MSMEs have enormous potential to manufacture industrial or consumer products by processing agricultural crops.

4. Increases National Savings:

MSMEs are not capital or technology intensive in nature, people involved with MSMEs intends to save a significant portion of their earnings for reinvestment. As a result MSMEs are contributing in increase of national savings too.

5. Utilization of Domestic Technologies:

Large industries are sometimes technology intensive and use to import machineries to establish large factories. On the other hand MSMEs are labour intensive and use local technologies to produce their outputs.

6. Regional Balance and Rural Development:

Among 8.1 million enterprises active in Bangladesh, 5.8 million are located in rural areas and 2.3 million operated in urban areas. By district, 32.2% of total active enterprises operated in the capital city of Dhaka, followed by the second-largest city of Chittagong (17.1%), Rajshahi (15.1%), Rangpur (13.5%), Khulna (12.8%), Barisal (4.8%), and Sylhet (4.5%). Since the majority of enterprises are MSMEs located at rural areas, they are playing pivotal role in rural development.

7. Contribution to Export Earnings:

Bangladesh’s total exported goods represent 5.6% of its overall Gross Domestic Product for 2018 ($761.7 billion valued in Purchasing Power Parity US dollars). RMG is the top contributors in Bangladeshi export earnings, most of the RMG factories are categorized as MSMEs. Similarly second largest export earning sector i.e. leather and leather goods is also dominated by the MSMEs. Therefore we could say that, a Bangladeshi export earnings is leading by its MSMEs.

8. Decentralization:

Bangladesh is till now a centralized Dhaka & Chittagong based economy. But a positive news is there are 177 SME clusters identified in 51 districts of the country. SME Foundation is working with these SME clusters to promote further.  If a considerable number of these clusters could be developed up to national or export level then the decentralization of Bangladesh economy will be strengthened further. It will also contribute in regional balanced economic development. Graduated into

9. Large Industries:

MSMEs are considered as mother of the large industries, large industries could be directly established by the capitalist entrepreneurs but a significant number of large industries being graduate from Medium Enterprises.

10. Increased Productivity:

MSMEs of Bangladesh are competing with each other’s with products quality and market price. Productivity is one of the contributory factors to be competitive in the market. Terefore MSMEs are contributing in increasing productivity as well as product quality to be sustainable in local as well as international market.

 From the above discussion it is clear that, MSMEs are small in nature but very much contributory to the economic development. Therefore; government and other stakeholders shall pay due attention to MSME development not in policies but also in practice. Government is planning for One Stop Service (OSS) and Single Window Services to the investors and exporters. Proper implementation of both the initiatives could reduce out long position in the Ease of Doing Business Index.

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