Small-scale industries

Small-scale industries
By Yusuf Dodia
Tue 09 Feb. 2010, 04:00 CAT

The integration of various state economies with their specific peculiarities, into one global economy overseen by the World Trade Organisation brings out new challenges for developing nations.

The protectionist mechanisms that traditionally supported small scale industries (SME’s) have had to fall away as WTO rules become enforced in developing economies. India has experienced the survival crisis for SME’s as a result of globalisation, and some vertical and horizontal evolution has taken place in response to the shifting environment.

On the vertical axis, many micro enterprises have emerged as some SME’s down-size and opportunities for new entrants into business become more visible. Conversely, some SME’s up-size to develop greater economies of scale, and embrace a larger portion of the value chain of production. On the horizontal axis, many SME’s have had to consider product changes and sector changes in order to survive by providing the right product for the right industry that is doing well in a particular environment.

For example in an economy where construction and other civil infrastructure developments are doing well, the SME sector has had to do some extensive research to find niche products and services that can be produced and offered to the large corporates in a bid to become a player in the construction value chain. Good specific examples have been steel riggers and rigging accessories, the manufacture of electrical accessories, the production of selected plumbing components, the supply of roofing accessories, and the development of various work tools and accessories for the construction sector.

Similar options can be developed in other prominent sectors such as food processing, agriculture, and tourism.

The SME sector deserves to be given a second look in respect to facilitation and promotion. The Citizens Economic Empowerment Commission, the Development Bank of Zambia, the Zambia Development Agency, the Ministry of Commerce Trade and Industry, the Ministry of Youth and Sport, the Ministry of Tourism, and the Ministry of Culture, all have a significant role to play in supporting and developing the SME sector.

It has already been acknowledged across the world that the SME sector is the backbone of any economy. Japan, India, China, and the Asian Tiger economies have all built their strong production bases on the SME sector. 88 per cent of Japan’s economy is based on the SME sector. The developed economies of Europe and North America have been financially battered partly due to the fact that corporations dominated the domestic economies such that a crisis in a corporation became a crisis for the nation.

This phenomenon basically makes the survival of private corporations the responsibility of the government rather than the shareholders, because of the possible large scale loss of jobs and heavy impact on the financial systems that a corporate collapse would cause.

Having learned the lesson, developing economies must rethink social and economic development strategies. This does not necessarily mean that all development programs must be abandoned. The SME challenge requires us to possibly focus more attention on the rapid and sustainable growth of the SME sector as a key program in the development agenda.

Part of the SME strategy requires developing economies to put in place a mechanism that ensures that when a large scale business or industry is established in a particular area, a linking program is immediately installed to promote SME’s to pick up the opportunities generated by the large investment.

Economic Zones, Industrial Parks, Mining Investments, Big Industries, Large Tourism Investments, Farming Blocks, and Corporate Services Providers, are all opportunities for SME’s to emerge and flourish and build the production base of the country.

The potential for SME’s is great, but three main provisions need to be in place for the potential to be unlocked. First, business promoters must become aware of the opportunities to supply goods and services. Second, there needs to be an availability of relevant skilled labour. Third, finance must be made available in a timely manner and at affordable rates.

The government, and specifically, the Ministry of Science, Technology, and Vocational Training, and various business and support organisations must assist to build the SME sector through the promotion of new and appropriate technologies; the hosting of SME development meetings for interested stakeholders; and dissemination events to highlight the opportunities for SME’s in the COMESA region.

We must keep in mind that as soon as the COMESA Customs Union is implemented, our economies will be integrated. The implications are that those countries in the region that have strong and sustainable large industries will dominate the region at some level, and those countries that have a vibrant SME sector will grow their economies even faster as they exploit the bigger markets offered by the region.

Zambia has some comparative advantages in the mining industry and can take advantage of this special endowment. However, Zambia does not have a monopoly of large investments within the region and therefore has no choice but to focus on an aggressive SME development program to remain a competitive and equitable member of the customs union.

Development of the SME sector is the way forward now, and will be the way forward for Zambia in the medium term. The big businesses should be encouraged to invest in Zambia, but not at the expense of sidelining our focus on Small and Medium Enterprises.