WBCSD-SNV Issue Brief on Small and Medium Enterprises
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WBCSD-SNV Issue Brief on Small and Medium Enterprises

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This Issue Brief, published by the World Business Council for Sustainable Development (WBCSD) in collaboration with SNV Netherlands Development Organization, explains how governments can help......

This Issue Brief, published by the World Business Council for Sustainable Development (WBCSD) in collaboration with SNV Netherlands Development Organization, explains how governments can help alleviate poverty by focusing on SMEs and how larger corporations can help themselves by including SMEs in their value chains. It describes some of the comparative advantages of SMEs and the challenges they face in developing countries. The publication is also available in Spanish.

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  • In OECD economies: SMEs and microenterprises account for over 95% of firms 60-70% of employment 55% of GDP and generate the lion’s share of new jobs. In developing countries: more than 90% of all firms outside the agricultural sector are SMEs and microenterprises, generating a significant portion of GDP. Examples: Morocco: 93% of industrial firms are SMEs and account for 38% of production, 33% of investment, 30% of exports and 46% of employment. Bangladesh: enterprises of less than 100 employees account for 99% of firms and 58% of employment. Keep in mind: not all microenterprises are in the formal sector; some occupy the unofficial labor market, which varies in size from an estimated 4%-6% in developed countries to over 50% in developing nations.
  • Anglo Zimele: supporting entrepreneurship by taking equity in local SMEs and building capacity Anglo Zimele, established in 1989, creates sustainable, commercially viable enterprises, and empowers entrepreneurs in all business areas, equipping them to operate independently in the mainstream economy  empowerment of SMEs. Derived from Zulu and Xhosa, 'Zimele' can be translated as "to be independent" or "to stand on one's own feet". Anglo Zimele is the enterprise development and empowerment initiative of Anglo American. Its focus lies in the investment in black empowered SMEs which demonstrate a commercially viable and sustainable business or business plan. Each investment is funded on a deal-by-deal basis. Anglo Zimele’s SME business development and empowerment model, applied by Anglo American, its divisions and operations to facilitate the development of the SME sector, comprises three primary investment pillars: procurement, business development, and the Anglo Khula Mining Fund
  • Countries with poor business environments – costly regulations, heavy bureaucracy, poor credit and banking systems – tend to have large “informal” sectors. These are economic activities that are conducted outside the formal regulatory environment. They include everything from casual labor to thriving SMEs and occasionally illegal activities. For many SMEs, the decision to remain informal is deliberate, because the costs and procedural burden of joining the formal sector outweigh the benefits of staying in the informal sector. In many developing countries the informal economy accounts for a significant, but hidden, portion of GDP – anywhere between 30% and 70%. Informal sectors make large contributions to nations’ economies, in both human and financial terms. But being “invisible” to government agencies and formal sector companies, they cannot be easily reached with capacity building improvement schemes, and they cannot compete for business with larger companies. Workers in the informal sector lack job protection and benefits such as access to health and safety provisions, wage protection, insurances, pensions and unions. Informal SMEs also have restricted access to investment and credit facilities. By being outside the formal regulatory framework, informal sector activities cannot be taxed, which represents lost revenue for governments. As such, informal sectors can be a barrier to broader economic development.
  • Like bigger companies, SMEs require a favorable institutional framework. Most are overlooked by policy-makers and legislators, who tend to target larger corporations. SMEs often miss out on tax incentives or business subsidies. They suffer more than big companies from the large burden and cost of bureaucracy, as few SMEs possess the necessary financial or human resources to deal with this.

Transcript

  • 1. Promoting SMEs for Sustainable Development – An Issue Brief
  • 2. Wealth creation: vital to poverty allevation
    • The key to poverty alleviation is economic growth that is inclusive and reaches the majority of people
    • Local entrepreneurs and SMEs represent the backbone of global economic activity
    • Improving the performance and sustainability of SMEs can help achieve this type of economic growth
  • 3. Why are SMEs so important to a country’s economy?
  • 4. Importance of SMEs to large corporations
    • Important source of local supply and service provision to larger corporations
    • Extensive local knowledge of resources, supply patterns and purchasing trends
    • By working closely with SMEs, large corporations can develop a new customer base that may not be accessible to the traditional distribution networks of these corporations.
    • Important source of innovation – SMEs tend to occupy specialized market “niches” and follow competitive strategies that set them apart from other companies
  • 5. Anglo American: Anglo Zimele investing in SMEs Go-Awaste Management Services Specialised Rubber Bambanani Health & Safety Specialized Rubber
  • 6. Other examples of SME engagement
    • DaimlerChrysler : local and sustainable sourcing of raw materials for automobile production ( Brazil and South Africa )
    • Unilever : e mploying women entrepreneurs to distribute health and hygiene products locally ( India )
    • BP : enterprise center to build capacity and create employment among local companies (Azerbaijan)
    • Vodafone: co-investing with local entrepreneurs t o establish phone kiosk franchises in South Africa
    • ABN Amro and GE: providing microcredit and finance to SMEs
  • 7. Formal vs. informal economy
  • 8. Regulatory framework for SMEs – the role of governments high low
  • 9. SMEs: key messages to government
    • A thriving SME sector is key to economic growth and job creation
    • An enabling regulatory requirement is critical – particularly SME registration and monitoring
    • Governments can engage (incentives) to address the need for start-up funds
    • Governments play an essential role in capacity building, e.g.
      • Promoting the need for more entrepreneurs and SMEs
      • Setting up municipal level agencies for advice and training on starting SMEs
  • 10. SMEs: key messages to business
    • Localizing value creation through SME engagement is a key contribution to economic development wherever “big business” operates
    • Leadership from the top is key to success - both strategically and operationally
    • Facilitating access to finance is critical
    • Consider partnering across segments to facilitate SME development and access to finance
    • Business planning skills, incl. raining in financial management, are crucial
    • Capacity building help is essential
  • 11. WBCSD-SNV Issue Brief on SMEs – published in July 2007
    • Download the brief at
    • http://www.wbcsd.org/web/publications/sme.pdf
    • Also available in Spanish at
    • http://www.wbcsd.org/web/publications/pymes.pdf