Focus on SMEs for economic growth (Learn from Germany)

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Focus on SMEs for economic growth (Learn from Germany)
« on: November 24, 2020, 01:49:58 PM »
The small and medium enterprises (SMEs) should be considered as the driver of the economy like Germany has done as they add 22 per cent to the country's gross domestic product, a study suggests. More than 98 per cent of the enterprises are SMEs in Bangladesh. Over 84 per cent of rural non-farm employments were generated through cottage and micro enterprises, according to the study titled "Development of SMEs in Bangladesh: lessons from German experiences".

The SME Foundation and the Embassy of Germany conducted the study and released its findings through a virtual programme yesterday.

MA Baqui Khalily, a professor of the business administration department of the University of Asia Pacific and the team leader of the study, made a presentation on the study. The contribution of various categories of SMEs together is between 80 and 85 per cent of industrial employment and around 25 per cent of total employment, according to the study.

In Bangladesh, small enterprises contribute only a little over 3 per cent and SMEs together around 22 per cent to GDP, Khalily said.
In Bangladesh, manufacturing enterprises with employees between 16 and 30 are termed as micro while the ones with employees between 31 and 120 are classified as small enterprises. The medium enterprises constitute employees between 121 and 300 under the new National Industrial Policy 2016.

Despite the policy changes, development and growth of SMEs in Bangladesh is subject to some serious constraints.
He said limited or inadequate access to finance is still the number one constraint. "It is largely due to terms and conditions of loan contracts." It is followed by the second most important problem of the dearth of skilled workers, he said. Apprenticeship is not largely practised because of the perceived cost associated with high mobility of these skilled workers.

They also suffer from asymmetric information on markets and products because of the lack of effective social networking.
He said the development of SMEs in Germany is globally ranked second in terms of contribution to employment and value addition.
Most of the enterprises in Germany are SMEs. It is driven more by micro-enterprises that contribute to around 82 per cent of all employees and around 17 per cent to value addition. Micro and small enterprises together contribute to 96.5 per cent of all enterprise employees and around 35 per cent in value addition, the study said. SMEs are the main source of employment, accounting for about 70 per cent of all employment and are major contributors (50-60 per cent) to value addition.

In Germany, 99.4 per cent of the enterprises are micro, small and medium enterprises. It accounts for 63 per cent of all employment and contributes to over 54 per cent to value addition.

In emerging economies, SMEs contribute up to 45 per cent of total employment and 33 per cent of GDP.
According to the study, the development of SMEs in Germany has been guided by a set of principles -- think small first, take entrepreneurship as an attractive career choice, give a second chance to honest and bankrupt enterprises.
The principles also include establishing responsive administration to quickly respond to the needs of SMEs, give access to finance with different venture capital funds for young technical firms, young innovative enterprises, and growth firms and go for skills development, efficiency and innovation.

According to the study, micro and SME sector in Bangladesh needs to be nourished through different policy supports and action plan.
It recommended SMEs should not be left alone without being properly developed, and they should be classified not only by employment size but also by growth potential with different technology. Different policies should be taken for the development of different types of SMEs, it said. Different venture capital fund should be introduced for young firms like high tech firms, innovative firms and growth firms, it also suggests.

The study also stressed the need for the presence of supportive financial institutions for financing different types of SMEs and making an investment in research and development for technological development, innovation and efficiency. Strong technical education and apprenticeship system should also be there, according to the study.

The SME sector is promoting the development of Bangladesh and creating employment opportunities, Gowher Rizvi, international relation affairs adviser to the prime minister, said while addressing the launch of the report. Bangladesh needs to learn about how Germany became successful and worked to ensure economic development through SMEs, he noted. However, he said SMEs get the opportunity to supply raw materials to large industries.

Peter Fahrenholtz, ambassador of Germany to Bangladesh, said the SME sector contributes around 60 per cent to the German economy and overall 40 per cent of the annual turnover of the industrial sector comes from SMEs. He said 86 per cent of SMEs are vocational-based and they manufacture the world's best quality products. The entrepreneurs will be benefited if a collaborative effort can be taken to make the most use of Germany's know-how on SMEs, the ambassador believes.

Bangladesh should upgrade its business environment and conditions for investment to attract German entrepreneurs, he said.
The SME sector has been contributing to the positive growth of the economy, and they even helped the economy to recover after the Covid-19 outbreak, said Md Moshsaraf Hossain Bhuiyan, ambassador of Bangladesh to Germany.

In Bangladesh, there is no defaulter in the SME sector while the opposite scene is seen in case of big industrialists, he said.
"For employment and development of the country, this sector is very important," he said. He suggested providing them with technical training. Professor Masudur Rahman, chairman of SME Foundation, said they are facilitating technology adaptation through providing technical support and skills training to the SME sector.

He believes German experience will help in the development of micro and small enterprises in Bangladesh. Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, alleged that the policymaker and even the government do not think that the SMEs are the growth engine of the economy, which is the major barrier to develop the SME sector in Bangladesh. He also said most of the market is captured by the large-scale manufacturers in Bangladesh and they supply all products. He stressed the need for a strategy to change the SME sector in terms of value chain perspective.

There is a scope to introduce the experience of German SMEs in Bangladesh, he said.  Among others, Md Shafiqul Islam, managing director of SME Foundation, also spoke at the event.

Source- Daily Star
Md. Rokanuzzaman Roman
Assistant Registrar &
SA to Honorable Chairman, BoT
Daffodil International University