The need for a vibrant SME sector
A wide range of products were on display at the function hall of Mt. Zwegabin Hotel in Hpa-an, Kayin State last September 3. The Institute for Small and Medium Enterprise Development (ISMED) of the Thailand Ministry of Industry organized the Border Trade Road Show to promote products from small
and medium enterprises (SME). The exhib- it featured food and beverages, textile and clothing, souvenir items, furniture and oth- er products made in Thailand. On the Myanmar side, products on display included raw agricultural products like rubber, beans and grains, and handicrafts, with the traditional Kayin dress as the bestseller.
The Thais are dynamic in promoting their products, organizing three border trade ex- hibits for the year – two in Myanmar (Maw- lamyine in Mon State and Hpa-an, Kayin State) and one in Thailand at Mae Sot in Tak province. Consistent promotions contributed to the increase in trade between the two countries totalling $349 million for the first
five months of the year, $259 million of the amount represent Myanmar’s import from Thailand. The difference can be explained by the sophistication of products from Thailand and the raw agricultural products from Myanmar which brings us to the subject of the need for more support to improve products from Myanmar entrepreneurs.
It is estimated that the SMEs make up more than 90% of the total business entities in the country. The Directorate of Investment and Company Administration (DICA) placed the number of registered companies since 1988 at 71,000, with the unregistered enterprises estimated to be within the same number. The inherent instability of informal enterprises and even most registered SMEs, make it risky for financial service providers. Small enterprises play a vital role in the economic development of a country, creat- ing employment and income opportunities for other people, thus contributing to lower poverty rate.
However, the increase in the number of small, informal and unregistered enter- prises is a growing concern because they are beyond supervision and support. They cannot avail of services from financial institutions, trade facilitation agencies and capacity-building activities provided by the government and business development agencies, all of which are necessary for stability and growth. Without support, informal enterprises would either die a natural death or be knocked out by bigger and more efficient enterprises. With consistent sup- port, these same enterprises can grow to become large enterprises or conglomerates. It is in this context that the government should be serious in making existing SMEs strong and develop start-up enterprises. SMEs and large enterprises complement each other.
The country’s development strategy is an- chored on large industries in special eco- nomic zones (SEZ), supported by industries along three growth corridors: Yangon-Ka- yin corridor, Mandalay-Muse corridor and Mandalay to India corridor. The corridors reflect the approach to maximize rela- tionships with bigger and more developed neighbours Thailand, China and India. This strategy is biased towards large enterprises but depends also on foreign investment. Developing SME should not be viewed as competition to or at the expense of large enterprises. SMEs primarily address the needs of domestic consumers, but it can also be developed as part of the supply chain for large enterprises providing intermediate products and services. The government’s efforts to develop special economic zones should also be matched with support for the development and strengthening of SMEs. Institutional support for upgrading At present, a big number of enterprises are micro-enterprises, a notch lower than the regular SME. Most of these microenterprises started as family businesses and will continue to be small and informal without institutional support. What is needed is to move from informal to more formal opera- tionsandtomaketheenterprisesmoreeffi- cient and profitable.
Government can help by streamlining regis- tration and licensing process and improving or installing business management. This means setting up of a legal personality for the enterprise distinct from that of its owners. The distinct legal personality will enable the enterprise to link with formal financial institutions to develop its track record and sustained financial access. Formulation of tax policies that facilitate easy payments in- stead of burdening the entrepreneurs will be a boon for the government as it will widen its tax base.
Another area where government help is needed is product development. A research and development initiative for product improvement, packaging and improving quality standards is a must to make world-class products. This can also be augmented by vocational technical training programs to enhance the skills of people working with SMEs. Out of these efforts we can expect world-class products and services.
For the more advanced enterprises, support should be forward looking actions specifically developing new businesses and sup- port for export and overseas operations. Promotion and marketing activities at the local and overseas markets are activities that could be done at regular intervals. The ASEAN Economic Community (AEC) cre- ated an opportunity for SMEs to promote business ventures outside the country. Towards a more accessible finance Access to capital is crucial. Current laws and policies does not favour enterprises because of stringent polices which includes 5 years ownership for the real estate used as collateral, tax payment for the past 3 years and the cumbersome licensing process. The restrictive policies push SMEs to deal with informal sectors with higher interest rates but who provide capital or bridge financing to manage cashflow when it is needed.
For the record, the government allocated 20 billion Kyats for lending to SMEs but only 40% has been released to date, no thanks to the restrictive lending policies. The new Microfinance Law may be boon to microenterprises, but the amount that an individual borrower can avail is also limited especially for expanding enterprises. Pawnshops like microfinance institutions can only provide limited amount, not enough for bigger and medium-term needs.
Development finance agencies are promot- ing guarantee funds and other facilities that will make it easier for SMEs to access funds from alternative sources. Finding other ways and means to make more funds flow to the SMEs is a priority and the government should take a lead in it.
Infrastructure development contributes to SME development
Good transportation infrastructure sup- ports the smooth movement of goods in the domestic market and across borders. Government priority in constructing roads should include areas other than the three main growth corridors but also in selected key areas to promote SME development. This is where government borrowings can be put to good use. With more liberal funds from international lenders like Asian Development Bank (ABD), World Bank (WB) and the recently formed, Chinese-led Asian Infrastructure Investment Bank (AIIB), upgrading the transportation infrastructure is an investment that will have great impact in the development of rural enterprises.
A mix of various forms of transportation like marine ports, airports and railways in strategic areas of the country will ensure that other than the three growth corridors, the rest of the country will be connected commercially.
Opportunities and survival will always be the motivating factor for entrepreneurs to set-up businesses. Upgrading and growth however, will need a little push from the government and business development promoters. In Myanmar, the issues and challenges faced by the SME sector can be addressed. It is but a matter of changing mindset and setting the right priorities.
