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WEDF 2014 session report: Plenary 1 - Unlocking SME competitiveness for diversification

  • Plenary one

    Speakers

    • Hon. François Kanimba, Minister of Trade and Industry, Rwanda
    • Hon. Fatima Haram Acyl, Commissioner for Trade and Industry, African Union
    • Ambassador Vidya Bhushan Soni,  Chairman, Overseas Infrastructure Alliance (India) and Senior Member, Confederation of Indian Industry (CII)
    • Ms. Anabel González, Senior Director, Global Practice on Trade and Competitiveness, World Bank
    • Mr. Ashish Thakkar, Founder, Mara Group and Mara Foundation
    • Ms. Helen Hai, CEO, Made in Africa Initiative
    • Moderator: Mr. Peter Ndoro, Presenter, South African Broadcasting Network

    Overview

    SMEs in developing countries and economies in transition play an increasingly important role in international trade, thereby providing much needed employment and entrepreneurial opportunities.

    This session set the scene for WEDF 2014 by focusing on strategies and initiatives to unlock the international competitiveness of SMEs and to strengthen their ability to link up to international markets on a sustainable basis.

    Highlights

    Minister Kanimba pointed out that Rwanda’s SME base has grown widely as a result of the creation of a conducive business environment and increased access to capital.

    Minister Kanimba said: “Through embracing ICT the Rwanda Development Board (RDB), has managed to increase its support to SMEs by providing a range of efficient ICT-based services. A computerised online system enables businesses to register in about six hours regardless of where they are.” 

    He added that many SMEs had moved to become formal enterprises as a result of this improvement. The impact of this e-registration system for enterprises has been a 30% increase on an annual basis of businesses registered in the last six years.

    Land registration has also been computerized and linked with business registration. Tax returns can now be filed online and taxes paid electronically, including via mobile phones.

    Minister Kanimba highlighted that while there had been improvements, there is still more work to be done in assisting SMEs’ trade across borders. Rwanda is moving towards a single electronic window for customs clearance procedures, and it is now possible to arrange for customs clearance online. Transit issues have also been addressed, thanks to a dialogue at the highest political level among neighbouring countries, and as a consequence the transport time for a container from Rwanda to reach the port in Mombasa, Kenya has been reduced from 22 days to 6 days.

    Minister Kanimba pointed to the consistent export growth in Rwanda over the last five to six years, primarily thanks to diversification. “Today commodities constitute less than 50% of our exports compared to 70% a few years ago.”

    Commissioner Acyl pointed out that high production and transaction costs mean that only 11.5% of exports from African countries go to other African markets. “Non-tariff barriers are a major challenge for trade among African countries. When countries have different technical standards, it creates a substantial barrier to doing business,” she said. Lack of sufficient access to information on markets is another constraint hampering trade, particularly for SMEs, she added. 

    The African Union has a strong focus on creating a common market in Africa through enhanced regional integration and focusing on value addition. Commissioner Acyl pointed out that while there were various plans and strategies, there was less action in relation to regional integration. “We don’t lack frameworks and strategies, we lack implementation,” she said. The commissioner also emphasised the need for enterpreneurship training. “It’s important to give skills to youth so that they can do business in Africa and make them stay in Africa.”

    Ambassador Soni highlighted the importance of ICT for India’s economic development. “India took a jump from colonial production structures to a service-based economy, thanks to ICT,” he said. 

    The Indian government is focusing on giving SMEs opportunities to become suppliers within manufacturing industries. This, however, requires changes in the way value chains operate. “A structural issue is the presence of a large group of middlemen securing substantial profits for themselves, to the detriment of the supplying SMEs and to the customers who pay high prices.”

    Ambassador Soni pointed out that the Confederation of Indian Industry (CII) plays a key role in training and capacitating SMEs. “Common shortcomings of SMEs are design, lack of access to inputs and marketing, as well as packaging and supply logistics.”

    Ambassador Soni pointed to the Indian Technical & Economic Cooperation Programme (ITEC), offered by the Ministry of External Affairs. Under ITEC and its sister programme SCAAP (Special Commonwealth African Assistance Programme), 161 countries in Asia, Africa, Eastern Europe, Latin America, the Caribbean and the Pacific are invited to share in India's development experience and learn from the competence of India as a provider of technical know-how. ITEC offers training to foreign students within a range of areas including business development. Ambassador Soni extended an invitation to African countries to encourage entrepreneurs to apply for this free training.

    Director González described the work of the World Bank Group to help improve conditions for SME competiveness and their integration into the global economy. “The World Bank’s focus is on developing dynamic and resilient economies. It is important to support SMEs with a sound business environment allowing them to reduce transaction costs.”

    In Africa there is good potential but also hurdles and structural challenges hampering SME competitiveness and internationalisation, she said, adding that the issues and hurdles facing SMEs competing in domestic and international markets are well-known. They have limited labor and management skills. They have limited access to finance and infrastructure and face information asymmetries. They disproportionately confront regulatory barriers such as weak property rights, competition policy constraints and red tape, and are not well equipped to comply with internationally recognized standards, including quality standards and delivery times. They face high trade costs and trade barriers. As a consequence of these challenges, half of new exporters in Africa go out of business within the first year of operations. 

    Director González emphasized that export promotion agencies can make a tangible difference for SMEs. “World Bank studies show that for every dollar invested in such agencies there can be up to a 100-dollar return on  nvestment in terms of increased exports.”

    Director González highlighted that large corporations offer opportunities for SMEs to export indirectly by supplying to domestic subsidiaries of these companies. “It is important for international institutions such as ITC and the World Bank to assist SMEs in increasing their competitiveness and link them to large exporting corporations and to cope with the related standards requirements.”

    Mr. Thakkar emphasised that the focus on assistance to young entrepreneurs and SMEs should be to “enable, empower and inspire.” Mr. Thakkar pointed out that assistance to African entrepreneurs is particularly important. “Young African entrepreneurs don’t often have role models and mentors in their local environment or in their families, their parents typically having had other careers as civil servants or having been farmers.” 

    This makes it important to not only create mentorship programmes but also platforms for peer-to-peer dialogue among entrepreneurs. Mr. Thakkar introduced a new initiative of the Mara Foundation, Mara Mentor, an African multi-lingual online portal and mobile application for youth mentorship and entrepreneurship. It links African startup entrepreneurs with successful and established African business leaders for advice and mentorship. MaraMentor is designed to enable entrepreneurs to build their networks and access the guidance that they need at the early stages of their business development.

    Mr. Thakkar emphasised that it is critical for African governments to address the issues faced by entrepreneurs and SMEs. The policies towards SMEs cannot be the same as for big mining companies.  
    Mr. Thakkar highlighted the potential of the many good ideas and innovations that are being developed by African entrepreneurs.

    Ms. Hai pointed out that all countries have some comparative advantage. Many African countries, like Ethiopia, have cost advantages with monthly salaries at only 10% of salaries in China. Therefore, in spite of higher transaction costs related to transport and exports, there is still a huge cost advantage to producing in Africa. 

    Ms. Hai explained that she had come to Ethiopia in 2011 to set up a shoe factory. In the following six months Ethiopia doubled its export revenues in the shoe sector. During the first 12 months 2,000 local employees were hired and after two years the factory employed 4,000 staff. Ms. Hai emphasised that “Africa can become the next manufacturing hub for global markets.” 

    Ms. Hai is now involved with The Made in Africa Initiative. The initiative assists African countries in attracting companies in light manufacturing from China and other emerging market economies looking to relocate. 
    “By capturing this opportunity, Africa will achieve sustainable, dynamic and inclusive growth. What Africa needs now is success stories to provide the aspiration, confidence and experience for realizing its potential for industrialization and shared prosperity. The Made in Africa Initiative hopes to create such successes in African countries.” 

    Ms. Mai expressed that “It is my hope that we will see young people in Africa benefit from the changes underway in the next 20 years.”

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