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ALLEVIATE SME INEQUALITY –SARFED

01/09/2021 08:24:00 BY ASHMOND NZIMA

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MBABANE- SARFED feels there is a higher level of poverty and inequality among Small and Medium-sized Enterprises (SMEs) in the country.

Southern African Research Foundation for Economic Development (SARFED) Regional Coordinator George Choongwa felt it was impossible to overlook the necessity for establishing a policy based framework that would address the need of social safety nets. “Through this mechanism, government will be able to redistribute income to the poorest and most vulnerable business societies, especially SMEs at grassroot level,” said Choongwa. SARFED shared that more than half of the micro business population in the country was characterised as survivalist. Chongwa said they were unbankable and they were not accumulating assets on of a low labour capacity. As a result, they lacked much innovativeness and competitiveness.

According to the Eswatini SME Diagnostic survey of 2018, only four per cent of low-impact SMEs, who were also characterised as being informal operated at grassroots level, accounted for 79 per cent of national economic activity. Research also indicates that Eswatini (MSME) sector is estimated to consist of about 59 000 business owners (close to 10 per cent of the population), employing approximately 93 000 people ( which was about 16 per cent of the total working-age population), at the same time catering for about 14 per cent of house income. Research also indicates that most of the MSME business owners are also bread winners of which about 74 per cent are based in rural areas.

According to Choongwa, through the establishment of an effective policy option, the financial sector would operate under cost-effective mechanisms which provide user friendly systems for sustainable micro financing for SMEs in the country. With the policy in place, SARFED said there would be a reduction in poverty and unemployment, especially among rural communities which also experienced the highest percentage of poverty trends. Another implication would be the establishment of resilient economic structures which would then be used as an incubation tool for developing sustainable and competitive businesses at both micro and macro levels. The foundation recommends the creation of fiscal space for micro business sector because lack of fiscal space and/or low domestic revenue mobilisation prevents safety net programmes and systems from reaching sufficient scale and coverage to become a meaningful tool for crisis response during the COVID-19 pandemic.

“It must be known that resource reallocation may be an option to boost financing for a targeted safety net policy programme among SMEs in Eswatini as other countries such as Mozambique, Bangladesh, and Benin, experienced profitable outcomes as observed by the World Bank (2017) as they supported small businesses financially against external shocks such asclimate change shocks, civil unrest, and COVID-19 pandemic through provision of contingency funds, contingent credit lines, disaster insurance, and index-based triggers,” said SARFED.

Government of Eswatini, according to SARFED, must therefore seek means of expanding its support for an ‘adaptive social protection’ approach to build both businesses at grassroots level and household resilience as means to enhance the shock responsiveness of safety nets and social protection delivery systems both during and post the COVID-19 pandemic. “The introduction of social safety nets for the SMEs at grassroots level would not only serve as a cushion against economic shocks exerted by the COVID-19 pandemic’s uncertainty, but will also contribute towards sustainable human capital development through job creation, reduction of social inequalities, and promotion of micro industrial development in both urban and rural communities in Eswatini,” he said.