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Challenges of enterprise development

by Sunday Express
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Robert Likhang

INTRODUCTION

LESOTHO’S economy is predominantly dependent on the public sector despite the government’s wish that the economy should be private sector-led.  SACU revenues, royalties and personal taxation, and donor funding still make the most revenue to the government, and the small private sector awaits government expenditure for creation of opportunities for its growth.

There are two areas for which we need to see growth, and that is corporate taxation which depicts private sector growth and increasing government capital expenditure which becomes stimulus for economic growth. At the same time, there is a need for radical enterprise development.

The government of Lesotho has established three institutions for enterprise development being Lesotho National Development Corporation (LNDC), Basotho Enterprise Development Corporation (BEDCO), and Lesotho Tourism Development Corporation (LTDC), and there are other programmes within the ministries that support enterprise development, and we recognise initiatives from the ministry responsible for Gender, Ministry of Agriculture and the Ministry of Finance especially their Partial Credit Guarantee Scheme. These efforts need to be regularly evaluated and monitored to ensure that they produce the desired value with cost.  However despite these initiatives, the private sector is either not growing or growing too slowly.  The Ministry responsible for Trade and Industry and to some extend the Ministry responsible for Small Business Development may help provide data as to failure/success rate and reasons for such failure so as to review the effectiveness of initiatives in place.  In my opinion, based on time spent in enterprise development either as CEO of BEDCO or a practicing Chartered Accountant and Business Advisor, I have realized that there are 4 main challenges for growth which are: Ecosystem, Markets, Funding, and Management. We will the first three and Management in later articles.

Ecosystem

Enterprise Ecosystem is a broad concept but covers issues of policies, peace, and people. The three are broad classification of issues within the ecosystem

Policies include setting up Government Policies that levels the playing fields and create incentives for foreign and domestic investment. Often times in developing countries, incentives for foreign investors far exceed those of local investors. It may be difficult to match the two, however equity can be reached by including in the foreign investor policies, conditions such as supply linkages, skills and technology transfers, subcontracting, outsourcing etc.  The Broad Based Black Economic Empowerment in South Africa that gives points to big companies for transactions with businesses belonging to previously disadvantaged people provides a learning point for adaptation for Foreign Investors – Domestic Small business incentive conditions. Increase in Government spending on local services, works and goods becomes a great incentive for domestic investment

It is not arguable that peace, security and stability becomes foundation for economic growth. Issues of national stability, crime and corruption should be high on the agendum to Government and the rest of political authorities such as traditional leadership and opposition parties. All conflicts should be addressed with urgency so as not to damage the economic stability.  Increases in budgets on the side of Police is a good indication to strengthen police force and combat crime.

The ecosystem is incomplete without people side, which includes development of people by means of appropriate education and training, development of appropriate production orientated culture, and development of human capital. Lesotho has over the years invested heavily on education and training which is not well focused, that is addressing the needs of the country sufficiently. The unfocussed education can be seen by the country producing insufficient artisans and too many engineers, lawyers and office workers etc. The private sector pays a lot of money to obtain artisans from South Africa while our own are not sufficiently developed, and it is common to find an unemployed university graduate. The current labour laws make it difficult to get rid of unproductive culture in the workplace, dismissing unproductive workers is a complicated task.

The Private sector organisations such as LCCI, PSF, and ALEB should be able to independently contribute towards development of policies, laws and regulations, as well on government and opposition activities or lack thereof to ensure that the ecosystem is conducive for private sector growth. I consciously say Private Sector growth and not economic growth as a sustainable economic growth is the one that is private sector led. Lesotho has taken steps in creating an investment prone environment with initiatives such as ONE-STOP SHOP at the Ministry of Trade and Industry as well as liberalizing some of the heavy requirements for doing business in Lesotho, however more still has to be done, and that includes reducing capital requirements for setting up schools, banks, insurance business etc. to enable local participation.

Markets

The single most important challenge in my view is the access to markets. I expected a much higher budget to the Department of Marketing under Ministry of Small Business development, as well as higher budget for Department of Standards under Ministry of Trade and Industry. Standards are critical to opening up markets. We need to set up laboratories, educate people about standards etc. if we are to reach domestic and foreign markets. When our products are market ready, market access is not a problem. Funding may not be a problem if we produce quality as buyers can be willing to pay in advance for the desired quality. Under a project between BEDCO, Ministry of Tourism and Private Sector Competitiveness & Enterprise Development (PSCED), buyers were willing to pay up to 50 percent of price before receiving the crafts.  LNDC and BEDCO have been organizing business people to attend market access events in South Africa and elsewhere, however the effectiveness of such needs to be evaluated.

While Government is trying to assist in areas of market readiness and access, the big bug still stops with the business people themselves. There is a declining service delivery around a number of businesses in Lesotho. You may recall sleeping in a hotel room with insufficient heating or cooling, or eating fried black egg, or being given a meals menu with half the items not available, or being in a over-speeding taxi, or being ignored by a receptionist, or ordering from a supplier and getting your goods two weeks later than the promised time etc. These common service delivery issues damage the market.

Funding

Funding problems are just too many. Funding products are insufficient, for instance leasing, venture capital etc. are not fully available. The existing products come at high cost (with interest rates, recently the CBL rate has gone higher), and risk adverse funding institutions provide impossible conditions such as high security including cash security. I still think we need to establish a development finance institution which will reduce the lending requirements and possibly even the cost. We could reduce budgets for other areas and start such a bank. There are over 40 development finance institutions in SADC and Lesotho has not even one.

Businesses however should still ensure that they come with bankable business plans, and should be able to pay experts to help them.  Proper business plans should cover growth strategies. The discipline to comply with Business Plans is mandatory.  The funding institutions may require Chartered Accountants to do project management, coaching and mentorship to ensure that beneficiaries of the loans comply with conditions of the loans and run businesses effectively.

Conclusion

The Bible says (Ecclesiastes 4:9-12) because they have a good return for their labour. If either falls down, the other can help…  Business people have to engage Chartered Accountants as business advisors, coaches, mentors as well as acting as their outsourced Finance Directors to grow. As stated above even loan givers should make it a mandatory condition that beneficiary businesses should engage Chartered Accountants. Development agencies such as BEDCO, LNDC, and LTDC should recognize the value of Chartered Accountants as their partners in enterprise development. I thank you for now.

Mr Likhang is the Principal Consultant at RL Associates Chartered Accountants & Business Coaches

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