One of the most impressive conceptions that we as a nation have had the blessing and opportunity to experience last year and so far this year is the immense pledging to support our emerging market, SMMEs.
We cannot, therefore, underemphasise the government’s influential frontstepping in its vibrant economic zones initiative. We have also seen numerous organisations follow suit in this SMME empowerment movement by reserving a chunk of their procurement budgets for local SMME suppliers.
One of these organisations is Morupule Coal Mine (MCM) that recently launched its Morupule Coal Mine Citizens Suppliers initiative, thus joining hands with financial services sector to unlock access to funding and capital for the mine’s citizen suppliers with a rumoured P3.05 billon pledge by commercial banks and other financing institutions.
In addition to this partnership, MCM also partnered with the Botswana Chambers of Mines to drive import substitution through promotion of local manufacturing on a supplier development capacity basis. From a commercial stance, initiatives like these do enhance activity. We get to see local businesses taking the opportunity of guaranteed supply gaps vacant for import substitution. The nation gets to enjoy a more diversified economy and possibly “sustainable employment” creation as a by-product.
However, one may ask, do these initiatives cater for the opportunity for local SMMEs to solve problems (i.e. innovation) or this is just a “fill in the needs gap” created by foreign supplier? Do SMME have the much-needed guaranteed access to finance to work on innovative projects or the guaranteed access to finance is just from a supplier end?
This speaks to our most recent rustic conversation of Support versus Platform. Do we need to support SMMEs or we just need to provide a platform for SMMEs? Let us consider the possible drawback of supporting SMMEs in this way. The first one would be the possible barriers of entry. I suppose for an SMME to be part of such initiatives, they would have to be compliant with set terms and conditions that may be too string for the average SMME to meet within the stipulated time.
In my experience, a company that reserves a chunk of its procurement budget for local suppliers usually employs a database system that captures the particulars of “qualifying” suppliers and then locks all new entries for at least a longer period. This means a diverse supplier configuration could be compromised as a conglomerate could meet the requirements and take advantage of the gaps created by non-compliant small businesses. This would mean that for the next fiscal period, money could circulate around the same companies and therefore the nation failing to realise the “diversification” that it so much desires.
Another drawback is much more inclined to sustainable development. Most the organisations that pledge to reserve their procurement budgets for local suppliers are exposed to geopolitical risks – that is, the wide array of risks associated with any sort of conflict or tension between states. This then percolates down to the local suppliers that duly depend on these organisations’ procurement budgets for commercial sense.
If we were to consider our government’s sources of revenues, we can see that the government’s dependency on the global economy leaves SMMEs vulnerable to these risks as well. For example, the government has pledged to procure 30 percent of goods produced by SMMEs within the SPEDU region. These businesses are therefore set up in a way that keeps in mind “guaranteed” supply to the government. So the question would be what happens if the government’s revenue declines and it cannot maintain the 30 percent procurement policy with all these entities set up to depend on government procurement?
Keep in mind the IMF projections that the UK economy is bound for a decline in 2023. From the private sector point of view, the uncertainty associated with geopolitical risks clearly leads to less private sector investment in other areas of operation.
In conclusion, Sedibana pele ga se ikanngwe. We may be creating commercially sensible SMME initiatives to enhance economic activity. However, we need not to commercially stereotype SMMEs as “ fill in the gap” props that can only be used as substitutes. We should also grant SMMEs an opportunity to invent and innovate, which can help the nation avoid an excessive focus on foreign markets, thus investing in retention and sustainability and potentially limiting dependency.
Otherwise, “The well ahead is not reliable (Sedibana pele ga se ikanngwe)” when it comes to just reserving a procurement budget for SMMEs.
Bame Lesego Boitshoko ACMA, CGMA