who ran a manufacturing company
offering marula products with export
potential. We offered him a training
seminar on standards and certification
of products. The training was 10 days.
Surprised by the duration of training, he
told me ''You think that I can leave my
business all this time, when I have to be in
the workshop permanently to follow the
production, and to go after customers who
are late in paying".
In the final analysis, I understood that the
major challenge for them was the question
of financing. It is this experience that led
me to consider the importance of SME
financing first, and to reflect on a facility
combining loans with technical assistance,
exclusively geared towards coaching the
manager and senior staff.
SMEs Financing Is At The
Heart Of The Problem
Managers are seriously concerned about
the long-term impacts of Covid-19
and worry about the survival of their
businesses. Presently, the most important
issue faced by SMEs in Africa is the
lack of cash reserves and cash flow to
survive in the next couple of months. This
affects the operations and distribution
of their products seriously. However, the
question of cash flow is not new because
the condition existed before Covid-19.
The current crisis amplifies an ongoing
problem experienced by SMEs regularly,
and weakens them even more. To a
large extent, this explains why so many
businesses are closing.
Companies that will survive through the
crisis will be those taking advantages
of Government financial package for
shifting their business model towards
innovative products and niche markets.
Strong support needs to be provided to
companies which have implemented good
practices in financial management and
institute measures to reduce operating
costs, while maintaining core staff.
Complementary actions that could be
undertaken by companies include, among
others, selling some fixed assets in order
to generate cash, reducing customer
payment terms and negotiating with
the concerned creditors for deferral of
some expenses (rent, utilities, taxes…).
This needs to be supported by innovative
and aggressive marketing campaigns for
securing existing and additional clients.
African states that ultimately succeed in
building dynamic private sectors will be
those that can maintain the measures currently
offered to SMEs within the framework
of Covid-19. This would build a network of
SMEs able to focus on their operations and
on value chain development.
Ultimately, the company should be able
to develop a credible business plan that
indicates a clear vision and a roadmap for
dealing with the crisis. It is under these
conditions that capital could be released
in the form of Government grant/subsidy
combined with short-term loan (s)
from the banks, backed by Government
guarantee.
Emergency Responses To
SMEs Financing
The countries that have reacted most
effectively to the Covid-19 crisis are
those that have understood the real
needs of businesses and have responded
by putting in place emergency action
plans, that include injection of funds and
other incentives such as tax deferral. The
IMF has confirmed that the majority of
sub-Sahara countries took actions for
limiting the economic and social impact
of Covid-19. Key policy responses were
provided at fiscal, monetary and financial
levels.
The objective of this article is not to compare
the measures taken by all countries. I
will introduce the case of Botswana as it
appears to be one of the countries which
went furthest in developing measures
aimed at providing support to SMEs.
More specifically, Botswana put in place
a partnership arrangement with national
finance institutions to share the financial
risks of the businesses and called for
innovative solutions in response to
Covid-19. These measures are expected to
decrease the financial stress on companies,
thus allowing them to refocus on their
operations.
On April 2, 2020, the Government of
Botswana responded to the crisis by
establishing a Pandemic Relief Fund of P 2
billion (approximately Euro 152 million),
most of which intended to consolidate
the activities of businesses as well as
provision of working capital. Additional
contribution towards this fund came from
commercial banks and Corporates such as
Debswana. The fund has five mains goals:
Support to workers: A wage subsidy
is provided for citizen employees from
April to June 2020. It covers 50% of
salaries/wages of affected companies. This
operation is managed by the Botswana
Unified Revenue Services (BURS) which
developed the ‘’wage subsidy guidelines’’,
which informs potential applicants about
the eligibility criteria and the documents
to be submitted in order to benefit from
the subsidy. A team dedicated to managing
this process and to guide the applicants
who need clarification for preparing
their application has been put in place.
Parastatal organisations and companies
working directly with Government are
excluded for transparency reasons.
Financial support for businesses for
consolidating their activities: A loan
guarantee financed by Government (80%)
and commercial banks (20%) has been
put in place. The guarantee covers up to
a maximum amount of Pula 25 million
(approximately Euro 1, 9 million) per
company and has a 24 months duration.
The leading agency managing this action
is the Botswana Export Credit Insurance
(BECI). In addition, companies could
benefit from tax deferral of up to 75%
for a period of two quarters starting from
March 2020 and ending March 2021.
Finally, Government reduced the duration
of Value Added Tax (VAT) refunds to 21
days instead of 60 days and eliminated
training levy to be paid by companies for
6 months. Within the framework of the
diversification of the economy, priority is
put on companies active in horticulture,
livestock and dairy value chains and
supplying the local market.
Partnering with financial institutions:
Appropriate measures were taken for
reducing bank interest rates, providing
cash-flow relief and loan repayment
holidays of three months without penalty,
and for encouraging banks to provide
additional loans to businesses in financial
destress in light of the government
guarantee. The National Development
Bank (NDB) is the lead institution in the
implementation of these measures.
The Citizen Empowerment Development
Agency (CEDA) which specializes in
SMEs financing is another focal point.
This Development Finance Institution
provides short-term financing including
working capital and restructured loans to
its clients. It is waiving interest payments
for 12 months. The objective is to allow
companies to continue their operational
activities without the burden of funding.
CEDA has provided very comprehensive
documents and guidelines to its clients
for benefitting from this facility.
Ease of doing business: The Government
has committed to paying purchase orders
within 5 days and to pay outstanding
invoices in 2 weeks. Parastatals
companies are instructed to pay purchase
orders within 24 hours. The procurement
processes have been simplified. SMEs are
encouraged to use digital methods for
payment of their expenses. The net impact
of these measures is to increase liquidity
in the economy.
Call for innovative solutions: The
Botswana Innovation Hub (BIH)
launched a call for interest for solution
to address Covid-19 challenges. Eligible
applicants are SMEs, youth entrepreneurs,
App developers, traditional knowledge
holders and NGOs. The solutions to be
proposed by the applicants are to cover
the following: Healthcare systems using
digital method (e.g. health surveillance,
tracing, model test kits accreditation);
Public services delivery (e.g. digital
education, e-government systems)
Transport (e.g. payment, tracking);
Logistics and value chains (e.g. food,
fresh produce…). It is interesting to note
that Botswana and many other African
countries are now encouraging businesses
in healthcare and logistics sectors, which
are usually operated by foreign investors.
In summary, Botswana is offering this
comprehensive package to contain the
negative impact of Covid-19, thereby
avoiding massive business closure. By
reducing financial obligations (tax,
credit) and salary costs, the Government
aims to allow companies to preserve
their cash flow in order to sustain their
business activities. But it is only in a few
months that we will appreciate if the
measures taken will have been effectively
implemented and have had a positive
impact for SMEs.
National VS Regional Value
Chains
The SMEs which will benefit from
this Governments assistance must be
integrated into a value chain which offers
them the opportunity to expand their
businesses. The burning question is: What
type of value chain? National or regional?
The current crisis compels African
countries to refocus on the development
of national value chains, by prioritizing
short circuits, with less intermediaries
bringing the producers closer to the
clients. ‘’Agrocenta’’ a company in
Ghana has successfully connected small
scale farmers to large buyers effectively
bypassing middlemen and brokers and
creating a system that provides the
small-scale farmers with access to much
needed financial services through access
to microloans and insurance for crop
protection. An innovative supply chain
management platform named ‘’Twiga
Foods’’ company in Kenya guarantees
market for farmers by aggregating orders
from vendors made via mobile phones
in urban centres which drives sourcing
of produce from farmers in rural areas.
Their distribution chain is supported by a
network of collection centres and logistics
providers who collect produce and deliver
to vendors. These national platforms have
utilized successful models that could be
up-scaled regionally.
In other words, the growth of SMEs will
determine their integration into regional
value chains. This is why it is important
to strengthen the national value chains
taking in consideration the experiences,
lessons learned, and best practices
implemented in business development,
investment promotion and trade.
The continent is full of success stories
in the field of entrepreneurship and
has seen the birth of many business
leaders, some of who are playing the
role of mentors of SMEs and start-ups.
Due to their network, business leaders
from each country could be seen as the
driver of the value chain development. In
addition, Tech-Labs, Innovation Centres,
accelerators supporting women and youth
entrepreneurship could contribute actively
to the emergence of innovative projects
meeting the needs of the population.
Governments and Development Finance
Institutions (DFIs) and commercial banks
need to sustain their alliances established
during this pandemic and continue to
support SMEs for at least 3 years, allowing
them to regain their competitiveness,
increase their investment and play a greater
role in the value chains. Specific attention
should be paid by this alliance to existing
and new businesses using innovative
solutions, respecting the environment,
generating employment and ensuring
social protection. Business Development
Organisations could also play a key role in
this alliance by providing efficient support
and services to businesses, particularly in
search of market niches.
African states able to build a dynamic
private sector are those that can maintain
measures offered to SMEs within the
framework of Covid-19. It’s therefore
important to concurrently work on
post-covid strategies in order to sustain
businesses that would have survived at the
crisis.
In conclusion, I posit that a partnership
between Governments of African
countries, financial institutions and the
private sector, supported by Business
Development Organizations and
technical support institutions (Tech-
Labs, innovations centers, accelerators..)
is the way to go in order to sustain socioeconomic
development architecture. This
has always been the mantra of African
businesses, which has for long been largely
ignored by decision-makers. Covid-19 is
teaching us that it is now time to listen
to and respond to the needs of these
businesses.
Sid Boubekeur is an economist with
30 years practice in leading trade
and private sector programmes in
Africa funded by international
agencies with strong focus on value
chains development. Views and
opinions expressed here-in are solely
his and don’t necessarily reflect
those from organizations he worked
with. You can engage him via email
on: Sid.Boubekeur3@gmail.com.
58
MAL36/20 ISSUE