CONSTRAINTS AND CHALLENGES OF SMALL AND MEDIUM ENTERPRISES (SMES’) IN SWAZILAND: A CASE ANALYSIS Author: Dr. Patricia Joubert (lecturer) Faculty of Commerce UNIVERSITY OF SWAZILAND P/B 4 Kwaluseni ,Swaziland –Southern Africa. e-mail: [email protected] Tel: 002686130493

ABSTRACT: Case studies are some of the useful methods for analysing practical issues of concern and for disseminating information in business. They can also be used in evaluating effectiveness of methods used in measurement criteria by citing practical cases of organisational practices, problems and concerns. An analysis of cases can be applied in any business establishment, including SMEs. Swaziland is a developing country and its economy is in part dependent on the SMEs’ sector. SMEs are an important base for economic development in developing countries. It has been argued that they are a seedbed for future development; they provide employment and to a great extent promote the standards of living of the rural communities. In Swaziland, most SMEs are indigenously owned. This is in part explained by shrinking inward investment, the amount of start-up capital required by this sector and other limitations in support structures for SMEs. The significance of SMEs in promoting development has led the researcher to develop a case study on some of the developments in this sector. There are significant gaps in literature and on scientific research conducted on developing countries’ contexts. Often these countries rely on literature and cases from developed countries that may be inappropriate for addressing developing countries’ problems. The problems discussed may hamper the SMEs development and adaptability in the globalised context and hence, hinder national development. These problems can be attributed to the developmental status of Swaziland. Concerns and need for research that is Afro-centric have been raised by different scholars and leaders in Africa. Validity of Afro-centric studies is dependent on usage of appropriate and more relevant techniques to the problems and challenges. In view of these gaps, the case study objectives are to: 1. Indicate the importance of case analysis in evaluating SMEs problems, 2. evaluate the nature of SMEs’ activities in Swaziland using case analysis, and 3. analyse their constraints and challenges in the globalised context.

Key words Case analysis method Ubuntu Small and medium enterprises(SMEs) Constraints Challenges Globalised context

The importance of case analysis in evaluating SMEs problems: A case study is useful in the analysis of SMEs because it can utilize information from multiple sources such as documentation, archival records, interviews, and observation (Yin, 1994). It has been argued and observed in Swaziland that studies on SMEs are limited and where available, may be inconclusive because of limitations in availability of data. SMEs do not keep up-to-date records, a factor that may hinder validity of studies in this area. To counteract the limitations, the case investigator has relied on interviews, observations, and on available documentations on SMEs. The investigator interviewed two hundred and sixty five SME’ owners in Swaziland, using a semi- structured questionnaire to gather insights on a variety of issues. These were randomly selected from the various regions in the country, using the scale of operation as a basis of selection. SMEs are mainly concentrated in the major city centers: Manzini and Mbabane. As a result, a substantial number came from these centers. The research results were substantiated by in-depth focus group interviews.

The Nature of SME’s in Swaziland: Intensified competition and the other associated global processes have been accompanied with shrinking-inward investment and divestment and/ or closure of foreign owned business corporations. Some of the businesses have moved to countries where perceived benefits are relatively greater (e.g. South Africa and Mocambique). These processes have also been accompanied with threatened job security as retrenchments and redundancies are rising. As a result of escalating unemployment level, the informal sector that mainly consists of SMEs has been utilised as an alternative means to survival. Thus, the country is witnessing growth in informal sector due to shrinking foreign inward investment and other economic problems. SMEs in Swaziland features mainly in transport, farming, marketing, manufacturing and distribution of hand – craft, micro financing, training and food processing. SMEs may vary according to the scale of development, number of employees and nature of ownership. For instance, in Swaziland a small-scale sector employs about 50 employees maximum (Gamedze, 1993), while in the US, they may employ more than that. SMEs are regarded as a worldwide cornerstone for economic development and may enhance the industrialisation process if the entrepreneurial mode is nurtured. However, there are numerous factors identified that hampers the entrepreneurial spirit. These include marketing, accounting, finance, limitations in training and development and other managerial constraints (Joubert and Akinnusi, 1993).

An attempt is made to counteract some of these problems by the government, nongovernmental institutions and financial institutions and other international organisations. They have assisted with training and development, finance and other support services that include marketing. The type of activities rendered includes retailing, watching and protective (security), transportation, construction, farming, domestic servants, manufacture and sale of handcrafts, and rendering of other services such as cleaning and catering. The Small Enterprise Development Corporation Ltd (SEDCO) which was established in 1970 through the assistance of the UNDP and the ILO has contributed to the promotion of small business development in Swaziland. This unit provides technical and financial assistance, premises, at a subsidised rate; facilitate purchase of equipment and other inputs, and sale of outputs (Maasdorp, 1973).In the recent years, SEDCO’s services to SMEs has included training and business counselling. Despite these initiatives, SMEs in Swaziland still encounter problems of developing business plans, managing their businesses and keeping records. Because of poor record-keeping and other limitations, the economic impact of SMEs in GDP may not be easily ascertained None-the-less, SMEs contributions economically and in terms of employment is invaluably significant. Research evidence has proved that SMEs have a significant role in a country’s economic development process (Carland et al., 1984; Joubert and Akinnusi, 1993; Trevisan, 1997). They can serve as a seedbed for big businesses, generate wealth, offer employment opportunities, and generate new business ideas and concepts and many other valuable uses. In view of their immense contributions, SME’s have to be consistently monitored to enhance further their contribution to the society. This may require consistent review of the business ideas generated for relevance and assessment of their potential to strive and/ or survive in the contemporary world. In this regard, entrepreneurship is an imperative. The Small Enterprise and Development (SME) unit under the Ministry of Enterprise and Employment is increasingly becoming involved in instilling entrepreneurship by rendering advice and training as well as soliciting funds internationally. It also facilitates building of effective networks to help promote their development and is responsible for formulating policies and legislation that governs the establishment and promotion of SMEs. The impact of the unit in instilling the entrepreneurship mode cannot be easily ascertained at the present moment because it is still in the process of implementing these different aspects. As a result, the SMEs’ policy has not been enacted.

SMEs Constrains and challenges Despite their major role in economic empowerment and development, SMEs encounter numerous constraints and challenges. For instance, the country does not have a policy governing their operation. Furthermore, they lack the necessary skills and competencies to enable them to effectively carry out the various SME activities, while there are various essential functional activities required for operating any type of business: accounting, legal, management, marketing, financing and international business management skills as illustrated in table 2. Big businesses rely on specialists’ knowledge which small businesses, usually, cannot afford. As a result, small business owners perform most of these functions. Doing all these activities may be an impediment to the growth and development of the business and may deter entrepreneurship in that SMEs may not have all the necessary competencies to carry out the wide range of activities. The

situation is expected to be worse in a globalised context, where most businesses have to internationalise their business corporations and have to deal with intensified competition. Other required managerial competencies include, decision-making skills, continuously generating new combinations of production systems, introduction of new goods and services, industrial reorganisation, finding new markets and sources of supply. Other researchers (e.g. Mill, 1848; Schupeter, 1934; Dunkelberg and Cooper, 1982) identified the following characteristics: risk bearing, innovation, initiative, need for achievement, internal locus of control, drive, self-confidence, goal-oriented, moderaterisk-taker, need for control, responsibility-seeker, need for growth, independence-oriented, craftsman-oriented (sic) and many others. Despite the numerous characteristics identified above, ‘it is practically impossible to provide a precise exposition of the qualities that are of crucial importance for being an entrepreneur and successful for entrepreneurship’ (Trevisan, 1997:181). For example, it is not clear as to which trait take precedence over the other and at what stage does each of these become paramount. The uncertainty could be linked to the complexity of understanding behaviour and the extent to which it changes as well as the relationships that may exist among them. Nonetheless, the most visible aspects of contemporary entrepreneurs is adaptability, profitability and growth of their businesses in a highly volatile and competitive business environment. Hence, the argument that they have to be innovative and strategic in their business practices (Carland et. al 1984). This has implications that different stakeholders have a role in the development of the entrepreneurial spirit. Suggested ways for entrepreneurial development include: innovation, creation of an enabling environment, research and development, possession of special leadership and other managerial qualities (Mushyoki 1997).

In Swaziland, it can be argued that SMEs lack a clear vision of their business. This problem is compounded by the problems of limited finance and other support structures to cater for their basic needs. Small Business entrepreneurs are mainly driven by the desire to maintain their livelihood in response to escalating unemployment in the country. Often, they emulate each others’ business ideas. As a result, most of them are engaged in similar activities. They lack one of the major components of small business entrepreneurship, creativity. Moreover, proceeds obtained in the business cater for their basic needs such as food, health and education for their families as illustrated in table 1.

Table 1: Usage of SMEs proceeds: PROFIT Maintain family save it invest in business pay loan miscellaneous none Total

Frequency

%

Valid %

84 6 38 1 131 5 265

31.7 2.3 14.3 .4 49.4 1.9 100. 0

31.7 2.3 14.3 .4 49.4 1.9 100.0

Cumulative % 31.7 34.0 48.3 48.7 98.1 100.0

Miscellaneous uses, mainly included maintenance of family, education, health and putting it back into the business for its sustenance and repayment of loans which were from family relatives and friends. Most of them barely used the bank because of the collateral problem. They were not considered credit worthy mainly because of the nature of their businesses. However, the situation is now improving; different banks do consider financing SMEs because

of the increasing significance of this sector. However, the case investigator did not ascertain from the banks measures used to finance them. In the past they tended to emphasise group loan schemes and relied on peer pressure for loan repayment. Recently, they have been extending their loan services to individuals, a factor that my promote SMEs development and their business expansion.Furthermore, Fincorp(a financing corporation in Swaziland) offers a wide range of financial services that can also be extended to individuals provided they furnish the corporation with a viable business plan and a business constitution. Despite the latter developments, difficulty in obtaining funding for the business is still regarded as a major operational problem.

Table 2: Operational problems of SMEs Nature of problem Percentage (%) Difficulty in obtaining funding for the business 74 High machinery and other input costs 63 Unavailability of inputs locally 55 Limited infrastructural support 49 Transportation problems 43 Limited knowledge on the source of advice/assistance when needed 42 Too many dependents 42 General management problems 40 Marketing problems 34 No suitable business premises 34 Domestic responsibilities 22 Licensing problems 21

The numerous operational problems encountered are likely to hinder their development, maintenance and business growth. As a result, a substantial amount of SMEs in Swaziland appears to be static, while others do not survive very long. This creates further challenges on how they can be upgraded to viable commercial entities that can fit in a highly competitive business environment. None-the-less, most of them were optimistic on the extent of success of their business as illustrated in table 3.

Table 3: An evaluation of the SMEs success in Swaziland

very successful successful breakeven not at all successful Total

Frequency

%

Valid %

15

5.7

5.7

Cumulat ive % 5.7

87 100

32.8 37.7

32.8 37.7

38.5 76.2

63

23.8

23.8

100.0

265

100.0

100.0

Generally, the SME owners perceived that their businesses were successful mainly because they manage to sustain them. However, this result should be treated with caution as their evaluation of success differ from most of the widely used measures of success such as

productivity level, profitability ratio, rate of return. They used sustenance of their businesses as a measure of their success and the ability to maintain their families. Most of them had been in business for over five years and were satisfied with the little source of income generated because it was perceived to help enormously in maintaining and educating their families. Family members in Swaziland, include extended families, who are also major employees in the small and medium enterprises. This is a result of ‘ubuntu’ or compassionate attitude of Africans towards each other as a way of maintaining close family ties and social interactions. Otherwise one may be ostracised from society or labelled for non-conformity with the prevailing African norms. Furthermore, there is a perception that an ‘anti-ubuntu’ attitude may perpetrate misfortune. Thus despite the performance status of their businesses, most (60%) of them were satisfied, because of the value of the contribution to the African family ties and to the quality of life. Their businesses also offered employment to family members, a sense of purpose in life, and limit potential societal problems of crime and political upheavals.

Table 4: Level of satisfaction derived by business owners in their business performance

highly satisfied satisfied fairly satisfied dissatisfied Total

Frequency

%

Valid %

17

6.4

6.4

Cumulative % 6.4

84 58

31.7 21.9

31.7 21.9

38.1 60.0

106 265

40.0 100.0

40.0 100.0

100.0

Despite the majority of SMEs’ satisfaction with their business performance, 40% of the respondents were dissatisfied with the status of their businesses. This problem was compounded by the operational problems that included managerial, marketing, finance, lack of clear policies, frustration with the procedures for acquiring licences and funding problems. There was the perception that the procedures used are cumbersome, delaying and at times not transparent. Major delays were encountered with opening of businesses in rural areas whereby they have to seek approval from the chiefs and the king as there is no title-deed land, but Swazi-nation land. Others expressed concern about the discriminatory practices between male and female entrepreneurs. Females often have to get consent from their spouses on most of the business aspects (e.g. obtaining loans from the banks) because of their minor status. If unmarried, they cannot have access to any land. However, with the ongoing reviews of Swaziland’s constitution, it is envisaged that the situation may improve. The processes of reviewing the Swaziland constitution and that of enacting SMEs’ policy are taking a relatively long time, and this may deter SMEs development and effective participation in the globalised business context.

CONCLUSIONS AND RECOMMENDATIONS. Critical issues such as commercial viability of SMEs in Swaziland transpired from the case results. Moreover, they appeared to rely on different measures for ascertaining their success. None-the-less the results revealed that SMEs have a significant role in Swaziland. Over an above the normal expectations, they enhance family ties, values and fulfil certain perceived expectations; and they enhance further the overall quality of life as they have a role in the education, health and livelihood of the society. However, they encounter insurmountable challenges and constraints that include emulating each other’s ideas, accessing funding, managerial problems, securing sources of supply, transportation problems, location, marketing, keeping records and lack of a supportive small business environment. SMEs record-keeping problems may hinder application of appropriate measures in the evaluation of their business success and in extending assistance to them. Thus despite, the perception of success expressed, this should be treated with caution because of the indicators used in ascertaining success. They relied on the ability to sustain their businesses, their livelihood and being able to meet other basic family-related needs. Validity of these measures has not been proven as these are unusual business performance indicators. As a result, future case studies may focus on the relevance and applicability of these measures in view of the scenario presented. This justifies the significance case investigations on the SMEs’ sector and the need to devise appropriate and relevant strategies to help them develop further. This process may also include a clear SME policy that will address the various problems raised by the respondents, and encouragement of business networks to strengthen relationships with other stakeholders to enhance the marketability and competitiveness of their businesses.

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