The Process of SME Policy Formulation in Lesotho
Pule Nthejane

• Introduction
• Existing SME Situation
• Problems of the SME Sector
• Enabling Environment for SMEs

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The Process of SME Policy Formulation in Lesotho
Pule Nthejane

Introduction

This paper is an attempt to explain the reasons, needs and driving forces leading the small, micro and medium enterprise policy process in Lesotho.

Notwithstanding recent impressive developments in parts of the macro-economy, Lesotho continues to be dogged by worsening unemployment, prevalent poverty, and high failure rate of the small and micro enterprises. Thus, of primary concern for Lesotho are the development objectives of a sound industrial and commercial base for sustainable growth, employment creation, and poverty alleviation. It has come to the notice of government and its support institutions (Basotho Enterprises Development Corporation, Lesotho National Development Corporation etc.,) that properly assisted SMEs have the potential to address the above-mentioned problems.

Existing SME Situation

It is projected that Lesotho has over 125,000 SMEs providing employment for approximately 200,000 operators/workers. About three quarters of the SMEs are headed by women, and are concentrated in straw work, garments, services, brewing, vending and retail/wholesale

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activities. Most of these enterprises are owner-operated and employ one or two people.

Problems of the SME Sector

Many micro-entrepreneurs may wish to improve and expand their operations. However, they are constrained by limited resources, limited skills, market access limitations, and related risk factors.

Whereas in 1990 there were between 150 and 220 firms that employed six or more people, there are about 2,000 of such emerging enterprises today. These are, by and large, sourced from the massive pool of micro-enterprises. Their owners are generally better educated, more experienced and have better resources than the micro business operators. However, they still operate in a discriminatory economic business environment. These SMEs are excluded from incentives available to large (foreign) industries and subjected to onerous bureaucratic procedures. Almost invariably, SMEs are unable to comply with the cumbersome and complex licensing procedures, import control measures, taxation etc., hence they cannot access the incentives.

Other impediments to SME development in Lesotho include:-

• lack of a clear policy framework;
• absence of enabling environment;
• unfavourable monetary and credit policies;
• ineffective and fragmented education and training programmes;
• lack of market driven specialised technology institutions;
• lack of supportive legal framework - no small claims courts etc.;
• lack of holistic and comprehensive sectoral programmes, export development, linkages/subcontracting etc.

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Enabling Environment for SMEs

While there is a general consensus on the potential of SMEs and the critical role they can play in the growth of the economy and development of the country in general, it is similarly reckoned that such potential shall forever be a mirage unless certain key conditions obtain. These are in particular:-

• national high level recognition of the potential of SMEs;
• political will and commitment on the part of both government and support institutions;
• effective leadership structures that will champion the cause for SMEs such as Lesotho Chamber of Commerce and Industry, Women in Business, Lesotho Manufacturers Association etc.;
• strong local support structures - banks, credit schemes, training institutions;
• a holistic approach as opposed to the hitherto piece-meal and uncoordinated approach;
• a clear policy framework.

It is against this background that the Government of Lesotho, through its Ministry of Trade and Industry, with support from UNDP and UNIDO in particular, has initiated the process of consultations by way of workshops and seminars involving all stakeholders - support institutions, utility corporations, the business community at large and non-governmental organizations. The first of such all embracing workshops was held in September 1996, and a follow-up workshop was held on June 23-24, 1997.

The main purpose of the two workshops was to debate and discuss the problems facing SMEs with a view to develop and have in place a comprehensive policy framework. In particular, the objectives were to:-

• identify legal and administrative problems as well as taxation regimes that may inhibit SME sector entry and growth;

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• assess resources mobilized and actual impact of SME support programs of the Ministry of Trade and Industry;
• further assess the capacity of the Ministry of Trade and Industry to monitor the implementation of policies and enhance the performance of the SME sector; and
• recommend improvements of the legal, administrative and taxation regimes.

Another important workshop was held from 21-22 August, 1997 on "Administrative Barriers to Investment - The Red-Tape Analysis". This workshop was a sequel to a study by the World Bank's Foreign Investment Advisory Service (FIAS) and the International Finance Corporation (IFC), at the request of the Government of Lesotho. Although the study covered the investment climate for small, medium and large enterprises alike its findings have a direct bearing on micro and small businesses. In particular, the study has established that a number of policy and regulatory constraints hamper private sector development, and pose critical threat to its continued growth.

The Ministry of Trade and Industry, as the key player has formed a small committee to draft a "White Paper" to be tabled before Parliament. It has, however, been agreed that the paper will circulate among all role players for their comment prior to its presentation of policy issues contained in the "White Paper". This process should be finalized soon.