Developing a SME Policy Framework in Malawi
C.C. Kachiza

• Guidelines of the Draft Policy Statement for Small and Micro Enterprises
• The Process of SME Policy Formulation

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Developing a SME Policy Framework
in Malawi
C.C. Kachiza

Guidelines of the Draft Policy Statement for Small and Micro Enterprises

The Malawi Government recognizes the important role of SMEs in the economy. This is clearly stated in the Government's Poverty Alleviation Programme Framework document which spells out Government's development agenda. In the past Government's commitment to the sector was expressed in the Statement of Development Policies (DEVPOL) 1987-96. However, despite these pronouncements Government did not have any policy on the sector. It took a lot of effort to initiate the process which finally culminated in the current document. In this respect the Government has come up with a SME policy which is awaiting cabinet approval. The present draft form of the paper reflects final consensus of all the stakeholders in the sector.

The objective of the policy is to create a conducive environment within which SMEs can thrive. The policy therefore attempts to remove constraints which have hitherto constrained the growth of SMEs. The policy does not quantify this objective and neither does it specify a time frame for implementation of the policy. However, the policy proposes the development of a strategy to operationalize the policy in terms of institutional responsibilities as well as the time frame for implementation of the policy. The policy also suggests the creation of a broad-based task force or consultative committee to oversee the process. This is deemed

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necessary to avoid duplications as well as maintain the momentum of consultation which currently exists.

The primary beneficiaries of the policy are the SME operators. The categorization adopted in the policy is based on the number of people employed and turnover as follows:

	No. Of people employed	Turnover (in MK)
Micro	1-4	Up to 120,000
Small	5-20	120,000 - 4 million
Medium	21-100	Above 4 million to 10 million
Large	Above 100	Above 10 million

* US$ 1 = MK 17.2

The policy is not specific on a vision of the sector's position in the overall economic/industrial development but recognizes the important role that the sector plays in the country's economy. For example, it is estimated that the sector employs over one million people and provides livelihood to a large section of society.

While not focusing on a sectoral/sub-sectoral approach the policy focuses on critical areas that impinge on the whole spectrum of the sector. In this regard the policy tackles problematic issues in the country's fiscal policy, monetary and banking policy, trade and industry policy, appropriate technology, marketing, infrastructure development and institutional development. Consequently all support measures are provided across the board irrespective of sector.

The role of Central Government is limited to the creation of an enabling environment for the sector and development support programmes for implementation by the private sector. Government does not operate at enterprise level. This is based on the understanding that there are other functions which cannot effectively be provided by the private sector or market forces.

Some services to the sector are provided by NGOs. At present, the role of local authorities is insignificant in view of the fact that local authorities are still dependent on central government. However, efforts are

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underway towards decentralization in Malawi. It is expected that when this is implemented there will be greater involvement of local authorities in SME promotion.

Co-ordination in the sector has been problematic and it is in recognition of this factor that the policy proposes the establishment of an SME Development Council to improve co-ordination at all levels. It is expected that once this is established it will be replicated in other areas especially at district level.

The policy has avoided subsidies and other protectionist interventions. This is in light of the free market and liberalization policies being implemented by Government currently. However, realizing that SMEs cannot compete effectively without external support the policy advocates certain interventions aimed at promoting SMEs and mitigating against unfair competition from larger enterprises, e.g. government shall provide preferential access to the SME products as well as establish programmes aimed at supporting the sector.

The regulatory environment in Malawi has been and continues to be amended. The very action of developing the SME policy is an attempt to address this crucial issue. The SME policy has been developed alongside other related policy initiatives namely: the Trade and Industry Policy, Co-operative Development Policy and the Competition Policy. All these policies are aimed at removing obstacles to private sector development.

In general, the success of SME programmes will rest on their long-term sustainability. It is essential that programmes be designed in such a way as to allow for a gradual withdrawal of government/donor support. This will therefore necessitate the creation of capacity in the SMEs to be self-sustaining in the long run. Such capacity enhancing measures include training, quality improvement etc.

The Process of SME Policy Formulation

The need for an SME policy stemmed from the fact that there were no guidelines as to how the sector could be promoted despite Government

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pronouncements in various documents that it recognized the sector as a crucial one in the developmental process. In this regard it was thought necessary that a policy be developed to guide developments in the sector. The process was thus initiated in December 1994 with assistance from the Small Enterprise Development Programme which was a UNDP funded programme under the Ministry of Commerce and Industry. The first activity in this process was a symposium which identified in a general way what were considered to be constraints to SME development in Malawi. After the symposium the task of furthering the process was left to the project.

Since the project had other outputs to achieve the process slowed down considerably during the early part of 1995 until a decision was taken to engage a consultant to initiate and facilitate the process. The result of the consultancy was a situation analysis report and a draft policy statement. The draft policy statement was firstly subjected to scrutiny by a task force comprising Government, the private sector, and NGOs. The final consultation was with policy makers in Government.

Government, the private sector and NGOs were involved throughout the process. The private sector was largely represented by the Malawi Chamber of Commerce and Industry (mainly representing large enterprises) and the National Association of Small and Medium Enterprises (NASME) while the NGOs were represented by their umbrella organization, the Council for Non Governmental Organizations in Malawi (CONGOMA). The involvement of the private sector and NGOs in the process was crucial and made it easier for the policy makers to accept the end product.

During the consultations the contentious issues mainly related to taxes, access to Government procurement, access to credit, as well as the necessity of maintaining standards. The issue of taxes took centre stage especially between Government and the other stakeholders with Government citing revenue losses as an issue. With regard to access to credit the crucial issue was interest with some stakeholders calling for subsidized interest rates.

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The consultation process as mentioned above was largely through workshops and symposia of stakeholders at different levels in the organizations' hierarchy (i.e. there were fora for technicians, chief executives, etc.). However, detailed consultations were conducted by the consultants who were mandated to come up with a situation analysis and the draft statement.

Consensus over the final version of the draft policy was not difficult to achieve in light of stakeholders' participation at various levels of the process. However, private sector representation was sometimes problematic in light of the various associations each aiming at securing their interests. Despite this there is no doubt that participation and consultation did play a vital role in the outcome of the policy. It is therefore hoped that implementation will reflect the consensus achieved during the policy formulation process. One way of ensuring this would be the institutionalization of the consultative process so that all stakeholders are involved in all the stages of the process.