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Micro enterprises need nurturing to grow

THE informal or formal micro-enterprise sector is one of the most productive in Namibia, and must be fostered to develop large, economically significant and sustainable Namibian enterprises.

This was said by Jerome Mutumba, Development Bank of Namibia’s head of marketing and corporate communication, in a media statement yesterday.

The bank finances large enterprises and SMEs, and also provides finance through its Apex microfinance facility.

Mutumba said the recent focus on empowering informal and micro enterprises is a necessary affirmation for further development of Namibia’s economy.

“Development of new market spaces, as well as ongoing management of and upgrades to SME parks are good omens for the future,” he said, adding that there are three broad origins of Namibian start-ups.

“The first is the informal or registered, regulatory compliant micro-enterprise, then the South African adjunct, an enterprise which complements the South African parent and the third, and rarest form is an international start-up,” he said.

Many best-known brands and companies in Namibia started off as informal or formal micro enterprises, he said.

“The roots of the successes and sustainability of these enterprises lie in their small, relatively low-cost beginnings, the persistence of their owners in learning, adapting and diversifying.”

Mutumba said the economic value of informal and micro enterprises becomes more apparent when evaluated according to current development needs.

He said informal enterprises are a major employer, with recent International Labour Organisation findings showing that 56% of Namibia’s workforce are employed in the informal sector.

“According to Tangeni Shindondola, director of the Dynamic Informal Traders’ Association, informal enterprise becomes an employment provider in the event of retrenchments,” said Mutumba.

He said the informal enterprise can be the only income source for many households, or augments household incomes, particularly where those households are in poverty or on the verge of poverty.

Informal and micro enterprises are important elements of the value chain as off-takers and distributors of goods and services, especially those produced by large and medium-sized enterprises, with attendant impacts on formal enterprise revenues and employment, he said.

“Informal and micro enterprises also generate network business on a peer level, creating their own ecosystem,” he said, adding that to reap longer term benefits from the sector, activities must be viewed and planned in four phases.

He said nascent informal enterprises need to be nurtured and enabled and those with potential encouraged to transition to formalised, registered, regulatory compliant micro enterprises.

“Thirdly, micro enterprises need to be nurtured to the activity level of SMEs, and finally, the most successful SMEs must graduate to larger enterprises and the process of informal and micro enterprises growth requires support and inducements,” Mutumba said.

The first inducement is a welcoming approach to start-ups which requires liberalisation of the regulatory environment for informal enterprises, and removal of early barriers, he said.

“Although regulation is required, it should be exerted gradually, post start-up on the basis of impact on the community as well as the level of activity of the informal enterprises,” he said.

A second phase will be required to induce formalisation of the enterprise to a fully fledged micro enterprise, including full regulatory compliance.

“The shift from informal enterprise to registered micro enterprise entails costs which must be offset, including taxation and regulatory costs. To reduce the immediate burden, the enterprise will be required to grow, which will come at an expense.

“This can be offset with short-term bridging finance for stock and regulatory costs, and longer-term mezzanine finance to grow the asset base. This might be paired with concessional interest rates and use of assets financed as collateral,” he said.

According to Mutumba, that formalisation requires a skill set to manage finance in a borrowing environment, as well as administer the regulatory aspects which can be addressed with mentoring and coaching, and a suitable agency to administer and coordinate finance, mentoring and coaching.

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