The provisions for development of the Small and Medium Enterprise (SME) sector in the budget sounds good at first glance, but it all falls down for us at the implementation stage, says Jonathan Adams, CEO, of the Small Enterprising Business Association.
"These suggestions and policies for small business development are not new, they were included in last year's budget and previous years as well," says Adams, "I am just hoping that this time around the Government makes the effort to put the framework in place to make it happen this year." In an interview with the Guardian on Monday, Adams described how the SME sector would be affected by the provisions that were made for them in the budget.
With specific reference to the 10 per cent downpayment the Government offered as a mobilisation advance for SME managed projects, Adams said this never happen in the past and he has no reason to believe that the increase to 30 per cent being offered as mobilisation for SME projects will happen for future projects.
"The whole idea of implementing a 10 per cent mobilisation was lost and SMEs across the country suffered tremendously in their attempt to get government contracts, and I am waiting to see if this initiative will be any different." Commenting on the Fair Share Programme for small contractors that was included in past budgets, he said "it never happened and we never got those kinds of contracts. This seemed to be an idea only the Government was privy to." Adams said he is not optimistic about the implementation of the other provisions for SMEs from the budget. "To get around this there must be proper systems and institutional strengthening that should be put in place for the delivery of these services." He said in the past they made calls to the Government for the setting up of a small businesses council, but nothing came out of it. He said the objective would be to act as a supervision council for SMEs. "We haven't heard anything from the Government about taking steps to implement this. We are simply reminding them of the urgency to implement these systems which are much needed."
Recommendations
Adams made other recommendations that he hopes the Government takes into consideration. He said there should be Government's support for hosting a regional trade conference for SMEs to identify and deal with issues holding back development of the sector. This includes organisational strengthening. He added that under the Caribbean Single Market and Economy (CSME) there will be many activities that involve small businesses, but they are not in a position to take advantage of them because of the limited resources available to SMEs. "That's why the Government should do this for the SME sector. The most effective forums for the SME sector would be the small business regional seminars." Adams said he has attended SME forums in other Caricom territories such as Jamaica, St Lucia, Barbados and Guyana and "T&T is behind in this regard."
Rise in property tax
Adams believes the rise in property taxes will have a negative impact on the SME sector. "This is very much anti-small business growth and development. The increase in property tax is a major negative as it relates to SME growth. Small business owners are already short on property they can afford." Last week in the 2009 to 2010 budget, Finance Minister Karen Nunez-Tesheira said "the valuations for property throughout T&T were outdated. In the case of residential, commercial and agricultural properties the tax will be three per cent, five per cent and one per cent respectively."
Adams said the rise in property tax would only make things harder for small business owners because many of them have to rent commercial spaces to operate their businesses.
"This translates simply into higher rental rates for small businesses. If a man's liability is 80 per cent of his gross income and there's a property tax, that would remove three per cent of his income he would then have to raise rent to accommodate whatever shortfalls he has." Adams said this would only "depreciate incomes of small business owners." He recommended that the Government implement a rent restriction mechanism to go hand in hand with the rise in property taxes. He likened this move by the Government as giving with one hand and taking back with another. He said the SME sector intends to speak out further against the rise in property taxes even stronger in the future. "We are going to raise our voices."
Budget positives
Despite this concern, Adams said there were some positive inclusions in the budget for the SME sector. He said that several of the suggestions made by the association were included in the budget. He said the Government spoke about allowing small businesses to borrow up to $0.5 million. Adams is hopeful that the Government will implement this recommendation. Commenting on the Fair Share Programme, he said they are also hopeful that this will be implemented.
In the budget, the Government proposed to expand the public sector contracts accessible to SMEs from $1 million to $5 million.
"We are filled with anticipation with regards to the procurement of government contracts and the Fair Share Programme." He said this means that small contractors have the exclusive rights to participate in contracts up to $5 million and this will not be the domain of big contractors. He said this would be a plus for the small contractors. He added the SME sector is also happy for the increase of mobilisation fees from 10 per cent to 30 per cent. "The idea behind this was for a small business owner who was doing business with the Government to get an advance of 10 per cent, now the Government is moving up the advance payment to 30 per cent so that small business owners can buy materials or other payments needed to begin work on a project."
Future of SMEs
Adams said any negative impact on the SME sector will simply increase the failure rate. "It must be noted that the failure rate of SMEs are already high. Any negative development would simply increase the failure rate." He said the real issue is sustainability and moving SMEs to medium-sized business and eventually into large businesses. "The SME sector is the growth engine of any country and for a first-world budding country like T&T, the Government must treat the SME sector with the importance that it deserves."
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