Economy

All for SME?

SMEs

The International Growth Center (ICG) in 2012 concluded that the domestic construction sector, which predominantly consists of SMEs, had been unable to break into the formal market dominated by foreign players. Nevertheless, the overall situation has improved in recent years.

The African Development Bank Group (AfDB) on November 14th, 2014, signed a $9 million loan agreement with Moza Banco to promote and support Small and Medium Enterprises (SMEs) in Mozambique. The deal is part of the AFDB’s $125-million Africa SME Program. Moza Banco is one of Mozambique’s fastest-growing financial institutions with a strong focus on small businesses.

SMEs are the heart and soul of the Mozambican economy. They comprise no less than 98.7% of the market, a report by the Institute for the Promotion of Small and Medium Enterprises (IPEME) concluded, yet they only contribute 28% to GDP. Mozambique’s recent economic growth has largely been driven by megaprojects, which are capital-intensive, export-oriented, and mostly in the hands of foreign firms.

In the World Bank’s 2014 Doing Business Report, Mozambique climbed seven places, partly as a result of the country’s SMEs gaining market opportunities. A key role is played by IPEME. Founded in 1998, the government agency is charged with improving the overall business climate for small businesses by doing research, providing information, and offering corporate assistance.

IPEME also found that, when compared to a few years back, Mozambique’s SMEs are better prepared today to face future challenges. This is largely due to their greater maturity, as well as their improved ability to plan ahead and promote their work. However, many constraints remain, including: the lack of skilled labor, poor access to financing, trade barriers, lack of infrastructure, complex bureaucratic procedures, and corruption.

Many of these complaints are echoed by the World Bank’s International Finance Corporation (IFC), which lists nine barriers as the main obstacles for SMEs operating in Mozambique. In addition to the lack of a proper database in which clients can find potential partners, the IFC denounces the high cost of electricity, the high tax rates, and the amount of time and effort it takes for SMEs to obtain permits.

In addition, it is extremely hard for SMEs to obtain loans. “Due to high interest costs, access to the credit and limited capital market, the Mozambican businessman carries the investment using [his] own funds and loans from friends or relatives, or cease to invest,” the IFC concluded. Another problem preventing SME access to bank credit, are the demands of guarantees or collateral. Especially, young and newly-created firms are unable to meet such demands.

The IPEME does more than research and provide information. “Since 2008, we have created four business development centers in Maputo, Tete, Manica, and in Cabo Delgado,” said IPEME General Director Claire Mateus Zimba. “IPEME also signed an MoU with Anadarko in 2014. The goal is to ensure that Mozambican SMEs can be linked with and benefit from the activities of Anadarko.”

Anadarko is the giant American energy firm that is set to invest billions of dollars to tap into the offshore Rovuma Basin with a projected volume of 150 tcf of gas. Anadarko is working with Pyxera Global to ensure that information related to local companies is easily available to international engineering and construction contractors. Pyxera also works on offering technical assistance and capacity building services to ensure the local firms are capable of working according to international quality, health, and safety standards.

While Mozambique’s SMEs should first try to capture a greater share of the domestic market, they at some point should focus on export as well. “Many of SMEs are producing, but have no idea how or where to sell, or into which markets they can channel their products,” said João José Macaringue, President of Mozambique Institute of Export Promotion (IPEX). “We assist them throughout the whole process to create the skills needed to operate on the international market.”

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