Looking ahead for SMEs

Bangladesh has become one of the fastest-growing economies in the world, witnessing an average of 6% growth over the past decade, up until the Covid-19 pandemic. And despite the adverse effects of the pandemic, it has experienced positive growth in the past three years (FY20-FY22). In the post-pandemic Fiscal Year of 2022, Bangladesh had a GDP growth rate of 7.25%, and emerged as one of the most resilient economies globally during the Covid-19 pandemic, due to its rapid recovery management. 

The enterprising spirit of the resilient Small and Medium Enterprises (SMEs) sector, together with the initiatives of the Government of Bangladesh, has substantially contributed to the economic recovery process of Bangladesh. The country's per capita income has increased substantially, indicating a remarkable economic shift. 

In this progressive economic journey, SMEs have emerged as one of the key sectors in the recovery process, constituting over 90% of total industrial units, and accounting for 45% of manufacturing value addition. However, the recent Russia-Ukraine war has yet again caused the economy to plunge, the effects of which will continue into 2023.

To accelerate the country's economic recovery in 2023, the emphasis on SMEs growth measures should be heightened. The pressing issue that may have a crippling effect on the overall economic performance of Bangladesh in 2023 is the instability in the foreign exchange reserve, and the devaluation of Bangladeshi currency. To reduce the adverse effect on SMEs in the competitive market, addressing this should be a high priority.

To enhance the foreign exchange reserve, the government needs to ease the process of remittances through formal channels. At the same time, alternative measures such as 'currency-swap' may be prioritised to meet necessary import expenditures. 

A major challenge to the growth of the SME sector in Bangladesh is limited access to finance. The government of Bangladesh, nonetheless, has addressed the challenges of the SME sector through various policies. 

During the Covid-19 pandemic, stimulus packages for SMEs were announced by the government, alongside an existing substantial credit guarantee scheme. However, due to challenges in credit accessibility, such funds could not be disbursed in the SME sector as expected.

In addition, the major challenges to the growth of the SME sector in Bangladesh include, a lack of technological know-how, inadequate supply of an efficient labour force, and mainly, policies that are not very SME-friendly. 

The existing policies regarding SMEs in Bangladesh are insufficient and lack harmonisation. Therefore, there is a need for a separate law for SMEs. Along with the necessary legal reforms, there should also be an integration of the export and import policies, industrial policy and fiscal and monetary policies in terms of easy access to credit and expansion of the SME sector. 

The relevant laws and policies require an emphasis on financial and non-financial facilities for the cottage, micro and small (CMS) entrepreneurs, so that they are given opportunities that medium entrepreneurs enjoy. 

Furthermore, since Bangladesh is also known as one of the regional competitive investment hubs, the government should make timely reforms in various laws such as the Companies Act, the dispute resolution laws, bankruptcy and insolvency laws, the foreign exchange regulations and the taxation laws, as well as other relevant policies to ensure a friendlier investment-climate in Bangladesh for the year 2023.

For the development and modernisation of the SME sector, area-wise testing laboratories for SMEs have become the need of the hour. Setting up testing laboratories in each district will help SMEs in testing their products for conforming to national and international standards. This will help enhance the capacity and efficiency of SMEs to maintain the quality of their products. 

Moreover, promoting SMEs through public procurement can also be an effective way of creating a sustainable market for SMEs. Existing policies may be revisited to include at least 20% of the government's total procurement of goods and services from SMEs to motivate the sector.

SMEs, alongside the major businesses, will also face difficulties in the post-LDC era, as most International Support Measures (ISMs) will be retracted. In order to sustain the transitional period, Bangladesh needs to ensure proper readiness and preparation of the local small-scale businesses. 

Bangladesh may seek the extension of the ISMs from many countries. Expediting the signing of Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPA) with potential trade partners and various regional economic blocs is much needed to endure the challenges of the transitional period. 

It is very important to ensure an uninterrupted and affordable energy supply to local and export-oriented manufacturing industries which will consequently reduce the business operating costs and attract local and foreign investment. To determine energy and fuel prices, forming a long-term plan to adopt a predictable pricing policy is necessary. It is also necessary to expeditiously explore new gas fields, and find alternative sources of energy import.

All in all, innovative and appropriate steps must be taken to ensure that SMEs receive the necessary support to survive and thrive in 2023. It is of great importance to improve the SME sector for the sustainable economic development of the country, as the growth of SMEs helps improve economic conditions at the very marginal level of society. 

Thus, the goal of implementing the vision of 2041 for Bangladesh would accelerate further if SMEs are given the spotlight in the upcoming years.

Md Sameer Sattar, Barrister (Lincoln's Inn) is the president of Dhaka Chamber of Commerce and Industry (DCCI) and the head of Sattar&Co. He is also an advocate of the Appellate Division under the Supreme Court of Bangladesh