How governments can support SMEs in emerging markets
On 6th March, the Global Business Summit returned to New Delhi, gathering senior decision makers and thought leaders from around the world, including Indian Prime Minister, Narendra Modi; CEO and Founder of Blackstone, Stephen A. Schwarzman; and Cherie Blair, founder of the Cherie Blair Foundation for Women.
Accloud partnered with the Global Business Summit to present a high-level panel of senior government and private sector leaders at the summit. Our CEO Ross James and COO Amit Pau led the discussion exploring the solutions to some of the largest issues facing SMEs around the world and how the public sector can support them.
Accloud was honoured to host a high-level panel discussion at the Global Business Summit in India. Alongside political and business leaders from around the globe, the Accloud team explored the extent to which governments around the world can support the growth of SMEs, as drivers of development and economic inclusion, particularly in emerging markets such as India.
SMEs are integral to the global economy, accounting for 90% of all enterprises and around 50% of employment worldwide. In emerging markets, they play an even greater role, creating 7 out of every 10 jobs in the formal economy. This doesn’t take into account the vast informal economies operating in high growth markets such as India, which could provide even greater growth opportunities with the right incentives and tools to formalise their role.
By 2030, the global population will have grown by over a billion and 600 million jobs will need to be created to absorb this growing global workforce. SMEs will play a pivotal role in achieving this economic growth and capitalising on the opportunity this expanding workforce offers, but they need support to do so. Today, barriers exist that are hindering growth, the most startling of which is perhaps the funding gap of over $5 trillion for MSMEs around the world. But funding is not the only restriction; red tape, taxation, poor regulation and a lack of incentives for larger businesses to operate in a way that is beneficial to SMEs were all cited as barriers to growth and development.
Amongst our panellists there was agreement that challenges for SMEs require long term solutions and that there isn’t a quick fix. An integrated framework must be put in place by the public sector worldwide, and that will take time – but it must start now. It is a government’s duty to accelerate the growth of SMEs to drive the national and global economy and ensure that its citizens and future generations have gainful employment opportunities in the decades to come. Governments have the power to rewrite the rules to support SMEs and, thereby, fuel the wider economy.
An example of the effectiveness of good government policy in this area was cited by Dr. Andy David, Director of Innovation Entrepreneurship and Technology for Israel’s Ministry of Foreign Affairs, who commented on the experience of Israel over the past 30 years. Having historically been quite a challenging environment for small enterprises, following the end of the Cold War Israel reinvented itself, shifting focus to develop entrepreneurship within the private sector. How did it achieve this? Put simply, the government shared some of the risk all start-ups take. They fostered an environment of collaboration, enabling the government to work with universities and entrepreneurs – sharing the financial and regulatory burden. All of this, our panellist from Israel explained, was enabled by a trade deal with America. A global outlook is imperative.
We are seeing countries that have struggled socially and economically over decades follow suit. H.E. Ajmal Ahmady, the Acting Minister of Industry and Commerce in Afghanistan explained that its government is planning to create an SME function focussed on stimulating entrepreneurship from the top down. In emerging markets, it is of particular importance that the public sector be the driver of such initiatives to ensure that SMEs can join the formal economy quickly by providing businesses access to proper support, which ultimately contributes to the country’s GDP.
Our COO, Amit Pau, predicted that the 2030s will be dominated by local small businesses that utilise technology to access global markets. But to get there we need to learn from the mistakes of the past two decades. Since the 2000s, we have been in a period of almost extended recession – from the dot com bubble to the financial crisis leading into ten years of slow growth. This has led to a societal pushback against governments, hence the theme of this year’s Global Business Summit – Fractured Society. This means that to regain public trust, the public sector has to change its approach rapidly. So how do we do that?
The panel was in unanimous agreement that an inclusive financial strategy should be at the heart of any solution. Countries like Canada are already leading the way with flexible taxation rates for SMEs, an initiative that could be implemented anywhere in the world. A bold suggestion was to supplement the loss of tax income from SMEs by raising taxes on large multinationals. This was at first considered a controversial approach by the panel, but on further discussion the benefits to the global economy and the stimulation of SME development meant that the idea merited further thought.
Diversity was another key discussion point. A report published by the Business and Sustainable Development Commission in 2017 found that gender parity alone would lead to $12 trillion being added to the global economy. But further than that, diversity has been proven time and time again to boost innovation and business efficiency. Government initiatives that make it easier for diverse SMEs to raise finances would be welcomed with open arms around the world, be that through funding quota’s for financial institutions or grant schemes for under-represented groups in society.
Improving market access will also be important, the panel concluded. As was seen in Israel, access to the American market was an important driver of growth for its economy. Britain was cited as a country with an opportunity to capitalise on a unique trade position post-Brexit, if the government can negotiate favourable deals with the world’s largest economies.
Many of the initiatives discussed are long term answers, but one solution that could be implemented with almost immediate effect is to curb late payments for SMEs. Late payments caused SMEs in the UK to lose out on over £250 billion of liquid cashflow in 2017 alone. The panellists were unanimous in their agreement that this was an issue in their respective countries as well. Implementing fines, or perhaps a compensation scheme, and, importantly, following through with enforcing them would lead to far more good actors in the market and enable SMEs to operate without fear of cash flow issues resulting from late payments. Of course, the conversation was not exhaustive, but it covered a whole host of other solutions that could be implemented – many of which we will explore in further blogs.
The world is going digital, and nowhere faster than the high-growth markets. Governments no longer have to estimate the impact of their initiatives – data allows them to see the full picture. Without proactive intervention to give SMEs the environment to thrive the huge potential of individuals and entire societies will not be fulfilled. With the proliferation of mobile technology, simply enabling a digital first solution to give SMEs access to financing and services tools, utilising this growing mobile penetration, will make the 2020s’ the brightest decade yet.