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Supporting Small Businesses in Jamaica

It has been said ad infinitum that it is important to support small businesses because they have a vital role to play in generating growth in the Jamaican economy. However, many small enterprises bemoan a lack of support, stifling bureaucracy and prohibitive interest rates as impediments to their development.

Both Prime Minister Bruce Golding and Minister of Finance Audley Shaw are attempting to create conditions that are conducive to investment. The way they see it, the burden should not be placed on the government to create employment, but rather on the private sector.

Bernadette Barrow at NCB has been championing small businesses for sometime now and has attempted to offer small businesses reasonably attractive financing and get them on their way.

The Small Business Association of Jamaica (SBAJ) has initiated a number of projects but needs seed capital to bring them to fruition. Speaking with Caribbean Business Report from the SBAJ's headquarters on Trafalgar Road, Kingston, President of the SBAJ, Dalma James said: " The strategic position of SBAJ has been one of trying to collaborate with the officials on the one hand and attempting to educate our members and assist them on the other. In terms of policy, one of the things we found was that information is hard to get. What you tend to find is that people will shoot from the hip and we talk ourselves into facts. We have all heard it before - small businesses have very little funding, they have no idea how to run a business. We just accept all this but we have to start making policy decisions based on facts."

Funding for both the SBAJ and small businesses


Richard Kildare who is Managing Director of Caribbean Amalgamated Industries Limited (CAIL) and who is also a director of the SBAJ, pointed out that one of the major challenges facing the SBAJ is funding. It does get some assistance from the business community and government, but that tends to be for specific projects. As far as administration and member service initiatives are concerned, the SBAJ has to expand its income base. "We would like to see more collaboration and dialogue with bigger businesses. We must get away from this idea that it is better not to say anything, because someone is likely to steal your idea. I must admit that we at the SBAJ have the ear of the right people. I can make a call and get through to the relevant Permanent Secretary or the Minister. But if you don't provide them with the relevant facts then you don't get the response that you are looking for.

We have a good relationship with the Scientific Research Council , the private sector bodies and have been working well with the Mona School of Business. What we would like to do is have branches of the SBAJ in the rural areas of Jamaica and we are working toward that goal. Another thing we would like to see become successful is the Small Business Council.

This will pull in people in agriculture and agro-processing and have them operate as a subgroup of SBAJ. This will allow us to leverage the strength of each other. For example, if the cane farmers have a problem, if they come to us and we can put our resources together then we make a much bigger force and are better able to act. Plus what it does is widens the contacts that we have. Many of these small groups are very narrow and have few contacts in Jampro, JBDC and the Ministry of Investment and Commerce. What we are seeking to do is awaken that spirit of entrepreneurship in our small business people. We keep hearing this talk that small businesses are the engine of growth, but nine out of ten Jamaicans do not know what that means," said the President of the SBAJ.

Less start-ups transition into established businesses

Last year, Dr William W. Lawrence of the Mona School of Business of the University of the West Indies conducted a survey of owners and managers of Small and Medium-sized Enterprises (SMEs) pertaining to their views on how to cope with external pressures and achieve business renewal. The survey discovered: Less startups transition into established businesses. Only 1.7 per cent of established business owner-managers have expectations that their ventures will grow and create jobs within the next five years.

Losses and financial problems account for 64 per cent of small business closures. For 2009, 13,781 SMEs filed GCT returns down from 14,968 in 2008 and SMEs only accounted for 9.3 per cent of total sales for all filing firms down from 16.4 in 2008. Over a period of three weeks, from October to November last year, Dr Lawrence and his team interviewed the owners and managers of 262 SMEs covering all 14 parishes in Jamaica. They discovered that men comprised 61 per cent of the research sample and 44 per cent of SMEs had less than five employees. Thirty-seven per cent were engaged in retailing/trading and 15 per cent in manufacturing. This last statistic is of particular interest because while some pundits continue to argue that manufacturing is not for Jamaica there are many entrepreneurs who are showing how to make it work.

"The data showed a trend of attrition over time. Small business attrition is the enemy of small business development. So while we embrace policies that support small business start-ups we also need to provide sufficient support for small business continuity", said Dr. Lawrence.

Jamaicans are among the most entrepreneurial in the world

But it was not all doom and gloom. Data from the Global Entrepreneurship Monitor (GEM) from 2005 to 2008 reveal that Jamaicans are among the most entrepreneurial in the world. Indeed the level of local entrepreneurship is even higher than that of China or the USA. However, the 2008 survey also revealed that necessity-driven entrepreneurship has now surpassed opportunity entrepreneurship. This means that owners and managers cannot afford to have their ventures fail because of high dependency on the income generated. The SBAJ is planning to construct a state-of-the-art building which will house all the requirements needed for small businesses to become operational.

The architect renderings do look impressive. The idea is that this new building will help to generate the type of income necessary to put the machinery in place to better serve the island. As it stands now the income the SBAJ receives can barely finance a good manager. When it seeks funding from donors and grants these tend to go to project -oriented ventures. "The SBAJ would like to secure funding that can be concentrated upon women in business. In order to set our own agenda we will need an income base. The government has been generous in that they have given us the building from which we operate. It is owned by the government but they have leased it to us on a long-term pepper-corn rent basis. The government has been gracious in allowing us to charge it to finance a development right here," declared James.

External pressures


Over the years there have been many studies done on the small business sector but they have tended to focus on the macroeconomic or industry level. There have been few that look at the individual small and medium-sized enterprises. "What I sought to do is ask those in these businesses how they are coping with external pressures. Why we chose external pressures is because of what we see happening. The fact is there is a great deal of focus on startups which is great, but when you look at the flip side and see how these businesses fare, it is an altogether different story. Most of these start-ups do not make it to become established businesses.

"When you examine the Planning Institute of Jamaica (PIOJ) 2010 Report, you see a 9 per cent drop in the number of firms filing GCT returns. I looked at the membership of the SBAJ in 2004 and in 2010 and I have seen more than 80 per cent of the membership of the 2004 list off the 2010 list. Most of the persons I spoke to on that 2004 list, their businesses have closed down today and they cite financial hardship as the number one reason. So clearly it does not square with what is put in at the start-up end where you see in the PIOJ survey how much money has been pumped into the sector by the various agencies. The fact is, what happens after the startup phase? Little attention has been paid to that," said Dr. Lawrence.

The survey

The results of the survey were evaluated through two dimensions. One, the profile of the group and secondly their responses taken in reaction to pressures. In terms of profile, what the results show are that very few companies make it beyond a few years. In other words the trend of attrition is very high. The pressure of the global recession ranked very highly , so too did the pressure to compete, and the pressure of taxation made the top three. Loan availability came in at number six.

Many of these small business owners felt that they needed to be as efficient as they could be and there was a preponderance of those who felt that having the right press was vitally important. "We found that SMEs tend to employ more people as they become older but they are more likely to fail as they get older.

Our conclusion therefore, is like the rest of the world, Jamaica is seeing small business attrition taking place over time and this is the enemy of business development. The next thing we found is frustration is constraining the ability to compete. We say we have incentives but are they accessible in a timely manner in a way that is not onerous? The statistics all show that of all the correlations, the correlation between employment and the age of a business is very high. If we don't put in the policies to allow businesses to remain over time and be given an opportunity to grow ,then we arrive at a zero sum game. What we then have is start-up at the front end but at the backend, we fail. "The other startling revelation we found from the data, is that small businesses tend to borrow more to cope with the external pressures.. There is a tendency to focus upon who is lending and how much to the small business sector. But there is no attempt to separate that into what loans are for survival purposes and what loans are for developmental purposes," declared Dr William Lawrence of the Mona School of Business.

What can be done to help small businesses


He is of the view that there are a number of things the SMEs can do to help themselves. They can explore non- price ways to compete and differentiate themselves. For instance, rather than slash prices, you can open for longer hours. The other thing SMEs can do is realise that they must change the way they manage once they pass the start-up stage. It is very important to know how to change gears when you become an older business.

"How can the government help? Well, it's about time we extend the Companies Act to include a full bankruptcy code. This is where the world is going. We have been behind the ball with this one. In this regard Barbados is way ahead of us. It is a country that businesses in CARICOM need to benchmark . We simply have to give viable businesses that run into trouble some breathing space, to reorganise and get the help they need. We could do so in a court-supervised manner. They can come to the SBAJ, retool and submit a plan to make good on the outstanding debts," said Dr Lawrence.

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