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Are business linkages effective in Lesotho?

by Lesotho Times
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Teboho Dan Molopi

INTERNATIONAL practices in small enterprise development (SED) show that small business growth could be boosted by partnering with big companies and government departments for outsourcing and subcontracting arrangements.

This helps the corporate clients to tap into the small business’s expertise, enabling the former to focus on its core function. It affords the small business the chance to deliver the right products or services to clients, at the right time, and at the right price.

Many countries have vigorously promoted the business linkages between government departments at all levels and the small business sector (particularly the local ones), and have encouraged the private sector companies to follow suit and do business with the local small businesses.

For example, the municipality of Modena in Italy prides itself as “The Enterprising City”. Modena engages the local businesses and professionals as suppliers and service providers for most of its needs. In the process, the small businesses are able to upgrade their capacity, skills and resources, and increase the number of employees. They pay various taxes, such as VAT, PAYE, Income Tax and municipal rates and taxes, and these taxes are used by national and local government structures to further the development needs of the community, the local government and the state.

Modena leads by example, and fosters the spirit of entrepreneurship amongst its communities by employing the locals, procuring from locals, and pays in time for products and services delivered.

Also in the municipality of Modena, the main motor manufacturer, Ferrari, follows a Just-In-Time method in the production process of its world renowned vehicles. Most of its component suppliers are small businesses based in the city of Modena, and the small businesses have synchronised their operations and delivery times such that the delivered components arrive at the time they are needed in the production process. This eliminates the need for storage, and saves Ferrari a lot of money. The company also settles the SMME suppliers’ invoices just-in-time, so as to boost their cash flows.

In South Africa, similar efforts were put in place in the year 2000. For an example, in Rustenburg an SMME development institution there promoted business linkages between the mining companies and the local small business community.

South African International Business Linkages (SAIBL) Programme was also launched in 2002 on a similar mission. These unleashed many supplier and outsourcing opportunities, and millions of rands flowing into the small businesses. This created hundreds of sustainable jobs, and a formal Supplier Development Programme was initiated to match corporate business needs, their capacity requirements, and need for bridging finance. Payment terms to small business suppliers were negotiated and reduced from 30 days after invoice to 21 days, and later 14 days to 7 days. The cash flow of small business suppliers increased sharply as the local banks provided funding based on the negotiated contract periods ranging from 12 to 36 months. This boosted the local economy massively.

In recent years, small business suppliers in Lesotho have been abused by both the government and the private sector. For an example, many suppliers have reported receiving payments for the products and services after 120 days, and others after almost 365 days. The implementation of the IFMIS, though hailed as a solution, failed to do just that. Instead of suppliers being paid after seven days, it still took on average 60 to 90 days to get paid. In simple terms, the government has continued to kill small businesses instead of helping their cash flow.

The big business sector has taken advantage of the situation. Some have jumped on the bandwagon of “developing and supporting” small businesses, but have abused them terribly, by not paying them on time. Contracts signed include clauses stating payments will be effected within seven days or at the most within 30 days, but 60 to 120 days elapse before SMMEs receive their payments.

If we are serious as a country that the small businesses are indeed the cornerstone of our economic development, creator of wealth and jobs, we need to declare Lesotho as a development-oriented nation. We need to put in place instruments such as policy directives that promote entrepreneurship and small business development; that foster mutually-beneficial business linkages between big business and small businesses and between all spheres of government and local small businesses; that mobilise funding for small business development; and that open markets for growth. And the private sector must toe the line in seriously promoting small business. But the government must lead by example. Small business is indeed a viable vehicle that can set Lesotho on a growth path in a self-sustaining way.

Mr Molopi is a Small Business Development consulting in Hlotse.   He can be contacted on 63291988/59709115 or moloidaniel@hotmail.com

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