To recommend to the
Government a body of what can be called SME Policy in Industrialization for
Bangladesh;
Policy Strategies for Small & Medium Enterprises (SME) Development in Bangladesh
Government of the People’s Republic of Bangladesh
01. INTRODUCTION
01.1. Small and Medium Enterprises (SMEs) have historically been one staple of the enterprise landscape within economies globally. Especially growth with clear benefits for poverty reduction puts a premium on integrating, productively and profitably, small and medium enterprises in the very process of economic growth. The over-riding vision must be for setting up a market-based economic order with a level playing field for all enterprises, in which SMEs can aspire to opportunities of growth and wealth-creation commensurate with their own endowments and diligence, innovation and management commitment. In addition, the vision must lead to a priority in the delivery of government services so as to neutralize, on a continuing basis, the handicaps and irritants which, almost reflexively, tend to spring themselves upon SMEs in a selective manner. A historically accelerated pace of trade liberalization in Bangladesh since the early 1990s by spurring a veritable deluge of imports has quite significantly increased competitive pressures on SMEs in Bangladesh. Rapidly falling cost of communications have by unifying global markets heightened the intensity of competition. Trading is widely seen as a safer, richer, smarter and bulkier career to have than manufacturing---bad news indeed for industrialization. With this end in view, Government of Bangladesh formulated the National Industrial Policy 2005 by giving special emphasize for developing Small and Medium Enterprises (SMEs) as a thrust sector for balanced and sustainable industrial development in the country with the vision for facing the challenges of free market economy and globalization.
01.2. Implementation of poverty alleviation action programs and strategies is a systematic and continuous attempt in Bangladesh. For the purpose, the Poverty Reduction Strategy Paper (PRSP) of 2004 has been clearly identified some core principles and parameters both at macro and micro levels for reducing the existing poverty levels at least half fold within 2015 as targeted by the Millennium Development Goal (MDGS).
In the policy strategies, smooth and sustainable development of SMEs all over the country will be considered as one of the vehicles for accelerating national economic growth including poverty alleviation, reduction of unemployment, and generation of more employment. Most of the industrial enterprises in Bangladesh are typically SME in nature. Generally SMEs are labor intensive with relatively low capital intensity. The SME also posses a character of privilege as cost effective and comparative cost advantages in nature. In this consonant, the SME policy strategies have been formulated in line with the acknowledged principles for achieving the Millennium Development Goals (MDGs) by the Government.
02. POLICY OF THE GOVERNMENT:
The Government is committed to develop SME’s as the vehicles for quality of life improvement, economic growth and poverty alleviation of the common people. The primary role of the Government shall be that of a facilitator to aid naturally growing SME’s through removing market and policy obstacles, and secondly providing necessary promotional support.
03. OBJECTIVES OF THE POLICY STRATEGIES
The broad objectives of the policy strategies shall be to:
1) Accept SMEs as an indispensable player in growth acceleration and poverty reduction, worthy of its total commitment in the requisite overall policy formulation and execution;
2) The SME policy strategies shall essentially be linked with broad- based and integrated manner in line with the poverty reduction strategy paper of the Government of Bangladesh.
3) Encourage and induce private sector development and promote the growth of FDI, develop a code of ethics and establish good governance, ICT based knowledge management and customer supremacy in the market alliances.
4) Identify and establish the network of infrastructure and institutional delivery mechanisms that facilitate the promotion of SMEs;
5) Re-orient the existing fiscal and regulatory framework and government support institutions towards bolstering the goals of SME policy;
6) Nurture and partner civil-society institution(s) having credible management teams in terms of the delivery of needed services, leadership, initiation, counseling, mentoring and tutoring; etc.
7) Create innovative but meritocratic arrangements so that deserving and especially small enterprises with desired entrepreneurial antecedents and promise can be offered financial incentives within industries prescribed on some well-agreed bases.
8) Help implement dispute settlement procedures that proactively shield small enterprises especially from high legal costs and insidious harassment.
9) Take measures to create avenues of mobilizing debt without collaterals to match (either using debt-guarantee schemes or mapping intellectual-property capital into pseudo-venture capital) in order to assist small enterprises in dealing with their pervasive lack of access to finance.
10) Accord, systematically, precedence to small versus medium enterprises, within the limitations of government’s resources.
11) Harness information & communications technologies, Internet Protocol (IP)-based infrastructure, and electronic-governance in an effort to parlay regulatory services, all kinds of useful information and mentoring inputs, with an accent on increasing the viability of SMEs in all sectors of the economy.
04. NATIONAL TASKFORCE ON SME DEVELOPMENT
The Government has constituted a National Taskforce on SME Development to draw up a realistic strategy for promoting rapid growth and vigorous competitiveness among SMEs in Bangladesh in the interest of accelerating the growth of the economy and reduction of poverty in the country. The composition of the National Taskforce is provided in Annexure-1. The Taskforce has submitted its report with comprehensive recommendations for formulation of SME policy strategies and its implementation in three phases: short, medium and long-term. The government has accepted the recommendations.
05. SME ADVISORY PANEL:
An SME Advisory Panel shall be constituted involving experienced committed specialists and entrepreneurs of relevance to work together with the SME cell of the Ministry of Industries (MOI). In the medium term the Advisory Panel and the SME Cell will eventually morph into SME Foundation. The composition of the Advisory Panel is provided in Annexure-2.
06. SME FOUNDATION:
Ø Over the medium term and beyond, the Government shall form an SME Foundation as a pivotal platform for the delivery of all planning, developmental, financing, awareness-raising, evaluation and advocacy services in the name of all SME development as a crucially-important element of poverty alleviation.
Ø The Foundation would strive to provision one-window delivery of all administrative facilities, including some resources needed for capacity-building in appropriate industry association(s), for SMEs in Bangladesh.
07. DEFINITIONS:
Enterprises shall be categorized using the following definition (fixed investment implies exclusion of land and building, and valuation on the basis of current replacement cost only):
¨ Small enterprise: an enterprise should be treated as small if, in today’s market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were to be up to Tk. 15 million;
¨ Medium enterprise: an enterprise would be treated as medium if, in today’s market prices, the replacement cost of plant, machinery, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), etc, excluding land and building, were to be up to Tk. 100 million;
a. For non-manufacturing activities (such as trading or other services), the Taskforce defines:
¨ Small enterprise: an enterprise should be treated as small if it has less than 25 workers, in full-time equivalents;
¨ Medium enterprise: an enterprise would be treated as medium if it has between 25 and 100 employees;
08. BOOSTER SECTORS:
For promotional support the following 11 booster sectors has been identified and the list shall be reviewed every three years:
I. Electronics and Electrical
II. Software Development
III. Light Engineering
IV. Agro-processing and related business
V. Leather and Leather goods
VI. Knitwear and Ready Made Garments
VII. Plastics and other synthetics
VIII. Healthcare and Diagnostics
IX. Educational Services
X. Pharmaceuticals/ Cosmetics/ Toiletries
XI. Fashion-rich personal effects, wear and consumption goods.
09. PREFERENTIAL CRITERIA:
Enterprises which as well as meeting the size requirement shall have
a. proven credentials as an entrepreneur (for example, membership in well-recognized social occupational groupings, successful track record) with requisite presence and facilities on the ground;
b. an above-average insiders’ equity participation;
c. certifiable professional specialization of top-management in relevant production skills;
d. the stamp of approval from globally-recognized quality-assurance bodies (ISO 9001:2000, for example);
e. High management commitment to innovation.
f. Women entrepreneurs will be accorded preference, wherever appropriate.
g. Other things being equal, smaller enterprises shall be given preference in terms of benefits from interventions by the government and civil society initiatives.
h. A preferential criteria be set based on the size of an enterprise – smallest getting the top priority.
i. Women entrepreneurs shall be given preference in conjunction with the above criteria.
j.
10. TAX HOLIDAY AND OTHER INCENTIVES:
Small and medium enterprises will enjoy the tax holiday and other incentives as stated in the National Industrial Policy 2005.
11. CREDIT-DISTRIBUTION PACKAGE AND VENTURE CAPITAL- MARKET
a. A credit-distribution package shall be worked out by the Ministry of Industries. An innovative scheme---rather like a two-stage screening mechanism---that can really probe for the bone fide of the applicants as entrepreneur material will be deployed.
b. Donor financial resources made available specifically to help with implementation of SME policy being enunciated here would only be allocated to competitively-selected enterprises within the booster industries here being prescribed.
c. Of the total resources available, no more than 20% may be earmarked for medium enterprises, while the remainder, 80%, will be earmarked for small enterprises. Within each division, the resources will be divided up into a public-sector venture-capital fund (10%), approximately on the lines of the currently-implemented EEF at the Bangladesh Bank. The remainder will be allocated to a credit fund. (This does not have anything to do with debt-equity ratio relevant in discussions of enterprise financing.)
d. In the short run, the distribution of the credit fund and venture-capital fund will be the task of the BASIC Bank, which is here being recommended as the lead bank, it being borne in mind that BASIC Bank will closely work with the Advisory Panel. (Over the medium term, this responsibility will devolve to the SME Foundation.)
e. The Ministry of Industry and the SME Advisory Panel/Foundation, as the case may be, will determine modalities of how to implement both the credit-fund and the venture-capital fund.
f. Within the purview of the Advisory Panel, projects to be funded from the venture-capital fund will be evaluated by a team of experts which will be constituted as a part of the implementation of SME Policy.
g. A publicly-mandated venture-capital scheme will be created in deference to the rationale cited in the main text. It will also give a stimulus to the morale of entrepreneurs who commit in-house capital to projects with novel and potentially innovative processes and technologies with demonstrable potential for commercial success. Such projects have a-typically high risk and high returns. This recommendation is rationalized in terms of the private under-investment based on extensive, even potentially crippling, negative pecuniary externalities in certain among the booster industries prescribed here, with regard to the leaching of shareholder’s value outward from the enterprise.
h. The Advisory Panel working together with the Lead Bank in the short-term, and the SME Foundation in the medium- and long-term would implement a transparent and meritocratic arrangement for steering public equity and debt resources into a genuinely deserving selection of enterprises.
i. The development of human resources in both the BASIC Bank and the SME Foundation with regard to effective targeting of resources made available under public equity funding would remain imperative.
12. QUALITY-ASSURANCE (QA) CERTIFICATION
a. Bangladesh Standards and Testing Institute (BSTI) with its accountability to SMEs fundamentally enhanced through appropriate SME representation in its governance, and with appropriate representation from civil society institution(s), shall become the focal point for offering assistance with regards to securing quality-assurance (QA) certification from registrars of QA.
b. Suitable SME-related industry association(s) shall be empowered to issue non-mandatory certification, albeit with high professional integrity, with regard to quality assurance. Such association(s) would be eligible to grants from Government towards the cost of setting up required testing laboratories and other facilities.
c. Small, out-right co-financing grants will be available for registration with globally branded QA registrars (say with ISO 9001: 2001 or equivalent).
d.
13. MULTI-STAGE SAMPLE SURVEY OF SMES
There is an urgent need for a major overhaul of the availability of reliable and current data about the characteristics of SMEs. The Ministry of Industries shall immediately take up the conception and implementation of a multi-stage sample survey of SMEs in the metros and the district headquarters. Ideally, there should be a complete enumeration of all SMEs, the data from which should be of use in drawing up a survey methodology for a systematic stratified random sampling.
14. TACTICAL PLAN OF ACTION
a. Strategic skills upgrading: The tactical plan is needed to move from gap analyses to skills upgrading based on the product(s) in the booster-sectors identified in this report, paying careful attention to the requirements of the production clusters in the inner cities (such as Dholai Khal, Mirpur,and the like).
b. Enabling environment: An enabling environment in which both extent and aspiring entrepreneurs find within an easy reach most of what they direly need---information, counseling, mentoring, access to finance, technology and the means to market.
c. Supply chain for technopreneurship: A serious effort shall be made for fostering a supply chain for technopreneurship. Bangladesh needs role models that can get intelligent and diligent people excited about creating value through successful entrepreneurship. The SME Panel/SME Cell and the SME Foundation conceive programs in popular media, and anchor(s) for them to match, modeled after some widely-accepted success stories.
d. SME Web Portal: An online-community, availing of relevant information and communication technologies, of both extant and aspiring SME entrepreneurs, shall be hosted on a SME Web portal in the SME Cell/SME Foundation, for the divining of technology, product and market trends, for career-counseling to benefit science/technology graduates, for technopreneurial problem-solving session(s), for mentoring using guru-disciple symbiosis.
e. Towards a virtual SME front-office: A Web-based virtual front-office providing all start-up assistance to SME entrepreneurs (application forms, FAQs, limited directory-assistance, success stories, horror stories, etc) and an one-stop-service, with all interactions between the user and the system stored on databases shall be established in the interest of providing institutional memory.
f. Exports-friendly content on the SME portal: Information regarding standards of labor and output pertaining to overseas markets to benefit export-oriented SMEs shall be put in place on the Web portal.
g. Electronic-governance with a human touch: Such structures of electronic-governance shall be supplemented, at least for a time, by human touch, with adequate budget to match, to physically attend to the needs of small entrepreneurs who take recourse to them. This is based on the recognition that a totally hands-off delivery of all requisite services to SMEs is an ideal whose achievement was likely to only happen in stages.
h. High-performance communications backbone: A high-performance fiber-optics communications backbone shall be put in place in six of the country’s largest metro-markets (namely, Dhaka, Chittagong, Rajshahi, Khulna, Sylhet and Barisal) so that the launch of some serious ICT-centric applications to benefit e-governance to the profit of SME development is not unduly handicapped by woefully inadequate bandwidth.
i. International technology-exchange programs: Technology-exchange programs between countries with similar stages of development, and with a similar maturity of the infrastructural development for SME shall be implemented in the interest of rapid technology transfer.
15. FORMULATION OF A PACKAGE OF CAPACITY-BUILDING AND TRAINING
a. Specialized professional expertise: Specialized professional expertise in carefully-chosen niches that the Panel of Advisors recommends has potential for a broad-based replication. Such training can be so packaged to such high standards that the recipients feel motivated to pay up user charges, however minimal.
b. Re-skilling boot camps: Re-skilling boot camps would need to be organized for each of the booster industries by rotation, with a view to provide periodic technology grounding in efficacious skills among workers in SMEs.
c. Institutional capacity for training: BSCIC/SCITI, BIM, and BITAC---where a lot of equipment, infrastructure and other resources are in place---should undergo a significant strategic reorientation of their own core competencies under the watchful eye of the Advisory Panel/SME Cell. In particular, the skills and competencies needed to enable SME hold their own in the booster-industries in the changed global business environment should be re-emphasized in the ensuing revamping of these institutions.
d. Capacity for coordination among multiple institutions: Several public institutions (such as Atomic Energy Commission (AEC), Bangladesh Council of Scientific Investigation & Research (BCSIR), Leather Training Institute (LTI), the Textile colleges, the Ceramics Research Institute, the public universities, etc) have significant capacity for both product- and process-innovation of real value for SME development. The case for harnessing all that productive capacity in a coherent and harmonious manner can be over-emphasized. However, achieving this will require a great deal of institutional coordination among various Ministries of the government.
e. Technical assistance and investment: Towards this end (as stated above), technical assistance and investment are both urgently needed to appropriately accent the training and motivational in these institutions so that they can become durable fixtures of technical and managerial skills can be nurtured, in a format of public-private partnership.
f. Private-public collaboration: The selection of such training courses and then the delivery of such training is an important instance of public-private collaboration.
g. R & D with potentially high-impact profiles: R & D that lead to prototypes with a scope for replication in potentially high-impact product niches (eg in the field of mobile games, 3-D animation, or bio-optics, or the manufacture of computer-controlled industrial and medical appliances, or spurring the use of resin in new production applications, etc);
h. Curriculum development for vocational training: Curriculum of vocational training institutes be revised and reviewed to make it SME development friendly.
16. EVOLVING OF AN SME ECO-SYSTEM
Two kinds of institutions are recommended, preferably for adoption by civil society role models/ catalysts, bearing in mind that these institutions will not be in the employ of the government.
a. The mission of the first kind is in trying to render stakeholders out of indigenous young science and technology graduates by bringing to their agenda for poverty alleviation the currently-missing fulcrum of technological innovations to improve the quality of life of the poor in Bangladesh.
b. The mission of the second is to achieve mastery over a rapidly-changing slate of IT skills, and to then quickly disseminate them among young self-starters, including in the university/polytechnic/colleges’ stream, through a regime of online and “brick-and-mortar” interactions.
c. Efforts to accelerate the retention and promotion of women entrepreneurs should be strengthened.
d. Greater stakeholder involvement in the entire gamut of activities by way of SME development while maximizing the extent of ownership to be promoted.
17. MITIGATING IMPEDIMENTS IN CLUSTERS
There shall be an effort to identify three or four promising lines of production in a handful of clusters in the metros of Dhaka and Chittagong, where small enterprises abound. Gap analyses that lead to the diagnoses of weaknesses that stymie their productivity shall be launched. Several technical assistance studies shall then be aimed at these problems.
18. EDUCATION AND GENERATIONAL ETHOS
a. Bangladesh should increase the number, and enhance the quality of technical education in, the country’s polytechnic institutes in the interest of increasing the number of entrepreneurs.
b. Content of a kind that seed, early on in the global-view of the children, the attractiveness of entrepreneurial careers should be pressed into service.
c. Similarly, the accent on mathematics, science and technology fare should be made stronger in the educational curricula of schools and colleges in Bangladesh.
d. A census of all small and medium enterprises in Bangladesh should be conducted. This is likely to require a very large investment.
e. The legal and contractual framework prevailing in Bangladesh often increases especially small enterprises’ handicaps. A survey of SMEs should be launched in order to identify these insidious legal irritants. These should then be systematically weaned from the world of Bangladeshi SMEs.
f. A small-claims court needs to be instituted, with requisite resources and mandate to match.
Chapter I
INTRODUCTION
1.0 Importance of SMEs
1.1 Small and Medium Enterprises (SMEs) are the dominant form of business organization in all countries, typically accounting for over 95% of the business population. OECD recognized that SMEs constitute an important dynamic element in all economies as they drive innovation, especially in knowledge-based industries; and play a key role in driving sustainable economic growth, employment creation and poverty reduction, especially in developing countries. It also contributes to the social, cultural and environmental capital of nations.
1.2 In view of the rapid structural change in the world economy, especially in favor of increasingly weightless, paperless, knowledge-rich industries and services, to see structural change and remaining relevant as major imperatives for intervention by government and the civil society.
1.3 Acknowledging the importance of SMEs and entrepreneurship, the Government of Bangladesh reaffirming their commitment takes initiative to design a SME policies and strategies for its coherent growth. The Government of Bangladesh has constituted a National Taskforce on SME Development as Dr. Kamal Uddin Siddiqui, Principal Secretary to the Prime Minister as its chairman on 2003. (Annexure-1).
2.0 Terms of Reference of the Taskforce
In essence, the Taskforce’s cardinal goals are the following:
To recommend to the
Government a body of what can be called SME Policy in Industrialization for
Bangladesh;
To redefine the
criteria of eligibility to the assistance package in terms of size of the
enterprises;
To identify, on some
well-agreed rational bases, a number of industries with a sizeable proportion of
SMEs which then to create an assistance-package for;
To produce a fairly
self-contained set of implementation guidelines for the Taskforce’s
prescriptions to have lasting value;
3.0 National workshop on SME Development
A national workshop on Development of SMEs in Bangladesh was organized by the Taskforce on 20 February 2004 at LGRD Conference Hall and was represented by the prominent scholars, experts, government officials, representative of the development partners, and members of the civil society of the country. Two keynote papers were presented in the workshop: One “Tackling Stock and Charting a Path for SMEs in Bangladesh” by Bangladesh Enterprise Institute, and the other one “Entrepreneurship Development for Small and Medium Enterprises” by Bureau of Economic Research, University of Dhaka. Six groups formed in the workshop presented their findings and recommendations. The compilation of the recommendations of the workshop has been distributed to the participants of the workshop for further comments. The individual comments and recommendations were discussed in the meetings of the Taskforce and finally, a drafting committee was formed to produce a draft report of the Taskforce on SME Development.
4.0 Objectives
The key objective of the report of the SME Taskforce is to make a constructive and hopefully lasting contribution to identifying booster sub-sectors, and then to the leveling of the playing field for SMEs, and especially for small enterprises in these booster sub-sectors. SMEs, especially the small enterprises must be offered an enabling environment for routine operation and growth, unhindered by the predatoriness of stronger rivals, to name one of the most potent anti-thesis of their survival.
5.0 Efforts of the Drafting Committee
What follows is the first draft of a report of the Small and Medium Enterprises Taskforce: it includes the outputs from various companion efforts in the appendices. While borrowing selectively from those companion output, the draft of this report has made an effort within merely a couple of week time-period to round out a theoretically self-contained, sectorally well-targeted, and articulated prescriptions for the policy-maker. The members of the drafting sub-committee are acutely aware that, while they have actively sought to give space to as many of the relevant threads of both analyses, discussions and recommendations from the companion output, they may have occasionally failed to capture each item that was important. The drafting sub-committee however feels that by including all of that valuable companion output in the body of the overall report of the taskforce, albeit in the appendices, the reader has not been denied of the fruits of that fertile labour.
6.0 Methodology and Approach
6.1 A good deal of thinking and writing have taken place, especially since this Taskforce was formed in November 2003, on how to spur the growth of SMEs in Bangladesh. The scholarly activity produced several reports, including the report produced by the Bangladesh Enterprise Institute. That report, as also some other work done by scholars on the subject of SMEs, produce many conclusions that are well-informed and valid. The Taskforce is much in the debt of the authors of those works.
6.2 Having said that, it is imperative that we make it frankly clear that we have taken the liberty, whenever appropriate, to employ a different methodology formulating the vital question(s) of real interest. More specifically, we have chosen to adopt a slightly more focused, perhaps more specific, approach to what is action-able within the admittedly limited financial and implementation resources of the government. The distinguishing feature of our methodology has been a constant concern with externally-induced constraints that affects, or are likely to affect, SMEs only but not others.
6.3 This “SMEs-only” global-view leads to side-tracking or totally omitting issues of a kind that affects alike both SMEs and large enterprises, for example. Given that the government is in any case likely to be starved of financial and managerial resources, the SMEs-only vantage-point appears to us to be more appropriate, both tactically and logistically.
6.4 We take pains in pointing out throughout where some of the other esteemed contributors, by using a more general approach, have been led to propound a significantly more expansive, more diffuse and less tractable package of assistance interventions for SMEs, compared with the one that we have put forward.
6.5 Let us give an example of what we have in mind here. The BEI writes: “Second, the government should be focused on creating an enabling environment comprised of sound macroeconomic and structural policies, good infrastructure, fair policy of competition, and efficiently functioning institutions (italics added). Economic policies should focus on creating a transparent and accountable legal and regulatory framework, a policy to improve quality and transportation system.” These policies will, if they are effectively implemented, increase the productivity, across-the-board, for all sizes of enterprises. How can they alleviate the competitive deficit of the SMEs versus large enterprises? An SME-only approach leads us to a more focused set of actions, with a more direct impact-route for SMEs’ constraints, is likely to address them in a clear and quantifiable manner.
6.6 The Taskforce has availed of a methodology that blends five best-practices, namely, (a) synopsis of first-principles that rationalize public intervention of any kind; (b) summary of deliberations from an intensive day-long workshop held in February, 2004; (c) the two reports produced by the BEI and BER; (d) lessons from case-studies of market and government failures; (e) stakeholder interviews (consultants, BSCIC, NASCIB, some real-life entrepreneurs currently engaged in SMEs); and finally (f) distillation of international best-practice.
7.0 Scope of the Taskforce
The scope of the work of this Task Force is about small and medium-sized enterprises in manufacturing industries or in trading or service-based ventures. The SME Taskforce puts forward a well-structured approach to the problem of identifying booster sectors, and “eligible” enterprises within them. With this, we now turn to the vision that has inspired the Taskforce.
8.0 Vision
The Taskforce believe that it was handed down a rare opportunity to make a difference, going forward, to the lot of SMEs in this country, draw up a tactical plan of action and finally a set of implementation details so as to spur small enterprises in a number of target industries. The period of the incumbency of this Taskforce has been one of thinking clearly about the vision and road-map for the development of SMEs. The vision guiding our work has included:
a. That legitimately promoting SMEs---or, at the very least, keeping SMEs, especially the small enterprises out-of-harm’s-way from the fierce competition powered by the large, formidably-branded, often multi-national, firms---would be widely accepted as an essential tenet of industrial policy of Bangladesh.
b. Of the total resources available to SMEs, no more than 20% must be earmarked for the medium-sized enterprises, while the remainder, 80%, will be earmarked for small enterprises.
c. Stake-holders of small and medium-scale enterprises shall run their business on a level playing field as regards the provisioning and pricing of each of the seven make-or-break inputs for any enterprise to compete, namely, equity capital; debt finance; technical skills; management skills; marketing know-how; gainful information, especially updates about market prices and about technical-substitution possibilities; and capacity for continuous innovation.
d. Such stakeholders on the other hand must also be ready for any change-management that survival may dictate or agility may require; have a high degree of management commitment to success; and finally must be willing to give to success what it takes by way of intelligent, prudent but diligent work whenever necessary.
e. There must be a minimum allocation certainly in the development budget for rendering legitimate public assistance to SMEs.
f. That there will be an Advisory Panel, equipped with professional expertise, with a lateral locus standi within the Ministry of Industry, mining its expert knowledge, scouring the profit horizon for the next big thing that especially small enterprises could have a natural ability to excel in. This Panel must be funded reasonably, with regard to what it takes to carry out rapid but knowledgeable appraisals. Such a brain-trust will work like a control-panel for screening-in on an early-on basis the products that small enterprises could own to succeed. This body will be tasked to identify thrust subsectors to steer the focus of small enterprises. The Panel will also supervise the professional work to be done within the SME Cell, which currently exists in the Ministry of Industry.
g. That inputs from service-organizations (technical, marketing and management know-how) will, whenever necessary, be accessibly priced and then be physically available when they are needed by SME businesses.
9.0 The drags the Taskforce faced
9.1 The Taskforce was handicapped by a paucity of statistical data evoking confidence in terms of the quantitative significance of SMEs in the national economy of Bangladesh. Comprehensive information as to the structure of industries where SMEs abound was also not available. Senior researchers from BIDS have pointed out that even data circulated by Bangladesh Small and Cottage Industries Corporation (BSCIC) regarding value added were deeply flawed. It is not just the case that necessary results were NOT to hand in terms of essentially descriptive characteristics of small enterprises (such as size, value-added per worker, capital per worker). The paucity of data and information was even more limiting as regards more substantive policy matters. The structure of costs, the relative importance of the sourcing of the inputs by small enterprises between domestic production versus imports, the ex-factory prices for small/medium firms of imported inputs (which can allow the calculation of the effective rate of border taxation of imports), etc, are some of the required data of substantial importance, which were virtually not at all available.
9.2 All too often, the members of the Taskforce were feeling as if we were on a mission to plan without facts or wage a war without maps. We had no evidence of certifiable authenticity as to which are the industries in which SMEs on our definition had prospered or withered. We had no firm evidence as to why they had prospered or withered. To the extent that casual empiricism led us to surmise that one or the other industry had seen their SMEs do well, there was no evidence at all to probe such episodes for their underlying drivers, for example, whether they had done well due to their ample wits, or they had done well due to public largesse (of cash subsidies, for instance). There was too little even of the data, not to speak of information or knowledge as to what are the quantitative laws of motions of SMEs in Bangladesh. Even NASCIB, the supposed association of small and cottage industries in Bangladesh, could not produce any real data purporting to show the business character of their avowedly 6,000 members. The situation regarding data was simply untenable, and cried for an early effort to alleviate its poverty.
9.3 Absent such any credible empirical basis for our work, we were reduced to depending on secondary research done by scholars, on abstract inferences we could reasonably make based on a priori theory, and on the accumulated practical work experience of a number of SME practitioners, both inside the Taskforce and outside. We freely admit that such an amalgam is scarcely an effective substitute for having and using hard results from seasoned analysts or analyses. Even so, we believe that, while not of a flawless pedigree, our recommendations are on the whole realistically actionable
10.0 Structure of the Report
10.1 The report is structured as follows: The main report is broken into three chapters. Chapter II essentially makes the point that in the wake of fairly accelerated trade liberalization, and the growing ascendancy of both China and India as manufacturing powerhouses, the small and medium enterprises (SMEs) in Bangladesh are exposed to the chills of oversized foreign competition like never before. This chapter is about the role of SMEs in development. Chapter III defines the SMEs for purposes of policy discussion going forward, and then highlights the criteria for sectoral targeting. This chapter also finalizes a list of eleven booster industries that must become the focal point of a strategy for SME assistance in Bangladesh for the next three years. Chapter IV presents the policy and institutional recommendations of the Taskforce. This chapter also then issues forth a number of markers as to how the eligible enterprises are to be drilled down for. Chapter V presents the summary and conclusions of the report.
There are three appendices to the report. Appendix-1 presents the notification of the constitution of the National Taskforce on SME Development. Appendix-2 presents a detailed presentation of the criteria for sectoral targeting. Appendix-3 presents the recommendations of the groups that arose from the Workshop held on February 20, 2004.
Chapter II
ROLE OF SMEs IN THE NATIONAL ECONOMY
1.0 Trade Liberalization and Competitive Landscape
1.1 Bangladesh has liberalized conspicuously throughout the 1990s. As a result of this broad liberalisation, the overall orientation of trade policy in Bangladesh has altered considerably, in the process becoming significantly less protective and less biased towards import substitution activities and therefore less discriminatory against domestic exporters (and potential exporters). During the 1990s, the coverage of quantitative restrictions fell from 253 four-digit Harmonised System (HS) codes to 28, while the average tariff actually applied (based on total revenue collections) fell from 62.3 per cent to 23.0 per cent. Maximum customs duty declined from 350 per cent to 25 per cent during this period. In other words, Bangladesh has been a poster child of good, even docile, management of its trade and industrial policies.
1.2. Has this great effort yielded commensurate gains in terms of growth rates? The growth rates---of the GNP, the manufacturing value added, and trading sectors in the Bangladesh economy for four overlapping quinquennial periods beginning from 1976/77 up to 2003--- shows no evidence at all of a significant quickening of the rate of economic growth in any of the three growth indicators. Whereas, the differential between the rates of border taxation between the two period is highly significant. The clear implication is that trade liberalization is a necessary but no means sufficient condition of a significant acceleration of growth rate of any given developing country.
1.3. This is not the place for a fully-blown analysis of Bangladesh’s trade and industrial policy. What we want however to do at the present time is to emphasize that with the dismantling of the protective tariff structure, Bangladesh has become more outward-looking in how it sources its requirements for various products. An obvious by-product of that trend has been that domestic manufacturing for domestic absorption in which especially small and medium firms have a natural interest may well have declined. Business interest in making a quick profit from indenting and trading has been piqued, while successful domestic manufacturing has become very challenging indeed.[1]