In #Conversation with Mr. Suresh Pradhan, President SAC-SME Forum & Fmr. Spokesperson SAARC Trade Promotion Network

Q: SME & MSMEs comprise a major chunk of the business sector in our countries. And they face a standard set of challenges. Which are the specific challenges affecting SMEs in your country?

A: Yes, in general the contribution of SMEs & MSMEs is significant in most South Asian countries, often over 90% in proportionate terms. In most cases, the eagerness of MSMEs to expand is often limited due to various motives, and this becomes a basic bottle-neck for them to graduate from their current situation. There is also a lack of self-discipline, professionalism, corporate culture, responsibility in roles, etc. Collaborative and cooperative approaches in their line of business are often seen to be missing in many MSMEs. In the Nepalese context specifically, the most specific challenge has been the instability in the government in recent times, and the associated uncertainty in government policy, acts, rules and regulations. As of now, a stable government has been established and there is optimism that most of the roadblocks in terms of policy, acts, rules and regulatory issues will be resolved soon. That would create a favourable environment for MSMEs.

Q: In view of the above challenges, what is your specific recommendation for this?

A: With regards to recommendation, we in the Nepalese private sector are advocating and lobbying for a conducive environment for overall economic development by encouraging investment and enterprises. For this, we expect to see infrastructure development on PPP mode, enabling streamlined access to finance, markets, technology and more, promotion of Make in Nepal specific intervention via public procurement policy and acts, ramping up of investment and encouragement by government and development partners for export and import substitution products, effective and favourable agreement on bi-lateral, multilateral and regional basis for trade transaction/facilitation with the region & world, and last, facilitate MSMEs for growth in export & import substitution activities on their products.

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Q: South Asia is a young region, in terms of median age. This creates a huge pressure on job creation, but most traditional businesses have been unable to compete in the current global environment. In such a scenario, what is the main ingredient we need to boost employment and/or self-employment in a sustainable manner?

A: The growth of industrialization in most South Asian countries has lagged in comparison to developing countries like Korea, Taiwan, China or Malaysia. Therefore, the major portion of our youth force entering the job market is still compelled to rely on foreign employment and they contribute to the GDP through remittances. At present, the gap in development and employment generation between LDCs and developed countries is high, which should reduce after 2030 as per the global target for Sustainable Development Goal 2030. Therefore, millions of our youth at present in foreign employment should return to the home country and will be either employed or self-employed here. For this, we need to work to create jobs of high value and explore our natural resources with more possibilities. On an average, the current scenario estimates that USD 1000 of investment creates one job in South Asian countries. Therefore, governments and private sectors have to invest in a similar manner, which demands massive capital injection in the market. Basically the countries in the region need to focus on import substitution and export businesses, with the right of the regional people for the resources first followed by others (export). So the main ingredient is investment.

Q: Do you see microfinance as a way for economic betterment in our countries? This has achieved huge success in Bangladesh, but is yet to see success in other South Asian nations. Can this help Nepal?

A: Microfinance could be a preliminary (if short term) way for development of MSMEs in our region. Due to infrastructure deficiency to cover all areas, such microfinance plays a vital role. But microfinance often results such enterprises to retain their informal nature, and very limited numbers graduate to the formal sector. Therefore, national GDP growth rate can get hindered. For a short time-period, microfinance could help to improve economic development. But in the long-term, it would not help for sustainable development of such MSME enterprises, as operating cost of such microfinance-driven businesses are comparatively higher than commercial banks and financial institutions. Information Technology (ICT) is playing a very supportive role in the access to finance and market over the last few years. By 2030, the forecast is that literacy rate and quality education will cross 90% of world population. This hints that the access to ICT will also be at par to 90% or more. More organized financial institutions are becoming consumer friendly by implementing ICT. This indicates the role of microfinance for the development of such enterprises may be limited.

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Q: How is the SAC-SME Forum helping small entrepreneurs in the region grow and prosper? What are the initiatives it has taken? What are the initiatives that other countries can learn from it?

A: At present, the SAC-SME Forum is focusing on advocacy and lobbying for the enhancement of trade transaction within the region and/or respective countries. Since the inception of the Forum, we have been able to convince respective governments and private sector in the countries and have seen incremental results on trade transactions. The Forum’s focus area is SMEs and MSMEs for such advocacy. The basics of trade transaction are hassle-free movement of goods, services and people between countries. We initiated for such activities to reduce the list for Non-Tariff Barriers, Non-Tariff Measures and practical deficiency on the movement of goods, services and people. There has been encouraging results in some cases but is yet to be improvised in all check-posts and stations of the respective countries with regards to trade transaction/facilitation and movements. We need more out of the box mind-set in days to come. We have to move for an integrated approach for Value Chain & Supply Chain with technology transfer mechanism established in all respective countries. It could be G2G, G2B, B2B, B2C, with the objective to enhance trade transaction and resource optimization. At present, SAARC is not functioning on some issues of regional cooperation. In this situation, the SAC-SME Forum would be a gateway to mobilize trade activities in the respective countries. This will help enhance positive relationship between respective countries. At the same time, respective governments are also requested to support the Forum’s activities to grow business in the neighbourhood through the formal channel.

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Q: Your National Business Initiative has brought together industry participants on a common forum. What are the areas it is focusing on? What is the sort of cooperation it needs from neighbouring countries?

A: Yes, the NBI has succeeded in bringing together some proven business houses, companies and business member organizations (BMOs) on very specific agenda like sustainable business practice, peace-building and constitution making, enabling business environment, inclusive growth and economic opportunities. The NBI had successfully published the “business code of conduct concept”, which also had been customized for the dairy and leather sub-sectors in Nepal in cooperation with the respective commodity associations. The NBI had successfully organized the “2nd Responsible Business Summit” in August 2017 with four major themes and 16 sub-themes to establish a conducive environment for sustainable business practices in Nepal. The NBI expects to work together with neighbouring countries for exchanging their experience and promoting sustainable business practices, corporate social responsibility, business code of conduct, peace and security in business and more areas for enabling the business environment. By the initiation of the NBI and other private sector players, we succeeded in incorporating the CSR clause in the “Industrial Enterprise Act” of Nepal as a mandatory clause.

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Q: Nepal is doing a lot of outreach on a bilateral basis in recent months with China, then Pakistan and recently with India. What is your view on this?

A: India is still the largest trade partner of Nepal. For supply chain mechanism, every state plans for a single point or port or source dependency. Using the same methodology, Nepal was trying to expand trade partners from the region and beyond over the past several decades. Nepal’s willingness and planning to expand its relationship with other neighbours is to optimize its own capacity and minimize a massive dependency on any single neighbour. This does not express going out from existing agreements with any partner country. This initiation had been somehow justified due to the massive earthquake in Nepal in 2015, and the unexpected and unwilling deficiency in the supply chain mechanism from late July of the same year. Nepal’s unexplored natural resources provide huge potential. Therefore, there is interest and attraction to invest in Nepal. For this, Nepal seeks massive investment in infrastructure for assistive role in economic development and facilitation support as a linking country.

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Q: Some investment is being done across hard and soft infrastructure in our countries. But a lot still needs to be done for true socio-economic development. What are the core areas we need to address?

A: With respect to overall socio-economic development, the Forum’s appeals to the business leaders, government and people of the respective countries to make better people to people relationships in the region, advocate and lobby to the governments for holistic development of MSMEs, encourage regional investment and technology transfer initiative, establish integrated regional quality infrastructure and accreditation for/with world class laboratory, establish regional branding to assure branded quality beyond the regional border, promote high value, niche products on the basis of competitive advantage specifically focused on MSMEs. To establish hassle free mobility of goods, services and people, the visa regime within the region should be improved and/or facilitated, bi-lateral, multi-lateral and regional trade treaties should be done at the earliest, Bangladesh-Bhutan-India-Nepal (BBIN) road and accessibility facilitation project should be completed at the earliest, Belt and Road (OBOR) initiative should be materialized at the earliest to link the region with China and regional value chain/regional supply chain mechanism should be implemented in a win-win model. Lastly, as President of the Forum, I would like to request all stakeholders from the respective countries to be motivated in the capacity enhancement of MSMEs of the region with their respective knowledge and resources. We, at the Forum, welcome all suggestions for sustainable growth of regional MSMEs.

Image Courtesy: All Images by Suresh Pradhan, Anil Shah & Modnath Dhakal

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