ENABLING BUSINESS ENVIRONMENT AND THE DEVELOPMENT OF MICRO, SMALL AND MEDIUM ENTERPRISES – AN ANALYSIS

FROM IDEA TO ENTERPRISE
July 26, 2016

ENABLING BUSINESS ENVIRONMENT AND THE DEVELOPMENT OF MICRO, SMALL AND MEDIUM ENTERPRISES – AN ANALYSIS

Economic growth and development do not happen in a vacuum. Appropriate public policies must be put in place to ensure an operating environment and promote economic development, sustainable development and the development of micro, small and medium enterprises (MSMEs), which have been globally adjudged the engine of the economic growth and development.

It is noteworthy that the government by its chosen policies and actions can act as a hindrance or an enabler to growth and development. Globally, the role of government is changing from being an active player in business to that of a facilitator. There is growing international evidence that if governments are serious about the growth of their economies, the promotion of equity and reduction of poverty, they need to create and operating environment in which entrepreneurship, micro, small and medium enterprises as well as private investment are encouraged.

Thus enabling business environment is critical to the promotion of a private sector-led economy and the development of Micro, Small and Medium Enterprises (MSMEs).

What is an enabling business environment? It is a business operating environment with well-functioning, efficient and effective public, infrastructure, transparent, institutional and regulatory systems that help business to thrive. It is noteworthy that business environment is a key determinant of the economy’s global competitiveness. The components of the Business Environment, as enumerated by the International Labour Organization (ILO), are:

  •       Policy and Legal Framework
  •            The institutional arrangements for governing, promoting and representing the private sector.
  •       Political Stability
  •       The Prevailing Culture
  •       Access to Finance
  •       Market Opportunities
  •       Tax Regime
  •       Access to Business Development and Support Services,
  •       Security
The above are held as the explanatory variables for an enabling or non-enabling business environment. A fundamental premise of an enabling business environment, is good and predictable rules. Governments have the responsibility to put the rules in place. Micro, Small and Medium enterprises by their nature, are more vulnerable to the impact of poor business environment in view of the legion of challenges they face in their start-up, survival and growth stages. Thus, every government that is focused on developing and growing the micro, small and medium enterprises needs to create an operating environment that can support them.

On the part of the MSME operators themselves, they need to continuously scan and monitor the operating environment because it is dynamic.

Areas that need close attention are:

  •       Regulatory and Policy changes
  •            Micro-economic Indices (Interest Rate, Exhange Rate, Inflation)
  •       Market Dynamics
  •       Institutional Arrangements
Governments that want to address the binding constraints in their operating environment, we advise should avoid urban-bias. Rural areas should be considered in whatever policy responses they have. This approach enhances inclusive development and growth of MSMEs. It has been proved that rural-based MSMEs, face greater hurdles in their business environment.

On a final note, an enabling business environment is not the responsibility of only the government, the organised private sector, has a complementary role to play.
 
Young C. Okezie, B.Sc (Hons) MBA, M.Sc, FCA, FCAI, FPAM FCASIN, MICSB, MNIM, ACTI is the Co-ordinator, PAMDI Centre for Entrepreneurship and Innovation and the CEO/Lead Consultant of Afrique Consulting Limited (MSMEs Business Development and Support Services Providers).
 

 

 

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