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The State of Business Practices and the Impact of BDS on MSMEs in Zambia

The State of Business Practices and the Impact of BDS on MSMEs in Zambia. Prof. Tenkir Bonger and Mr. Christian Chileshe August 2013. Location of Study.

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The State of Business Practices and the Impact of BDS on MSMEs in Zambia

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  1. The State of Business Practices and the Impact of BDS on MSMEs in Zambia Prof. Tenkir Bonger and Mr. Christian Chileshe August 2013

  2. Location of Study • “To improve access by MSMEs in rural and urban areas to business development support in key areas that facilitates enterprise stability and growth” (Objective 4 of Zambia’s MSME Development Policy: 2011-15)

  3. Introduction • MSMEs are now commonly viewed as key to inclusive and sustainable development • Many countries have developed specific policies (e.g Zambia’s MSME Development Policy 2011-15) • Yet, evidence from many developing countries shows that this sector continues to post sub-optimal results. • Zambian MSMEs continue to struggled to compete in a rapidly glabalising economy

  4. Study Objectives • The Overall Objective: To identify institutional factors affecting MSMEs in their contribution to national development. • Specific Objectives of the study: • Identify business practices affecting MSME development; • Assess state of access to BDS by MSMEs; • Gain insights into current levels of performance of MSMEs • Better understand the interplay between business practices, access to BDS and enterprise performance. • Study approached from 5 subject areas: economics, business management, business law, entrepreneurship and finance

  5. Research Process • Consultative process with individuals from major stakeholders – Public, Private & Development Sectors • Literature review • Selected 187 MSMEs from Lusaka (160) and Kabwe (27). A quarter female. • Had also selected BDS providers & financial institutions but received poor response. • Data analysis – Descriptive statistics and some econometric modeling, leading to the production of the first of a series of reports.

  6. Business Practices, Access to BDS and MSME Performance

  7. What are Business Development Services (BDS)? Non-financial support services addressing the following areas in MSME Development • Market access services; • Access to input supply services; • Access to technology and product development services; • Training and technical assistance; • Access to infrastructure; • Facilitating engagement with policy and advocacy; and • Access to finance • Based on Gagel (2006)

  8. Actors in BDS Provision to MSMEs • Government • Development Agencies • Value Chain Actors • Dedicated Private Sector BDS Providers • MSME Member Institutions

  9. Study Findings (1) • Charactorisation of the MSME sector • 80% micro, 50% sole proprietorships • 60% of respondents between 25-45 yrs, rising to 83% if up to 55 yrs. • Only 3% of operators had a degree or higher • Trading takes up 31%, with agriculture rather underrepresented due to study location. • Just over a third are primary producers/suppliers • Over 80% have been operating for less than 10 years

  10. Study Findings (2) • Access to Finance • 88% of MSMEs engage with financial institutions • Only 6% accessed finance from MFIs. 4% from CEEC • Financial institutions sought for longer term finance, while working capital from personal savings, family and friends • Yet, bank overdraft is ranked highest as most needed financial product. • 58 percent indicated that they did not presently need any of the different available loan products • Relationship between MSME profiles and financial access need to be better understood.

  11. Study Findings (3) • Levels of Entrepreneurship • 82% satisfied or happy with business performance, yet only 32% exhibited a high locus of control. • Market risk (including competitor pricing) are seen as the single most important risk. • Product quality was most popular competitive strategy (with pricing coming in third). • Majority willing to collaborate & even share ownership, but only 4.5% willing to cede more than 50%. • Kabwe appears to do better on entrepreneurship.

  12. Study Findings (4) • BDS – Awareness & Access • Only a quarter knew about BDS, though 49% have accessed • Most dominant BDS - Access to finance, skills development & access to markets • NGOs & Govt take up more than 50% of BDS provision. Only 3.5% is directly by private sector service providers. • Over 90% have heard of ZDA & CEEC, including their BDS activities. • 42% mentioned accessing one form of ZDA incentive of other. 6% have received CEEC funding.

  13. Study Findings (5) • BDS – Impact • Greatest perceived benefit of BDS is in skills development (technical, operational and strategic). • 61% indicated seeing impact at enterprise level. • Yet no sig relationship between BDS and performance (based on profits). • Future BDS Demand • Access to finance emerged as top priority for MSMEs • Willingness to Pay • 92% expressed willingness to pay for services

  14. Study Findings (6) • MSME Performance • As much as a quarter indicated static or drop in overall performance. • Least growth experienced around profitability. • Increased competition and rising costs cited as factors affecting MSME performance • Growth in market share most closely related to profitability

  15. Study Findings (7) • Possible Interplay Between MSME Business Practice, Access to BDS and Performance • Particular practices amongst MSMEs need to be targeted for BDS interventions intended to enhance enterprise performance. • There is relationship between governance structure and performance. • Levels of entrepreneurship are low. Most BDS interventions not addressing this aspect, in turn explaining (at least in part) the continued low levels of entrepreneurship. • Most BDS targeting aspects relating to external engagement and not so much institutional management practices. (which was actually the most appreciated).

  16. Conclusion • Key firm characteristics have a telling effect on their ability to enhance productivity, become competitive and even grow (e.g governance, age, educational levels). • Low levels of entrepreneurship (evidenced by mindsets & practices) are affecting MSME Development, yet receiving insufficient attention in BDS interventions • The dominant roles being played by Gvt and NGOs in BDS may be impeding BDS sub-sector development. • There is currently no framework that defines institutional roles around enterprise development support to MSME sector • Current portfolio of financial products may not be responding to perceived MSME needs.

  17. Recommendations • Need for development of clear institutional framework for BDS to MSMEs. • Need for knowledge/evidence-based building blocks that support Zambia’s PSDRP • Farmer organisations will need to play a more prominent & collaborative role in the BDS framework • Need for closer collaboration between BDS providers and financial institutions. • Development agencies provide an important platform for addressing key issues identified.

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