Developing a Conducive Environment for Small and Medium Sized Enterprise Growth in Cameroon

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By Juliette Ngole

In most of the world’s economies, small and medium-sized enterprises (SMEs) are regarded as vectors for job and wealth creation. Through their investments and consumption, they create value and produce a surplus of goods and services, thereby playing a significant role in funding public services and creating a dynamic local economy [1].In Sub-Saharan Africa (SSA), the SMEs sector accounts for more than 90% of all firms. Between 70% and 80% of SMEs are very small firms. They are the main source of jobs and income for Africans, following subsistencefarming[2].

In Cameroon, SMEs officially make up 95% of the country’s economy, affirms Laurent Serge Etoundi Ngoa, Minister of Small and Medium size Enterprises, Social Economy and Craft, in an interview. Fully aware of SMEs’ importance in any development strategy, Cameroon has been increasing, in the last few years, its support for them. This includes the creation of the SME Bank on July 20th, 2015 in Yaoundé which was conceived to reduce the challenges faced by SMEs in Cameroon when seeking financing, and the opening of the Upgrading Office, with the EU’s support, to reinforce the competitiveness of Cameroonians. In addition, Cameroon now has an Agency for the Promotion of SMEs, which aims to transition SMEs from an informal to a formal economy and Tax Management Centres put in place by the Finance Ministry, where SMEs receive tax advice to better play their part in the development of the Cameroonian economy [3].The government has also been cultivating small-business growth in recent years through initiatives such as one-stop business registration centres[4].

However, despite the strong role SMEs play in the economy and the initiatives put forth by the government to promote them, these companies, which are unanimously considered to be engines of growth, only make up 36% of Cameroon’s GDP[5]. Minister Etoundi Ngoa states that “If SMEs were to contribute 50% of GDP; we would already be an emerging country. So, SMEs need to work harder to achieve the remaining 14%”. This notwithstanding, it will be essential for the government to recognise the fact that the reason why SMEs contribute modestly to the GDP is because of the challenges they still face; challenges that hinder their growth and performance.

Factors impeding the Growth and Performance of SMEs, andProposed Remedies

Poor market research

Market research entails identifying and meeting the needs of a targeted group of people. Little or no market research is conducted by some owners of SMEs; leading to their early death. Given that they don’t understand market demands, recognize business opportunities nor design perfect marketing campaigns, they fail and close. The importance of carrying out a feasibility study should not be underestimated when determining cost, practicality and success. We thus propose that government and various organizations to carry out necessary studies to determine best business opportunities locally and nationwide.  This will help investors by offering access to data and a better understanding of the whats, whys, and wherefores of investment.

Unawareness by SME’s of available facilities established to promote their growth

In Cameroon SMEs have a poor relationship with the agencies and institutions established to support and promote them; a majority of them do not know that such institutions exist. We strongly put forth the suggestions that government create awareness programs in each locality. For example, many strategies like the agreement between Japan International Cooperation Agency (JICA) and the government to create development centres for small and medium-size enterprises in the country have been established to encourage the growth of SMEs.  We question the number of SMEs familiar with, or taking advantage of, this opportunity.

Inadequate financing

Inaccessibility of financing is a major obstacle to small business growth and development. Absence of guarantee or inadequate collateral provided by SMEs to banks when requesting a loan has discouraged these banks from loan approval.  Actually, a bank prefers to deal with large, well-established corporations. Additionally, loan operation expansion continues to be hindered by the institutions “limited ability to obtain information on borrowers” solvability, while heavy taxes and a 15%[6] interest ceiling on loans to small and medium-sized enterprises (SMEs) also causes SMEs to shy away. In order to ease access to credit by SMEs, the state could grant tax reductions to banks willing to give loans to SMEs at a lower interest rate. Moreover SMEs should be informed of other available sources of financing, such as the AfricanGuarantee Fund for Small and Medium sized Enterprises (AGF), GICAM and a consortium of banks [7].

Low level of expertise/lack of qualified staff

The management style of these SMEs, which are considered as family businesses, leaves much to be desired, coupled with a lack of training and professional associations to guide agents. Some owners of these SMEs, because of lack of required managerial skills, are unable to operate and grow their business; thus shortening the lifespan of their business[8]. In response to this, SMEs personnel should be encouraged to undertake courses that will help in building managerial and research skills. Courses on cash flow management, marketing, import/export, business planning, business communication, etc. will be necessary to improve the knowledge and skills of managers, owners and employees, and will go a long way to lessen or eliminate the risk of closing prematurely, increase work efficiency and achieve successful business results. 

Fiscal bottlenecks

According to 2018 Doing Business in Cameroonthe effective tax rate stands at 57.7%. Other government taxation policies include a corporate tax levied at a rate of 35% plus a 10% municipal tax [9]. All this has a negative impact on the growth of SMEs given that such a high tax rate increases prices of various goods and services which, in turn, lead to higher production, distribution and selling costs.  Hence, higher prices of finished products–the result being changes in consumer buying behavior. People start reacting to the higher prices by buying less of the product or lesser quality product. We suggest that the tax rate be reviewed and reduced to an extent whereby tax compliance can co-exist with SME survival.

Lack of technical production materials and competition

Most SMEs in Cameroon lack or possess inadequate technical materials of production and are thus unable to meet demand.  They are unable to compete with their foreign counterparts who possess necessary tools of production and produce quality goods. The state and other promoters of SMEs should enter into partnership with foreign affiliates who not only provide means of financing but, equally, offer technical equipment assistance. Competition wise, trade fairs should be organised nationwide in every city, where SMEs could display their goods and compete with fellow businesses.  Prizes might be awarded for the superior goods and/or best business practices. This will motivate SMEs to produce quality goods and become more competitive at both the national and international level.

Corruption

Conventionally, corruption is understood and referred to as the private wealth-seeking behaviour of someone who represents the state and the public authority or as the misuse of public goods by public officials for private benefits[10]. According to Daniel Gbetnkom in his report “Corruption and small and medium-sized enterprise growth in Cameroon”, the public officers who most often exercise pressure on SMEs in Cameroon for informal payment (bribes) include: tax, customs and electricity officers. This issue of corruption should be dealt with by sanctioning, most stridently, any official who requests bribes from owners of SMEs.

Conclusion

The state, together with other organisations like NGOs, has an uphill task in its effort to dismantle all of these obstacles as it tries to create an environment conducive for both growth in numbers and performance. During implementation of the SME policy, it will be necessary to improve coordination and cooperation between all responsible institutions at the national, regional and local level in order to achieve the best outcomes.

Juliette Ngole is a Research Assistant at the Nkafu Policy Institute

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By |2019-08-01T15:35:15+00:00February 25th, 2019|Categories: Economics Affairs, Publications|Tags: |

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