By Rawle Lucas
Fight against poverty
There is plenty of excitement about the potential of micro and small businesses to help people get out of poverty. The global enthusiasm for micro and small businesses became noticeable after the Grameen Bank, a credit institution in Bangladesh, gave micro credit to poor women in Bangladesh to start businesses that helped them to lift the veil of poverty from their lives. Ever since the positive story of the millions of female customers of Grameen Bank came to light, governments, international organizations and non-governmental entities have embraced micro and small businesses with a passion in the fight against poverty.
The strident effort to make micro and small businesses an implement of economic reform has also been adopted by Guyana. This effort became an integral part of the program of support provided by the IMF, World Bank, and the United Nations development agencies, the European Union and other donors as Guyana made adjustments to its economy under their direction in the last 20 years.
Guyana has always supported small industries since its independence. It used institutions like the Small Industries Corporation and later on the Guyana Agricultural and Industrial Development Bank, the Guyana Cooperative Insurance Service and the Guyana National Cooperative Bank in the attempt to get and keep small businesses going.
Those entities no longer exist and, as the need for their services became clearer, have been replaced by separate enterprises of differing ownership, sizes and focus working on behalf of small businesses. The entities serving the small business community include the Scotia Enterprise Micro-Lending Programme; the Commonwealth Youth Credit Initiative; the Institute of Private Enterprise Development; the Private Sector Center Project; the Small Business Credit Initiative; the Small Business Development Finance Trust; and the Guyana Small Business Association. While they all provide financial and technical support in varying degrees to micro and small businesses, they do not offer many of the services needed by micro and small businesses to help them stay afloat.
Should the Small Business Act of 2004 be fully and effectively implemented, an eighth enterprise, the Small Business Development Fund, would be added to the set of existing bodies available to the small business community.
Official policy and attitude
Earlier efforts by Guyana to harness the economic power of small business faltered under the philosophy of “cooperative socialism” and a regime of restrictive trade policies aimed at preserving foreign currency and protecting local industries. Official policy and attitude, though well intended, adversely affected the interests of the private sector including those of small businesses and cottage industries, and disrupted the orderly and predictable trajectory of small business development in Guyana.
Though easily undermined, small business is the most resilient component of the Guyana economy. It is easy to start a small business in any industry where the entrepreneur is armed with a vision and formidable barriers to entry do not exist. The restrictive trade policies of the past never eliminated the small entrepreneur. Instead, the policies helped to push small business out of the official economy and into the unyielding grasp of the indisciplined and unregulated market.
Undeterred
In that disorderly framework, the unbridled passion of small operators continued unabated. Small business thrived with the emergence of unofficial cambios, overloaded flying traders, private mini-bus operators, ingenious auto mechanics, roadside vendors, crop-growing squatters and corrupt managers. Out of sight in the hinterland and in the backlands of villages, small-scale miners and sugar cane growers continued to push ahead with their economic interests. The cumulative effect of these undeterred efforts emerged to transform the business and physical landscape of Guyana and helped to create the story line for the unsavory narrative about life in Guyana.
Starting in 1988, there has been to date a 20-year process to bring micro and small businesses back into the economic mainstream and under the influence of national fiscal and monetary policy. A cornerstone of current national and international efforts to harness the power of small businesses in Guyana is the Small Business Act of 2004. The Act defines a small business as any business that employs 25 people or less and either has revenues of G$60m or less or assets of G$20m or less. The business can assume any organizational form and must have profit making as its motive.
The Act does not make a distinction between micro and small businesses even though the Fiscal Enactment (Amendment) Bill of 2003 might give us a clue. In that Bill, the government gives the Guyana Revenue Authority the right to use a presumptive method to determine the taxable income of businesses with sales of less than G$10m. The idea behind this assessment method is to capture revenues from businesses that fly under the radar screen and the businesses most likely to do so and earn less than G$10m in sales are the micro businesses. While some small businesses might feel offended, it is reasonable to surmise, in the absence of a clear definition of the concept, that any business with revenue below G$10m is a micro business.
Access to finance
The expectation of the external donors was that the Small Business Act would help to solidify the process of returning small businesses to the mainstream of economic life in Guyana. The Act does have that as a goal by requiring small businesses to register with the Small Business Council so they can carry the designation of “an approved small business”. However, the Act does not indicate what benefits becoming an approved small business would bring to these entities. One could imagine, though, that it would remove uncertainty from among creditors about the legitimacy of a business and increase the chance of loan applications being seriously considered by a bank or other creditors. Potential investors would feel more at ease investing in the equity of the business as well.
Recent newspaper articles and statements by public officials indicate that small businesses continue to participate in many parts of the economy, including retail, agriculture, manufacturing and processed foods.
In comments to the Thematic Consultations on poverty reduction held on March 17, 2008 at Buddy’s International Hotel, the head of Go-Invest reported that micro and small businesses made up more than half of the Guyana economy.
This claim demonstrates the influence of the small entrepreneur even though it is not clear how many of the new business start-ups survive to become long-term participants in the economy. Moreover, the importance of micro and small businesses does not show up where it matters most, in the net profits of these entities, and hence, in the hands of the business owners and families trying to escape poverty. While more detailed study is required, data available in the latest annual report of the Bank of Guyana suggest that micro and small businesses could have accounted for between five to eight percent of reported net profits earned by all private sector businesses in Guyana in 2007.
Strategic
game-changer
Despite the prominence of small business in the Guyana economy and its potential role as a strategic game-changer in the fight against poverty, official attitude is once again in danger of thwarting the progress of small business. As the saying goes, “action speaks louder than words” except that in this case it is inaction that is sending the loudest message of discouragement and might be interfering with the productivity and profitability of small businesses.
The Small Business Act was adopted in 2004 but it took two years to set up the Small Business Council, the primary body to make that act meaningful. An important task of the Council is to ensure that small businesses were receiving 20 percent of public procurement contracts. The Act also requires the setting up of the Small Business Bureau so that the Council could get its work done.
Four years after the approval of the Small Business Act, we learnt from the Chairman of the Guyana Small Business Association last week that the Bureau had not been set up as yet. His remarks left doubts also about the status of the “Small Business Development Fund” and whether small businesses were getting their fair share of procurement contracts. With the Public Procurement Commission and Competition Commission still to be established, the failure of the administration to act expeditiously, once again, on matters of benefit to the entire private sector is fast becoming an unfortunate and unhelpful pattern.
This attitude calls into question the willingness and ability of this administration to help the private sector to develop its capability to compete successfully. Moreover, by failing to support the small business community fully, the administration is calling into question its own commitment to the widespread use of micro and small businesses as a strategy to fight poverty in Guyana.
