SMEs' potential for job creation
Anwarul Iqbal | Saturday, 9 August 2008
SMALL and medium enterprises (SMEs) are especially suited for Bangladesh for its vast workforce. A large portion of this workforce is unemployed or underemployed. Big industries, which are geared to achieve the economy of scale, involve high establishment and operating costs. Potential investors in big industries may shy away considering that they would require a great deal of capital to build and operate them, notwithstanding their viability or profitability.
SMEs, by comparison, need not worry so much about mobilising capital on such a scale. They are likely to be within the affordable range of equity investments of most potential investors. Besides, in the broader interests of the Bangladesh economy, SMEs are more desirable because they can generate more employment. Bangladesh, with its massive unemployment problem, needs entrepreneurship capable of creating more employment. Less employment-generating units should be less be preferable in this country. For example, an enterprise with investment of Taka 10 million generating 50 jobs should be encouraged over another unit with Taka 100 million producing an equivalent number of jobs.
Big enterprises, with big amounts in sunk costs and operating capital, also face difficulties of exit should they start losing money. The owners cannot abruptly close down big enterprises even if they start losing. SMEs do not face such exit problems as their initial investments and operating costs are much smaller. Their owners also do not stand to risk so much as the investors of big enterprises for stopping the operation.
But the SMEs need banking and other facilities at their doorsteps. For example, this is relevant for the hundreds of workshop-type enterprises, who manufacture machine parts at Dholai Khal in old Dhaka. Sophisticated entrepreneurs, in many cases, are bank-loan defaulters.
They loathe showing any deference to these unglamorous workshop owners because of their modest means. But being self-made entrepreneurs, they do hardly bother for institutional credit. They requires less funds to borrow from the banks for working capital, if they need at all.
No doubt the SME type entrepreneurs of Dholai Khal are making a valuable contribution to the national economy. They are a dynamic breed and not parasites. They are not creating problems of classified loans and other burdens for the country's financial sector. With their own strength, they have been employing a large number of people. More important, they produce a wide range of machine parts and machinery which would need to be imported but for what they do. It is an important import substitution for the economy.
Dholai Khal-type of SMEs in other places of the country, are also contributing to the economy. They are not evaluated for their real worth. With institutional credit and official support, they can produce an economic miracle to substantially raise the country's gross domestic product (GDP). They can considerably solve the unemployment problem and contribute more towards import substitution to improve the country's balance of payments.
SMEs, by comparison, need not worry so much about mobilising capital on such a scale. They are likely to be within the affordable range of equity investments of most potential investors. Besides, in the broader interests of the Bangladesh economy, SMEs are more desirable because they can generate more employment. Bangladesh, with its massive unemployment problem, needs entrepreneurship capable of creating more employment. Less employment-generating units should be less be preferable in this country. For example, an enterprise with investment of Taka 10 million generating 50 jobs should be encouraged over another unit with Taka 100 million producing an equivalent number of jobs.
Big enterprises, with big amounts in sunk costs and operating capital, also face difficulties of exit should they start losing money. The owners cannot abruptly close down big enterprises even if they start losing. SMEs do not face such exit problems as their initial investments and operating costs are much smaller. Their owners also do not stand to risk so much as the investors of big enterprises for stopping the operation.
But the SMEs need banking and other facilities at their doorsteps. For example, this is relevant for the hundreds of workshop-type enterprises, who manufacture machine parts at Dholai Khal in old Dhaka. Sophisticated entrepreneurs, in many cases, are bank-loan defaulters.
They loathe showing any deference to these unglamorous workshop owners because of their modest means. But being self-made entrepreneurs, they do hardly bother for institutional credit. They requires less funds to borrow from the banks for working capital, if they need at all.
No doubt the SME type entrepreneurs of Dholai Khal are making a valuable contribution to the national economy. They are a dynamic breed and not parasites. They are not creating problems of classified loans and other burdens for the country's financial sector. With their own strength, they have been employing a large number of people. More important, they produce a wide range of machine parts and machinery which would need to be imported but for what they do. It is an important import substitution for the economy.
Dholai Khal-type of SMEs in other places of the country, are also contributing to the economy. They are not evaluated for their real worth. With institutional credit and official support, they can produce an economic miracle to substantially raise the country's gross domestic product (GDP). They can considerably solve the unemployment problem and contribute more towards import substitution to improve the country's balance of payments.