Blossom O’Meally-Nelson | The challenge of formalising the microenterprise sector
The new prospects for growth in the economy have bolstered interest in the micro, small and medium-sized enterprise (MSME) sector, which is estimated to account for up to 80 per cent of GDP.
Policymakers have long recognised the significance of the sector and the need to create an enabling environment in which these businesses can thrive.
Such an environment must facilitate access to affordable financing which meets the specific needs of the sector, adequate support services for business development, facilitation of the export potential that may exist, and financial inclusion for different subgroups which have, up until now, been disenfranchised.
For the MSME sector to make a meaningful contribution, there must be a significant shift from the consumption of foreign exchange, as seen in the amount of businesses engaged in trading and distribution, to real productive endeavours that are either focused on import substitution or export activities.
There is also need to ensure that the regulatory framework is appropriate and facilitates the various initiatives to occasion growth.
Jamaica does not operate in isolation from the driving factors of the international economy. With the rise of digital money and the increase in cross-border transactions, the objective is to ensure that sources of capital and money exchange are legitimate and do not enable money laundering.
Jamaica's regulatory framework and financial practices are expected to comply with the international standards that are being set. It is for this reason why the informal nature of such a large section of our economy is of concern.
Microenterprises account for a large portion of the informal sector, which is estimated to be between 40-60 per cent of the total economy.
Given the realities and impact of international financial regulations, Jamaica must undertake the huge task of bringing the informal economy to book. Failing to do so will significantly hamper planning and development activities and affect Jamaica's standing with international financial institutions.
Historically, micro-entrepreneurs have resisted attempts to formalise their operations.
This is due to a number of factors: registration, whether for a business name or a limited liability company, is costly, complex and time-consuming; the responsibilities of operating within the Government's tax code are onerous and expose micro-entrepreneurs to penalties which would jeopardise their operations; and the majority of microenterprises are marginal; the people who operate them tend to feel a high level of alienation from the socio-political environment and do not see the benefits accruing to them that would motivate them to be a part of the 'system'.
It is clear that if there is going to be a move towards formalisation at the level that will have an impact on the national standing with respect to formal versus informal enterprises, we have to take a new look at what we call 'formalisation'.
This process needs to be made simpler and more within reach of the typical microbusiness operator.
We would see a significant move towards formalisation of these businesses if the requirements were reduced to the use of the operator's TRN and a simple application for an ID from the tax office. The application would give the usual basic data and state the nature of the business that the person is engaged in. This ID would be renewable annually for a fee.
With this basic step, hundreds of persons would be registered as income earners, not unlike the registration of self-employed persons.
This would be the beginning of a much-needed data base. It would then be up to the Government to determine what the requirements for re-registration annually would be, bearing in mind the need to collect revenue.
The Government's strategy, going forward, is best based on a determination to build trust among micro business owners by a demonstration of the willingness to listen to their side of the story, to understand their situation and their daily struggle to earn enough to take care of themselves and their families.
We need, therefore, to start a meaningful conversation with all the players in the sector - policymakers, agencies, those who provide support services, the lenders and the micro business owners themselves.
- Blossom O'Meally-Nelson, PhD, is chairman of the Jamaica Association for Micro Financing.