Mon | Mar 30, 2020

Firm policy on SMEs urgent

Published:Thursday | February 21, 2019 | 12:09 AM


Small and medium-size enterprises (SMEs) occupy an important position in policy-making. Many analysts are of the view that SMEs drive growth and are the largest contributors to job creation. Though SMEs may become contributors to economic growth and job creation, their perceived importance is not commensurate with the value they create.

In any economy, most jobs are created by high-growth firms called ‘gazelles’. According to Nesta (2013), during 2002-2008, six per cent of high-growth firms generated 50 per cent of jobs in the UK. Similarly, in Brazil, between 2005 and 2008, high-growth firms accounted for 8.3 per cent of private-sector businesses but provided 57.4 per cent of new jobs.

Despite the availability of information on the significance of high-growth firms, policy-makers refuse to acknowledge that not all SMEs are equally valuable. For example, the Global Entrepreneurship Monitor (2013) notes that in Jamaica, the majority of ventures were started to evade poor earnings, thus most entrepreneurs are driven by necessity and not opportunity. Businesses that are driven by opportunity are more likely to innovate and grow at a faster rate. These are the type of enterprises that should be supported by policymakers.

At present, the policy approach to SME development in Jamaica is haphazard and ineffective. Smart strategy will require the Government to identify high-growth businesses and provide them with the relevant support. The Government’s main role is to create an economic environment that facilitates businesses. It is not the role of any political administration to be ensuring that start-ups receive funding. People start businesses on their own volition, hence, they must assume the risks that come with starting a business.

However, if the Government wants to play an activist role, then policymakers ought to be strategic. For example, Singapore has a research incentive scheme for companies that support the development of projects in science and technology.

A high rate of entrepreneurship is indicative of a poorly performing economy, so it surprises no one that Jamaica usually ranks high when measuring entrepreneurship. The Jamaican economy is characterised by mainly microenterprises, most of which will not become high-growth firms. Therefore, it is illogical for government policy to be emphasising these establishments. They ought to be allowed to die a natural death. The Government is only wasting resources by doing otherwise.

Lipton Matthews