Business

Evolving a strategy for SME growth in Maldives

Small and Medium Enterprise businesses (SME) are increasingly considered the engine for economic growth and fortune creation. With the right kind of support, SMEs can spark a new surge of progress, especially for upcoming economies. SME development is considered a key element and a measure for equitable economic development and for strengthening the competitiveness and robustness of the economy.

However, SME development does not come without challenges and problems. Some government and market failures can hinder SME growth prospects and put SMEs in a more unfavourable position compared to larger firms. These failures can be excessive regulations, red tapes, monopoly power, asymmetric information. coordination failures, poor contract enforcement, free riders and other externalities.

Governments that pursue policies for the public interest, correct these failures by providing level-playing fields for all companies through regulations and applicable policies.

SME performance in a country can be measured by the SMEs’ contribution to GDP, SMEs’ contribution to employment, SMEs’ share of exports and SMEs’ labour productivity.

SME Demographics (MIRA BPT filing 2016)

SME categories Number percentage
Micro Enterprises 5256 73.8
Small Enterprises 897 12.6
Medium Enterprises 480 6.7
Large Enterprises 486 6.8
TOTAL 7119 100

SME Distribution by Sector

SMEs Large Ent. GDP Employed
1 Wholesale and retail trade 36.6% 43.0% 3.5% 10.5%
2 Construction 10.2% 9.7% 14.4% 3.9%
3 Real estate activities 9.4% 0.8% 4.7%
4 Tourism sector 5.8% 16.5% 22.6%
5 Accommodation and food service activities 4.6% 9.1% 13.9%
6 Professional, scientific and technical activities 3.9% 1.4% 2.1%
7 Agriculture, forestry and fishing 3.3% 1.6% 2.8% 10.4%
8 Transportation and storage 2.7% 3.5% 6.0%
9 Administration and support service activities 2.5% 3.1%
10 Information and communication 1.9% 1.4%
11 Manufacturing 1.6% 2.1% 4.3% 12.7%
12 Arts, entertainment and recreation 1.0% 0.2%
13 Human health and social work activities 0.8% 1.6% 3.4% 4.2%
14 Education 0.5% 0.6% 3.3% 10.1%
15 Financial and insurance activities 0.4% 0.4% 4.2%

Factors that have been observed to have an influence on the performance of SMEs are innovation and technology adoption, human capital development, access to financing, market access, legal and regulatory environment and infrastructure.

Productivity, technology and innovation become a challenge due to limited understanding of the concept, weak industrial linkages and lack of financial incentives.

Entrepreneurship and human capital pose problems due to underdeveloped entrepreneurial culture and poor workforce readiness.

Challenges with access to finance are low financial literacy, high collateral requirement and limited availability of alternative non-bank and equity financing mechanisms.

Problems related to market access are underutilization of e-commerce, the limited collaboration between SMEs and large enterprises, the high cost of production and lack of information on international markets.

Policy and regulatory environment issues include absence of widespread awareness, no targeted data collection, no regulatory impact assessment and limited public-private consultation mechanism.

A good SME development strategy should focus on overcoming these challenges and problems related to the influencing factors. It should be able to put forward constructive solutions to boost SME progression. However, Limited government budget, coordination across institutions and other reform programs, the absence of a strong central SME agency and underdeveloped business support infrastructure could prove to be a challenge in establishing a good strategy.

Strategic objectives emphasised by the authorities are promoting productivity, technology and innovation, promoting entrepreneurship and human capital development, improving access to financing, enhancing SME marketing capabilities and internationalization and enhancing policy and regulatory environment.

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Strategies, factors and particular information mentioned are based on the workshop organised by UNDP and Ministry of Economic development on Wednesday, October 25. The workshop which was held in SHE building aimed to provide information on the growth of SMEs and to come up with strategies to help the process of growth.

Full details are available from the link below:

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