A recent survey on the capacity needs of the Small and Medium Enterprises (SMEs) among 21 districts of Rwanda carried out by Private Sector Federation (PSF)-Rwanda indicates that about 80 percent of the 2,100 total sampled businesses lack entrepreneurship skills.
The biggest worry is that this is greatly affecting their competitiveness, not only on the local market but also in the region.
In its four-year (2007-2010) strategic plan, PSF envisages enhancing entrepreneurship and business growth to Rwanda’s private sector. And to effectively do this, the institution has to put more emphasis on the biggest part of private sector; the informal sector-over 85 percent of the entire private sector.
Thus, with the limited resources available now, PSF decided to first of all generate reference information or baseline data for the development of a comprehensive capacity building strategy plan for its SMEs members; who also happen to be members of its constituent members.
The survey, conducted by a consultancy called Wise Consults & Associates, aimed at assessing SMEs existing capacities and gaps with a view to enhancing their competitiveness in the domestic, regional & international markets.
The outcomes of the survey included some astounding figures. Among the key business capacity parameters assessed were; lack of entrepreneurship skills which stands at about 80 percent, lack of business planning which stands at about 85 percent, lack of ICT usage which is close to 100 percent, lack of marketing skills at over 85 percent, about 98 percent of businesses do not keep accounting records, and about the same percentage do not also develop their products.
However, critically looking at all these inefficiencies in the informal sector, most are not of their (SMEs) own making.
For instance, the absence of an entrepreneurial culture is generally attributed to lack of exposure and training.
There are a number of legal and regulatory issues affecting growth of the informal sector. Again SMEs cannot be blamed for this, but rather government institutions that have failed to create the perfect business atmosphere for small businesses.
Informal sector business people always dream of growing their businesses to formal and the most feasible way is to access some lines of credit among financial institutions.
Unfortunately, the cost of borrowing in Rwanda, now standing at between 18 and 24 percent among commercial banks and between 13 and 20 percent among Micro Finance Institutions (MFIs), is quite high and unaffordable to the informal sector. And because of this, it becomes hard for SMEs to adopt modern techniques of production.
With the advent of trade point project this year, access to market information by SMEs will hopefully be improved. Trade point is an IT project jointly managed by institutions; PSF, Rwanda Development Agency (RDA)/Rwanda Investment and Export Promotion Agency (RIEPA), United Nations Conference on Trade and Development (UNCTAD) and district municipalities to allow access to market and other forms of information to local communities at outlets called Trade Points; which are located in district Business Development Services (BDS) Centers.
Important to note also, is the general lack of proper coordination among the stakeholders and SME business service organisations. You find government, private and donor partner organisations at the grassroots duplicating roles and resources; all in the spirit if developing the large informal sector. If this is not checked, there may be insignificant impact created and of course wastage of resources.
A new initiative called “Cluster” is in the offing. Cluster development is where a chain of related businesses is created to align production processes so as to benefit synergies that come with it.
It is going to be simple for PSF because the institution has already in place fully operational and complete seven sector (economic) specific chambers, namely; financial services Chamber, craft Art & Artisans chamber, Industry chamber, Tourism chamber, Liberal Professionals chamber, Commerce & Services chamber, and Agriculture and Livestock Chamber.
In addition, there are two cross cutting chambers; Young Entrepreneurs and Women Entrepreneurs chambers. Soon, the ICT chamber will also be created.
The idea is to make all businesses in the country operating under these various sectors form a chain to compliment each other to benefit the economies of scale.
Most businesses in Rwanda are uncompetitive partly because their production efforts are so scattered. If the “clusters” idea ever works, we shall certainly begin to realize increased volumes of production.
And, somehow informal enterprises will gradually graduate to formal sector. But what will kill all this is the inability of stakeholders to harmonise efforts and resources geared towards boosting the growth of the informal sector.
Further, the SMEs survey also indicated a very unique challenge to Rwanda’s informal sector; the language. For historical reasons, Kinyarwanda and French are the commonly used dialects in business.
But, with the ongoing trends of things like Rwanda joining regional and global markets, business people, at all levels, must learn how to communicate in English and Swahili.
Again, PSF has, through its BDS centers started teaching business people English and Swahili at very affordable fees
The survey also reveals the challenge of poor customer service among SMEs.
This requires even higher financial resources because it involves changing behaviors and perhaps some cultural aspects to suit modern business trends. This indeed takes time, and the longer it takes the more resources (financial) it requires.
During the half-day validation workshop of the survey early this month at Prime Holding Conference hall, the PSF Director of Capacity Building Mrs. Molly Rwigamba said PSF would develop a comprehensive capacity building strategic plan specific to SMEs growth in Rwanda basing on the survey findings.
Noting however that; it will require a lot of funds to effectively implement. She reported that donor partners like Africa Capacity Building Foundation (ACBF), Africa Development Bank (AfDB) and European Union (EU) are already supporting private sector capacity building initiatives.
At the workshop, the Director of Human Resources and Institutional Capacity Development Agency (RDA/HIDA) Mr. Charles Karake remarked that Rwanda will have to invest more in vocational training to create a pool of human resources to supply both private and public sectors.
He proposed that government should inject money in the Development Bank of Rwanda (BRD) to give concession loans to investors who wish to invest in vocational training institutions.
He said the just concluded national human capacity and skills audit indicates that Rwanda needs 400 vocational training institutes, each requiring between 5 and 10 million US Dollars to establish.