OECS Commission Highlights Importance of MSMEs to Development in the Region

Friday, June 26, 2020 — The OECS Commission joins the rest of the international community in observing International Micro, Small and Medium Sized Enterprise (MSME) Day and to raise awareness of the important role and contribution that MSMEs play in the economies and societies of the OECS.

By a United Nations Resolution, adopted on 6 April 2017, the General Assembly decided to designate June 27 as MSME Day.  The General Assembly recognised the need to focus on the importance of MSMEs in achieving the Sustainable Development Goals, and particularly in promoting innovation, creativity, and decent work for all.  It also recognised the importance of encouraging the formalisation, participation and growth of MSMEs in international, regional and national markets, including through access to capacity-building and financial services, such as affordable microfinance and credit.

The Role of MSMEs in Development

The basis of the resolution is the fact that it is widely recognised that MSMEs play a very significant role in stimulating growth and development of most, if not all, economies both economically and socially.  In the Caribbean, it has been estimated that MSMEs contribute to more than 50% to the Gross Domestic Product and employment. They are a significant contributor to production, trade, and exports. MSMEs are also responsible for providing jobs, and thus income, particularly for some of the more vulnerable and marginalised groups in society such as women, youth, and the poor. MSMEs thus contribute to poverty reduction, wealth creation, and supporting sustained economic growth.

Defining MSMEs

There is no commonly agreed definition of MSMEs regionally or internationally. As many as 60 classifications for small and medium-sized enterprises have been identified in use worldwide. Definitions vary quite widely from country to country and sometimes even within a single country.  This arises from the fact that countries are at different stages and levels of development. What is considered an MSME in a large developed economy can often dwarf the largest companies in a small developing state. Even across the Caribbean region, the definitions for “Micro”, “Small” and “Medium” sized enterprises vary with countries and organisations. 

Among the CARICOM Member States, there is concurrence that a common MSME definition across the region is necessary to foster policy harmonisation and coherence. In that regard, the CARICOM considers MSMEs to include firms with 50 employees or less; capital or assets of US$1 million or less; and annual sales of US$3 million or less.  

Challenges Faced by MSMEs

While MSMEs make significant contributions to the economy, they also face several challenges and inhibiting factors that act as constraints to their competitiveness and success.  These include limited access to financing because of high costs, onerous procedures and requirements, and lack of innovative financing solutions.  MSMEs can face high costs for their inputs; inadequate supporting infrastructure such as transportation and information and communication technology (ICT); and limited human resources and entrepreneurial skills. In the digital age, weak or underdeveloped electronic and digital financial services and digital payment solutions is a significant challenge. A weak and undeveloped enabling environment, including the absence of supportive policy, legislative and regulatory frameworks and supporting institutions, inhibits competitiveness.

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Strengthening MSME Policies and Regulatory Frameworks

As we observe International MSME Day 2020 we would like to highlight some key policy actions for addressing the challenges MSMEs face.

Strengthening the Enterprise 

Measures need to be taken to enhance the capacity of the enterprise to engage in regional and global value chains fully and effectively.  This includes strengthening their capacity to:

• source and secure inputs at the most competitive prices and at the right time; 
• produce goods and services efficiently and cost effectively and to the highest standard and quality demanded by the market; and
• distribute goods and services to targeted consumers at the right price and at the right time through effective marketing and promotion.  

MSMEs also need support in the areas of management, innovation, accessing and using information, and entrepreneurship.

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Strengthening the Business Ecosystem and Supporting Infrastructure 

At a broader level, policies and actions are needed to strengthen the business ecosystem in which MSMEs operate. This is the network of organisations — including suppliers, distributors, customers, competitors, government agencies, and so on — involved in the delivery of a specific product or service.  In that regard the goal includes:

• strengthening financial services and increasing access to finance; 
• strengthening trade logistics services; 
• increasing access to and uptake of financial technology (fintech) services and digital and electronic payment solutions; and
• developing the education, skills, and training services for greater access to skills and talent.  

Support for physical infrastructure is also needed.  This includes improving broadband connectivity and lowering its costs; modernising transportation and logistics infrastructure and lowering its costs; and diversifying energy sources and options and reducing the costs.

Strengthening the Business Environment

At an even broader or macro level, strengthening the business environment and climate for MSMEs is critical. The lack of well-defined and supporting policy, legislative, regulatory, and institutional frameworks for MSMEs has been noted in the region.  This means having laws and regulations designed to address the specific needs of MSMEs. It also means designating specific institutions to implement the legislation and support MSMEs. MSME interests and concerns should also be reflected in wider, cross-cutting and sectoral policies and legislation. This includes for example, policies aimed at fostering entrepreneurship, innovation and intellectual property rights protection, and policies targeted at the new and emerging areas such as blue (from the oceans), green (low carbon and environmentally friendly) and orange (culture and creative industries) industries.

Data on MSMEs

To achieve the above effectively there is a need for information gathering in the sector.  Comprehensive and continuous data on MSMEs needs to be gathered for real evidence-based policy making.  That means the capacity for collecting and analysing data and statistics on MSMEs must be strengthened including agreeing on a framework of indicators for monitoring and measuring progress.

Formalising MSMEs

Any attempt to collect data on MSMEs will face the challenge of the significant percentage of MSMEs which operate informally and are thus not registered. There is therefore a need to incentivise and mandate the registration of all MSME operations including by simplifying the process and reducing the cost of registration; promoting the benefits of registration and facilitating cross border registration of MSMEs within the OECS.

Looking Ahead

In the current COVID-19 era and beyond, a key priority will need to be the digital transformation of enterprises, business ecosystems and the business environment.  The pandemic has reinforced the need for OECS Member States to prioritise the digital transformation of the public and private sectors. Member States must focus on fast-tracking existing digital transformation work programmes, with specific priority given to “on-line” client-facing government services, including those for the benefit of MSMEs.  

As the OECS observes MSME Day we wish to emphasise the imperative for systematically mainstreaming and advancing the needs and concerns of MSMEs in our policy, legislative, regulatory and institutional frameworks at the national, regional and also international levels.  The Commission through its Economic Affairs and Regional Integration Division and relevant Units, particularly the Competitive Business Unit, will continue its engagement with Member States to coordinate the development and implementation of common and harmonised approaches within the framework of the Revised Treaty of Basseterre and the Economic Union.

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