Dr Ernest Molua, Economist, Associate Professor
Is the putting in place of the Bank for Small and Medium-size Enterprises, the Agency for Small and Medium-size Enterprises and the Centre for Enterprise Creation a panacea to financing, follow-up and creation of Small and Medium-size Enterprises in Cameroon?
Small and medium-sized enterprises play a vital role in driving economic growth and creating jobs in Cameroon. However, lack of adequate finance has constrained their growth and deprived them of the opportunity to play meaningful role in driving economic growth. Traditional bank finance poses challenges to SMEs, particularly to newer, innovative and fast-growing firms with a higher risk profile. Yes, the new Bank for Small and Medium-size Enterprises will play a significant role in alleviating the funding difficulties of SMEs in Cameroon. However, in the short-term more effort will be needed to ameliorate the SME skills gap in finance management, development of innovative financing products or packages for SMEs, creating information infrastructure to improve credit risk assessment; and increasing participation of private actors in SME finance particularly other commercial banks which may be lured as shareholders for the new state-owned institution.
What according to you, should be done to get Small and Medium-size Enterprises out of the informal sector?
The informal sector comprise mostly of unincorporated enterprises owned by households and individuals. Our country is today largely driven by the informal sector. Such informality is an economic and social challenge for Cameroon. Informality is an economic challenge, as it affects public revenues and firm productivity. As a result of informality the tax base is small and high taxes have to be levied on a subset of few formal firms, usually the most productive ones. Moreover, competition tends to be distorted in a business environment that does not sufficiently reward formalisation. For example a formal Supermarket competing with our open-air flea-markets dominated mostly by informal traders. Informality is also a social challenge because informal employment is often associated with low earnings, low-quality jobs and poverty. Without access to social security mechanisms, informal workers are particularly vulnerable and face severe risks, particularly in times of crisis. Government policy can positively influence the formalisation of informal businesses by supporting innovative entrepreneurs in general and, more specifically, those who may have the greatest impact on informality (e.g. social entrepreneurs). Policies supporting the formalisation of businesses such as the reduction of the cost of registering new businesses are important. Registration improves the work security of SME entrepreneurs, increasing their ability to establish property rights over their investments and seek legal protection. In addition, our Chambers of Commerce should be revitalized to increase the availability of information about the benefits of going formal. Business associations and other representative groups should be used to play a useful role in the communication effort to encourage people to register their businesses as well as deliver capacity-building programmes for new or young entrepreneurs.
Are government efforts enough to have the sector contribute fully to the country’s GDP?
Financing is just one aspect of solving the entrepreneurial challenge faced by SMEs. The government needs to do more. Currently, SME proprietors are harassed by tax collectors and bullied like common criminals. Ensuring clarity in the tax system as well as respecting private sector entrepreneurs as veritable partners in wealth creation for our development process will motivate their formalisation and increase their engagement with state institutions. Cameroon needs to inject fresh capital into the economy. Formalisation of the informal sector would significantly improve government’s revenue inflows through taxation on employees’ salaries, import duty, property fees and other forms of taxes on the sector. In other words, formalisation provides an opportunity to increase the tax base while reducing the nominal tax paid per enterprise. Besides improving revenue collection and encouraging better public sector performance, formalisation of the informal sector would hopefully ensure better working conditions for the millions employed in the sector. They would enjoy benefits associated with the formal sector such as medical aid schemes, pension, better work safety and the ability to negotiate salaries. These will improve on the morale of the Cameroon work force and enhance labour productivity and efficiency.
