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This paper explores the link between microeconomic policy and small business development, highlighting the need to build and develop this vital connection. It discusses the challenges faced in integrating small firms into the modern economy and offers pragmatic solutions for policymakers and strategists. The presentation emphasizes the importance of competition, productivity, and entrepreneurship in enhancing the growth potential of small businesses and enterprises.
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INTERAFRICALOCAL ECONOMIC AND BUSINESS DEVELOPMENT CONSULTANTS MAKING MICROECONOMIC POLICY WORK FOR SMALL BUSINESS AND ENTERPRISE DEVELOPMENT By Jairo Morales-Nieto Paper prepared for the Africa SMME Conference and SMME Awards 2007 Johannesburg October 25, 2007
Foreword • This presentation is about the link between microeconomic policy and small business and enterprise development as a critical matter of political economy in the search for market systems that work for small entrepreneurial players • The main assumption is that this link does not exist per se and therefore there is a need to build and develop it • This presentation aims to outline and show some analytical and pragmatic paths to help strategists and policy-makers to better understand the challenge and undertake consequent policy actions
Table of Contents I. Concepts II. Problem Statement III. Brainstorming some solution - options IV. Microeconomic policy consequences V. Closing remarks
I. Concepts • Microeconomic policy: is a field of economics concerned with a number of government interventions aiming to improve competition, productivity, competitiveness and entrepreneurship in the market economy • Business: refers to a commercial activity which provides services to the market • Enterprise: refers to a productive activity undergone within a production unit, to provide manufactured or semi-manufactured products to the market • Small business and enterprise development:the process of strengthening the integration of small firms with potential for growth and expansion into the economic mainstream (i.e. the value chain system) of modern industries
II. Problem Statement • Lack of reliable data and information useful for strategy and policy design • Weak connection of the small business and enterprise sector with the formal modern economy in respect of its technological and market dynamics • Dispersion of tools and incentives, which are mostly provided through a huge number of public and private agents with diverse business philosophies, purposes and practices • Focus of conventionalsmall business policy is usually more motivated by political necessity than economic opportunity
III. Brainstorming some solution-options • Solution Option One:Building a new business and enterprise database fitted with a geographic information system • Solution Option Two:Interconnecting the small business and enterprise sector with the commodity system and value chain of large industries • Solution Option Three:Integrating tools and incentives within a combined One Stop Shop/One Start Shop Approach
Holistic Database Distinction between businesses and enterprises Distinguish between formal and informal business and enterprises Addition of new classification variables regarding capital assets, technology capacity, market orientation and value added More information about ownership, management and human resources More information about geographical location, industrial classification and link with other business and enterprises GIS system A ‘Geographic Information System’(GIS) added to the business and enterprise database is a powerful tool for business and enterprise analysis, mapping and clustering: Solution-Option ONE: Building a new business and enterprise database fitted with a GIS system
Sector Market Analysis It is an analytical approach aimed at uncovering the systemic relationships, linkages and patterns which lie behind the delivery of a product or service to the final consumer Solution-Option TWO: Interconnectingthe small business and enterprise sector with the commodity system and value chain of large industries
Value Chain Analysis It basically refers to the detail description of sequential (primary and support activities) within a commodity and service system that turns inputs into value added outputs Solution-Option TWO: Interconnectingthe small business and enterprise sector with the commodity system and value chain of large industries
Solution-Option THREE: Integrating tools and incentives within a combined One Stop Shop Approach and One Start Shop Approach
IV. Microeconomic policy consequences The preceding analysis leads us to say: • The closer the small business and enterprise sector is to the market system, the greater its survival expectations will be; • The stronger the linkages of the single small firms within a value chain system are, the bigger the growth potential will be The corollary for policy making following these two consideration seems relatively simple: • Strong policy support should be given, preferably to those small growing firms and entrepreneurs that are in some way systemically inserted into the markets and are participating in the value chain networks of specific branches of industry This should happen through the application of diverse microeconomic policies to ensure the following:
Microeconomic policy consequences Competition policy There is transparency and fair competition in the respective market to protect the interests of the small participants against monopolies and unfair trade practices (including external unfair competition) Productivity policy Productivity gaps between the small business and enterprise sector and the productivity average of the related industry are narrowed. Competitiveness policy There is improved competitiveness (return rates equal to or above industry or firm averages) of small firms participating in a value chain system whether operating in the private or public sectors Entrepreneurship policy There is increased entrepreneurship of small innovators, preferably linked to a value chain system, which support the development of new technologies, products and services
V. Closing Remarks It is possible to make microeconomic policy work for small business and enterprise development, if certain specific conditions are met, namely, there is: • A reliable database fitted with a GIS system • Connection of the small economies with the value chain systems led by large economies • Integration of tools and incentives through reconciliation of interests of suppliers of support and customer needs within an intelligent governance scheme A chief consequence is the need to apply microeconomic policies and reform more with the aim of supporting development of competitive markets and value chain systems than supporting individual firms working in an isolated way.
