Pitfalls of local start-ups under spotlight

. . . experts blame government indifference

MATHATISI SEBUSI

MASERU – Lack of clear policies and programmes supporting the growth of small businesses is the reason many small businesses collapse, while others remain stagnant, experts say. Economists and financial analysts note that unless clear programmes and policies are put in place, the unemployment rate in the country will keep rising without any respite. Lesotho has a youth unemployment rate of between 30% and 35% which is why the government keeps encouraging people to start their own businesses instead of seeking employment.

Financial analyst Robert Likhang says struggle and failure in small businesses in Lesotho is mostly caused by lack of clear programmes and policies on how the government will support the youths it encourages to start businesses to fight unemployment. He said the available Micro Small to Medium Enterprises (MSMEs) policy does not address challenges small business holders encounter and does not define the government’s role in empowering them.

Likhang is convinced if a clear policy on how small businesses would be supported was in place, more businesses would succeed. Availability of a clear policy would enable the government to set clear mandates for its ministries to ensure that they support small businesses without any interference or competition, he said, adding that the given mandates should be accompanied by clear instructions or guidelines on how they will be executed.

“Among the challenges that small businesses encounter is lack of business knowledge because many people started business without having studied it at tertiary level, making it an urgent need for the government to strengthen development of small business owners in terms of knowledge. “Small business owners also need business advisory services where they will get mentors to guide them along,” Likhang said.

An example of a programme that helps small business owners is the Small Enterprise Development Agency (SEDA) in South Africa which gives small businesses a chance to get an accountant to check their books and a marketing expert to help them, with half financial costs paid by the government. The programme, Likhang notes, even allows small businesses to find an accountant that will seek financial assistance on their behalf and the government will pay a certain amount of the money the accountant charges on behalf of the business.

“This kind of support encourages small business owners to strive for success especially because they have access to the necessary resources to grow their businesses unlike here in Lesotho where small businesses struggle for support. “Lesotho only encourages people to start businesses without a clear programme on how they will be supported in terms of marketing, business advisory, quality improvement and financial need,” he said.

Tax incentives could also help small businesses grow as they will not have spent the money they already lack to pay tax but instead will use the money to grow their businesses. In Lesotho, foreigners are the ones given tax incentives but small Basotho businesses are left behind, he added. “The country prefers giving mines and manufacturing industries tax incentives to operate in the country even though most of their jobs are done by machines creating few job opportunities rather than helping out small local businesses.

“Prioritizing small businesses by giving them tax incentives might financially affect the government but the loss will not be long term as the government will benefit from supporting such businesses in a long run from taxes businesses will pay when they succeeded. “Without the clear policies and programmes, small businesses in the country will struggled to succeed,” he noted. The government can also support small businesses by ensuring these meet the quality standards they want so that they can strictly use local services and products.

Economist Letsatsi Sephepha noted that as much small businesses lack support from the government and private entities, lack financial discipline is a challenge to small business owners. For a business to operate and see growth without disturbances, despite its magnitude, proper recording and management of business books should be a priority, Sephepha observed. Planning ahead and keeping records of business transactions help the owner to avoid taking money out of the till for purposes not concerning the business.

He noted petty cash and a salary should be budgeted for to enable the owner of the business to live within the means he affords and not be tempted to use money from the business. Sephepha said keeping and understanding books such as cashbook and ledger in a business is critical. He said when one keeps records of business, they are able to monitor whether they are making a profit or running a loss and make adjustments if need be. “Discipline will help a business that started small to grow in to a prosperous one. Starting small prepares the owner of the business to be able to manage their businesses when they have grown and become successful,” Sephepha said. He said challenges facing small local businesses include lack of demand (or lack of customers) due to competition from Chinese and Indian-owned businesses. “Other key challenges identified by small businesses included high operational costs, inadequate infrastructure and cash flow problems, particularly as a result of slow business and lack of financial muscle by the owner,” he said.

Sephepha said access to finance is also a prominent issue for small business owners who rely entirely on their personal or family savings to establish the business and have no access to credit at all because banks are reluctant to offer them loans. Aleta Moshoeshoe is one of the business owners who have struggled to see growth in her business. She started selling cooked food and other goods in June 2019, but to date all she has achieved financially is nothing. She said the business is very good but since she started the business with her savings and has no other source of income, every profit she gets goes towards addressing her family needs.

“For almost a year, I have not been able to put money aside to grow the business or save because I use the profit to take care of my family,” she said. Moshoeshoe has no business skills and does not have any help documenting her business’s transactions. She runs her business blindly but sees potential in it. “This business has the potential to grow and create job opportunities. All it needs is financial and business skills assistance,” she noted. Currently Moshoeshoe has employed one person in addition to her daughter who assists her daily in running the business.