Last week, we dwelt on the upcoming 2024-2025 National Budget that will be handed down to the nation by Deputy Prime Minister and Minister of Finance Biman Prasad at the end of the month.
What specific challenges faced by Micro, Small and Medium-sized enterprises will it address?
The Fiji Micro, Small & Medium Entrepreneurs Community (FMSMEC) has submitted a comprehensive budget submission.
They have even broken down their submission by ministry.
While the Ministry of Finance is yet to get back to FMSMEC, to include them in their current round of consultations, here are just 10 immediate business enabling budgetary provisions and strategies that MSMEs will be on a look out for in the new national budget.
- A realistic reduction in corporate tax for MSMEs
Twenty five per cent corporate tax is burdensome for the majority of MSMEs. Let’s not forget that MSMEs registered as sole traders and companies have to pay tax in advance, yes in advance, if they had payable cases the previous year.
MSMEs have no incentives when it comes to corporate tax compared to large businesses. Large businesses who enlist for the first time on the South Pacific Stock Exchange pay only 15 percent corporate tax rate and for seven years. Fiji Water, let’s not go there.
A tax break and reduced rate specifically for MSMEs will mean more retained capital for expansion, paying staff more and recruiting more staff.
- Increase VAT threshold to $300,000
The threshold of $100,000 across the board is not incentivising MSMEs, those in the small or even micro category.
Increasing the threshold will exempt small businesses to pay VAT and allow them retained capital to expand to medium size businesses where they will eventually meet the proposed VAT threshold. This will also incentives micro enterprises to expand into small enterprises, increasing their earnings beyond the $50,000.
- A 20 per cent allocation of total Government procurement to MSMEs
Such a policy could see MSMEs access about $17million per year worth of orders for works, goods and services. If only two ministries (Ministry of Trade, Cooperatives, MSME and Communication and Ministry of Agriculture) that work closely with MSMEs, allocated 20 per cent of their procurement to MSMEs, approximately $960,000 per year will go directly and instantly to businesses that need it the most.
If only five per cent is allocated from construction and civil works procurement, village based micro enterprises including co-operatives can access approximately $3million for road and other public infrastructure maintenance and rehabilitation works. The spin-off for local economic development can be huge and also prepares the community to support infrastructure climate proofing and rehabilitation before and post disaster.
- A wage subsidy for micro and small businesses unable to afford the new increase in minimum wage
MSMEs are not able to pass on the increased cost to customers. Unlike large businesses, their cost structures, production methods and clienteles are very different. This wage subsidy, access to which should be based on a pre-determined criterion, will help counter MSME post minimum wage announcement on decisions to reduce their operations, let go of staff or close shop.
This way, while we provide decent wages for workers who could only secure employment in mico and small enterprises, we are providing incentives for these micro and small enterprise to remain operational, ultimately, leaving no one behind.
- An all of Government co-ordinated approach for MSMEs to access grants and technical assistance
Approximately $80million is spread thinly across all ministries, who have their respective siloed criteria for MSMEs to access grants and technical assistance.
MSME Fiji can play a pivotal role in this inter-governmental coordination process, including with donor agencies that bring in new funding and technical assistance.
Funding allocation in the national budget to establish better coordination among the Ministries and consolidate funding and technical assistance will mean using public funds towards impact investment for the Government.
- Strengthening existing MSME programs for better impact
Analyse the last 10 years of MSME programmes across all ministries and you will notice that it’s mostly the same programs year in and year out.
Most programs are geared towards giving out grants and giving it out in a way that the majority MSMEs as possible get at least something. This may look good in the reporting process, however, the programs lack technical and innovative components that are relevant to MSMEs now and have a futuristic outlook for them.
For instance, business trainings delivered by Government do not integrate Business Continuity Planning, unconscious of the impact that climate change and disasters have on MSMEs. Blended financing across ministries for enterprises that overlap across sectors is nonexistent.
- Fast tracking of the Access to Capital Bill
MSMEs have been included in the consultations for this Bill and have provided their inputs. This excellent initiative by the Government will allow MSMEs to access innovative and blended financing, potentially de-risking MSMEs when they eventually apply for loans.
Funding allocation in the national budget to pass it as an Act and promoting it widely via MSME Fiji will diversify the financing products in the market and ease the challenge of access to finance for MSMEs.
- Fast tracking of the MSME Bill and Strategy
This is another excellent first-time initiative by Government. MSMEs want to see finalised long term national plans (there are very few) that are resourced and implemented. MSMEs have been included in the consultation for the MSME Bill and Strategy and have provided their inputs.
Funding allocation in the national budget to pass the Bill as an Act and implement it via MSME Fiji with the launched MSME Strategy, will provide the long-term strategic direction MSMEs need to invest in and takes risks for their enterprises.
- Integrating entrepreneurship education in the school system
While some may argue that good national leaders are made, this is also true for good entrepreneurs. The school system mass-pools our future labour force and provides an excellent interface to sensitise our young minds on entrepreneurship traits, as they journey towards the labour market.
Should all students eventually not become entrepreneurs, the investment will still be worthwhile as they can be intrapreneurs using their acquired soft skills for those that they work for. This will not only improve employability but also enhance productivity, a very valid argument for minimum wage increases.
For those that eventually become entrepreneurs, it will be a well thought out employment option and potentially bring about real innovation and more job creation.
The Mauritius Government has included this as a High Impact Initiative (HII) in their 10-year master plan for their MSME sector. Although Mauritius is more than 50 per cent smaller in landmass than Fiji, its MSME sector contributes 40 per cent (plans to increase it to 52 per cent) to their GDP and has a much higher GDP per capita than Fiji.
Funding allocation in the national budget to integrate entrepreneurial education in the school system, which the last Government unceremoniously abolished, will result in entrepreneurial societies and produce serious entrepreneurs who will enter the next stage of the entrepreneurial eco-system, ready to make an impact.
- Partnership with private sector business development service (BDS) providers
When it comes to identifying where the expertise is in the area of business development, the private sector is your first port of call. They not only have the proven experience but also the current and on-the-ground business intelligence that go beyond the training manuals.
There are MSMEs that are in the business of supporting other businesses. They provide business training, advisory, mentoring, co-working spaces, etc as part of their core business. They are more sensitive to MSME needs and can be an extension of Government services to MSMEs.
Funding allocation in the national budget to partner with and fund private sector BDS providers to extend BDS to MSMEs supported through Government programmes, can yield both volumes and impact.
So, what comes by way of the national budget on the evening of 28th June 2024, will truly determine how much of our national treasure, our 18 per cent GDP contributing and employers of 60 per cent of our workforce, are.
Expect our MSMEs and their networks to be very analytical and vocal during and post budget. For these MSMEs, it’s not just a piece of national document that is being announced to the nation. For these MSMEs, it is also about their dreams, aspirations, achievements and livelihoods.
