The Impact of SME’s on the Economy of Trinidad & Tobago 0 1025

In  virtually all developed and developing countries, SMEs constitute the backbone of the domestic economy, accounting for a substantial contribution to Gross Domestic Product (GDP) and employing the mainstay of the workforce.

To put SMEs into context, in Trinidad and Tobago, a small enterprise is defined by the Central Statistical Office (CSO) as having a staff complement of between six and 25 employees, an asset base of TT$250,000 – 1.5 Million (excluding real estate) and sales of TT$250,000 to $5 Million; while a medium enterprise has a complement of 26-50 employees, an asset base of TT$1.5 Million – $5 Million (excluding real estate) and sales of TT$5 Million to $10 Million.

Based on these criteria, data sourced from the CSO’s Register of Business Establishments (February, 2019) shows a total of 16,547 SMEs, inclusive of micro enterprises, which represents 63% of a total establishment base of 26,062. The CSO has pointed out that the data provided does not reflect all of the establishments currently existing and operating in Trinidad and Tobago since establishments are not obligated to inform them of their existence or when their operations cease. However, the Draft Micro and Small Enterprise (MSE) Policy for Trinidad and Tobago, 2013 – 2016, prepared under the previous administration (Ministry of Labour and Small and Micro Enterprise Development, September 2013) cites MSMEs as constituting 85% of all registered businesses, 22% more than the aforementioned figure quoted for 2019; representing more than 20,000 enterprises, with an estimated contribution to GDP of nearly 28% and employment of 200,000 persons.

SMEs are aptly described throughout the world as “engines of growth and catalysts for socio-economic transformation” owing to the significant role they play in the development and growth of various economies. Their major benefits to any economy span contribution to output of goods and services, employment creation at relatively low capital cost, income generation and development of the country’s entrepreneurial base. In essence, SMEs constitute a vehicle for the achievement of national developmental objectives of employment generation and poverty reduction.

In Latin America generally, SMEs represent 90-95% of the establishments/businesses created in the manufacturing, trade and services sectors. They generate some 85-90% of the jobs and contribute roughly 30-40% of Gross Domestic Product (GDP) of countries of the region. Further afield, SMEs are the mainstay of Europe’s economy, contributing 98% of business activity and 67% of total private employment in the European community.

According to statistics from the Caricom Secretariat, SMEs contribute about 40 per cent to the region’s GDP and some 70% of the jobs, given that the majority of firms in the region can be considered SMEs by global standards.

In the Trinidad and Tobago context, with such a sizeable enterprise base, SMEs constitute a key segment of the national economy. As in the case of the other islands in the region, they play a key role in the country’s economic and social development. Their contribution spans advancing local economic development via business growth and creating a diversified business base, the  provision of goods and services, and concomitant employment and income generation. Notwithstanding the crucial importance of SMEs to national socio-economic development, data limitations constitute an impediment to the effective  assessment/measurement of their impact on the national economy.

Based on CSO data on Gross Domestic Product (GDP), one can only attempt to gauge the importance of SMEs to the national economy. As per the data provided, SMEs constitute 70% of the total manufacturing establishment base (including micro enterprises). The Food and Beverage industry, which has a high participation of SMEs is the predominant sub-sector. The GDP for the manufacturing sector as a whole (at current prices and excluding petroleum and chemical products) averaged TT$10,267.8 Million and a sector contribution of 6.8%, over the three year period 2016 – 2018 (2018 data being provisional); whilst figures for the Food and Beverage sector over the period were TT$7,394.2 Million and 4.9% respectively. Another sub-sector of the manufacturing sector is Textiles, Clothing, Leather, Wood, and Paper and Printing, which is made up primarily of SMEs. The sector has an average GDP of TT$778.2 Million and contribution to manufacturing sector GDP of .5%. Total employment in the manufacturing sector (excluding petroleum and chemical products) was estimated at 50,000, representing 8.3%% of the labour force (2017 CSO data).

Other areas with reasonably high participation of SMEs fall under the umbrella of Services. A representative sample include: Accommodation and Food Service Activities (66% of the total establishment base, inclusive of micro enterprises), with an average GDP of TT$2,554 Million over the three year period 2016 – 2018 and a percentage contribution of 1.7%; Wholesale and Retail Trade, including repair of motor vehicles and motorcycles (approx. 68% of the total establishment base, inclusive of micro enterprises), with an average GDP of TT$866.8 Million over 2016 – 2018 and a percentage contribution of .6%; Professional, Scientific and Technical Services (66% of the total establishment base, inclusive of micro enterprises), with an average GDP of TT$3,188.3 Million over 2016 – 2018 and a percentage contribution of 2.1%; and Arts, Entertainment and Recreation (63% of the total establishment base, inclusive of micro enterprises), with an average GDP of TT$317 Million over 2016 – 2018 and a percentage contribution of .2%. Estimated employment figures for the Wholesale and Retail Trade, inclusive of restaurants and hotels, and Community, Social and Personal Services are 117,000 persons and 120,000 persons respectively; representing, in aggregate, 39% of the labour force (2017 CSO data).

Notwithstanding the importance of SMEs to overall national economic development, traditionally these enterprises have been plagued by a number of challenges, including access to finance; lack of economies of scale and quality standards, and hence inability to access export markets; technical, management and leadership skill deficiencies; access to pertinent business information/intelligence; low levels of technology usage to improve productivity; lack of competitiveness; the vagaries of periodic fluctuating economic circumstances, given that their fortunes are, by and large, tied to the rents accruing from the energy sector; and, within more recent times, foreign exchange shortages.

Successive governments have taken a number of measures over the years to develop and promote SMEs. These include provision of funding by Government, including grant funding and concessional loans and loan guarantees through State agencies involved in supporting SMEs, such as NEDCO, which is also charged with the responsibility of providing entrepreneurial/business development training; establishment of a National Integrated Business Incubation System (IBIS), created to provide a unique mix of business development support, infrastructure, operational and financial assistance aimed at assisting in the growth and success of new and existing micro and small enterprises (MSEs); and implementation of a Fair Share Programme, designed to afford MSEs access to public procurement opportunities. Within recent times, these measures have included establishment of a Grant Funding Facility for the acquisition of machinery and equipment by export oriented/import substituting small and medium sized local manufacturers and agro-processors; establishment of a Research and Development Funding Facility to provide funding for marketplace entry of innovative and technology driven business ideas in select areas/sectors; proposed establishment of a new Business Development Fund with an initial provision of TT$50 Million (2018 Budget); and establishment of an Agricultural Financial Support Programme.

For its part, CARIRI, has been instrumental in supporting the development of SMEs, primarily in the Food and Beverage Sector, through its suite of services in the area of Biotechnology/Food Technology. The services provided includes testing, product and process development, nutritional labelling, plant establishment/optimization, food safety/Quality Management Systems (QMS), training and consulting. In addition, through its flagship development, the Centre for Enterprise Development (CED) located at Freeport, the Institute has instituted Innovation Facilitation and Entrepreneurship Development infrastructure. This comprises the Idea Advisory Service (IAS), which is intended to assist individuals and companies in screening innovative ideas and developing them through to commercialization via either start up, sale or licensing; the Innovation Gap Analysis Programme (IGAP), which involves the undertaking of innovation gap analyses in companies and provision of support in implementing the recommended interventions; and the Business Hatchery Programme, through which business development support is provided for start ups.

Notwithstanding the measures instituted and the general acknowledgement of the crucial role to be played by SMEs in the diversification process, it is undeniable that the full developmental potential of these enterprises can only be realized on a sustainable basis in the context of adoption of an entrepreneurial model, an integral part of which demands that the SMEs be export focused, in light of the critical need for the country to increase its foreign exchange earning potential. Such a model would cater for a clear distinction between Small Business Owners and Entrepreneurs, with priority attention being accorded to outward looking High Growth Potential Entrepreneurial SMEs that can both provide higher quality jobs and earn foreign exchange. These enterprises would need to be adequately nurtured, with provision of hands on management support for at least one year; technology driven and IP savvy. This is the goal that is currently focusing the attention of CARIRI.

 

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