Time to tackle blind spots
Published: 02/05/2009 1:25 am
Several schemes for small start-up businesses remain under-utilised due to various factors, BusinessToday reports
There are opportunities. As are funding and mentoring facilities. We are talking business here. If you are an enterprising Omani youth who has a good business idea for a start-up, there are as many as seven agencies in the country offering help, right from providing the seed capital to handholding all the way.
We are telling the students coming out of colleges that a government sector job is not their only option. They can start their own businesses with a little money, which they can get from any of the supporting institutions," says Salah al Maawali, general manager, Directorate General for the Development of Small and Medium Enterprises (DGDSME).
But there seems to be a disconnect between opportunities and their utilisation as several lucrative schemes for small start-up businesses remain under-utilised as of today. The main reason appears to be a lack of awareness on the part of potential beneficiaries.
"There is a great interest among authorities to develop the small industries sector. But the youngsters are not looking at starting their own business as a career option. Several of them are not even aware of the kind of services and incentives offered by the government and private agencies for start-up businesses," says Abdullah al Jufaili, director, Intilaaqah.
Samer al Nabhani, executive director, Sanad Programme, says there are several opportunities in the fisheries and agricultural sectors, which offer employment to 30 per cent of the population." Supported by the Ministry of Manpower, the Sanad programme offers a wide range of services to units that are not capital-intensive.
Start-up businesses face problems ranging from lack of patience among entrepreneurs to difficulty in getting guarantee for funding the units.
Al Maawali says most entrepreneurs want to make profit in the first year itself. If that does not happen, they consider it as a loss-making unit and think that it is time to close down.
"They need to have patience, which is very important. Almost 90 per cent of small and medium units across the world fail within the first three years of starting operations. The promoters, who face teething problems in the initial years, should take corrective steps to overcome it."
Meanwhile, Jassim Darwish Hassan al Maamari, a young entrepreneur who set up Lab Scientific and Laboratories Supplies with financial support from Sharakah (formerly Fund for Development of Youth Projects), suggests that budding entrepreneurs should be exempted from paying taxes to various government agencies like the Ministry of Commerce, Oman Chamber of Commerce and Industry (OCCI) and Muscat Municipality.
He suggests that the government agencies can emulate Dubai in funding small industries. "The Dubai government gives capital to the tune of DHS25,000 to young entrepreneurs without insisting on any guarantee," says al Maamari, who supplies equipment and chemical solutions to laboratories.
Some new units face hardships on sudden departure of key technically qualified workers. In some cases at least, if a technically qualified employee leaves, the entrepreneur finds it difficult to run the business. "Some workers use small units as a launch pad for their career.
After gaining some experience, they leave to join big organisations," says Dato' Hafsah Hashim, CEO of Small and Medium Industries Development Corpo-ration of Malaysia, who was in Muscat recently to address a conference on SMEs. One way of protecting the interests of such enterprises is to introduce bonds stipulating a minimum service of three years for the employees who are trained on the job by small units, adds Hashim.
"Another problem is lack of proper management and finance handling skills," says Dinkar Kishor, assistant general manager - operations, of Sharakah. The youth fund, which had encountered certain setbacks, has revamped its entire structure with a new management.
"Before the restructuring, 20 units were given financial support. But many of them were not very successful. However, the ten projects which were financed after the revamp are successful," he says.
Al Maawali of Small Industries Directorate says that another problem is that several SMEs do not use the latest technology, especially the right software, and do not maintain a proper profit and loss account.
"Many of these units think that since they are small, they don't need to do that. But this hampers future growth." Another reason cited by experts is lack of seriousness on the part of young entrepreneurs entering business.
Generally, a start-up business lacks credibility when it participates in competitive bidding along with big institutions.
"A large established organisation, which has built its reputation over several years, is likely to get a contract in competitive bidding than a newly formed small firm. The community has to help budding industries by favourably considering them while awarding contracts. Don't break their dreams at an early stage," says al Jufaili of Intilaaqah.
New units will have to plan ahead for at least 3-5 years and avail of the opportunities in the market. In order to support small industries with accurate information, the DGDSME is in the process of creating a database and a diagnostic centre.Credit issues
Another major problem faced by new entrepreneurs is the lack of a credit guarantee institution, on the basis of which a lending institution can provide money to small start-up businesses.
"The guarantee against loan is too high. The funding agencies should bring it down to reasonable levels," says Salem Nasser Khamis al Mawely, partner of Al Mawali National Enterprise - a concrete block manufacturing unit, which is expanding capacity with financial assistance from Sharakah.
The Suwaiq-based unit is expanding its installed capacity to 12,000-15,000 bricks per day from 1,500-2,000 bricks a day by installing automatic machines. He puts forward another suggestion. "The Ministry of Housing should relax regulations related to allotment of land for small industries."
Agreeing with al Mawely, Salma al Hashmi, managing director of Envent, a successful event management firm that was set up with support from Sharakah, says that the funding agencies should bring in some kind of flexibility in financing good business ventures by youths.
"The funding agencies should also create an incubator facility like office space for small start-up units. This will help them monitor closely and give relief to start-up units in the initial days."
The global economic meltdown has brought another set of problems for the new start-ups.
As companies resort to cost cutting measures and careful risk management measures, small industries are hit more. Abdulnasir al Raisi, head of SME Credit and Marketing Department of BankMuscat, says, "Entrepreneurs who know how to cut their costs, secure funds from financiers, obtain orders and take proactive steps will survive. Banks in Oman are in a better position and the liquidity situation is not as bad as in many other countries. However, getting finance for new projects will be a bit more difficult than in the last two years. Banks will be more careful, ask for additional collaterals and information from promoters."
Bank-Muscat has financed more than 2,300 small units so far and has several finance solutions (under the Al Wathbah scheme) for small and medium units, including working capital finance, contract finance, receivable finance and import finance. The bank has also tied up with the International Finance Corporation (IFC) to improve its SME funding.
The way ahead
Hitherto, one of the biggest problems faced by the SME sector was lack of coordination among different agencies involved in supporting these units.
But with the formation of a separate directorate for small industries last year, the efforts of different agencies are now being more coordinated.
Says al Maawali, "Till now, organisations that support SMEs were working independently. But with the formation of the Directorate General, all these agencies are working in a coordinated manner through an apex committee headed by H E Ahmed al Dheeb, Undersecretary of the Ministry of Commerce and Industry. Other members of the committee are from different agencies engaged in developing SMEs. We can share our information and get to know the plans of all organisations, which helps to create an overall strategy for the country."
There are initiatives of the government to help the youth start their own ventures. However, additional steps like formation of another specialised bank for small industries and a credit guarantee agency are needed to boost small industries, which in turn will help the country in creating employment opportunities in large numbers. Maybe it is time Oman learns a few lessons from countries like Malaysia, where SMEs contribute to a major chunk of export revenue."