SMEs play an of import function in all economic systems and are the cardinal generators of employment and income.
1.2Definitions of SMEs
These yearss, SMEs has become the cant in about every corner of the universe. But, there exists no individual definition of SMEs that is used either nationally or internationally. In fact, each state every bit good as each organisation has its ain manner of specifying SMEs for convenience in their work. Definitions in usage today define thresholds in footings of employment, turnover and assets. Presents, it has become really of import to many states to hold a proper definition of SMEs, in order to guarantee that support steps are granted merely to those endeavors which truly need them.
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As said by Erkki Liikanen ( 2003 ) , enterprise commissioner of the EC,
“ A proper definition of which endeavors are SMEs makes it easier to place their demands and to develop efficient policies to counterbalance for the specific jobs linked to their little size. This is critical for the fight of an Hypertrophied European Union, its growing and employment ” .
1.2.1 In different states
The definition of what constitutes a SME varies widely among different states. The OECD notes, “ The features of a SME reflect non merely the economic, but besides the cultural and societal dimensions of a state and non surprisingly, really different forms are used across states and over clip ” . Some states, such as the UK, use a legal definition whereas other states, such as New Zealand, use a statistical definition to specify a SME. For case, the OECD states use the figure of employees as a chief standard. In most EU states there is a differentiation between the legal definition and the statistical definition.
The EU has adopted a new definition of SMEs which came into consequence as from 1st January 2005, which is summarized as follows:
For legal and administrative intents:
No. of employees
Employee turnover OR Balance sheet entire
& A ; lt ; 10
? ˆ 2 million
? ˆ 2 Million
& A ; lt ; 50
? ˆ 10 million
? ˆ 10 million
& A ; lt ; 250
? ˆ 50 million
? ˆ 43 million
For statistical intents:
The chief standards of SME statistics for SME statistical intents is the figure of individuals employed.
In the United States, little concern is defined as one holding fewer than 100 employees, while a medium-sixed endeavor refers to those with fewer than 500 employees.
In Mauritius, the definition of SMEs varies across different Acts of the Apostless and organisations. Previously under the SEHDA Act 2005, merely a “ little ” endeavor has been defined as an endeavor:
I ) engaged in any activity excepting activities associating to Information and Communication Technology or fiscal Services, for addition or net income, ( An endeavor does non include an office or employment ) .
two ) holding a work force less than 10 employees ; and
three ) has an one-year turnover non transcending 10 million rupees.
Any signifier of trade, commercialism or industry, workmanship, naming, profession, career, business or support service constitutes an endeavor as per the Act ; nevertheless it does non take into history an office or employment, a spiritual or charitable establishment, or a individual engaged in the cultivation of land.
Now, the Government has adopted a new piece of statute law, named the SMEDA Act. This Act has replaced the SEHDA Act 2005 and has therefore taken over the activities of the SEHDA. This Act provides the definition of a little endeavor every bit good as a medium endeavor, which is as follows:
· A little endeavor is defined as an endeavor which has an one-year turnover of non more than 10 million rupees
· A medium endeavor is defined as an endeavor which has an one-year turnover of more than 10 million rupees but non more than 50 million rupees
Furthermore, the Act has redefined an endeavor as:
I ) any signifier of trade or industry, trade by manus or pes, cultivation of fruits, veggies or flowers, farm animal genteelness, or any other activity approved as such by the SMEDA ; and
two ) includes a co-operative society but does non include an office or employment, or a spiritual or charitable establishment.
Central Statistics Office
The CSO is the official organisation responsible for the aggregation, digest, analysis and airing of the official statistical informations associating to the economic and societal activities of the state. The CSO refers to little endeavors as little constitutions. “ A little constitution is defined as a production unit engaged in one sort or preponderantly one sort of economic activity at a fixed physical location and in which less than 10 individuals, including the on the job owners are engaged ” .
Industrial Expansion Act ( IEA )
Under the IEA, a figure of commissariats have been made,
“ Small and medium endeavor means an endeavor:
( a ) engaged in fabrication ;
( B ) utilizing production equipment the sum CIF value of which does non transcend five million rupees or such other amount as may be prescribed ;
Fabrication means the transmutation, for commercial intents, of natural stuffs or semi processed stuffs into finished or semi-finished goods and includes the fix, packing and assembly of inputs into finished or semi finished goods.
1.2 Brief overview of SMEs in Mauritius
1.3What is the economic crisis?
BusinessDictionary.com defines economic crisis as,
“ a state of affairs in which the economic system of a state experiences a sudden downswing brought on by a fiscal crisis. An economic system confronting an economic crisis will most likely experience a falling GDP, a drying up of liquidness and rising/falling monetary values due to inflation/deflation. An economic crisis can take the signifier of a recession or a depression ” .
Mauritius was affected by the undermentioned external dazes that hit the chief activities in the state ;
1 ) The billowy oil monetary values
2 ) The planetary nutrient crisis
3 ) The cut of 36 per centum in the monetary value of sugar
4 ) The sub-prime crisis
1.3.1 Surging of Oil monetary values
1.3.2Global Food crisis
Many states, whether developed or developing, were affected by the planetary addition in the monetary values of nutrient. This has caused economic instability and societal agitation in both the hapless and developed states. There are several factors that have contributed to the lifting nutrient prices1.
Harmonizing to Fritschel and Shah ( 2008 ) , hapless consumers across the Earth are protesting about their rise nutrient measures and in some states this had resulted in nutrient riots1.
Holt-Gim & A ; eacute ; nez and Peabody2, sum up the addition of the nutrient monetary values as:
“ The World Bank studies that planetary nutrient monetary values rose 83 % over the last three old ages and the FAO cites a 45 % addition in the universe nutrient monetary value index during merely the past nine months. The Economist ‘s comparable index stands at its highest point since it was originally formulated in 1845. As of March 2008, mean universe wheat monetary values were 130 % above their degree a twelvemonth earlier, soy monetary values were 87 % higher, rice had climbed 74 % and corn was up 31 % . ”
Below is a graph that illustrates the Food monetary value index informations from the UN ‘s FAO that shows the crisp leap in the some months for some nutrient types:
The Economist reported that in 1974-2005, existent nutrient monetary values declined by 75 % but in 2005-2008, they have risen by 75 % 3. Furthermore, the monetary value of about every nutrient trade good has increased. For illustration, the monetary values of wheat, butter and milk have tripled since 2000 ; those of corns, rice and domestic fowl have about doubled ; those of meat, palm oil and manioc have besides increased. Overall the nutrient price-index of the UN ‘s FAO rose by about 40 % in 2007, compared with a 9 % addition in 2006 as depicted by the graph below:
3- See “ The terminal of inexpensive nutrient ” 6 December 2007
1.3.3The cut of 36 per centum of the monetary value of sugar
Sugarcane is critical to the economic system of Mauritius. It occupies 90 % of the cultivated land surface and 45 % of the entire country of the island. In 2004, it accounted for 19 % of the value of exports and 5 % of GDP. It provides employment for about 60,000 workers and little plantation owners.
The badness of the current planetary fiscal crisis, which started in the US markets in 2007, the worst in 60 old ages, was mostly unannounced by authoritiess across the universe and by bureaus that routinely produce planetary and regional prognosiss. This has caused a spill-over consequence on European Bankss and other planetary major Bankss and economic systems.
As Mauritius is mostly dependent on the universe economic system, it is bound to be affected by the crisis. As said by Naseem Ackbarally, “ Mauritius is badly hit by the fiscal crisis that had already taken several 1000s occupations since the beginning of the twelvemonth. With the Domino consequence, all economic activities in the state are affected, paving the manner to a societal crisis. ”
1.4 Economic crisis and SMEs: the instance of Romania
During the past old ages, Romania achieved a rhythm of high economic growing, with a growing rate of about 7.8 % in 2008. But the recent economic crisis had adversely affected its economic system. SMEs contribute about 80 % of the GDP and were considered to be the most sensitive and the most affected by the economic crisis and is said to be the first hit by the fiscal crisis. The challenges that were faced by the SMEs during the economic-financial crisis are:
* Sudden addition in the monetary value of natural stuffs, energy and nutrient and liquidness jobs ;
* Credit related problems- Liquidity obstruction ;
* Fall in the demand for its merchandises and services ;
* Variations in Exchange rate and rising prices ;
* Reduction in their development rate ;
* Many SMEs have gone belly-up ;
* New start-up SMEs are missing resources to last
It has been noted that more than 600,000 SMEs were affected by the above mentioned affects. Harmonizing to surveies conducted by the NARE, 25 % of SMEs will shut down and 90 % of SMEs directors planned to layoff 10 % of their employees. Furthermore, in 2008 the figure of bankruptcies has doubled compared to the old twelvemonth during the same period.
Furthermore, the findings obtained following a study done on SMEs proprietors, it was concluded that 83 % of the SMEs proprietors have negative outlooks about their 2009 net incomes ; 76 % of the SMEs intend to downsize their concern ; 16 % are looking for investors to capitalise their concern ; more than 60 % of the SMEs hold that relaxation of recognition would assist their concern to work better and 34 % clasp that revenue enhancement load will hold to be eased.
Economic crisis and SMEs: the instance of Venezuela
Different strategies/schemes adopted by different legal powers
SMEs are the 1s that were the most affected by the economic crisis in assorted states. Since SMEs ‘ part helps a batch to the development of a state, many steps were adopted by many states to assist SMEs during the economic downswing. As seen below, is a sum-up of the different steps adopted by different legal powers to help SMEs during the planetary financial-economic crisis:
& A ; Oslash ; Australia
A bundle launched by the Australian Prime Minister and the Minister for Small Business on 24 October 2008 includes:
Direct loaning through authorities financess
· Constructing on the Australian authorities ‘s steps to beef up the fiscal system, the authorities announced that it will supply little concern support and advice during the fiscal crisis from Business Enterprise Centers and other registered concern organisations, through a A $ 4 million Government investing over 2008-09 and 2009-10.
· Operational aid by the authorities
The Australian authorities:
I ) Introduced a warrant of on-time payment for new little concern contracts with Commonwealth Government Departments- up to A $ 1 million, from 1 December, within 30 days- otherwise little concern will hold the right to bear down punishment involvement ;
two ) Made a committedness to developing standard procurance paperss for coordinated procurance and standard attacks to do it cheaper and easier for little concern to sell to the Government.
& A ; Oslash ; China
* On 29 August, the China Banking Regulatory Commission issued a notice to promote banking fiscal establishments to increase recognition support to little endeavors. The notice includes six guidelines:
I ) The new recognition lines late approved by People ‘s Bank of China to Banking establishments should be reserved to for imparting to little endeavors ;
two ) Banking establishments should better fiscal services to run into the demand for recognition of little endeavors ;
three ) Banks should let greater flexibleness for fiscal invention ;
four ) Banking establishments should mensurate non-performing loans accurately and prevent moral jeopardy and uphold to the sustainable concern development rule ;
V ) Commercial Bankss should recognize synergy effects with other favorable policies and prehend the chance of the current revenue enhancement interruptions for little endeavors to unite debt with equity and work out different solutions for concerns in different countries and different phases of development ; and
six ) Commercial Bankss should make out to little concern and better understand the demands of little enterpriser.
On 9 November, the Chinese authorities introduced a 4 trillion yuan stimulation bundle which includes:
I ) A comprehensive reform in value-added revenue enhancements, which would cut industry costs by 120 billion kwais ; and
two ) The abolition of commercial Bankss ‘ recognition ceilings in order to impart more loaning to precedence undertakings, rural countries, little endeavors, proficient invention and industry rationalisation through amalgamations and acquisitions.
* On 29 October, the Ministry of finance announced that the Chinese authoritiess has allocated one billion kwai in recognition warrant for SMEs ( numbering 1,8 billion kwais so far in 2008 )
* Banks were asked to:
I ) Improve fiscal service system for SMEs ;
two ) Promote fiscal invention to develop trade funding installations and recognition merchandises for SMEs ; and
three ) Step up the development of customized recognition mention, recognition evaluation and information release systems for SMEs.
Operational aid by the authorities
* On 21 October, the Ministry of Finance announced the addition in export discounts for some export merchandises which would take consequence on 1 November 2008.
& A ; Oslash ; Japan
As portion of its economic stimulation bundle proclamation on 29 August:
Operational aid by the authorities
* The Nipponese authorities announced programs to:
I ) Strengthen protection for sub-contractors ;
two ) Strengthen support for industries with heavy spendings on fuel ; and
three ) Boost growing potency by raising productiveness.
As portion of its economic stimulation bundle announced on 30 October:
Direct loaning through authorities financess
* The Nipponese authorities will raise the exigency imparting bound of the government-affiliated fiscal establishments form 3 trillion hankerings to 10 trillion hankerings.
* The 6 trillion hankerings allocated in the first auxiliary budget as the maximal degree of exigency recognition warrant for SMEs will be raised to 20 trillion hankerings.
Operational aid by the authorities
* Tax for medium and small-sized companies in Japan would be reduced.
& A ; Oslash ; United Kingdom
Direct loaning through external financess
* A GBP 4 billion ( EUR 5.1 billion ) recognition line was secured from the EIB for SMEs. Businesss will be able to tap into the recognition through designated Bankss over the following four old ages. EIB has been doing loans to SMEs in EU, and because of the fiscal crisis, devoted EUR 30 billion of new loans to assist SMEs in early October. UK ‘s recognition line is portion of the new loans provided by EIB.
As a status for bank recapitalization or other aids
* As portion of the deliverance bundle of the UK authorities announded on 8 Ocyober, the authorities will utilize GBP 50 billion for recapitalization of eight major loaners. It was by so reported that upon capital inkection, the authorities could act upon certain policies of the Bankss, including their committedness to impart to SMEs. Media quoted an official UK Treasury statement as stating that any capital investing in Bankss “ will necessitate a full committedness to back up imparting to little concerns and place purchasers ” .
* UK Prime Minister, Gordon Brown, on a recent juncture in late October, urged Bankss non to alter the footings and charges for bing loaning to the SMEs.
& A ; Oslash ; United States
Direct loaning through authorities financess
* New Jersey will put up a US $ 50 million fund to supply loans to SMEs. The step will allow money from the province ‘s fund to set up the Main Street Business Association Programme.
* The Fed, via its Asset-backed commercial paper ( ABCP ) Liquidity Facility ( which was announced on 19 September ) , extends non-recourse loans at the primary recognition rate to US depositary establishments and bank keeping companies to finance their purchases of high quality ABCP from money market financess.
Schemes adopted in Mauritius to help SMEs
The budget was passed on 22 May 2009. This budget was made for a six months period stoping December 2009. The Budget revolves around salvaging occupations, protecting people and fixing for recovery. The budget launched an eighteen-month action program for Mauritius to confront the planetary economic crisis that has affected the state.
As said by Mr. Sithanen, the Mauritian Ministry of Finance and The Deputy Prime Minister, in his budgetary address 2008/2009 “ the vulnerable endeavors and those already afflicted by the crisis, most of them SMEs, need wide-ranging support to remain afloat until things improve ” , a figure of economic steps to offer fiscal support to SMEs in hurt and, at the same clip, those steps aim to beef up SMEs capablenesss and resources to take advantage of the future economic recovery was announced in the budget address 2008-2009.
The steps in the budget address associating to SMEs are as follows:
* Restructuring of the MASMED Fund into the SJR Fund with a budget of Rs 3.5Bn which will be available on a impermanent and targeted footing until December 2010 to widen fiscal aid to a wider scope of industries and sectors.
The SJR Fund was allocated as follows:
– Support SMEs in salvaging occupations Rs.500m
– Fabric, vesture and fabrication industries Rs.500m
– Equipment modernisation for SMEs Rs.500m
– Modernization of larger endeavors Rs.500m
– Enabling houses to raise liquidness by selling assets Rs.500m
– Puting up of an Export Credit Insurance Scheme Rs. 1bn
* An extended communicating run to do all micro enterprises every bit good as SMEs aware of the support mechanisms available.
* Recruitment of advisers to help SMEs fix and subject fiscal programs to enable them from the Mechanism for Transitional Support.
* Encourage micro-enterprises and SMEs to go corporate organic structures to profit from the assorted strategies formulated to help SMEs.
* Greater accent through capacity edifice to turn to the deficiency of accomplishments in the printing sector.
* Training will be organized under the 2nd opportunity programme, to fit immature people with the accomplishments to take up employment in printing.
* Puting up of the MBGS to advance concern growing in SMEs. Eligible houses will have funding to back up their concern growing on a cost sharing footing.
* Establishment of a strategy to supply mentoring and advice on concern planning to enable SMEs benefit from the MBGS.
* An extra Rs.300m will be made available by Bankss to back up SMEs. The loans will be made at the cardinal repo rate and 50 % will be guaranteed by the authorities on a cost sharing footing.
* Set up of a joint SME/Customs commission to check down on undervaluation of imports to protect local SMEs.
* A commission will move on the recommendation of the Industrial Development Task Force on norms and criterions to guarantee that controls on imports are every bit strict as on domestic merchandises.
* Development of the label “ Genuine Mauritian Handicraft ” to authentify local made merchandises.
* Amendment of the Legal Metrology Act, the M.S.B Act, the Animal Feed Control Act and the Food Regulation 2004.
* Introduction of a mentoring service by NEF to be delivered by NGOs and private advisers on a cost-sharing, public presentation based agreement to help SMEs in puting up and developing their selling capablenesss and competences in pull offing their concerns.
* The SJR fund will supply for a strategy for adult females to finance micro enterprises up to Rs 40,000 per donee and Rs 400,000 for adult females regrouped into a societe.
* SMEs with bing loans prior to September 2008 and presently confronting hard currency flow jobs due to the economic crisis will hold their loans rescheduled by the DBM.
* Development of a life skill developing plan for supervisors and coachers of trainees to assist workers better their productiveness and gaining capacity.
* Puting up of a Rs 300mn Work-cum Training Scheme to enable endeavors confronting decrease in their turnover to direct employees on developing alternatively of puting them off.
* Scheme to finance purchase of equipments by SMES to set about derocking and farm machinery logistics for crop and conveyance of cane.
* Pilot undertakings in a selected figure of trades through proficient and fiscal aid to craftsman to upgrade their workshops and supply preparation to learners.
* The One Off strategy to ease colony of arrears for furniture shapers, little bargainers and other micro-businesses, etc is extended to 30th June 2010. It is limited to those who have contracted loans with DBM of up to Rs 200,000 before April 2003 and whose histories have been in arrears for at least five old ages. The DBM is supplying full release of the punishment and the involvement accumulated. For loans of less than Rs50, 000, 50 % of the capital is being written off during the colony.
Supporting establishments in Mauritius
A scope of Torahs, undertakings and programmes are being implemented to assist for the development of SMEs. The Government is taking utile steps to do the SME sector to boom as the SME sector represents one of the new pillars of the economic system. Assorted strategies are being put into action to put SMEs at the Centre of development. Following the budget address 2008/2009, each of the establishments runing at the national degree is supplying their aid to the SMEs.