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“Election Issues 18: SMEs: the rhetoric and the reality OR “Jack the giant-killer no more”. 6 July 2014

06/07/2014

Election Issues 18:  SMEs: the rhetoric and the reality  OR  “Jack the giant-killer no more”

 Professor Wadan Narsey (earlier version appeared in FT 5 July 2014)

 

For decades, successive governments have talked about helping Small and Medium Enterprises (SMEs) as an essential part of Fiji’s development effort.

Labour experts all acknowledge that SMEs create far more employment than the larger enterprises,  and they are also good for income distribution and reducing poverty.

But what should government’s approach be when the small “giant killer”,  eventually  becomes a giant, who then indirectly stifles the SMEs?

Look at today’s business giants like Jack’s Handicrafts, Tappoos, Motibhai Patel, and many others, who once upon a time were SMEs themselves.

Today, these Fiji brand names are synonymous with quality products and quality shopping environments, to match those in Australia or NZ or any other developed country, and vital in attracting the high spending tourists from abroad.

Then there are the small handicraft operators such as at those at the Suva City Council’s Handicraft Centre operating on Stinson Parade, below the SCC car-park.

They struggle to make a living,  partly because tourist buses and taxis do not visit them regularly,  preferring for very understandable reasons, to take them to the large tourist outlets like Jacks, Tappoos, or Motibhais.

The tough question is: why have successive governments not given SMEs in the SCC Handicraft Centre the same assistance they give large operators, despite all the rhetoric over the years?

This is a general problem and deserves a systemic answer.

First, Jack the Giant Killer

The young generation today will have little idea that commercial giants like Jacks Handicrafts or Tappoos or Motibhai Patel, and many others in many other fields, were also once, small struggling businesses in newly independent Fiji.

In the colonial era, some were even itinerant hawkers struggling around the dusty Queens and Kings gravel roads.

They struggled against the old colonial commercial giants such as the octopus like subsidiaries of Burns Philp, Carpenters, Stinson Pearce, and other expatriate firms, who also used to get preferential treatment from the expatriate commercial banks, insurance companies, the old colonial government, and even the newly independent Fiji Government.

But, by sheer dint of hard work, entrepreneurial ability and frugality, a small family run SMEs grew and diversified into activities all over Fiji, ultimately becoming the giant Jack’s Handicrafts, a pillar of today’s tourism industry.

Whether in Nadi, Sigatoka or Suva, tourists will today encounter under one Jacks roof, in pleasant tiled air-conditioned surroundings,  a full range of handicraft items, clothes,  and all kinds of knick knacks, made in Fiji or imported.  Jack’s also has diversified vertically into his own factories, with skilled designers and workers.

The prices suit virtually every pocket, tourists and locals alike, from those wanting to spend a few dollars, to those wanting to splash tens of thousands.

To make sure that he provides the complete product to the tourists, he also has some of the best restaurants around, with great chefs.

Take for granted today, that all these quality outlets have clean quality toilets, important for all tourists, especially the females and the elderly.

Tour operators and hotels recognize Jacks for excellence in the shopping experience, and very naturally direct tourists their way.

But also, as is practiced world-wide, giant retailers try to corner as many of the visiting tourists as possible, by giving commissions to tour operators and tourist bus or taxi drivers, to drop their tourists at their outlets.

SMEs  disadvantaged

For every bus or taxi full of tourists going to the large outlets, that is one bus or taxi less for the small handicraft shops, such as the SCC Handicraft Centre, which barely sees any tourist buses or taxis for the last decade.

These SMEs are run by middlemen or the producers and their families, and they are of all ethnic groups-  Fijians, Indo-Fijians, and even other Pacific Islanders.

The shopping environment of the SCC Handicraft Centre and these SMES are dark and dingy, with toilets preferably not to be visited, and with food and drink outlets which will not appeal to tourists (even if adequate for locals).

Most importantly, no SME from the SCC Handicraft Centre can pay commissions to tourist bus operators or taxi drivers to bring their tourists to them.

It is no wonder that these SMEs stagnate and their families struggle to put food on their tables: there is simply no level playing field for them.

How help the SMEs?

We cannot expect the giant businesses to, out of the “goodness of their heart”,  to look after the SMEs at the SCC Handicrafts Centre.    Unfortunately, in the Darwinian capitalist jungle, moral and ethical businessmen trying to be fair to SMEs cannot compete against more cut-throat businesses.

Governments might  convince the tour companies and large retail outlets to take a certain proportion of their tour buses and taxis to the SCC Centre: but moral suasion hardly ever works (except for ruthless dictatorships).

To attract tourists, it would be absolutely necessary to upgrade the physical quality of the SCC Handicraft Centre, perhaps with attractive tiling, painting and conveniences.

But note that any good businessman, like Jacks or Tappoos or Motibhai Patel, would never use SCC’s prime sea-front location for a mere multi-level car-park.

SCC could, with Government subsidy, increase the number of outlets by converting the upper story car-parks to more shopping outlets and perhaps attractive restaurants facing the Suva Bay.

Of course, the typical government will say: sorry, we have no money.

But then, there is no shortage of funds when it comes to helping large tourist developers and investors, on the grounds that they put Fiji’s tourism industry on the world map, they pay substantial taxes and city rates, and are responsible for large amounts of employment creation.

Witness the massive public capital infrastructure expenditure amounting to hundreds of millions on water, sewerage, tar-sealed roads etc at Natadola, Momi, Denerau and other tourism areas, agreed to by successive governments.

Notice that in Suva, Suva City Council itself has restructured the public road system at great cost to make tourist bus bays for Tappoos and Jacks on Victoria Parade, and also widened the pedestrian pavement for City Central shopping complex at the corner of Cumming Street and Waimanu Road.  This is despite the fact that they have simultaneously reduced public access to other rate payers by narrowing the roads.

Other SMEs facing same problems

There are thousands of SMEs throughout Fiji who face the similar problem that large enterprises in capitalism have inherent advantages that stifle the SMEs.

Look at the massive growth of super-markets in all the major urban centers, and in newly urbanizing areas like Nasinu in Greater Suva and Namaka in Nadi, all helped by Local Councils, the Town and Country Planning arms of government and tax payers’ funds.

Not surprisingly, there is a decline of the small shops all over the country, unable to compete with discount prices and range offered by the super-markets, unless the SMEs work incredibly long hours.

Look at the great decline in the small “push-carts” which once used to be so common throughout Fiji.

To make things worse, these SMEs (and even humble pushcarts) face all kinds of exorbitant license fees and charges, which are a high proportion of their small turnover.

They hardly ever get any of the financial assistance that large enterprises normally get from those in authority.

Unfortunately, FRCA also has had to make up for lost revenue caused by the recent reduction of corporate and income tax from 30% to 20%, by squeezing the SMEs, who do not have cunning corporate lawyers and accountants to legally avoid (and illegally evade) their taxes.

The CEO of one very active NGO highlighted to me how rural people working in the informal sector now have to pay so many license fees which they never had to before: a license to catch prawns, a license to sell prawns to the public, a license to store prawns, etc. etc.   Soon they will be needing a license to die.

The power of SMEs in an election year

It is politically understandable that governments will not generally spend equivalent amounts for SMEs as they spend for the large corporations.

After all, SMEs cannot throw fancy cocktail parties for government ministers at Denerau, or contribute large amounts to election campaigns.

Nor can SMEs make the large contributions to political parties that the large corporations can, and they often make contributions to ALL the large parties, just to hedge their bets.

Often the large corporations are able to get the law “bent” so that they can get “permissions” given where they should not, such as the destruction of mangroves by reclamation, or parts of public parks given to them for commercial development, or other financial transactions between them and government carried out less than arms length.

The value of all these economic and financial benefits is hundreds or even thousand times the financial contributions these corporations may make to political parties or private bank accounts in Fiji or overseas.

None of the SMEs or those in the informal sector can give these kinds of benefits to government ministers.

These days, a beer and saina or bhajia, or Black Label and duck curry chaser will not take the SME too far with Ministers.

But in an election year, owners of SMEs and all their family members aged over 18 (and remember, poor families are big), can contribute far more votes than the few owners of large corporations.

What have political parties and candidates got to offer SMEs in their manifestoes?

 

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