Business Development & State
The interdependent relationship which exists between entrepreneurship, business development and public policy is now overwhelmingly apparent. The notion that a state has the ability to grow an economy independently,
devoid of private ownership and a private sector has been tested in several instances and failed abysmally. The obverse, that an economy can grow without a government providing the necessary public infrastructure – physical, legal, institutional, digital and financial – has also been dismissed. A pragmatic approach which is able to strike the ‘middle ground’ and find a role for both state and private sector is necessary in the contemporary global environment.
This ‘middle ground’ in a pragmatic approach to governance and economic development is best served when the state acts as a facilitator of private sector development. This has been absorbed into common parlance as the ‘creation of an enabling environment’ to doing business. In analyzing an enabling environment, of paramount importance is the parameters within which private entities operate. In the context of this discourse, these parameters are the legal and institutional infrastructure of the financial sector which supports entrepreneurship, micro and small businesses.
Supporting Entrepreneurship, Micro and Small Businesses in Guyana: Institutional Infrastructure
In supporting entrepreneurship, micro and small businesses, it has been established in previous writings by myself (see Stabroek News: June 7, 2018) that ‘despite the efforts of the private sector, there needs to be deliberate, concerted and coordinated efforts between public institutions and the private sector to increase the catchment of borrowers by reducing risk and granting supportive mechanisms for entrepreneurial, micro and small business. One of the keys to successfully supporting entrepreneurship, micro and small businesses in an environment of private sector-led growth lies in the government’s ability to reduce the risk of lending to entities.
This approach is best suited since it facilitates private sector development from a two-pronged approach – it allows for the nurturing of young businesses by increasing the amount of capital which can flow to the entity through reduced risk; while banks, as private sector entities, continue to be profitable, which can increase their share of loanable funds.
It is with this in mind that a series of deliberate programmes and policies can be mapped into our institutional framework to promote private sector development. These are elucidated in the following section.
Institutional Framework – Programmes & Policies to guide entrepreneurship in Guyana
In a general sense, the programmes and policies which can promote startups and small business development in Guyana can be grouped into three (3) thematic areas, viz:
a. Risk-Reducing Measures
b. Indirect Injection Measures
c. Network and Relational Measures
A. Risk-Reducing Measures
1. Business Incubators
The Business Incubator model gained prominence in the cradle of the developmental state of Singapore during the 1970s and 80s. This model quickly spread throughout the East Asian countries and became an integral component of the private sector development toolkit of the ‘East Asian’ tigers. Through this mechanism, many start-ups flourished and contributed to the economic growth of the country. The private sector developed and grew stronger, to the heights of international competitiveness.
With government continuing to have a major influence on the direction and trajectory of the economy and financial sector in Guyana, a business incubator based on sectoral and sub-sectoral priorities would be critical in catalyzing growth. Such a support scheme can provide technical assistance and greatly reduce the likelihood of failures in the embryonic stage of a business. During this period, the availability of resources, inclusive of skilled human resources with the requisite expertise and technical knowledge, are scarce to small businesses. The provision of these services in the form of a business incubator would ensure that one of the most valuable resources at the most valuable times can be accessed by startups and small businesses.
2. Business Acceleration Programmes Complimentary to the Business Incubator is that of a Business Acceleration Programme. Whilst the Business
Incubator will set the conditions for the startup to get off the ground, the Business Acceleration Programme would ensure that the entity is able to grow in size and strength. Improving its resilience, improving capacity, becoming certified, quality controls, standards, export market readiness, access to credit amongst many others are some areas which a Business Acceleration Programme could be geared towards. These can be based on an empirical study conducted to investigate the constraints to business growth at each stage or size of business. Some prominent examples are the Harbour Accelerator Programme in the US and the MaRS Accelerator Programme in Canada.
3. Entrepreneurship Mentoring Programmes
The challenges to small businesses are amplified by their lack of resources as is available to large businesses. A blueprint business and a suitable mentor have been utilized in developing countries recently to a fair degree of success. The Angel Investment Network, similar to that in Jamaica, has been recommended as measures to support entrepreneurship. This is worthy of exploration as entrepreneurs sometimes commit to the first promising opportunity they see and therefore tend to make themselves vulnerable to competitors. This inexperience increases the risk of business failure and can create industry-wide perceptions. Consequently, the cost of lending will increase as banks will compensate for the potential loss of credit. The rubric, which facilitates their collaboration rather than competition with established players – who can offer resources, guidance, supply chains and help overcome bureaucratic hurdles to enable the start-up to quickly integrate and enter a larger established market – is one which will be growth-inducing and create multiplier and spin-off effects.
B. Indirect Injection Measures
1. Development Bank with Sectoral Priorities
A development bank with national sectoral priorities can be an invaluable instrument in ensuring growth to small businesses. Instead of competing with commercial banks, a development bank (which can involve private equity) can provide financing to commercial banks for specific sectoral developments. This will lower the cost of lending and will act as a strong complement to the risk reducing measures.
C. Networking and Relational Measures
1. Mandatory Chamber of Commerce or Private Sector Association Membership
Economies are embedded in societies and, as such, much of the cultural values are transferred to the ethos of business in a country. In Guyana, the society is one which is characterized by networking and inter-personal relations. When taken in the context of transactions and business relations, networks and relations are powerful instruments which can be leveraged in small business growth. A strong network will ensure that an entity is integrated into the supply chain easier than an entity without a strong network. For this reason, mandating membership within a private sector association, such as the Chamber of Commerce, would allow for improved relations among entities and
can provide a critical network for small businesses and startups to leverage in their embryonic phase. It can also ensure that a mechanism is provided for an organized voice representing small business and startups to route concerns. This can aid in a ‘discovery process’ of the right policy mix. Many of the Latin American countries have adopted this model, which ensures that entities which are seeking to do business both in and out of the country are legitimate and adhere to a minimum code of ethics.
2. Entrepreneurship Development Board linked with Academia, Private Sector Associations, Civil Society and Government
Entrepreneurship, entrepreneurial abilities and spirit are all transformed into micro and/or small enterprises. The actions associated with entrepreneurship are driven by the individual and the spirit and abilities of the entrepreneur are guided by different segments of society, including academia, the efforts of government, civil society and the influence of the private sector associations. With this in mind, an Entrepreneurship Development Board (EDB), which is responsible for the crafting of policies as it relates to entrepreneurship, is necessary. This EDB can serve as the Board for the institutions which promote entrepreneurship and small business development. This will allow for the spirit and culture of entrepreneurship to be influenced by all segments of society and will foster deeper relations in the context of a stakeholder approach to business development.
The argument for linking financial sector development to economic growth is that a well-developed financial system performs some important functions, such as reduction of transaction costs and financial intermediation, identifying and financing good business opportunities, enabling risk diversification and facilitating the exchange of goods and services. These functions result in a rapid accumulation of capital and foster technological progress, among others, which are vital ingredients for faster economic growth.
Whilst this array of programmes and policies are by no means exhaustive, they establish an inextricable link between entrepreneurship and public policy, which has become increasingly important to private sector development and economic growth. Micro and small business persons must recognize that their success will also heavily rely on their own integrity, resourcefulness, perseverance and commitment; business acumen and savvy; and sacrifice, which are all features of a successful business.
The legal structure of the financial sector remains a critical component of fostering an enabling environment for entrepreneurship and micro and small business development. An examination of this will be critical for understanding the space for entrepreneurship, micro and small business development. This shall be the subject of a next article.
Richard Rambarran is the Executive Director of the Georgetown Chamber of Commerce Industry and a lecturer in the Department of Economics at the University of Guyana. He holds a Masters’ Degree in Economics and several certificates from the IMF on Macroeconomic Stability, Financial Programming, etc.