Leveling the field for Mauritian SMEs

As technology allows more geographic flexibility and a hyper-connected economy, SMEs become serious contenders to well-established MNEs (MultiNational Enterprises). They can achieve today what once only giant corporations could – a global footprint. They are no longer simple lubricators to a machine controlled by big businesses – they are the final economic output generators, and they are global in their own right.

In developed countries, SMEs account for 99% of all firms, provide 70% of all jobs and generate between 50% and 60% of the national economic output while in Mauritius, they contribute only about 40% to the economy and 62% of total employment*[1]. SMEs significance across the world are beyond question; yet, the gap between these figures is blatant. What is impeding their growth in emerging countries, and particularly in Mauritius?

Mauritius is held up as an oft-used illustration for small, successful nations. With limited natural resources, a barely-educated workforce, a multicultural society and a small domestic market, the island has managed to multiply its GDP 35-fold since its independence in 1968, with no signs of abating. A lesser known fact, however, is the mid-income trap Mauritius is caught in. The supply chain is increasingly restricted to mature enterprises and the economy is polarised around vertically-integrated conglomerates. The result? An SME sector that is trailing behind. There is little denial about the vulnerabilities that SMEs face, chief among which are access to finance, organisational development, training and access to technology.

Having gained prominence in the policy debate, these issues elicited a 10-Year Master Plan, crafted by the Ministry of Business, Enterprise and Cooperatives. The government, by turning to entrepreneurs to support future growth, hopes to transform the SME sector into a powerful propeller of the economy. In response to the challenges outlined, the Master Plan devises concrete measures that might just be the ‘game-changing’ formula it aspires to be.

Access to financing
Mauritian’s most common financing options remain traditional debt instruments (family loans, bank loans, overdrafts and credit lines) and asset-based financing (leasing and factoring). Yet, when seeking these options, SMEs face stringent conditions compared to bigger companies. The Master Plan’s strategy aims to tackle the issue at the root, at the start-up or development phase:

  • Encourage alternative financing by amending the current framework to allow online platforms for equity crowdfunding and peer-to-peer lending
  • Provide tax incentives to Angel Investors and, potentially, partial protection against loss. Angel Investors, beyond monetary investment, add as much value from mentoring budding entrepreneurs.

Organisational development and training
SMEs, being deeply rooted in the local ecosystem, often lack entrepreneurship acumen and formal training in matters like bookkeeping, how to secure a bank loan or even customer service. Tailored skills training is key in bolstering entrepreneurship and ensuring business viability over time. The Master Plan resolutely seeks to foster an attitude of entrepreneurship and reinforce the human capital:

  • Make entrepreneurship mainstream in secondary and tertiary education by emphasizing personal development – not as a mere add-on, but as a compelling prerequisite – and making three to nine-month internships mandatory for university students.
  • Institute the Global Entrepreneurship Week, where students and graduates connect with entrepreneurs, mentors and potential investors. Successful entrepreneurs can showcase their ventures and in, turn, encourage young people to follow suit.
  • Set up incubators, which offer start-ups a shared operation space for a more collaborative work environment with networking and funding opportunities.

Access to technology
Daunted by diseconomies of scale and an inability to distinguish themselves from their larger competitors, SMEs can only foster innovation by appropriating technologies which, more often than not, are associated to risks and costs that many cannot bear. The Master Plan acknowledge this gap and brings forward solutions to create high-tech SMEs:

  • Optimize the Intellectual Property framework (cost, procedures and time) to enable SMEs to protect their creations and intellectual rights, which is vital in an increasingly knowledge-based economy.
  • Encourage technology transfer through a structured network including MNCs, universities and technology institutes and grant fiscal advantages (a waiver of up to 25% of taxes) to MNCs that cooperate

And while these measures only scratch the surface of what the Master Plan outlines, they represent great strides in Mauritius’ relentless pursuit of joining the league of high-income countries by 2030.

[1] Mauritius National Budget 2016: http://www.investmauritius.com/budget2016/Download/BOI_Budget_Highlights_2016.pdf