Small and Medium Enterprises (SMEs), notwithstanding their immense contribution to the national wealth creation, are still facing serious problems in raising funds for either new investments or expansion of existing businesses.SMEs, with estimated contribution of between 30 and 35 per cent to the country’s Gross Domestic Product (GDP) and employing between 20 and 30 per cent of the labour force, are ranked the second employer, after agriculture.
According to figures from Tanzania Investment Centre (TIC), the 2.7 million enterprises across the country employ between four and five million out of the country's labour force of 20 million people.
And thanks to their potential in promoting the economy, the government resolved to create a second segment window at the Dar es Salaam Stock Exchange (DSE) - the Enterprises Growth Market (EGM) - to help SMEs raise capital, cost effectively.
The EGM, among other duties, is responsible for promoting start-ups and expanding SMEs’ access to capital through simplified rules and regulations as compared to the main market.
But, almost a year now since the EGM was launched, the alternative capital market is still struggling to attract companies, with no single firm having grabbed the opportunity. Lack of awareness or simply unwillingness by potential SMEs to list could be the major reasons for failure by EGM to attract companies.
Most SMEs are family businesses, unwilling to reveal their financials or business records as the stock market demands. But, also there is a likelihood of many potential SMEs for listing through the EGM lacking the awareness of the opportunity.
With that in mind, DSE has embarked on a nine-month promotion that intends to help SMEs raise capital through the bourse’s alternative window.
The promotion, dubbed ‘Wekeza Inalipa’ literally translated as ‘Invest, it Pays,’ seeks to educate and create awareness among SMEs to access relatively cheap capitals through the bourse’s second window - EGM, which has lenient rules for start-ups and on-going businesses.
DSE Chief Executive Officer, Moremi Marwa (pictured), speaking at the promotion launch in Dar es Salaam last week, said the campaign hinges on the bourse’s profound role of offering the required long-term financing to identify feasible projects from small businesses or start-ups.
“DSE appreciates SMEs as the key vehicle for wealth creation, with huge potential to contribute substantially to real economic growth.
“Even before the campaign, we have received applications from three firms seeking to raise capital through EGM…this shows that some have already started seeing the potential of raising funds through the capital market,” Mr Marwa said.
The cost of raising the required capital through the equity market - during primary offer to listing - is a mere two per cent of the total capital raised.
“The minimum amount (that can be raised through the market) is 200m/-,” said the DSE CEO during the launch of the nine month promotion. Listing at the main markets required an issuers to have a minimum of 1,000 shareholders, with three consecutive years of profitability, among others rules.
SMEs, most of which operate in financial difficulties, can acquire the required capitals through commercial banks, microfinance institutions and government or donor funded programmes, which have monthly repayment obligation plus interest rates, some over 25 per cent.
After listing at EGM, the issuer – SME - has no interest rate to worry or to pay as buyers of shares become simply shareholders who receive dividends. In some cases, however, the management can hold the dividends for expansion reason, of course, after getting approval from shareholders.
Another advantage is that the entrepreneur works hand in hand with nominated advisor (Nomad) on the daily running of the company. The Nomad is a highly skill advisor in managing a particular enterprise and is licensed by Capital Market and Securities Authority to safeguard the interests of entrepreneurs and shareholders.
DSE’s Programmes and Projects Manager Magabe Maasa says raising capital through the EGM is an available opportunity that SMEs have not tapped yet. “SMEs should take advantage of this opportunity as they only need to come up with a saleable business idea and leave the rest to the bourse’s Nomads,” Mr Maasa says.
Consnet Group Director, Santus Mtsimbe, said the campaign evaluation would be conducted in daily basis and information shared in various outlets, including social media - facebook, twitter, YouTube and blogs.
“We will also make a film that educates the target group at simple and layman language through acting,” Mr Mtsimbe said “the film characters have been identified, among them, Richie ‘the gentlemen’ Mtambalike.”
Consnet Director believes that a well managed and healthy SME is a big source of employment opportunities and wealth creation without mentioning their contribution to stability and generated tax revenues.
To further increase EGM awareness, in the second quarter of this year, DSE also partnered with ToP100 midsize companies initiative to create awareness toward opportunities that the bourse offers for SMEs. The Top100 mid-size companies targets firms with a turnover between 1bn/- and 20bn/- per annum.
The survey aimed at identifying the country's fastest growing medium size companies to enable them showcase business excellence and highlight some of the successful entrepreneurship stories. For instance, last year's overall winner- BQ Contractors has clinched a deal with Puma Energy to renovate the former BP's outlets across the country.
According to BQ Contractors Managing Director and CEO, Eng. John Bura, the company won the tender because Puma had simply wanted all bidders to be part of last year's Top 100 list.
A study conducted by the International Finance Corporation (IFC) indicates that there was a positive correlation between the overall level of income and the number of SMEs per 1,000 people in a particular country.
The World Bank's Doing Business report of 2011 indicates that healthy SME sector corresponds with a reduced level of informal or black market activities.
Source: Daily News, reported from Dar es Salaam, Tanzania
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