Microenterprise is solution to future economic challenge
They created many entrepreneurs instead of an economic giant
Microenterprises are crucial for the economic growth of both developed and developing countries. According to a report titled "Achieving Financial Security through Entreprenuership", which was published in 2014, 92% of the total businesses in the US are microbusinesses, which created 26 million direct jobs.
The micro and small businesses of China – comprising of 73.28 million businesses – are considered a major force of the country's economy, as it is highly contributing to the employment generation.
India's micro, small and medium enterprises' (MSMEs) base is the largest in the world after China. There are about 63.05 million micro industries in India manufacturing more than 6,000 products ranging from traditional to hi-tech items.
Developing economy like Bangladesh largely depends on micro and small enterprises. Contribution of microenterprises to the total economic output is around 25 percent and represents 57 percent of the country's total employment.
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The government is keen to upgrade the status of the country to a developed one by 2041. To achieve the target, Bangladesh needs an economic growth at around 9-10 percent.
Taking advantage of the demographic dividend, Bangladesh needs to create employment both in the formal and informal sectors to attain its desired gross domestic product (GDP) growth.
Currently, more than 65 percent of the country's population is of the working age. It is estimated that the benefit of the demographic dividend will continue up to 2050. Therefore, Microenterprises have a critical role as the major engine of growth after ready-made garment (RMG) and remittance earning.
The RMG sector, one of the major drivers of the country's economy, is creating employment for many people especially women. Its contribution to GDP is 11 percent. However, a RMG-worker gets only Tk10,000 to15,000 per month.
This sector thrives on cheap labour. The RMG sector's low-skilled and semi-skilled workers are incapable to enhance their efficiency. In this fast-changing technology-dependant world, Bangladesh will not go far with the current level of efficiency.
Technological advancement and the fourth industrial revolution will shrink job opportunities for the less-skilled and semi-skilled workers in Bangladesh. Therefore, the RMG industry cannot be considered as a major economic driver for the future as its contribution to GDP is falling gradually.
Another major force of Bangladesh's economy is remittance. More than 10 million expatriates are remitting a huge amount of money, the average remittance being about $15 billion per year.
Most of the Bangladeshi expatriates are less-skilled and semi-skilled labourers working manually in different areas including construction, maintenance and cleaning.
Remittance earning has been quite inspiring in the last few decades. However, technological advancement and the fourth industrial revolution will gradually decrease the demand for less-skilled Bangladeshi labourers in the international market.
Technologically advanced Japan has already replaced most of its manual activities with automated machine and equipment.
Considering the current global economic trend, Bangladesh needs a strategy to get closer to becoming a developed country. Expanding economic activities in the private sector will be the right choice in this case. Bangladesh needs to focus on promoting microenterprises to retain its current economic growth and accelerate it.
For using the current demographic dividend prevailing in the country, the expansion of microenterprises should be a priority. The sector can boost the economy by creating self-employment and wage employment for the two million youngsters who enter the job market every year.
Promotion of microenterprises could be Bangladesh's key strategy of facing future economic challenges. The development of the sector is progressing in line with the sustainable development goals (SDGs) as it focuses on creating self-employment and wage employment for the poor, ultra-poor, women and youths.
Growth of microenterprises has a significant impact on cutting poverty and hunger, ensuring good health and wellbeing, promoting inclusive and sustainable economic growth and laying the foundation for sustainable industrialisation.
Although there had been a satisfactory GDP growth in the last few years, rising inequality, like many other countries of the world, has become a major concern for Bangladesh.
The latest Household Income and Expenditure Survey of Bangladesh Bureau of Statistics showed that the Gini coefficient of the country stood at 0.482 in 2016, 0.024 up from the 0.458 in 2010. In narrowing this gap, microenterprises can play an important role as they create many entrepreneurs instead of a single economic giant.
Bangladesh needs to help its small entrepreneurs grow big to compete with large companies and multinational. This can be achieved by linking the microentrepreneurs with big companies in a commercially sustainable way.
Microenterprises are now engaged in low-skilled labour-intensive sectors including light engineering, small manufacturing, food processing, and agribusiness. The market of these enterprises is limited to the local areas.
These enterprises cannot move to a medium or large scale ones because of technological backwardness, and lack of extra financing and capacity.
Also, they are trapped in low-level and outdated technologies. To get out of this trap, transferring to the right modern technology is urgent.
The quality of a product largely depends on the technology used in its production. Quality is the major issue for creating the demand of a product. By ensuring the quality of microenterprise products, Bangladesh can increase the demand for these businesses to the wider national and international markets.
Technology helps microenterprises enhance their production efficiency and profitability. Low productivity is a problem in almost all microenterprises under major four broad sectors – trade, farming, service and processing.
Production growth and efficiency also depend on the market. Creating a market for medium enterprise products is a big challenge.
If Bangladesh wants to expand the market of medium enterprise products, the country will have to focus on improving the efficiency of the actors involved in the value chains of these products.
The subsector including backward and forward activities should be viewed as a whole and needs to be backed by appropriate technologies and other technical supports.
Product diversification is another key area Bangladesh needs to focus on. Diversifying products according to their characteristics, the country can create new market opportunities.
A perfect example of product diversification is diversified food items of Icelandic cod fish. Beef can be processed in different ways and shapes, like the world-famous Kobe beef, to meet the demand of particular market segments.
Bee honey can be diversified with different fruit flavours. The microenterprise sector may make large-scale exports by producing diversified products according to market demand.
The farming sector has created a public health threat, thanks to the use of harmful pesticides and excessive use of chemical fertilisers. This system is damaging to the soil and hence Bangladesh needs to switch to natural farming which is one step ahead of organic farming.
To enhance the skills of the youth, the country can explore possible collaboration with government organisations like National Skill Development Authority and projects like Skill for Employment Investment Programme.
Developing the skill of workers and artisans, the microenterprise sector can be turned into a major engine of growth.
Many public and private organisations in the country are now promoting microenterprises. The most common services they provide to promote microenterprises is financial support. Also, some organisations provide training and business development services.
However, the financial services provided by the financial institutions and microfinance institutions are faulty and not based on business need and instalments are realised as per repayment schedule fixed by the financing institutions instead of the cash flows of the businesses.
Bangladesh needs to come out of the traditional group-based lending system and move forward to diversify financial instruments following the demand of microenterprises.
Startup financing should be given the required importance to create new entrepreneurs. Lease financing can play a good role in expanding businesses. Setting-up of the crowdfunding platform can open a new window to meet the microenterprises' demand for funds.
Considering the effectiveness of microenterprises in speeding up poverty reduction by creating self-employment and wage employment, Palli Karma-Sahayak Foundation (PKSF) has been working for promoting this sector since 2001.
Starting with financing microenterprises, the PKSF gradually widened its activities by incorporating skill development, value chain, technology and marketing support for microenterprises.
The development organisation has identified microenterprises as visible business entities with an investment of Tk40,000 to 15 lakh – excluding the cost of land and building.
An entrepreneur can borrow up to Tk10 lakh for the business, according to the existing microenterprise lending policy of the PKSF. The loan repayment system is flexible; an entrepreneur can repay surplus – exporting more to the reserve currency country. The countries running trade surplus, keep their reserve dollars in the US Treasury bonds which pay very nominal interest rates; thus the US gets to borrow cheaply to run its huge budget deficit. That is, the US has to accept budget and trade deficits to enjoy the benefits of being the supplier of a reserve currency - it cannot have its cake and eat it too.
America's trouble with trade
At the Bretton Woods Conference, there was also a proposal for a third multilateral institution, International Trade Organisation (ITO) to encourage and regulate trade and commodity markets. However, this did not materialise in the face of the US opposition because it saw the ITO as more favourable for developing countries.
Instead, from 1948 to 1994, the General Agreement on Tariff and Trade (GATT) became the main multilateral framework governing international trade; but it excluded developing countries' concerns. The Uruguay Round from 1986 to 1994 was the last round of multilateral trade negotiations under GATT, where for the first-time developing country issues were negotiated. It ended the post-war trading order governed by GATT, replacing it with a new World Trade Organization (WTO) in 1995.
The WTO is a compromised version of ITO. Nevertheless, WTO is governed by 'one country, one vote' principle, unlike the IMF and the World where the decision making or voting power is determined by the weight of shares member countries hold.
Obviously, the US being the largest shareholder, dominates the BWIs, followed by Western Europe. The US and Western European powers carved out a deal that the President of the WB has to be a US citizen, while the IMF will always be run by a European. No wonder developed countries are undermining WTO with their own free trade agreements, which Professor Jagdish Bhagwati calls "termites" of multi-literalism, and President Trump is ready to dismantle it.
Emerging powers
By the 1960s, many 'emerging countries' sought national political and policy space through 'non-alignment' and the emerging bloc of developing countries, called the Group of 77 (G77), demanded at the UN a "New International Economic Order" (NIEO) to replace the US-led post-World War II economic order, which began collapsing since President Nixon's August 1971 unilateral decision to renege on US's promise of gold convertibility.
The NIEO resolution stipulated "exercise of permanent sovereignty" of developing countries over their natural resources "to take measures for the recovery, exploitation, development, marketing and distribution of natural resources for serving their national interests and promoting collective self-reliance".
Neoliberalism and TNC-led globalisation failed shared prosperity
What emerged, instead, was completely opposite to that envisaged by the NIEO resolution. By the 1980s, the Thatcher-Reagan-led 'neoliberal' counter-revolution against Keynesian and development economics seized upon Soviet economic stagnation under Brezhnev to strengthen private corporate power, by extending property rights, privatisation, liberalisation and globalisation. Essentially, governments are increasingly expected to leave decisions regarding their policies and institutions to the judgments and interests of transnational corporations (TNCs).
The TNC-led globalisation and neoliberalism since the 1980s gathered pace in the 1990s with the support of international financial institutions, such as the International Monetary Fund (IMF) and the World Bank. The new patterns of international economic specialisation saw significant industrialisation and growth where governments had pro-actively utilised the new opportunities available to them, especially in East Asia. But in most regions, especially in the North, much of the new prosperity was neither inclusive nor shared, resulting in new economic polarisation unseen since the 1920s and the fuelling of globalisation's discontents.
The World Inequality Report 2018 found that the richest 1% of humanity captured 27% of world income between 1980 and 2016. By contrast, the bottom half got only 12%. Even in Europe, the top 1-per cent got 18% during this period, while the bottom half got 14%.
OXFAM's Reward Work, Not Wealth reported that 82% of the wealth created in 2016 went to the richest 1% of the world population, while the 3.7 billion people who make up the poorer half of humanity got nothing. 2016 also saw the biggest increase in billionaires in history, with one new one every two days. The wealth of billionaires increased by $762 billion between March 2016 and March 2017.
The World Inequality Report warns, "… if rising inequality is not properly monitored and addressed, it can lead to various sorts of political, economic, and social catastrophes".
The Global State of Democracy 2017: Exploring Democracy's Resilience had anticipated this concern: "Inequality undermines democratic resilience. Inequality increases political polarization, disrupts social cohesion and undermines trust in and support for democracy".
This, in turn, threatens global solidarity.
Globalisation's discontents undermined international solidarity
Much of globalisation's discontents in the global North was easily blamed on the 'other', i.e., immigrants, refugees and Muslims, and also cheap foreign imports accused for stealing good jobs.
Meanwhile, a new generation of social democrats in the West embraced much of the neoliberal agenda, even rejecting Keynesian counter-cyclical fiscal policies after failing to stem the tax-libertarian revolt. Successful in achieving their political ambitions, the 'new social democrats' offered a culturally alien, new 'identity politics' as ideological surrogate. This, in turn, later served to fuel the reactionary ascendance of 'ethno-populism' by the 'new right'.
Thus, neoliberalism's triumph -- with enhanced corporate prerogatives, privatisation, economic liberalisation and globalisation -- in the face of widespread Western social democratic abandonment of its own purported class base, has led to corporatist populist reactions.
Narrow reactionary ethno-nationalisms do not lend themselves to international cooperation, often depicted as a variant of their ostensible enemy, globalism! This has not only weakened international solidarity, but also undermined the very basis for multilateral engagement, let alone cooperation.
The ongoing undermining of multilateralism with the rise of US sovereigntism after the end of the Cold War has been given a new momentum as the backlash to globalisation and its pitfalls have spread from developing countries to many transition economies and declining industrial powers.
In the wake of the worst financial crisis since the Great Depression, the club of rich countries, G7 co-opted some emerging economies to form G20. In 'divide and rule', this not only weakened G77 solidarity, but also undermined the global economic co-ordination role of the UN's Economic and Social Commission (ECOSOC).
Md Habibur Rahman is an assistant general manager of PKSF
