COLM IMBERT’s announcement last week Wednesday of plans to open a special window to allow smaller companies access to foreign exchange through Eximbank is welcomed, especially considering grave concerns recently aired by business leaders and politicians about the upcoming Christmas season and the fate of these companies.
It makes sense to support small and medium enterprises or SMEs as they are sometimes called.
SMEs account for 80 per cent of businesses and contribute to at least 30 per cent of Gross Domestic Product (GDP). Importantly, estimates suggest they employ 200,000 people.
When we consider that a great deal of local employment is dominated by the public sector, this means SMEs employ at least 40 per cent of all people who are not employed by government or not supported by a government make-work programme.
SMEs also drive growth, discovering and opening new markets through creativity and innovation. They identify and respond to trends in the market which they are also more capable of adapting to. They are an important bridge between micro-enterprise and industrial-scale business. In short, SMEs are the engines of our economy. It is little wonder Mr Imbert referred to them as the backbone of our productive centre in his budget.
The special window at Eximbank announced by the minister will place pressure on the private banking sector to offer the same or similar, assuming the way is cleared for such by the Central Bank. Some banks have been headed in the opposite direction, with one lowering its credit card ceiling from US$10,000 to US$5,000 per month recently. Credit card spending, which has been fingered as a major contributor to pressure on the forex system, is vital to smaller companies, including those that purchase products or components to retail or assemble.
Attention will have to be paid to the qualifying criteria that SMEs will have to fulfil to get access to the widened facilities. Entities that add real value to the economy through employment or strategic importance will have to be prioritised. A big question that must be asked is whether there is enough time for companies to qualify for and access any new facilities ahead of the busiest season of the year, given that that season is already upon us.
The Government has done well to ease SMEs up through its deferral of property tax implementation. The recent electricity rate hike proposal from the Regulated Industries Commission also suggests the State is likely to adopt a smaller rate hike for this class of business. There have also been efforts to address VAT refunds, with debts less than $250,000 paid off.
But SMEs have been in a difficult position for a while now, emerging from the covid19 pandemic badly battered – if they emerged at all. Another big question is whether widening the forex window will be enough (we have not yet been told how many additional companies will stand to benefit) to stave off the difficulties these entities face, not the least of which is dampened consumer spending.
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