New report: Swazi firms need finance, better management skills to compete

23 December 2022
ITC News

Greater competitiveness will help small businesses in Eswatini prepare themselves for future crises and drive economic development.

Small and medium-sized enterprises (SMEs) are at the heart of Eswatini’s economic potential, but they need support to recover from COVID-19 and prepare for future crises, notably climate change. One of the most valuable things Swazi policymakers can do for these businesses is to invest in management capabilities, says a new report by the International Trade Centre (ITC).

ITC partnered with Business Eswatini to interview 200 Swazi businesses across the country using its SME Competitiveness Survey questionnaire. The surveys revealed that these firms often struggle to trade because they lack production capacity – including inadequate managerial skills and certification, failure to engage with business support organizations and weak ties with suppliers and buyers.

‘Weak management skills inhibit the production capacity of Swazi firms and make them uncompetitive,’ according to Promoting SME Competitiveness in Eswatini: Stronger business fundamentals for value-added exports. ‘To create an entrepreneurial culture, investments should be made in certification and other value chain governance techniques that encourage better firm practices.’

Survey data revealed that 36% of Swazi firms fail to keep business records and 44% have no bank account. Both of these are key for firm competitiveness as they help managers keep track of their finances, allowing them to manage their cash flow effectively.

Companies that have a strong grasp of their own financial activities also find it easier to obtain formal financing. This stimulates the entrepreneurial culture by enabling firms to innovate, the report says.

Access to formal financing is limited

The survey found that 41% of Swazi businesses mainly use their own savings to finance themselves. Many also depend heavily on company savings, family or friends, highlighting the role of internal and informal finance.

Furthermore, only 19% of the surveyed companies applied for a loan in the past three years – men-led firms often did not need one, but women-led firms were deterred by expectations that their applications would be rejected. This is concerning, as women own most companies in Eswatini and make up the majority of microenterprises that dominate the Swazi business landscape.

These firms tend to be sceptical about their ability to recover from COVID-19, rarely innovate and have to invest their own money in their businesses to expand or just stay afloat.

Improving access to formal banking institutions is therefore an important first step to support SME competitiveness in Eswatini. Banks can help firms – particularly those that are small and led by women or youth – improve their financial management capacities and access more secure forms of finance, the report says. It also urges policymakers to improve the country’s credit infrastructure to make it easier for firms to obtain finance.

Another recommendation in the report is to increase certification rates among Swazi companies. This can upgrade management practices, as firms must prove compliance with a standard. Business support organizations can also play an important role by providing information and assistance with certification and offering tailored training to managers that teaches and encourages better management practices, the report says.