Competition Pressures - Major Constraints to Enterprise Start-up and Growth

4.5 Major Constraints to Enterprise Start-up and Growth

4.5.4 Competition Pressures

Closely linked to the market problem, is competition pressures from imported substitutes to products of the informai sector. Here, it is noted, second-hand imported goods especially impose a strong competition against local produce. This is because, bath markets target largely the same bu ers mostly the low-income eamers, and from sorne evidence gathered during the research most buyers nowadays prefer imported substitutes because they are relatively cheaper, and are more western-styled. Although competition may be regarded a healthy classical free-market theo very few entrepreneurs regard it so. As shawn in the Table above, 14 percent of ali the enterprises ingled out competition mainly by second-hand imports as their main constraint at start-up. The number ro e to 19 at current period of growth, which signifies that it is becoming more and more problematic to

many an informai producer. The problem takes the form of forced selling at below production costs, decline in the number of bu y ers including tho se that may wish to place orders, and/or inability to sell current stock for a considerable period of time.

The concems of female entrepreneurs regarding competition, may as weil be noted. Many, it was observed, had been experiencing declining demand for their dyed materials, because ofwhat they said was the preference by female buyers for imported dyed textile from Mali in particular, over locally dyed textiles. It may be necessary therefore that sorne forms of outdoor exchange programme be designed in which local artisans would be exposed to techniques of product designing and packaging in neighbouring countries, and to sorne other skills which may reflect in their product quality and ultimately result to higher sales.

4.5.5 Ali others

The results also identify sorne other problems that entrepreneurs in the sample typically face in or during their operations. These include (i) the lack of (access to) suitable working premises which brings to mind the odd shapes of many of the buildings (workshops) in which ' ork takes place, and the generally unhygienic and untidy work environment, which is characteristic of the location of mo enterprises; (ii) the lack of (access to) modern, non-traditional machinery, tools and equipment referring to the poor state of the tools and machinery that workers work with· (iii) the u e (almost entirely) ofpoorly skilled labour; and lastly, (iv) the high cast ofraw materials, which e>..'Plain why most enterprises hardly ever afford to maintain a regular stock of the mate1ial th need in production.

CHAPTER PIVE: EMERGING POLICY ISSUES AND RECOMMENDATIONS 5.1 Introduction

The results analysed in the previous Chapter already provide somewhat generalized profiles of the physical and operational attributes of informai sector enterprises, as well of the people who run and manage the operations of the enterprises, the entrepreneurs. In this present Chapter, we now examine rather more closely, sorne of the noteworthy features that have emerged in the findings, and which have significant implications for the ability of the enterprise to grow and also for the overall po licy needed to enhance that growth. This is. followed next by a review of the constraints faced by entrepreneurs in the sector and the strategies they have adopted to cope under the circumstances. All these precede a final assessment of whether, based on the observed facts, there really exist much prospect for the enterprises to grow in line with the main subject matter under study. Before the Chapter brings out recommendations intended to develop the informai sector, in particular those activities that belong to the so-called productive components of the sector, it discusses sorne cri ti cal policy issues that guide these recommendations.

5.2 Features oflnformal Sector Enterprises: the Sample's Evidence

One of the most important features obse~ed in this study concems the mission of the informai sector as provider of jobs, and of self-employment, training, and income-generating opportunities for people, not least the urban dwellers who operate inside it. It is easy therefore to conclude that without this mission, open unemployment would have risen more quickly in many countries, including of course the Gambia where this study is based. Moreover, sorne millions of people, and in our case, an estimated three hundred working in the sixty enterprises surveyed, would have lived at the extreme margins of poverty and subsistence among others, and finally it is imaginable what the social and political consequences would have been with the streets full with people openly

unemployed. ln short informai sector enterprises must be seen as fulfilling a mission that has strong equity and welfare considerations.

Closely associated with the above, is what this study considers as yet another important feature of informai sector enterprises namely, their vigour and resilience which enables them to remain operational for many years under difficult circumstances and to manage their investment however rudimentary this may seem. One may measure this resilience in terms of the number of years it has taken the entrepreneur to remain in operation, and as already demonstrated by the results, a few of the enterprises were in operation from the days of the Gambia's independence in 1965, showing significant amount of resilience in all the periods since. Important! y again, one wenders what would have happened to many urban low-income households and individuals who certainly would have found life expensive and unaffordable if their demand for basic goods and services were to come through the formai sector; a more expensive sector that many could not afford to buy from. In this way, the enterprises are regarded as demonstrating sorne positive qualities worthy of notice.

However, in spite of all the positive commendations about the sector, it is rather sad and unencouraging that it continues to receive very little or no attention from most govemments including admittedly, the Gambia where products of the sector are not accounted for in the national accounting statistics. This leads to yet another important defining attribute of informai sector enterprises namely, they (their operations) are almost entirely hidden from and unaccounted for in the books of the government. The problem certainly involves the enterprises themselves too since as founded, many that operate them are almost entirely illiterate and could not keep appropriate records oftheir transactions regarding sales and productivity. This attribute makes it difficult to leaming the sector and knowing its dynamics through time. On the other hand however, it signifies the need for

and the importance of measures to encourage the keeping of records by both the informai sector operators and the government (see the recommendation at section 5.7.2).

Another striking feature that emerges in this study is that the large majority of enterprises are quite small, only employing on average, around five workers per enterprise (Table 4.1). Certainly, the very small size of these units has obvious policy implications. Extending assistance to a large number of very small units will pose a difficult challenge in terms of institutional capacity, oost of delivering inputs, and other suchlike assistance prerequisites.

Also demonstrated as a feature of the ·informai sector is that, ownership of the enterprises is predominantly the single-owner or sole-proprietorship type. In such an instance raising large sums of money can be a daunting challenge, and often difficult to realise. Also, decisions tend, as often, to be badly informed because they come entirely from one individual, the entrepreneur. This mak:es it important therefore to recommend (as under section 5.7.3) the need to encourage informai ector enterprises to shift to other forms of ownership such as partnerships, cooperation and even limited liability companies, however rudimentary; forms that are seemingly totall non-eÀ'istent in the informai sector. Also important to note is that single-owner based enterprises are ery much likely to demise or discontinue with or after the demise of the entrepreneur. Since an informai ector enterprise cornes into existence from a merger of capital and skills in one person the entrepreneur it is easy therefore to discem how this can come about.

As already mentioned, there are two ways by which an informai enterprise could urvive b 'Y nd tb current owner: sale to an outsider or passing on the firm to a subordinate" ork r. ither fth tw is happening to any significant extent in the informai sector. All these there:fl r sh ' that informai enterprises risk demising. One of the possible explanations why most ntrepr n urs wmùd n t

readily pass on the enterprise to a junior worker may lie in what this study concludes as yet another feature of informai enterprises namely, the wide age gap (age mismatch) between the entrepreneurs (who are generally forty) and the workers (generally at twenty or below). Very seemingly, because of this mismatch, the two sides hardly sit and discuss issues of common interest. The entrepreneur who is expected to initiate such a dialogue then, of who runs the enterprise next after him, hardly ever gives the question the attention it deserves. Thus, the age gap in short tends to convey the message that the worker is simply too young and inexperienced to be bequeathed the enterprise.

Another demonstrated feature of informai sector enterprises is that, despite the finding that the majority of the entrepreneurs had receiveèl sorne education and are not therefore illiterate as one may tend to consider, the leveZ of educational attainment cannat and should not be regarded as appreciably high for the entire sample. The results on this already show that many of the entrants are school-dropouts with barely six years of formai schooling. Moreover, slightly more than a third of the entrepreneurs (see Table 4.11) never went to school at all. These observations form the basis of the conclusion regarding the low level of the educational attainrnent of those who work in and/or own the enterprises, and make the need for measures to organise training in basic literacy and numeracy in the informai sector. Those who received no education will particularly benefit, while also benefit from the introduction of such new tasks as bookk:eeping and accounting that the training must also cover. The generally low level of educational attainrnent is a sure recipe for poor stewardship by the enterprise holders, especially so because they often base their decisions on rnisguided and often uninformed facts.

The analysis also demonstrates that informai sector enterprises are also as much a ground for training and skills diffusion as they are production entities. Indeed, the reader will note that the

sector combines these two together also as evidence of its contribution to the socioeconomic development process. In fact, its role as trainer is captured with the use of the tenn "classic apprenticeship training", which allows individuals to access specifie skills for ascension to self-employment. Critically though, the system only falls significantly short of exposing trainees to

techniques which go beyond the mere learning of known practices to those that will assist them to effectively organise and manage the enterprises they would eventually come to own or work in.

Merely passing on the same old-known practices, makes trainees less innovative at upgrading product quality required for instance, to survive the fierce competition encountered by most entrepreneurs.

Another notable feature made evident from the findings concems the means of access to a workplace in the sector. Firstly, as the results have shown, only about a quarter, or significantly less, of the workplaces are owned by the entrepreneurs themselves. For the rest of them, workplaces are accessed through squatting on public land, or renting, or through a relative who has space to let.

These three constitute the most comrnon forms of access to a workplace in the informai sector, although however, they are unreliable and non-permanent arrangements in which the entrepreneur faces risk of unannounced eviction leading to situations of temporal, but undesirable stoppage of one's activity. This observation forms the_ basis of this study's conclusion in this regard tbat informai sector enterprises generally face signifzcant insecurity with respect to their locations.

With respect to the gender composition of the enterprises, one clear signal is tbat women are significantly outnurnbered in sorne informai activities than they are in others. However by barely making up a quarter of both the total workforce and enterprise holders making up our sample the under-representation of females in informai enterprise-based manufacturinu production activities :is

therefore clearly obvious. Thus informai production enterprises may be described as extMMV~ly male dorninated. Traditional, religious or more generally socio-cultural factors seeming wooM influence the gender composition across activities in the informai sector, given the fact that oocimf factors often tend to lirnit the entry of one sex into an activity where the other is already ~

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dominate. Moreover, in view of the rather hard manual exercise involved in certain activities: mc.h d1l$

wood cutting and metal beating, most women mainly prefer petty trading activities and se.rv~

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those that require the use of relatively large amounts of physical power.

Another defining feature also demonstrated by the study sample concems the rather limited r.mge llllf assets that informai sector enterprises typically held. Many do not hold more than a few,. ~

wom-out tools or equipment, and only a few own modem-like tools and machinery. Mœoowu,. 1filDe enterprises lack modem precision equipment, which implies that most infonnal sectoJr ~

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not get the type of fine- finishing end, as well as the standard design and quality :requ:irro ro ~ :aJliOOll

compete significantly in larger markets, including the yet-to-be exploited export :III.Cllldlœlt.

5.3 Constraints to Informai Operations

It is already clear from Table 4.23 that there are three main constraints that have bexemL ~ lbJy informai sector enterprises, which could be taken to imply that the long-temn ~ <OJf 1tllnfm 1t«D

grow evolutionarily and graduate, wil~ hardly come to :fruition if 1these ~ ~

simultaneously so. It is important though to distinguish the three :from 1lba1t ~:cyr <OJf~ ~

labeled in the Table as "all others". This category simply lmnps togclha aùffi 1lllne IDl1lllmr IIIIiP~

constraints, whose heterogeneity could not allow each to be singul2rlly slloo"\\WIDl mm ttlbxe lr~.

Nonetheless, they constitute an important part of the discussions as we.BJI z 1tllne ~ made in this study.

The distribution shown by the Table puts market (a demand-side factor) problems top of the queries in the informai sector, of course as ever, on the basis of the study sample. Accordingly thus, products do not attract large numbers of customers ·or take too long on the "shelves" before they can be sold.

The market constraint takes one or sorne, or all of the following forms:

(i) low customer turn-out, and decline in the volumes of sales;

(ii) market saturation involving large numbers of producers, placing on the market similar and

undifferentiated products;

(iii) a non-existent export market;

(iv) very little or no product buying or selling linkage between the formai and the informai

sec tors (as revealed, formai establishments do not significantly patronise the informai sector by buying its products ), and;

(v) imported substitutes out-competing informai sector products in the market. Imports of clothes and furniture are being sold cheaper, and because they are more 'ready-made and western', their appeal to the same buyers that the informai sector also target are stronger.

The distribution further indicates that if lack of markets were to be eliminated as a problem, finance would be an even more severe problem, and here it the reader should note that finance is a problem in the sector mainly to the extent that:

(i) entrepreneurs have no easy access to other financial services especially offered by formai banks than their own intemally generated personal funds, and so;

(ii) entrepreneurs find it extremely difficult to bu y and main tain a regular stock of the input or

raw material requirements for production, and;

(iii) entrepreneurs (who, as discovered, earn relatively well and over what the entrepreneur

could possibly earn in formai employment), could hardly ever manage to save significantly, implying that they rarely reinvest into potentially more profitable areas, or exp and the sc ale of their operations

The rest of the constraints also identified include notably, problems of tools, equipment and machinery, which are generally lacking and of sub-standard quality, problems of raw materials

which are considered generally costly and beyond the buying powers of most entrepreneur~, Problems of product standardisation owing to the lack of the appropriate know-how and teclnw.logy as well as the absence of a pool ofwel1-tr~ined and skillful workforce, ali pose a significant dlre.llt

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informai sector enterprise growth and graduation. Similarly regarded a constraining factor is 1t1ue difficulty of access to working premises, and sui table ones for that matter.

Finally, in listening to entrepreneurs speak, the following were observed and noted:

)> Most entrepreneurs seem less bothered about operating without licenses of any lkllmd.

Nonetheless they have never been subject to any kind of inspection and/or~

Compliance to state regulations on minimum wages, minimum standard of wo.u:lkp~

safety and hygiene, business registration and taxation, etc. are not strictly mforeed m informai operations.,

)> Until the survey, many operators seemingly do not look forward to gowa:mmrmmf's;

assistance. Indeed, just a few know of the existence of the Indigenous Business ~

Services (IBAS), which is perhaps the only institution under the Departmentt: o:f S1talrtte :fiirn!r Trade, Industry and Employment (DOSTIE) whose services are hu·gely meaoJt sn:n:naB11ll~

enterprise activities in the informai sector. The fact that many do not llooow o:f k existence of such a body is an indication of a serious information g2p ~ $IDJ1lllllte

implications for enterprise growth in the sector as a whole.

5.4 Strategies for Coping

In this section we review what could be considered the strategies adopted by llim:f!Dl!JllllléBill 5lfXdiiDxr entrepreneurs to cope with sorne of the constraints we have identified and a1:naiy ~ 1Itt :iis important to remark first, that life inside the informai sector may be

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^llllJP!mm <D.llOO ~ resilience, in which actors pursue their goals with sorne strong amount of patiem md

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live up to every potential shock that cornes their way. This is considered them ~11: ~ that informai sector entrepreneurs adopt to remain operational for as long as · iili»Th lL.ii1titlle ~

one wonder therefore that the Government of Kenya, which is today perhaps the center of most informai sector studies in Africa and from where the term "informai sector" derived its name use a

' local jargon, }ua kali, meaning tho se working under hot sun, to describe the unquestionable patience and resilience of informai sector workers.

As regards the credit constraint already identified, there do not seem to be any definite way of responding to the challenges it imposes on informai sector enterprises. Certainly, the fact of resorting to personal accumulation by individuals owning businesses in the sector, makes the credit problem

Dans le document Features and growth potential of small-scale production enterprises in the urban informal sector in the Gambia (Page 81-0)