CHAPTER 2:LITERATURE REVIEW- SMMES IN DEVELOPING
3.6 Factors that Constrain the Success of SMMEs in Maseru
3.6.3 Macro environment
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still persists. However, a study by African Economic Outlook (2012) shows that the employment ratio to population ratio stands at 54.1% and 15.3% of this ratio represents the unemployed youth who find refuge in the SMME sector which nonetheless fails to absorb all unemployed youths. Increasing levels of unemployment and poverty rates result from retrenchments and falling remittances of migrant workers employed in RSA mines. This is due to the fact that the country depended highly on remittances from mineworkers as this generated about 50% of the gross national income (GNI). Because of the economic breakdown experienced both locally and globally, Tshabalala and Rankhumise (2011) state that businesses, especially SMMEs, are struggling to make ends meet. This can be attributed to the fact that consumers do not have enough income to purchase and the escalating inflation rates negatively affect the businesses so greatly that most of these small businesses face a dreary future. Low interest and inflation rates are vital to the uninterrupted operations of small businesses due to ease of access to loans for growth and development. Tshabalala and Rankhumise (2011) explain that extensive inflation and interest rates are a result of increased costs which become expenses to small businesses with regard to crucial business needs such as materials used in production, utilities and payments of rent. Consumer purchasing power also decreases since it becomes costly to take out loans for business growth and development.
(iii). Socio-cultural sub environment
Cravens and Piercy (2003) state that “for a business organization to operate successfully, it has to adhere to the changes in culture, nationality, religion and all other socio-cultural values that are treasured by members of the community.” The Basotho people need to be made aware of the potential for creating small businesses. The MTICM (2008) argues that the career attitudes of Basotho regarding business establishment are very ambiguous as there is lack of enthusiasm in embarking on new business ventures and Basotho are also pessimistic about the practicality of running their own businesses. Bruce and Jesselyn (2005) suggest that government initiatives in promoting and supporting the entrepreneurial culture across the personnel must be instigated by using large enterprises as vehicles. Bruce and Jesselyn (2005) explain that large enterprises have an eagerness to grow their employees as entrepreneurs with the potential for creating their own small businesses, thereby supplying their former employers with primary services that are crucial to the companies and that are easily
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outsourced. According to the MTICM (2008), strategies such as the localisation and indigenisation of the supply chain through establishment of business linkages has proven to be a success in countries like South Africa and Tanzania hence a need for the government of Lesotho to encourage entrepreneurial culture. There are increased rates of small business establishment in countries that have optimistic perceptions of entrepreneurship, and those that have a developing societal awareness regarding the significance of entrepreneurship in relation to business growth and development (Bruce and Jesselyn, 2005).
(iv). Technological environment
There is deficiency in the market-driven, specialised technology institutions in Lesotho (Nthejane, 2003). According to the United Nations Conference on Trade and Development (2009) the introduction and usage of the internet has made slow progress across Maseru, reflecting low income and increased costs. Internet connectivity in Maseru is very low. A report by the MTICM (2008) shows that economic policies in Lesotho are affecting innovation and the rate of technological change such that the country does not benefit fully from FDI in relation to skills transfer and technology acquisition, especially for Basotho-owned enterprises. UNCTAD (2009) explains that there is a need for foreign associates to establish more advanced facilities as the literacy level in Maseru is comparatively high but lacks the industrial base, technical competences and entrepreneurial skills. Further study by the MTICM (2008) found that the under-developed transport infrastructure in many areas across the city restricts the ease of access to essential services as the road infrastructure remains mostly unpaved.
Access to electricity and water varies across zones, where businesses in remote areas are faced with limited or no access to electricity and water, compared with those situated in urban areas.
Infrastructural constraints are prevalent for small businesses operating in informal settlements that are not interconnected to services and are situated in remote areas with inadequate infrastructure with inadequate finance to afford these services (MTICM, 2008). GOL (2008) states that efforts have been made to alleviate infrastructural challenges in order to diversify the economy and to offer an enabling environment for resourceful, cost-effective and safe transport. However, inadequate government resources, limited ability in local road construction and the nonexistence of recognized
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and designated industrial settings to permit the development of serviced premises for industry have caused constraints in infrastructure rollout. This therefore results in increased rentals for SMMEs as they are faced with limited options for selecting appropriate locations for their businesses (MTICM, 2008). According to GOL (2008), a secure commitment to develop and maintain consistent physical and communications infrastructure has indeed been made. This is as a result of research which has shown that upgraded electricity, road and water supply are of critical prominence to SMMEs with regard to intensifying capacity and opportunities for local and international trade as well as encouraging the development of Lesotho’s tourism industry.