Tweet

A NEW FINANCIAL ARCHITECTURE FOR CRISES PREVENTION AND DEVELOPMENT OF THE INFRASTRUCTURE AND SMALL AND MEDIUM ENTERPRISES AND CRAFTS (SMEs) in the République of Gabon - Union-Work-Justic

Guest post by: Norbert Knoll von Dornhoff

Article Overview: The WUSME Delegation during its mission to Gabon 31 Jan - 5 Feb 2011 learned that presently no affordable programs for Micro-financing are available in the Republic of Gabon. BGFI Bank informed us that loans are been offered to SMEs at 18% annual interest plus cost of insurance against bankable guarantees. These conditions are unaffordable to SMEs and Crafts. There might be forthcoming special programs sponsored by UN Organisations, Worldbank or other Sponsors, but such single programs would only be available during a short period of time and are hence not sustainable. („Drop - on a hot stone - actions"). The Parliament of the Republic of Gabon shall decide tax law for imposing a tax of proposed 0,05% on all currency transactions of Banks, Fx-Brokers and Money Transfer Companies, e.g. WESTERN UNION.

A NEW FINANCIAL ARCHITECTURE FOR CRISES PREVENTION AND DEVELOPMENT OF THE INFRASTRUCTURE AND SMALL AND MEDIUM ENTERPRISES AND CRAFTS (SMEs) in the République of Gabon - Union-Work-Justic

I. Constraints for the Development of SMEs in the Republic of Gabon

1. Firms consider electricity and transport to be among the biggest constraints to their business. To counter weak electricity supply, many firms in Gabon (and in other Sub-Sahara Countries) have to rely on self-supply through a generator. The cost of self-supply is often prohibitively high, especially for small firms, underlining the importance of utilities' providing reliable and affordable electricity to businesses.

Please note: 23,44% of the firms in Gabon consider lack of electricity as the main constraint for development.

2. In Cameroon as well as Gabon, the roads as well as railway transport that link production centers and markets are in bad condition. Such poor conditions in basic infrastructure facilities hamper industrial development in general and SME competitiveness in particular.

3. Access to finance remains a major problem in the majority of African Countries. While loans from commercial banks are at least possible in principle, later examples show that the terms of such access are often punitive for SMEs. Overall it seems that the problems remain severe in Cote d.Ivoire, Cameroon, Ethiopia, Gabon, Kenya, Namibia, Nigeria, Senegal and Uganda. In some other countries, namely Mauritius and South Africa, SMEs appear to have better access to finance, but in general terms, none of the African countries seem to have an efficient structure of financial institutions providing short- and long term capital to SMEs. In Gabon and Cameroon, real interest rates on loans can go up to 25 per cent, and although development banks exist, they operate like commercial banks with the same loan conditions.

Please note: Only4,10% of the small firms in Gabon have lines of credit or loans from Banks. In other Sub-Saharan Countries it is easer to get a loan from Banks.

4. Foreign Direct Investments: Gabon is rear light in the Sub-Saharan Region with only 30 millions USD in the year 2009. In Gabon there does not seem to be an institutional network providing technology-related support services to SMEs. Moreover Investors do not enjoy enough protection of their property, and contracts are difficult to be enforced.

FOREIGN DIRECT INVESTMENT and GDI per capita 2009

US-Dollars

FDI in millions

COUNTRY GDI FDI

ANGOLA 3750 2205

CAMEROON 1136 340

CONGO REP 2080 2083

GABON 7370 32

GHANA 1098 1684

KENYA 760 140

MOZAMBIQUE 440 881

SOUTH AFRICA 5760 5622

II. Recommendations for Actions

1. Financing of Infrastructural Projects in Gabon

The WUSME Delegation during its mission to Gabon 31 Jan - 5 Feb 2011 learned that presently no affordable programs for Micro-financing are available in the Republic of Gabon. BGFI Bank informed us that loans are been offered to SMEs at 18% annual interest plus cost of insurance against bankable guarantees. These conditions are unaffordable to SMEs and Crafts. There might be forthcoming special programs sponsored by UN Organisations, Worldbank or other Sponsors, but such single programs would only be available during a short period of time and are hence not sustainable. („Drop - on a hot stone - actions").

I, therefore, propose innovative sources of access to financing, particularly Micro-financing for SMEs and Crafts which are sustainable and that guarantee long term support in regard to debt- and equity financing at affordable conditions without the requirement of bankable guarantees. Moreover, such innovative sources of funding shall contribute to avoid bankruptcies or close of business in times of financial crunch and economic crisis (Crises Prevention).

Actions recommended:

The Parliament of the Republic of Gabon shall decide tax law for imposing a tax of proposed 0,05% on all currency transactions of Banks, Fx-Brokers and Money Transfer Companies, e.g. WESTERN UNION. The Parliament shall also consider imposing a finance transaction tax on all incoming and outgoing cross boarder money transactions.

Explanations:

The Currency Transaction Tax (CTT) is in the last years emerging as a leading new financial instrument for governments seeking to raise funds of independent and stable monies. These funds are needed for national and international development and projects addressing actual issues such as public health, research, education and training, crises emergency measures and climate change.

The foreign exchange (FX) market is the largest in the world by volume. According to official 2007 figures, US$3.2 trillion of FX transactions occur every day. Over 2007 this equated to US$800 trillion. Unlike most other areas of the financial market, the FX market has continued to grow, even during the economic downturn. For example, in 2009 approximately US$4 trillion of FX transactions occur every day. This will equate to US$1,000 trillion over the course of the year more than 50 times greater than the total value of all goods and services traded throughout the world each year. The FX market is therefore a very robust income base.

The proposed CTL would subject all wholesale or interbank FX transactions of a particiaular currency globally to a levy of 0.05%. Countries can apply unilaterally a levy on transactions of their own. The tax can be captured wherever the trade takes place in the world. It does not require a global or regional consensus. Crucially, this levy would only apply to all transactions of particular currencies, not the transactions of all currencies in one particular country. Also this levy would not apply to the retail market used by people to change money when they go abroad, to buy goods or to invest.

There is extensive experience with (currency) and securities transaction levies (taxes) in various countries, and there have been highly qualified studies of their effects. Often the defenders of unfettered financial markets argue that such a tax will reduce liquidity and thus hurt the customers who depend on the market. However, the historical experience with small taxes seems to be that there is no discernible effect on volatility. In some cases the volume of trading within the country may slightly be affected. But what the tax does usually do is raise a lot of money for productive purposes.

3. Financing of SME Investments

I also advise that the Government of Gabon shall request the EIB European Investment Bank to extend a Global Loan of min. EUR 50 millions to SMEs via an EIB correspondence Bank for the financing of investment, e.g. up-to-date energy saving technologies, such as photovoltaic, sun collectors, telecommunication, computers, etc. Details will be given on request.

Related Articles
  SMEs in Africa: the “Missing Middle”
  WUSME International Conference 2011: SMEs Regional Development in a Globalized World
  What can business and governments do to promote SMEs?
  Restricted Access to Finance
  5.2.1 The MIT-SME section: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  WUSME: Towards a new strategy for crises prevention and to create more SMEs and jobs
  4.2 The profile of growth-oriented women: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  Facts about SMEs in Africa
  Poverty reduction by trade and production capacity building in less privileged economies
  Government Support for Entrepreneurship in Nigeria : Exploring entrepreneurship in a declining economy
  Millennium Development Goals need sound SMEs = More Jobs = Less Poverty
  SME - MILLENNIUM REGION IN THE GABONESE REPUBLIC
  ENTERPRISE ARCHITECTURE THE NEW LANGUAGE OF MANAGEMENT
  Conclusion: Constraints of growth-oriented enterprises in the southern and eastern African region
  African Reforms are essential to Boost Private-sector Development and Improve Governance
  5.0 Micro Enterprises - What are they?: Entrepreneurship and Small Business Enterprise Growth in Uganda
  3.3 Major Constraints facing the MSM sector: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  Small- and Medium Enterprises: Better access to information management and knowledge networks
  You Have Only Yourselves to Depend On, Ladies and Gentlemen!
  Expanding the supply of finance through the non-financial private sector - Increasing SME Access to Finance: A Four Pronged Approach

Article Tags: currency, development, enterprises, infrastructure, investment, levy, medium, small, SME, tax, transaction, wusme



Related Forum Posts
Re: In-House or Outsource? - Unfortunately, in the South African context, very few SMEs see outsourcing as an option. They believe it is too expensive, and they are paranoid that someone will "steal their ideas". I believe that the three main functions that cannot be outsourced are marketing, sales and strategy. These must be done in house I believe. If you do not have the marketing skills then get them. Hire a consultant or attend a course, but get the skills. Even if you use a consultant, you need to understand what marketing is about, as no one knows your market like you do. Marketing is made to seem difficult and complex, but everyone who really understands their markets, can easily learn to do their own marketing. In South Africa, labour legislation is extremely inflexibile, and consequently labour broking is a large industry. This is an ideal starting point for SMEs in South Africa, as it is a legally complex area, whih comes with severe penalties. I say do it! Rob Smorfitt
Re: SEEKING PRIVATE OR ANGEL INVESTOR - Definitely have a thorough and accurate business plan. In the US, you can get help at SCORE - their website is full of great information and you can check for local chapters. If you would like a book that has all kinds of great information about financing options - this one is very good --- HOW TO GET THE FINANCING FOR YOUR NEW SMALL BUSINESS: INNOVATIVE SOLUTIONS FROM THE EXPERTS WHO DO IT EVERY DAY—WITH CD-ROM This new book will provide you with a road map to securing the financing. The book goes into traditional financing methods and assists the reader in setting up proper financial statements and a proper business plan. It details the differences between debt and equity financing and how and why to use each. Valuation techniques are explained for determining what your business is truly worth. However, the book’s real strength is in explaining alternative and creative methods of financing, such as SBA financing, investor angels, IPOs, limited public offerings and venture capital. Essential resources for finding the detailed information you need are included throughout. Item # 9780910627559 $39.95 Shri
Re: Women and Financing - It's Difficult! - I found this paragraph of interest (in the article from Nana's link: [quote="Nana":3r7womqv]Other studies show that women operate more service and retail establishments than men, which might explain their difficulty in getting financing since financial institutions often consider these two sectors more risky. However, although women are generally less inclined than men to apply for financing, when they do, they are more likely to get it. According to a study by Industry Canada on SME financing in Canada, in 2000 majority female-owned SMEs obtained a loan approval rate of 82%, which is slightly higher than the approval rate for majority male-owned businesses (80%). This suggests that when they do apply for financing, businesswomen submit excellent applications. [/quote:3r7womqv] They say, "Women are more likely to get [financing]." But the difference is only 2 percentage points! Big deal! And, that was only for one year, 2000. I'd like to know what the 10-year average is. Numbers can be manipulated to mean anything you want them to mean...it all depends on what you want to show.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Common Sense Stress Management

The Difference Between Management And Leadership

How to Find a Niche and Make Money Online

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.