***The government must perform the role of the facilitator, not that of schizophrenic regulator it has been so far. And it should follow Management by Objectives' approach instead of Management by Emotions or Egos'.***

IN mathematics there is no difference between the glass Is half full and the glass Is half empty . But the meaning of these two statements is totally different, and so are their conse-aiences. As regard to SME >|Bmall-and Medium-scale Enterprise) development in Bangladesh. a microcosm of the Third World, if we see the glass as half full then there is no problem at all. but it we consider the glass as half empty then the problems are enormous.

SMEs are a very heterogeneous group. They comprise a wide variety of firms village handicraft makers, small machine shops, restaurants, printing presses, computer software firms, etc. that possess a wide range of sophistication and skills, and operate in very different markets and social environments. in the context of Bangladesh, SMEs can be defined as enterprises employing between 10 and 99 workers, though It can be defined in terms of total investment also. However, in this sense, a portion of Ready-Made-Garment (RMG) manufacturing enterprises falls under this cate-gory. In today’s world, a dynamic and vibrant SME sector is inevitable to diversify and strengthen the economic base of any coun-try. especially the poor ones, y When faced with as many odds as Bangladesh does, the development options available to her are limited, and development of a strong SME sector is certainly no luxury’ but rather a dire necessity. As it Is also the major policy of the Government of Bangladesh. experiences of the industrially developed countries show that the manufacturing sector is the key secret of diversification and industrialization for any economv. Nevertheless, the development scenario of SMEs in Bangladesh is extremely awful indeed.

Major Factors of SME Development

A list of prerequisites for sound development of SMEs will be expedient for identification of the hindrances to SME development in Bangladesh. Among a host of factors that facilitate the development of SMEs the following are said to be the major ones:

• Flexible as well as credible pol icy environment;

• Political and economic stability"

• Cost efficient labour and a

harmonious industrial relations climate;

* Availability of raw materials:

• Good infrastructure facilities: and

• Investment incentives that evolve over time to meet Investors’ nerds.

SMEs can flourish If and only If the aforesaid factors, among others, exist in a country or society.

The Hindrances

If the overall condition of Bangladesh Is evaluated against the above parameters, a good number of factors could be explored which ultimately cause the poor development of SMEs. In fact, a few factors give birth to some additional factors, and hence, once the prime factors are identified and eliminated, others will automatically be removed.

Following are the major inhibitors of SME development in Bangladesh:

Scarcity of Capital: It has l>een observed that the first and foremost factor that frustrates expansion and development of SMEs In Bangladesh Is acute scarcity of required capital. There are many entrepreneurs across the country’ who have started a venture themselves but can not expand the business simply due to shortage of fund, though prospect of that particular business (es) is high. In the traditional banking system It Is no way possible to avail loan without certain collateral or guarantee which most of the small /medium-size entrepreneurs cannot afford to manage. Thus, despite glorious track record most of the entrepreneurs of this category remain outside the purview of traditional lending system. In the existing banking system banks accumulate deposits from millions of small and poor Individuals and/or entrepreneurs and disburse the same to a few large entrepreneurs who. in most of the instances, do not pay the whole amount of loan back. This in turn reduces the profitability of the banks and due to low profitability banks cannot provide loan at lower rate of interest.

Absence of Modern Technology Perhaps the most neglected factor of growth of SMEs In Ban gladesh Is technology. Various studies that reflect the state of arts in Bangladesh in comparison to Its eastern and western neighbours clearly Indicate that Bangladesh Is far behind In almost all aspects of technological effort and Input. A matter of great con cern Is that the gap is Increasing every’ year that passes, The bulk of Bangladesh’s manufacturing sector consists of small and medium firms and cottage shops. These units usually use Inferior technology. By themselves they are not likely to be capable of doing enough R&D to develop their own technologies, go fetch technology from abroad, or adapt transferred technologies.

Although the policy makers have recognized the critical role of technology transfer from abroad In economic growth, (hey have not assigned due priority and have not allocated sufficient resources to this sector. For instance, despite repetitive attempts by successive governments and although very much have been said about technology Improvement and R&D in the Industrial Policy 1999, the country has no national science & technology’ policy as yet.

Poor Infrastructure: Overall infrastructure facilities across the country is extremely poor which result in non-uniform industrial development throughout the country. Frequent load shedding/power failure increases the cost of production drastically and thereby reduces the otherwise competitive advantage of the local firms. Telecommunication facilities are so Inadequate that both the local and foreign investors do not feel convinced to invest especially in the IT sector of the country. Regrettably, the government seems unconvinced that information technology could be more than adequate as an aid not only to the expansion of the country’ s export base but, if properly nurtured, it will also

reduce poverty by at least 50 per cent by the year 2010.

Worst State of Law and Order: The law and order of the country has Ix-en deteriorating day after day. Abduction of businesspeople for ransom, rampant toll collection, bureaucratic sloth, political instability, high degree of smuggling and deep-rooted corruption frustrate domestic investors. It sends wrong signal to foreign investors who usually follow the locals. The extent of corruption could lx* understood from a recent report of Ilie Transparency International Bangladesh fflB). a nongovernment voluntary organization. Two hundred and eleven incidents of corruption caused a loss of Tk. I 1.534.98 crore to the government during the first six months of the year 2000, TIB said. (The Daily Star. September 26. 2000)

Inadequate Policy Reforms: There is no denying the fact that Bangladesh has long been pursuing private sector led market-oriented Industrial policy and that various governments have undertaken different reform measures in this respect. Nevertheless. a lot of policy reforms are yet to take place. The case of the information Technology (IT) sector could be considered here as an Instance. Despite the present government has designated the still nascent IT industry as a thrust sector in the Industrial Policy 1999. unfortunately, that's about all it has done so far. At crucial times, governments had taken detrimental decisions. Refusal to be linked with deep-sea cable when laid down through the Bay of Bengal, on grounds of national security, has simply left us without an identity on the worldwide web. It Is as such as shortsighted government with a curiously conservative IT policy has held the country back from surfing on the worldwide wave of IT. Regrettably, despite persistent urgings by entrepreneur like Professor Muhammad Yunus and scholar like Professor Jamllur Reza Chowdhury, the people at the helm have failed to show the defilred level of activism both in Infrastructure develop merit and In encouraging private sector participation. BTTB (Bangladesh Telegraph A Telephone Board) monopoly still continues with a jxxjr telecommunications network offsetting the huge potential IT has on offer for a fantastic economic growth In the country.

Recommendations

In order to create a rclnvlgo rated private sector to face the uphill task of providingjobs to the labour force, which is growing by about three million per year the government must remove the pitfalls that hinder smooth development of industries, especially that of the small- and mediumscale enterprises. To do so. the following steps, among others, are to lx* undertaken.

First, the government has to set clear and concise goals and formulate necessary policy to attain them within a stipulated time. A specific target followed by a definite action plan is required in this respect.

Secondly, the government must take steps to make financing the special needs of SMEs mandatory for the private banks which are otherwise reluctant to do so.

Third, good governance based on transparency and account ability must be established along with accelerated administrative, banking, and legal reforms. The private sector and the civil society should keep their pressure on the government to Improve the law and order, ensure political stability. modernize Infrastructure, and the like.

Fourth. Hie traditional mindset of the government must be changed to see the glass as "half empty" so as to pursue flexible policy. Because Inexplicable policy rigidity only shoo aw’ay prospective private sector investment in the SME sector.

Above all. the government must perform the role of the facilitator, not

that of schizophrenic regulator it has been so far. And it should follow

Management by Objectives' approach instead of 'Management by Emotions or Egos’.

The writer is a Lecturer in the Department of Business Administration al the Shahjalal University of Science & Technology. Sylhet.