Small and Medium Enterprises (SMEs) are facing the worst of the forex inaccessibility and several have had to turn to the black market paying between $7.50 to $9 for US$1.
University of the West Indies economist Dr Vaalmikki Arjoon made this observation during his presentation at a pre-budget forum hosted by the Penal Debe Chamber of Commerce last week.
Arjoon said a key issue that affects many businesses is the inaccessibility to sufficient foreign exchange and many SMEs have had to downsize their operations because they cannot get foreign exchange in time to pay for essential raw materials, parts for machinery and technology and products for resale. He said this is more evident for businesses in the manufacturing, retail and the automobile sectors.
“At this time, SMEs are already overburdened with a high cost of doing business, because of higher taxes and levies, VAT, and higher cost of transportation.”
Arjoon said many SMEs were now sourcing foreign exchange by “unsanctioned means” including the black market. “Several are now relying on unsanctioned means or the black market to attain forex, where they are paying between $7.50 to $9 for US$1,” he said.
“With these high and growing costs of doing business, many have had to downsize, lay-off workers and some have even had to close down altogether. They now have to exhaust their savings for re-investment into the business just to keep it afloat. Many are losing suppliers when they cannot get forex to pay them in time. Having to source other suppliers can be quite costly. The SME sector is facing the worse brunt of this forex inaccessibility.”
Arjoon said with more SMEs downsizing and going out of business, the market will become less competitive over time and dominated by the larger firms.
“As such, you could find that prices will increase further; there will be less scope for diversification and a larger disparity in the distribution of income and wealth. Naturally, this is detrimental for economic prosperity.”
Arjoon in his budget recommendations suggested that to promote the activities of SMEs, the Ministry of Trade should set up an SME Infrastructure and Investment Bank. He said the purpose of such an institution would be to assist SMEs in sourcing funding from local and foreign private investors and governments, to assist in setting up their business and expanding their operations.
His other recommendations included the diversification thrust, which was “necessary now more than ever.”