The role played by SMEs in the Mauritian economy

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3.1 Introduction

The majority of enterprises around the world are very small (di Giovanni et al. 2010) and the backbone of every country resides upon the dynamic sector for innovation and drivers for economic growth which is the Small and medium-sized enterprises. Extensive investments both by governments and private sectors have been made to put SMEs on a higher mark. This chapter will give an actual status of SMEs definitions around the globe, main role played by SMEs in the Mauritian economy and some budgetary measures to support SMEs in Mauritius.

3.2 Definition of SMEs

Storey (1994) proclaimed that there is no single uniformly accepted definition of a small firm. However, SMEs definitions are multiple and every country has approached it in different ways. This particular section provides a vast overview of SMEs definitions utilised in the Mauritian context and across the globe.

3.2.1 Worldwide definition of SMEs European Union

The main factors determining whether a company is an SME are:

(i) Number of staff headcount and

(ii) Either turnover or balance sheet total.

The SME definition as per the European Union (EU) is summarised in Table 1 below:

Table 1: EU Definition of SME

Enterprise Category


Turnover or

Balance sheet total


< 250

≤ € 50 million

≤ € 43 million



≤ € 10 million

≤ € 10 million



≤ € 2 million

≤ € 2 million

Source: European Commission, 2005

3.2.2 SME definitions in Mauritian context Industrial Expansion Act of 1993

This Act not being under much limelight is still considered to be a crucial one to the SMEs. The SMEs are therefore defined as “manufacturing enterprises which use Production Equipment with an aggregate Cost Insurance and Freight value not exceeding ten million rupees”. The definition given was also applied by the Small and Medium Industries Development Organisation (SMIDO) which is a parastatal body that aims to foster growth and development in Mauritius, later replaced by the SMEDA. SMEDA Act

Under the famous SMEDA Act, SMEs have been defined separately as these enterprises have different objectives and hence they require different supporting measures.

The SMEDA Act defines an SME as:

(i) Small enterprise: An enterprise having an annual turnover of not more than Rs 10 million.

(ii) Medium enterprise: An enterprise having an annual turnover of more than Rs 10 million but not more than Rs 50 million.

3.3 Importance of SMEs to the Mauritian economy

SMEs have always been an important pillar for most economies despite some not acknowledging it. There has always been a worldwide link between SMEs and job creation, alleviation of poverty and economic growth and this statement has been positively recognised universally (Beyene 2002).

3.3.1 Job creation

SMEs are considered to be a key driver of economic growth mostly for the developing countries which comprises of over 90% of all businesses globally (Ariyo 2000; Krake, 2005; Tang et al, 2007; Maurel, 2009).A strong SME sector is well engaged in any economy by making way to creation of employment opportunities, helping in increasing production capacities, increasing exports and even contributing in research and development. Originally, as stated by Birch (1979) small firms are particularly important in the job creation process. In 2013, the small and medium enterprises contributed 40% to the Mauritian GDP. The vigorous performance of SMEs in the developing countries is seen as being the engine of economic growth (Samad, 2007).

According to Jim Seetaram (2013), SMEs has been the generator of 54% of jobs in Mauritius. In this process of job creation, SMEs saw their number of jobs been increased from 140,000 in 1991 to 255,000 in 2013.However,the Mauritian people are finding it more interesting to get engaged in creating an employment for themselves and for others.

3.3.2 Culture and social contribution

SMEs are viewed as an important way for improving the standard of living and a country’s stability. SME development helps in bringing more entrepreneurial initiatives and culture was found to play a great role in it Lau, 1996; Chu & Katsioloudes, 2001; Chong, 2012).

3.4 Major problems facing the SME sector

SMEs are constantly being threatened with many problems related to skilled labour, training, guidance, technology and marketing. However, the most of its major threat rests upon the management of its finance. Despite knowing that a well-managed finance would surely lead to a prosperous business life is still a very difficult job to tackle as they are still unaware of how to utilise techniques in order to achieve it.

The continuing unprofessional way to tackle financial matters is a very alarming threat to the living of the SMEs. In addition, not enough information is being given to them in order to overcome this dangerous situation. In the same vein, banks are lending against security thereby making it difficult to obtain loans and bureaucracy continues to pose impediments to their growth.

The SME sector is also having problems to develop, survive and move into exports.

3.5 Budgetary measures

From the budget speech 2014 the following measures has been highlighted in favour of SMEs:

Allocating a greater share of government procurement contracts to SMEs

Streamlining public procurement process for SMEs

Providing free basic website to all SMEs

• Maintaining refund scheme to SMEs of MUR 200,000 per annum for SMEs participating in

international fairs

• Extending SME Financing Guarantee Scheme up to 2016 by committing an additional MUR 2Bn

• Introducing a new loan guarantee scheme by Government for micro SMEs without need for


• Enhancing competitiveness of SMEs through a series of measures such as training on productivity


• Providing for additional industrial space by constructing additional SME parks

The % of Government procurement from SMEs would be increased to 20% within the next three years.

In order to enhance the visibility and revenue of the business, the Government will provide a free basic website to all SMEs, thereby putting them firmly in the spotlight.

SMEs with an annual turnover of less than Rs 10 million generally cannot access finance because of lack of collateral. Hence, the Government will introduce a new loan scheme, which will remove the need for them to provide collateral and third party guarantees. The Government would instead guarantee the loans directly to commercial banks up to 70% of any amount of loss incurred. In addition, the Government will be channeling an additional Rs 750 million of loans to small enterprises without the need for collateral for next 3 years.

Finally, businesses who are constrained by space in terms of infrastructure, they would receive a 50% subsidiary for the first three years on the new industrial units that have been delivered to them.

Through these measures, the Government is promoting a nation of owners and not merely earners.

3.6 Conclusion

Indeed, the importance of SMEs in any economy cannot be understated. They remain an important segment of the Mauritian economy as they play a formidable role in the development of a nation by creating employment, contributing to domestic and export earnings, reducing poverty and are regarded as drivers of innovation