Contributing a significant percentage to GDP and providing work for a large part of the workforce, small and medium-sized enterprises (SMEs) comprise a vital part of the Trinidad and Tobago economy. According to the T&T Chamber of Industry and Commerce (TTCIC), there were more than 20,000 SMEs operating in the country as of 2011 – the latest year for which data is available – employing around 200,000 staff and representing approximately 30% of the nation’s GDP.
A small enterprise in T&T is defined as having a staff of between six and 25 employees and sales of up to TT$5m ($770,000), while a medium enterprise has 26-50 employees and sales of up to TT$10m ($1.5m). Based on these criteria, the Central Statistics Office (CSO) estimates that more than 85% of all registered businesses in the country are SMEs.
Government Funding Support
The new government has promised to increase support for SMEs. In his October 2015 budget speech, Colm Imbert, minister of finance, noted that SMEs have been generating a significant proportion of new employment opportunities in the country, and that they are particularly attractive to a younger generation interested in innovation and the use of ICT.
However, as SMEs often suffer from a lack of funding and training, the government said it would ensure appropriate funding for state institutions involved in supporting them, such as the National Enterprise Development Company (NEDCO), which is responsible for promoting an entrepreneurial culture among the youth of the nation. The government is also continuing the Fair Share programme, designed to give micro-enterprises and cooperatives access to public procurement opportunities. Additionally, government departments will be required to create so-called small business windows designed to encourage SME participation. No further policy announcements on the subject were made in the minister’s April 2016 mid-year financial review presentation, although in a passage detailing the availability of foreign exchange, Imbert pledged that in discussions with commercial banks, officials would be seeking greater availability of foreign exchange for SMEs.
NEDCO, the agency created in 2002 to support the country’s SMEs, runs a range of different programmes. One is known as the Entrepreneurial Training Institute and Incubation Centre, which focuses on providing entrepreneurial and marketing training, and basic support, as well as offering start-up companies on-site IT, administrative and business services, together with office services and computer labs. One of the more successful initiatives has been a project called ideas2innovation (i2i) by the Ministry of Planning and Sustainable Development, which supports early-stage business proposals. However, officials say it is still difficult for start-ups to raise commercial bank credit. One option currently under consideration by NEDCO is to use qualified and independent business mentors to support and guide SMEs and act as a kind of buffer against lending risks to start-ups.
Credit Availability
There is recognition that one of the main obstacles to SME growth is the availability of financing. According to CSO research, only 11% of SME start-up funding comes from the banking system, while 70% comes from personal and family savings. As demonstrated by earlier research by regional credit ratings agency CariCRIS, a key problem is “SMEs inability to communicate business models and plans to banks, as well as the inability of commercial banks to engage in a structured methodology to evaluate and price credit risk”.
One attempt to bridge this gap began in 2014, when the Inter-American Development Bank (IDB) approved a $150,000 grant to enable CariCRIS to expand its SME ratings service. The project was intended to facilitate credit ratings for 60 SMEs working with four commercial banks to use CariCRIS ratings in their loan appraisal process. The use of CariCRIS credit ratings was meant to improve assessment of default risk, thereby increasing efficiency of SME lending for banks and boosting access to finance for the country’s SMEs.
In its key role of lending to SMEs, NEDCO encountered some earlier financial difficulties. Julian Henry, CEO of NEDCO, told OBG that in the 2007-11 period, the agency over-expanded its lending to SMEs and subsequently found that the proportion of non-performing loans rose. Between 2013 and 2015 the agency reduced its loan portfolio and sought to improve overall loan quality.
Despite these efforts, by October 2015 NEDCO reported that it had around 5700 accounts, of which 4000 – or 70% – were more than 90 days in arrears, with a proportion of these set to be written off to allow NEDCO to become more effective. At the same time, Henry said that attempts to support innovation and start-ups in T&T were being made by too many agencies in a rather uncoordinated way, as there was not yet an agreed upon model.
Greater Access To Finance
There is a general perception among many analysts in the country that SMEs in T&T have much to offer in terms of diversifying the economy and developing new business and employment opportunities, but that they are being held back by a risk-averse and broadly conservative business culture.
Garvin Joefield, head of the economic intelligence unit at Republic Bank, recognises that SMEs are under-funded but says that there are two sides to this problem. On the one hand, commercial banks generally adhere to conservative lending practices and may not know enough about the SME sector, something he said was being addressed through training of bank staff. On the other hand, however, the SMEs themselves were not always in a position to provide banks with the required information on their businesses to support their loan applications. Small companies could be conservative in their approach as well, Joefield told OBG. “A few years ago an initiative was rolled out to encourage SMEs to list on a junior market within the T&T Stock Exchange, which was very unsuccessful,” he said.
Stock Exchange Or Crowdfunding
Wainwright Iton, CEO of the T&T Securities and Exchange Commission (TTSEC), agreed it was difficult to encourage new companies to list on the stock exchange. In this respect, the Jamaican stock exchange had been more successful in recent years, offering newly listed companies significant tax breaks. Firms listed on Jamaica’s Junior Market get a five-year exemption from corporate tax, followed by a heavily discounted rate over the second five years.
However, a similar programme in T&T had been less successful. “People here are very entrepreneurial, but a lot of what they are doing is very private and informal, so the offer of tax breaks is not a strong incentive,” Iton told OBG, noting that many are also put off by what are perceived as unnecessarily complex corporate governance requirements.
A potential alternative approach would be for the twin-island nation to adopt some locally adapted version of the crowdfunding platforms developed in the US and Europe. Existing platforms such as Kick-starter, Rockethub and Indiegogo were reported to have raised $2.7bn and helped more than 1m crowd-funding campaigns by early 2014.
The World Bank estimated that the global crowd-funding market could reach $90bn-95bn by 2025. An article in the TTSEC quarterly newsletter published in the fourth quarter of 2015 identified a range of different techniques, suggesting that equity crowd-funding as currently defined in US and Canadian regulations might be worth further investigation. The newsletter noted, “The core principle of equity crowdfunding is that it provides all interested entities, especially SMEs, with access to much-needed capital without incurring the onerous financial burden associated with debt financing.”
Another initiative supporting new companies has been the BizBooster Incubator Programme run by the Arthur Lok Jack Graduate School of Business (ALGSB), part of the University of the West Indies. The ALGSB launched an export-accelerator programme with the support of the Inter-American Investment Corporation (IIC) and the Export-Import Bank of Korea. As part of the programme, 100 local companies went through a six-month selection process, after which three were selected to represent T&T at the March 2015 Inter-American Development Bank–IIC business summit in Busan, South Korea.
The three winners – Full Circle Animation Studio, Caribbean Ideas Limited and Survival Systems – also received a year’s worth of technical, financial and consultancy support designed to improve their competitiveness. The programme has been offering workshops as well as panel discussions in order to improve marketing skills in the wider SME sector.
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