Survey Report 2014
+ THE SCOPE OF PROCUREMENT AND THE NEED AND OR RELEVANCE OF PROCUREMENT FINANCING FOR SMEs IN NAMIBIA
P r e p a r e d b y :
N e l a g o I n d o n g o
T h u l a M a h a r e r o
M a r t h a H a n g u l a
M u l t i d i s c i p l i n a r y R e s e a r c h C e n t r e
U n i v e r s i t y o f N a m i b i a
Commissioned by:
The Namibia Procurement Fund
Supported by:
The Deutsche Gesellschaft für
Internationale Zusammenarbeit in
partnership with NEF and The
Ministry of Trade and Industry (MTI).
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Content
EXECUTIVE SUMMARY .......................................................................................................................... 8
Objectives ................................................................................................................................................ 8
Methods ................................................................................................................................................... 8
The research makes the following key findings ................................................................................... 8
The Research makes the following recommendations ........................................................................ 9
1. INTRODUCTION ........................................................................................................................... 10
Background ............................................................................................................................................. 10
1.2 Terms of Reference of the Study ...................................................................................................... 15
2. METHODOLOGY ...............................................................................................................................17
2.1 Data Source ....................................................................................................................................... 17
3. PROFILE OF SME SECTOR IN NAMIBIA ............................................................................................ 22
3.1 SME definition ................................................................................................................................... 22
3.2 Status of SMEs in Namibia ................................................................................................................ 23
3.3 Obstacles to SMEs growth ................................................................................................................ 26
4. PROCUREMENT IN NAMIBIA ........................................................................................................... 29
4.1 Overview and Objectives of Public Procurement in Namibia ........................................................... 29
4.2 Overview of Parastatals’ Procurement Procedures .......................................................................... 34
4.3 Overview of Procurement Policies and Procedures in Large Private Companies ............................. 35
5. SCOPE OF PUBLIC SECTOR PROCUREMENT .................................................................................. 37
5.1 Types and Values of Public Sector Contracts .................................................................................... 37
5.2 Categories of public sector contracts ............................................................................................... 39
5.3 Allocation of Public Procurement Contracts/tenders by Type of Ownership .................................. 40
5.4 TIPEEG participation ......................................................................................................................... 41
5.5 Public Sector demands on Consumable Supplies ............................................................................. 42
6. THE SCOPE OF PROCUREMENT IN PARASTATALS ........................................................................ 43
6.1 Parastatals Procurement Policies ..................................................................................................... 43
6.2 Tender Methods in Parastatals ......................................................................................................... 44
6.3 Supply Contracts ............................................................................................................................... 44
7. THE SCOPE OF PROCUREMENT BY LARGE PRIVATE COMPANIES ................................................. 48
7.1 Large Private Companies Procurement Policies ............................................................................... 48
7.2 Tender Methods of Large Private Companies .................................................................................. 49
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7.3 Supply contracts awarded to SMEs by Large Private Companies ..................................................... 50
8. ANALYSIS OF SUPPLY CONTRACTS AMONGST SAMPLED SMEs .................................................. 52
8.1 Characteristics of Sampled Businesses ............................................................................................. 52
9. ANALYSIS OF SUPPLY OF FINANCE TO SMEs IN NAMIBIA ............................................................. 61
9.1 Commercial banking institutions ...................................................................................................... 62
9.2 Development Financial Institutions (DFIs) ........................................................................................ 69
9.3 Alternative Finance Providers ........................................................................................................... 76
10. IMPACT OF NAMPRO FUND ON SMEs ........................................................................................... 82
11. CHALLENGES FACED BY SMES IN ACCESSING CONTRACTS IN PUBLIC AND PRIVATE SECTOR 86
12. SUMMARY OF FINDINGS ................................................................................................................ 91
13. RECOMMENDATIONS .................................................................................................................... 96
REFERENCES ........................................................................................................................................ 99
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LIST OF TABLES
Page
Table 1: List of Public and Private Sector Procuring Entities Interviewed 25
Table 2: MTI Definition of SMEs in Namibia 28
Table 3: Guiding Definition of SMEs for the Purpose of the Study 29
Table 4: Preference criteria for awarding contracts 37
Table 5: Type and value of tenders 44
Table 6: Percentage distribution of allocation of public procurement contracts
by ownership 47
Table 7: TIPEEG Construction tender values by ownership 48
Table 8: Key Determinants of Preferential Status in Selected Parastatals 50
Table 9: Type and amount of contracts awarded to SMEs, 2010-2012, GIPF 52
Table 10: Type and amount of contracts awarded to SMEs, 2010-2012, Social
Security Commission 53
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LIST OF FIGURES PAGE
Figure 1: SME Growth in Namibia 1995- 2012 30
Figure 2: Obstacles to SMEs growth 33
Figure 3: Annual exemption categories by year 45
Figure 4: Industry allocation of public sector contracts 2012/2013 46
Figure 5: Number of SMEs with contracts from GIPF 52
Figure 6: Key determinants of preferential status 54
Figure 7: Forms of Business Ownership 56
Figure 8: Regional Distribution by Business Operation 57
Figure 9: Percentage distribution of SMEs by year of operation 58
Figure 10: Percentage distribution of SMEs by Industry 59
Figure 11: Number of tenders by source 60
Figure 12: Source of Finance and Amount 61
Figure 13: Percentage of SMEs by Source of Loan 62
Figure 14: Funding source by type of loan 62
Figure 15: Number of tenders by tender method 63
Figure 16: Number of tender by type of supply contract 63
Figure 17: Average tender values by source 64
Figure 18: Type of collateral offered to financial institutions 65
Figure 19: Percentage of SMEs by sector (2012) 72
Figure 20: Total Value Allocation to SMEs by Standard Bank 74
Figure 21: Value of finance provided to SMEs (2010-2012) 78
Figure 22: Allocation by sector (2011/2012) 79
Figure 23: Number of SMEs which benefitted from Agribank facilities by sector 82
Figure 24: Number of applications by year 87
Figure 25: Value allocation by year 88
Figure 25 (a): Number of applications by year 88
Figure 26: Total Amounts Disbursed to SMEs by sector 89
Figure 27: Number of tenders by tender methods 90
Figure 28: Number of tenders by type of supply contract among SMEs that have
benefitted through Nampro Fund products 91
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Figure 29: Number of tenders by tender source awarded to Nampro Fund clients 91
Figure 30: Number of SMEs vs. Nampro Fund Products 92
Figure 31: Average capital deployed and turnover by year 92
Figure 32: Average number of employees by year 93
Figure 33: Challenges experienced by SMEs in securing public procurement contracts 95
Figure 34: Challenges experienced by SMEs in securing parastatal contracts 96
Figure 35: Challenges experienced by SMEs in securing private procurement contracts 97
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LIST OF ABBREVIATIONS
AFD French Development Agency
AFMINCO African Mining Development Company
AgriBank Agricultural Bank
BEE Black Economic Empowerment
BFS Business Financial Solutions
DBN Development Bank of Namibia
DFIs Development Finance Institutions
EDP Enterprise Development Programme
EFFCO Enterprises Fedha Finance Company
ESME Emerging Small and Medium Enterprises
FNB First National Bank
GDP Gross Domestic Product
GIZ Deutsche Gesellschaft fϋr Internationale Zusammenarbeit
GIPF Government Institutions Pension Fund
ICC International Chamber of Commerce
IFC International Finance Corporation
IMF International Monetary Fund
IPPR Institute of Public Policy Research
ISIC International Standard Industry Classification
IUMP Industrial Upgrading and Modernization Programme
MCA Millennium Challenge Account
MOE Ministry of Education
MOF Ministry of Finance
MTI Ministry of Trade and Industry
NAMFISA Namibia Financial Institutions Authority
Nampost Namibia Post
Nampower Namibia Power Corporation
Nampro Fund Namibia Procurement Fund
NCCI Namibia Chamber of Commerce and Industry
NEF Namibia Employers Federation
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NDP4 Namibia Development Plan 4
NEEEF New Equitable Economic Empowerment Framework
NIB Namibia Investment Bank
NPPC Namibian Preferential Procurement Committee
O/M/As Offices, Ministries and Agencies
SBU SME Business Unit
SBCGT Small Business Credit Guarantee Trust
SMEs Small and Medium Enterprises
SSC Social Security Commission
SOEs State Owned Enterprises
SPSS Statistical Package for Social Sciences
TIPEEG Targeted Intervention Programme for Employment and Economic
Growth
UIP Unlisted Investment Policy
VAT Value Added Tax
DEFINITION OF TERMS
Financial institutions: refers to commercial and development banks in Namibia
Draft Bill or New Procurement Bill: refers to the Draft Public Procurement Bill of 2013
Previously Disadvantaged Persons: refers to individuals who belong to a racial or ethnic group that was or is, directly or indirectly, disadvantaged in the labour field as a consequence of social, economic, or educational imbalances arising out of racially discriminatory laws or practices before the Independence of Namibia (As defined in the Labour Act 11 of 2007).
Non-fixed contracts refer to once-off supply of goods or services i.e. once off supply of stationeries, furniture etc.
Fixed contracts refer to a supply of goods or services over a fixed period of time 3 or 5 years.
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EXECUTIVE SUMMARY
Objectives
The overall purpose of this study is to provide a detailed understanding of the current status of the
procurement of goods and services within the public and private sectors, as well as to evaluate the
relevance, potential benefits and impact of procurement financing for Small and Medium sized
Enterprises (SMEs) in Namibia. The main objectives of the study are:
to assess the underlying procedures and the impact of public and private sectors procurement
on SMEs;
to assess the status quo and relevance of procurement financing in Namibia, and
as a case study, to assess the economic impact of The Namibian Procurement Fund (Nampro
Fund) on its portfolio clients.
Methods
Firstly, a desk research was conducted to assess the existing public and private procurement policies,
regulations and procedures. Secondly, four (4) questionnaires were designed to gather data from the
target sources: a selection of SMEs (185), including a sampled selection of Nampro Fund clients (14), as
well as public and private procuring entities; and financial institutions providing funding to SMEs.
Fieldwork was conducted during the period May to July 2013.
The research makes the following key findings
Findings relevant to the public sector
The lack of a mutually accepted definition for Namibian SMEs hinders the implementation of
comprehensive and inclusive interventions and the development of targeted empowerment
legislation. The revision of the current SME Policy, as well as the drafting of a New Public
Procurement Bill are perceived as important measures to streamline the public procurement
process, increase its transparency and efficiency and promote integrity and accountability
throughout the procedures.
Government, as a key consumer of goods and services, holds a significant catalytic role in
empowering Namibian owned enterprises, by offering appropriate, exclusive supply contracts
to SMEs.
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Findings relevant to large private companies
The preferred procurement method of the private sector companies interviewed is open
tendering. Key determinants for preferential procurement are the previously disadvantaged
status, local ownership, ownership by female entrepreneurs and SMEs status.
The majority of contracts awarded by large private sector companies are service rendering and
construction contracts. Technical contracts, which require knowledge and expertise, are usually
outsourced to larger entities within or outside the country.
Findings relevant to Small and Medium sized Enterprises
SMEs face a lack of technical capacity as well as human resources, hence limiting the ability to
successfully complete lengthy and complex procurement processes. Due to the SMEs’ operator
carrying multiple responsibilities, time constraints pose a considerable challenge on SMEs
competing for tenders.
Average contracts awarded to SMEs by the public sector were found to have a value of N$ 5
million, while parastatals’ and private companies’ average contract values were N$ 3.5 and N$
2.3 million, respectively.
The lack of financing to execute contracts (for working capital, acquisition of machinery and
equipment) constitutes a fundamental challenge to SMEs.
Contracts allocated to SMEs tend to be small in size both in the public and private sector, and
are mostly limited to the supply of basic goods, maintenance, construction, cleaning, security
services and catering.
Findings relevant to financial services providers
All six respondent financial institutions reported to be offering financing products tailored to
SME clients. Training and mentoring were reported to be core components of the services
provided.
While the range of financial services available to SMEs is relatively wide, SMEs utilize only a few
of these products. SMEs perceive the financing products available from banks as not aligned to
their needs.
Financial institutions have indicated low turnovers on bank accounts, as well as the lack of
collateral, managerial and technical skills of entrepreneurs, to be among the main impediments
to lending to SMEs.
The Research makes the following recommendations
Recommendations relevant to the public sector
The commissioned review of the SME policy and programmes by the Ministry of Trade and
Industry (MTI) to reach consensus on a generally acceptable definition of the term ‘SME’;
The provision of advisory services to SMEs through a National Enterprise Development
Programme (NEDP)
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The revitalization of a Credit Guarantee Scheme; and
The streamlining and centralization of procurement procedures inclusive of and valid for State-
Owned Enterprises (SOEs), as proposed under the new Public Procurement Bill.
Recommendations relevant to large private companies
The promotion of enhanced transparency with regards to preferential procurement policies,
determinants and related information for the general public;
The promotion of inclusion of new entrants in the supplier value chain; and
The prioritization of locally produced or manufactured goods.
Recommendations relevant to financial services providers
Facilitation of a dialogue between financial services providers and SMEs in order to develop
appropriate, demand-driven, tailored services and products, which meet the SMEs sectors’
needs.
Recommendations relevant to Small and Medium Enterprises
Broad-based inclusion and participation of SMEs in the review of the SME policy and
programme by the MTI, for the review to reflect the reality on the ground and to ensure that
their challenges are addressed vigorously.
1. INTRODUCTION
Background
The establishment and promotion of a vibrant and dynamic SME sector is increasingly seen as an
important catalyst and delivery vehicle to key development objectives in Namibia, namely; sustained
economic growth, employment creation and the reduction of income inequality. It is common
knowledge that the development of the SME sector offers numerous opportunities for the attainment
of sustainable economic and social development goals in Namibia (Bank of Namibia, 2010).
In developing Vision 2030’s policy framework, which sets out the long-term national development
priorities and goals, Government recognized the valuable contribution that the SME sector can make
and explicitly mentions the necessity of enhancing the SME sector in Chapter 4 (People’s Quality of
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Life) under the Macroeconomic Environment (page 64). By 2030 Government must have made
“Substantial investments in rural infrastructure, with a flourishing SME and EPZ sectors”. One of the
objectives identified under the Employment and Unemployment segment of Vision 2030 is: “To ensure
that all factors of the economy are fully utilised” and the strategy to be deployed in achieving this
objective is to “Promote Self-Employment by creating an enabling environment for the SME sector,
including access to loans for micro and macro enterprises.”
Furthermore under Production Technology (page 86) in “Things to Do” the policy advocates the
“Promotion of new SME industries and improve financing schemes for new businesses by reworking the
current banking systems” at the same time avoiding “Insufficient financial and mentor support to
SMEs” and “Insufficient financial support for SMEs and entrepreneurs in the industry” in order that
SMEs’ current levels are enhanced and that SMEs increase in number.
Spearheading SME development requires the establishment of a good policy and legislative
framework. Whilst substantial investments have been made in the development of policies in Namibia,
implementation of the policies has not been adequately robust. Developing the SME sector requires the
engineering of supportive interventions through the various stages of an enterprise’s developmental
lifespan. SMEs specifically tend to have a challenge accessing conventional funding in the early stages,
and access to finance only occurs at the later stages of their development process, when they would
have acquired adequate assets that could serve as collateral. This status quo has resulted in the failure
of some SMEs and stunted growth in others.
Access to finance seems to be of particular significance to SMEs owned by people from previously
disadvantaged backgrounds. This is mainly because previously disadvantaged Namibians often do not
possess the types of assets that can serve as collateral for any financing that could be advanced to
them. In essence, the requirement to possess collateral curtails the attainment of a more economically
equitable Namibian society (Mushendami et al. 2004).
The public sector and larger private companies play a significant role in stimulating the growth of SMEs
through the procurement process and awarding of tenders and contracts for the supply of goods and
services. There is actually a deliberate and emerging drive by Government and the private sector
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towards ensuring greater access to and awarding of tenders/contracts to Namibian-owned SMEs, in
particular those SMEs owned and managed by previously disadvantaged persons.
Currently, preferential requirements for SMEs owned by previously disadvantaged persons in the public
sector are considered during Tender Board meetings. One of the objects of the proposed Public
Procurement Bill is to specifically provide for preferential requirements and to “promote preferential
treatment in the allocation of procurement contracts and the advancement of persons or categories of
persons who have been socially, economically or educationally disadvantaged by past racially
discriminatory laws or practices.” (Draft Procurement Bill, 2013).
Government has also supported initiatives addressing access to finance by SMEs such as the
establishment of statutory financial banks: Development Bank of Namibia (DBN) and the Agricultural
Bank of Namibia (AgriBank). These banks offer a wide variety of financial products to their clients at
fairly low interest rates, in addition to client support services such as training and business mentoring.
The Ministry of Trade and Industry has initiated a number of interventions to support SME
development in Namibia such as the establishment of the SME Bank. Details on other MTI
interventions are provided in section 3.2.
Commercial banks have created specialised business units to cater for the financial needs of SMEs as
well as to provide client support services. Bank Windhoek and FNB introduced emerging Small and
Medium Enterprises unit (ESME) and the Small Business Unit (SBU) respectively in early 2000. Standard
Bank and Nedbank followed suit and introduced their products for SMEs slightly later. An initiative by
private international investors, Fides Bank, was incorporated in Namibia in early 2010 to provide
funding to micro and small enterprises.
There have been other initiatives in Namibia which are aimed at filling the financing gap faced by
medium scale enterprises and injecting private equity capital in other areas of the economy which are
experiencing financial constraints. Of particular note, since they are the pioneers of private equity
capital in Namibia, are the Stimulus Private Equity Fund (Pty) Ltd (Stimulus) and the African Mining
Development Company (Pty) Ltd (AFMINCO).
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Stimulus is one of the oldest private equity funds in Namibia, established with a view to “acquiring
stakes in established, high cash-yielding business in Namibia which require empowerment credentials
while also targeting traditional private equity opportunities in promising businesses with the potential
to deliver superior returns” (Information Memorandum Stimulus Investments Limited 2004).
The African Mining Development Company (Pty) Ltd (AFMINCO) is a joint initiative between Namibia
Investment Bank (NIB) a member of the Nedcor Group, and IJG Corporate Finance (Pty) Ltd. AFMINCO
established a private equity fund with an aim to bridge the funding gap between the initial discovery of
potential mineral resources and the completion of a bankable feasibility study which can be used to
raise the money required to establish the venture.
The Government Institutions Pension Fund (GIPF) also played a pivotal role in funding unlisted
investment activities through the establishment of its Unlisted Investment Policy (UIP) in 2008. The UIP
was established in conformity with Regulation 15 & 28 of the Pension Funds Act which requires Pension
Funds to invest in the local economy. In so doing the GIPF has to carefully strike a balance between
supporting economic development through the empowerment of entrepreneurs and safeguarding the
interests of the GIPF’s members and beneficiaries. As of 2013, the Fund has committed N$2.3 billion of
its N$70 billion asset base, to support unlisted investment activities of which more than N$800 million
has already been invested through unlisted investment funds.
The GIPF’s UIP is broad-based and inclined towards socio-economic development. The areas of focus
include:
• Micro enterprise and renewable energy financing – small value loan funding
• Venture capital – seed capital start-ups
• Property – bricks and mortar investments
• Development capital – expansion of business
• Private equity – equity stakes in both start-ups and existing business
• Buyout financing – leveraged management buy-outs or buy-in capital
• Energy – financing of energy related infrastructure
• Debt funds – procurement financing, mezzanine debts
As at March 2013, GIPF’s disbursements were distributed as follows:
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Company Amount Main Business Focus
Namibia Procurement Trust Fund N$154 million providing short-term working capital facilities
Desert Stone Trust Fund N$12.5 million
early stage venture capital/green field
projects, developmental capital and buyout
investments
Kongalend Renewable Energy Trust
Fund
N$51.4 million providing small loan for renewable energy
VPB Growth Trust Fund N$32 million
private equity fund that focuses on equity
financing
Frontier Property Trust Fund N$222 million immovable properties with long-term income
growth
Preferred Investment Property
Trust Fund
N$87 million property investments
Koningstein Capital Investment
Property Trust Fund
N$18.5 million
property investments
First Capital Real Estate Finance
Trust Fund
N$4.9 million
provision of mortgage loans and municipal
infrastructure funding
Tunga Real Estate Trust Fund N$141 million focuses on property investments
Expanded Infrastructure Trust Fund N$11.9 million
Focuses on strategic infrastructure funding
such as roads, railways, power etc.
There are also several initiatives introduced by private organisations and intended to benefit SMEs.
One such initiative is SME Compete which has developed an array of services focused on capacity
building and skills enhancement. SME Compete also facilitates business linkages in the domestic,
regional, and international market through a wide range of on-going services and events. Another
initiative is the Namibia Business Investment Centre (NBIC) which offers programmes designed to
stimulate innovation, provide critical business information, facilitate matchmaking and assist
entrepreneurs to set up their businesses. The support provided by NBIC in the form of mentoring,
training and incubator services continues through the growth phase of the business.
While these and other initiatives have had a positive impact on Namibian enterprises, there are limited
focused support services geared towards assisting Namibian enterprises to access supply contracts and
to implement them successfully. The perceived lack of technical competence to complete tenders
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correctly has compromised a number of Namibian enterprises in securing tenders, especially in high
value contracts with large companies, parastatals and large development organizations such as the
Millennium Challenge Account (MCA).
This study was thus initiated with the overall goal of assessing the extent to which procurement is a
catalyst for empowering SMEs and whether there is a need and a particular relevance of procurement
finance in Namibia. Furthermore this study also evaluates the economic impact of Nampro Fund on its
portfolio clients.
1.2 Terms of Reference of the Study
The study has been conducted on the basis of the terms of reference defined by the commissioning
agency, the Namibia Procurement Fund. Its goal is to assess the extent to which procurement is a
catalyst for empowering SMEs; assessing the need and relevance of procurement finance in Namibia
and the economic impact of Nampro Fund on its portfolio clients. Consistent with this goal, the overall
objective of the study is to establish the demand and market potential of procurement contracts and
the provision of procurement finance in Namibia. Specifically the study focuses on:
Assessing the scope of private sector procurement in Namibia;
Assessing the scope of public sector procurement as it relates to:
- Types of goods manufactured locally by SMEs and procured through Government
tendering process,
- Total value of locally manufactured goods procured through Government tenders for
the past three financial years,
- Total value spent on consumable supplies of Ministries and agencies, listing the top 20
items and spending trend for the past three financial years,
- Total number of SMEs manufacturing procured goods through the tenders, and
- Types of goods supplied by the SMEs to retailers, the buyers and whether SMEs have
long term supply contracts with these retailers.
Industry classification of procurement activities;
Current allocation of procurement to Namibian registered companies in both the public and
private sector;
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Current allocation of procurement to companies with at least 51% Namibian ownership;
Assessing the extent to which local SMEs participate in government, parastatals and large
private companies tendering processes;
Identifying current challenges (including policies regulations and processes) faced by SMEs
in tendering for the procurement contracts of government, parastatals and large private
companies;
Identifying opportunities for increased local SMEs participation in the tendering processes
of government, parastatals and large private companies;
Assessing financing shortfalls in terms of appropriateness of product offering and ease of
access to finance;
Assessing the macro-impact of the Nampro Fund as a case study in providing bridging
finance to SMEs by comparing SMEs performance prior and post Nampro Fund financing;
Assessing the macro-impact of the Nampro Fund in enhancing the pace of project
implementation, new enterprise formation, SMEs market growth, local economic
development, employment creation and empowering previously disadvantaged
Namibians;
Investigating the entities that offer competitive or comparable procurement financing with
a focus on the type of institutions offering procurement/bridging finance, the type and cost
of product offerings, the uptake of the comparable financing products, the potential
providers/institutions that could offer the financing but do not, and the reasons for not
doing so; and
Making recommendations that could influence both the private sector and public sector
procurement policies, and the call for roundtable discussions.
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2. METHODOLOGY
2.1 Data Source
To assess the extent to which procurement is a catalyst for empowering SMEs, evaluate the need and
relevance of procurement finance in Namibia and the economic impact of Nampro Fund on its portfolio
clients, the study used both primary and secondary data. To guide the process of data collection as well
as the type of data to be collected, a methodology was devised to satisfy the data needs of three
research outputs, namely
to assess the underlying procedures and the impact of public and private sector procurement
on SMEs;
to assess the status quo and relevance of procurement financing in Namibia and
as a case study, to assess the economic impact of the Namibian Procurement Fund (Nampro
Fund) on its portfolio clients.
First, a desk research was conducted by reviewing various secondary data such as Tender Board
reports, the Draft Public Procurement Bill, Bank of Namibia Occasional Papers; IPPR brief papers;
symposium publication reports; journal articles and other relevant local, regional and international
reports from the web among others. The purpose of the review was to assess policies, existing efforts
and the status quo of procurement and how it benefits SMEs in Namibia. Furthermore, information on
various sources of procurement finance and requirements were collated to support the review and the
research. In addition, the review assessed and documented the progress made, best practices, lessons
learnt, challenges and opportunities that exist for SMEs in securing and executing contracts.
To source the relevant information from the various markets, four (4) questionnaires were designed
and administered as follows:
Questionnaire 1: Core questionnaire for SMEs
Questionnaire 2: Core SME questionnaire extended for Nampro Fund clients
Questionnaire 3: Assessment of procuring entities (Government, parastatals and large private
companies)
Questionnaire 4: Assessment of suppliers of finance
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2.1.1 Analysis of procurement contracts
The - analysis of procurement contracts is based on interviews with the Chairpersons of tender board
committees and Procurement Managers in the procurement units of both public and private entities.
The respondents provided information on tendering and procurement procedures, the range of
suppliers and the nature and value of tenders awarded for the relevant time period. The analysis was
also extended to 185 SMEs and 14 Nampro Fund clients as outlined below.
2.1.1.1 Government Offices, Ministries and Agencies (O/M/As)
Government is a key consumer of goods and services in the country. The time available for the study
did not allow the research team to cover the full scope of O/M/As procuring entities. As a result the
researchers selected and interviewed seven O/M/As on the types and values of tenders awarded based
on the highest budget allocations (see Table 1). The data on tender allocations by O/M/As was sourced
from the Tender Board. O/M/As that were interviewed provided insightful information on challenges
and opportunities experienced by SMEs in accessing and executing contracts. The interviewees also
provided the research team with a list of suppliers which then formed part of the sampled SMEs.
2.1.1.2 Parastatals
A total of nine parastatals were selected and interviewed using the key informant questionnaire (see
Table 1). Parastatals were asked to provide information on tendering procedures, tender management
structures and policies, scope of suppliers, nature, and value of tenders awarded.
2.1.1.3 Large Private Companies
Six large companies (see Table 1) were selected to provide information on procurement procedures,
procurement management structures and policies, scope of suppliers, nature of tenders awarded, and
value of tenders awarded.
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Table 1: List of Public and Private Sector Procuring Entities Interviewed
Public Entities Parastatals Large Private companies
Ministry of Finance Social Security Commission (SSC) MTC Namibia
National Planning Commission Telecom Namibia Fruit n’ Veg
Ministry of Education Nampost Hilton Hotel
Ministry of Works and
Transport
Nampower Santam Namibia
Ministry of Health and Social
Services
Roads Contracting Company Rossing Uranium Ltd
Tender Board Secretariat Oshakati Premier Electricity Avis Namibia Ltd
Oshana Regional Council GIPF
Oshakati Town Council
Ongwediva Town Council
2.1.1.4 Small and Medium Enterprises (SMEs)
A list of SMEs that formed part of the sampling frame was received from the Tender Board and O/M/As,
large private companies, parastatals, NCCI, and IPPR. The selection of SMEs to provide data for the
supply analysis of procurement contracts was done using a combination of judgemental and random
sampling. A list of SMEs that were funded by Nampro Fund was also obtained.
184 SMEs and 14 Nampro funded SMEs were interviewed to establish how procurement contracts from
public and private procurers were secured.
SMEs were asked to provide information on the extent of participation in tendering and execution of
contracts for O/M/As, parastatals and large private companies. Other information collected from SMEs
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included; types of goods or services supplied, types of contracts, challenges encountered and perceived
opportunities in securing and executing contracts.
Interviews of the Nampro Fund clients were conducted by researchers while 10 enumerators were
trained to conduct interviews with other SMEs. Participants were given a choice of completing the
questionnaire through face-to-face interviews or via email. Some participants preferred to complete
the questionnaires on their own with follow up interviews conducted by the enumerators.
2.1.2 Analysis of Supply of Finance
A questionnaire was developed to collect information from financial institutions in Namibia which
included: First National Bank, Bank Windhoek, Standard Bank, Development Bank of Namibia,
AgriBank, and Nampro Fund. In most cases, the questionnaire was administered to heads of SMEs
units, with a few exceptions where financial managers were the respondents. Providers of financing
were interviewed to gather information on the type, cost and preconditions of their products. Detailed
information on products offered by providers of financing for SMEs was made available through print
marketing material (flyers and brochures).
2.1.3 Impact of Nampro Fund on Clients
The questionnaire for SMEs, other than those funded by Nampro Fund, was modified to include
questions that assessed the impact of Nampro Fund on its clients. A list containing 27 clients was
obtained from the Nampro Fund. However, only 14 out of the 27 opted to participate in the survey. In
addition to information on the type of contracts participated in, SME clients of Nampro Fund provided
data on the relevance of the Nampro Fund’s financing products and its impact on their business
turnover and growth.
21
2.2 Methods of Data Analysis
A data entry system was developed using Statistical Package for Social Science (SPSS) a statistical
software. This was followed by data cleaning and recoding where necessary for open-ended questions.
Once the data cleaning exercise was completed, cross tabulations and frequencies were run. Secondary
data collected through desk review was used to complement and substantiate the results from the
surveys.
22
3. PROFILE OF SME SECTOR IN NAMIBIA
3.1 SME definition
There is no universal definition for a small and medium business or enterprise, since such a definition
would have to take into account the legal and socio-economic environment of each particular country.
For example, the European Union defines an SME as a firm with 50 to 250 employees, annual turnover
of Euro 7 to 40 million, total assets less than Euro 27 million, and not more than 25 percent ownership
by a large corporation (Business Dictionary, 2013). Whilst, the International Chamber Of Commerce
(ICC) defines an SME as having 100 to 2000 employees.
In Namibia, the Ministry of Trade and Industry (MTI) defines SMEs in terms of the number of
employees, annual sales as well as the capital base of a business as presented in the table below. A firm
is categorised as an SME if it meets at least two of the above three criteria:
Table 2: MTI Definition of SMEs in Namibia
Sector Employees Turnover Capital
Manufacturing 2 - 10 persons Maximum of N$1
000 000
N$500 000
All other business 1-5 persons Maximum of N$250
000
N$100 000
It is also important to understand that there are additional requirements for a business to be awarded
an SME certificate through the Ministry of Trade and Industry. These requirements include that a
company should be 100% Namibian owned with the relevant business registration; a good standing
certificate Social Security Commission and a good standing certificate from the Receiver of Revenue.
The Namibia SME Policy and Programme which defines an SME, is currently being reviewed by MTI and
it seeks to establish a generally acceptable definition of SME in Namibia through wide stakeholder
consultations. The revised definition will enable the proposed Central Procurement Board in the
23
proposed new Public Procurement Bill to award procurement contracts to those businesses that meet
the criteria and fit the description of an SME accordingly.
In the context of this study, the following definition of an SME has been adopted.
Table 3: Guiding Definition of SMEs for the Purpose of this Study
Services and others Value in NAD Small Value in NAD Medium
Capital deployed N$ 250 -000 to 3 million + 3 million – 10 million
Turnover N$ 1 million to 20 million +N$ 20 million– 150 million
No of employees 1-10 11-50
Manufacturing
Capital deployed N$ 3 million to N$ 10 million +N$ 10 million – 50 million
Turnover N$ 5 million to 30 million +N$ 30 million -300 million
No of employees 5 – 20 21 -100 employees
3.2 Status of SMEs in Namibia
There is a general consensus in Namibia that the development of the SME sector offers greater
opportunity for the attainment of sustainable socio-economic development (LaRRi, 2005; Tonin et al
1998). This has been recognised in the Namibia Vision 2030 which clearly states that SMEs should act as
the locomotives that drive the economy forward to achieve “…. human development, equitable and
balanced growth, with a growing industrial sector……”. The SME sector in Namibia has two faces, which
are formal and informal. The formal SMEs are the ones that are registered with the relevant authorities
such as MTI, MOF, and SSC and have bank accounts, whereas the informal SMEs are unregistered and
in most cases do not operate a bank account.
A study of 100 SMEs conducted by Sherbourne (2012) showed that a high number of SMEs were
established since independence, suggesting that enterprise creation has been relatively positive.
However, Sherbourne (2012) further argued that while it might look as if there are many small
businesses in Namibia (and therefore huge potential for business growth), the actual growth potential
24
may in fact be limited to only a very small number of innovative enterprises. Access to financing and a
more robust procurement system could certainly lead to more SME’s being elevated to the category of
those with better growth potential.
Figure 1: SME Growth in Namibia 1995- 2012
Source: Sherbourne R. (2012). Assessing market demand for Private Equity and Venture capital initiatives for Emerging SMEs in Namibia.
Windhoek.
In 2005 the Institute for Public Policy Research (IPPR) reported that SMEs account for 20% of
employment in Namibia, and contribute 12% of GDP (Arnold et al. 2005; Tjirera, 2011). While Mouton
(2013) indicated that most of the Micro and/or Small and medium Enterprises (MSMEs) in Namibia
operate in the informal sector and their collective contribution towards the country’s economy exceeds
22 per cent. LaRRi, 2002 reported a considerable contribution in employment creation from the SME
sector in Namibia. The report indicated that the small business sector was estimated to provide around
60 000 full-time jobs in Namibia, making it a significant employment creation sector.
The Ministry of Trade and Industry, through its SME Policy and Programmes, recognises the
development of the SME sector as a means of reducing inequalities within the socio-economic
environment of Namibia, empowering previously disadvantaged Namibians, as well as diversifying the
economy and promoting economic growth (MTI, 1997). The SME policy framework points to three key
areas of intervention which are, deregulation and incentives, proactive programmes, and institutional
25
support. Through the Directorate of Industrial Development, the MTI initiated several interventions to
effect the SME policy objectives. These include:
Provision of business mentorship services and entrepreneurial skills training.
Financing of feasibility studies/business plans for local small and emerging entrepreneurs and
least developed towns (Feasibility Study Fund).
Financial assistance to help SMEs to secure booths or stalls to exhibit their products at trade
fairs.
Construction and leasing of affordable business outlets and industrial workshops (Sites and
Premises Development Programme).
Financial assistance towards procurement of production equipment and inputs (Equipment Aid
Scheme and Group Purchasing Scheme).
Facilitation of business linkages and experiential factory visits.
Research into and development of industrial products and
Facilitation of linkages to financial services and access to finance for SMEs.
(MTI website, 10 October 2013)
A number of these initiatives have made a noteworthy impact on the development of the SME sector in
Namibia. For example, during the 2012/2013 financial year a total of N$ 30.5 million was committed for
the Equipment Aid Scheme, which benefitted 1,141 SMEs in various regions of the country (MTI, 2013).
The intervention has created new jobs through new business initiatives that have been started and it
has assisted in sustaining and increasing job opportunities in existing small scale businesses.
Currently, the MTI is developing an Industrial Upgrading and Modernization Programme (IUMP) which
is aimed at facilitating greater participation of Namibian enterprises in the regional and global markets.
The programme will develop support mechanisms that enhance the improvement and expansion of
industrial activities in key economic sectors that contribute to economic growth and development of
the country as envisaged in Vision 2030 and NDP4. The programme will focus on 4 sectors namely:
Agro-food processing, Fisheries processing, Pharmaceuticals (including Cosmetics and Traditional
African Medicines), and Minerals (Metallic and non-Metallic).
The SME policy has been in operation for more than 15 years and in October 2013 a review was
commissioned to identify shortcomings in the current SME policy and provide recommendations that
26
are aligned with the Industrial policy, Vision 2030 and NDP 4. The review is also expected to assess SME
support service programmes and ensure the creation of a holistic support service to the SME sector. In
addition, the review is expected to provide a clear articulation of the value chain of SMEs in relation to
big businesses as well as to design an institutional arrangement/framework that will facilitate the
coordination and the implementation of targeted support services programmes for SMEs in Namibia.
There are other initiatives aimed at SME development which are spearheaded by the private sector,
Non-governmental organisations (NGOs), International development support such as the Centre for
Development of Enterprise (CDE) and private business representative entities such as Namibia
Chamber of Commerce and industry (NCCI) and Namibia Employers’ Federation (NEF). The
interventions of these entities enhance SMEs competitiveness through training, mentorship
programmes and advocacy.
3.3 Obstacles to SMEs growth
Despite the clear significance of the SME sector in the Namibian economy, SMEs still face a number of
challenges that hamper their growth i.e. moving past survival stages to achieving sustained growth and
attaining resource maturity. This section presents the literature review of prior research focusing on
obstacles that compromise SME growth.
Sherbourne, (2012) identified the following internal and external obstacles to SMEs growth.
Figure 2: Obstacles to SMEs growth
27
Source: Sherbourne R. (2012). Assessing market demand for Private Equity and Venture capital initiatives for Emerging SMEs in Namibia.
Windhoek.
Lack of access to finance has been cited by various authors (Schade, 2012; Sherbourne, 2012) as one of
the major factors limiting the growth of the SME sector in Namibia. In essence, lack of finance and
associated collateral requirements curtail the attainment of a more equitable Namibian economic
society as it limits the ability of SMEs to secure funding for their businesses in general and to execute
procurement contracts effectively. Provision of collateral is one of the main requirements by financial
institutions in considering an application for formal credit and since SMEs generally lack collateral, this
is one of the most limiting factors for SMEs to secure financial support. To address this obstacle, the
Government through the Ministry of Trade and Industry supported the establishment of the SME Bank
to provide collateral free lending for start-ups and SMEs in expansion mode. In addition, the GIPF
launched its Unlisted Investment Policy in 2008, in anticipation of Regulation 28 of the Pension Funds
Act. Regulation 28 requires Pension Funds to assist in the sustenance of the local economy by investing
in unlisted investments through alternative equity investment managers, who in turn provide access to
finance to Namibian enterprises including SMEs.
Other obstacles to the development of the SMEs sector in Namibia are related to low demand for
goods, scarcity of skilled labour, cost of utilities, cost of finance (Schade, 2012), marketing, purchasing,
technology, training and a lack of business support (Tonin et al. 1998). SMEs in low and middle income
28
countries cite corruption as a major obstacle. Earlier research indicated that SMEs are more likely to
pay a bribe to get things done than large companies (IFC, 2010). Previous research outlined several
challenges experienced by SMEs in developing countries including cumbersome business regulations,
insufficient infrastructure and management capacity (LaRRi, 2002; Jauch, 2010). Efforts to build
capacity for entrepreneurs through training programmes are being offered by institutions of higher
education such as UNAM, Polytechnic of Namibia, vocational training institutions, private companies
and the National Youth Service amongst others.
Crime and theft as well as competition from large companies were also identified as obstacles to micro
enterprises, in general. Schade (2012) indicated that crime and theft is the fourth biggest concern for
micro businesses, however he recognises the improvement in ranking for Namibia with regards to
organised crime from rank 75 to 66 (World Economic Forum, 2013). The strategy of community policing
implemented by the Namibian police has resulted in closer cooperation between the general public and
the police, causing a reduction in the crime rate (Schade, 2012).
29
4. PROCUREMENT IN NAMIBIA
4.1 Overview and Objectives of Public Procurement in Namibia
Public procurement is the process by which government O/M/As purchase goods and services from
suppliers. Both, on national and regional level, the process is subjected to specific rules, policies and
procedures regulated by the Tender Board, a statutory body for procurement processes. The Tender
Board was established in terms of the Tender Board Act 16 of 1996 (Tender Board Act). Members of the
Tender Board are the accounting officers from all ministries, each with an alternate member, and are
appointed by the Minister of Finance.
The Tender Board Act defines a tender as:
- “An offer to provide goods and services at a fixed price
- A request to potential service providers to provide goods or services at a fixed price against set
specifications and
- An opportunity - not an entitlement”.
In order for a company to list as a supplier for government tenders the standard requirements are as
follows:
- Company registration certificate;
- Good standing certificate from the Receiver of Revenue;
- Good standing certificate from the Social Security Commission; and
- Registration as an SME with the Ministry of Trade and Industry (where necessary).
The objects of public procurement are implemented through statutory provisions as outlined in the
documents listed below:
The Constitution of Namibia, in so far as it relates to the administrative actions by
respective decision-making bodies;
The Tender Board of Namibia Act 16 of 1996;
The Tender Board Regulations 1996;
The Tender Board of Namibia Code of Procedures 191 of 1997;
Regional Council Tender Board Regulations ; and
30
The Local Authority Tender Board Regulations
These legal documents outlined above, guide the public procuring entities in the process of awarding
contracts to contractors and serve to address any disputes that may arise from the tender process or
the award thereof. For an entity to benefit from preferential treatment most tenders require that the
entity is a legal entity in Namibia, which:
(a) is registered with the Registrar of Companies (Ministry of Trade and Industry),
(b) has a certificate of shareholding or membership,
(c) is registered for payment of income tax with the Receiver of Revenue,
(d) is registered with the Social Security Commission and has a certificate of good standing
with the Social Security Commission.
Although the primary aim of the Tender Board is to ensure that tenders are awarded to the best bidder
in an open and competitive bidding process, the Tender Act does permit price preferences in support of
specific socio-economic goals and strategies. Criterions have been worked out to determine the extent
of preference to be granted to a particular contractor. These are shown in Table 4 below.
Table 4: Preference criteria for awarding contracts
Criteria Points awarded
Namibian domicile 5%
Support of small scale Namibian industries 2% preference if more than 10 but fewer
than 25 workers in small scale industries
are employed
3% of more than 24 but fewer than 50
workers are employed
5% if more than 50 workers are employed
Employment creation in communal or
underdeveloped areas
2% if more than 10 but fewer than 25
people in communal areas are employed;
3% if more than 24 but fewer than 50
people are employed; and
5% if more than 50 people are employed
31
Implementing the approved affirmative action
policy
2% to 3% preference may be granted,
depending on the merits of the case, i.e.
structured training programmes,
employment of women or handicapped
people, other programmes benefiting
disadvantaged Namibian citizens
In 2012, the Tender Board proposed the following additional public procurement interventions to the
Minister of Finance for endorsement. These were approved and added as amendments to Tender Board
regulations. The interventions were directed at the advancement of the youth, women and previously
disadvantaged citizens.
Contracts up to N$ 15 million to be restricted to wholly Namibian owned corporations that are
regarded as SMEs.
Foreign companies to be encouraged to form partnerships with local companies in order to
build local capacity.
IT related services, catering, cleaning, security services and other related services to be
restricted to Namibian companies only.
4.1.1 Public Procurements bidding methods
The Public sector has several tendering processes and methods (Tender Board, 2013). These are listed
as follows:
Open tender where the general public (all companies) are invited to tender, provided they
meet all the requirements;
Closed tender, which is a selective tender process where only pre-qualified companies who
meet all the requirements/specifications are invited to tender to provide specific goods,
services or products. This is usually applied when goods, services and products needed by the
organisation/institution are scarce;
The two-envelope tender, where companies are invited to tender by providing both technical
and financial proposals in separate envelopes. Technical proposals are opened first and then
32
the financial proposals of those companies who meet the technical specifications are opened.
The envelopes containing the financial proposals of those companies that did not meet the
technical specifications are not opened but returned.
Request for information where tenderers are invited to provide preliminary proposals by
submitting expert information on how best the service/products required can be delivered to
enable the company/institution to consider their capabilities. There is no guarantee to award
the tender nor financial incentives attached to the request.
Expression of interest is when possible experienced reputable tenderers are invited to tender
their interest and prove their ability to provide specific services and products sought.
Sole sourcing is when the company/organisation is only dealing with one specific known
supplier perceived to possess the scarce capability to provide specific/rare services/products
and meet special design requirements. The conditions are that a supplier should have a proven
track record, whilst being technically superior and economically able. Value for money (price,
after sales services and support) are preferred for the awarding of this type of tender instead of
the lowest price. No competition exists in this tendering process.
The preferred tender method for government tenders is an open tender process where tenders are
advertised in local newspapers, the tender bulletin, Government Gazette, Tender Board notice board
and Ministry of Finance (MoF) website for a period of 21 days. These tenders are then evaluated
according to the tender board regulations and processes.
A preferential programme has been introduced through the Targeted Intervention Programme for
Employment and Economic Growth (TIPEEG) to earmark certain tenders for SMEs run by women, the
youth and previously disadvantaged citizens. These tenders include:
- Construction tenders not exceeding N$ 5 million;
- Cleaning services;
- Security services;
- Catering services;
- Civil maintenance, renovations and minor works for the Ministry of Works and Transport; and
- Electrical maintenance, renovations and minor works for the Ministry of Works and Transport.
33
4.1.2 Draft Public Procurement Bill
Government, recognising that significant savings can be achieved in public procurement through a
well-organised institutional and governance structure, authorized the drafting of a new Public
Procurement Bill. The institutional and governance structures were included in the draft bill to ensure
increased transparency, efficiency, accountability, integrity and value for money.
The following are the key elements that the Draft Public Procurement Bill is set to address:
The institutional structure for public procurement: The Bill proposes the establishment of a
Procurement Policy Office, the Central Procurement Board to replace the current Tender
Board, the Procurement Committees, Procurement Management Units, Bid Evaluation
Committees and the Review Panel;
The establishment of efficient and transparent procurement methods and processes, which will
enable public bodies to address procurement needs. The Bill has defined the 9 (nine)
procurement methods with open advertised bidding being the default method;
The bill also stipulates when public bodies may utilize either of the indicated methods and
further requires the public body to record the reasons why a particular method was chosen over
another;
The Minister of Finance may make regulations for the introduction and adoption of e-
procurement as a means of simplifying, and improving accessibility to a transparent
procurement process;
The Bill introduces the use of framework agreements for goods and services that reoccur on a
repetitive basis and also for the aggregation of requirements of all public bodies in respect of
common use items and assigning responsibility for their procurement to lead organisations.
This arrangement will avoid duplication of efforts by various public bodies;
Enriched preferential methods to boost the participation of local bidders including previously
disadvantaged groups have been specifically provided for. The Bill promotes the empowerment
34
of Namibian women and youth by creating economic opportunities for them and enhancing
their participation in the mainstream economy;
The alignment of procurement of parastatals through a unified governance system;
Integrity provisions to control unethical conduct, abuses, conflicts of interest and corruption
and;
The Bill also criminalizes certain acts and prescribes severe sanctions in the event that
provisions thereof are contravened. For example where a staff members of the proposed Board
and of public bodies will be deemed to have committed an offence where he or she “acts or
abets corruptly or fraudulently to gain favour or benefit including soliciting or accepting improper
inducement.”
4.2 Overview of Parastatals’ Procurement Procedures
The procurement rules and procedures for parastatals and government agencies are not prescribed by
the Tender Board Act 16 of 1996 and as such these entities are expected to develop their own
procurement policies and procedures.
The New Procurement Bill however seeks to align procurement by parastatals with that of central
government, which will be supported by a unified governance system through the proposed
Procurement Policy Office, The Central Procurement Board and the various committees. The role of
State Owned Enterprises (SOEs) in effecting government’s economic and social goals development has
frequently been in the spotlight with many calling for the alignment of their procurement processes to
those of government. It is thus the responsibility of such entities to create the necessary structures and
policies that provide for adequate transparency and accountability as well as to promote the social
objectives of central government.
Some parastatals have well developed procurement policies. For instance, Nampower has a tender and
procurement policy which establishes a tender board consisting of Nampower managers from various
business units of the company. All procurement items that are above N$500 000 go through the tender
35
process and those which are below N$500 000 are processed by obtaining quotations. Tenders are
advertised for a period of 21 days.
The appraisal criteria of NamPower comprises technical competencies, financial competencies
(attached as annexure A). Allocations for preferential considerations which make up 10% of tender
allocations are enumerated below:
Criteria Score
Preference for Namibian Companies 3%
Previously disadvantaged 7%
Ownership
15-25% 2%
25.1 -50% 3%
50 – 100% 5%
Women and/or Physically Challenged
25 - 50% 1%
50 – 100% 2%
Maximum Preferential Allocation 10%
This study found that the preferential treatment criteria is not homogenous across the various
parastatals even when the nature of the tender is the same. The New Procurement Bill is intended to
achieve such harmonization in the public procurement sphere.
4.3 Overview of Procurement Policies and Procedures in Large Private Companies
Large private companies have developed their own tender policies and procedures or in the case of
multi-national or entities that represent subsidiary of other entities from South Africa and other
neighbouring countries, the policies and procedures of parent companies tend to apply. The principles
governing the award of tenders are often company specific following a procurement policy and the
36
principle of efficient application of resources. Private businesses are inclined to have fixed contracts
with selected suppliers and these contracts are often renewed based on satisfactory performance of the
contractor. These arrangements tend to result in the exclusion of emerging SMEs from the supply of
goods and services as the requirement for historical performance is likely to exclude new performers
unknown to the procuring entity. Furthermore, there is no particular requirement that obligates the
private businesses to source from Namibian companies or to include Namibian companies or those
owned by previously disadvantaged persons in their procurement process.
37
5. SCOPE OF PUBLIC SECTOR PROCUREMENT
5.1 Types and Values of Public Sector Contracts
Government is the largest consumer of goods and services in the country. Central government
procurement represented a total of N$ 6 billion in 2010/2011 and N$ 13.9 billion during 2012/2013
financial years. This amount represents a significant contribution to the economy and can also be
viewed as a catalyst for the empowerment of SMEs and the improvement of income equality in
Namibia. Tenders are awarded under three main categories, namely annual tenders, formal tenders
and tender exemptions and are defined as follows:
Annual tenders refer to tenders that are awarded to a supplier of goods or services for a period
of one year which is renewable based on previous performance.
Formal tenders refer to tenders awarded to once off suppliers of goods or services.
Tender exemptions allow offices/ministries/agencies to deviate from standard tender
procedures by not going out on tender in respect of essential purchases and the supply of
certain services. The latter is acquired by obtaining three quotations from service providers.
The type and value of tenders awarded during two financial years (2010/2011 and 2012/2013) are
presented in Table 5.
Table 5: Type and value of tenders
Type of tender 2010/2011 2012/2013
Amount (N$) Amount (N$)
Annual 304,238,485. 17,708,764.
Formal 1,583,098,354. 4,611,076,428.
Exemptions 4,319,338,015. 9,286,709,482.
Total awards 6,206,674,855. 13,915,494,675.
Source: 2010/2011 & 2012/2013 Tender Board Annual Reports
38
The results above indicate an increase in government spending on formal tenders and on tender
exemptions from 2010/2011 to 2012/2013. Government spending on exemption tenders has doubled
from about N$ 4,3 billion in the 2010/2011 financial year to about N$ 9,3 billion in the 2012/2013
financial year. The increased spending recorded under tender exemptions is uncompetitive in that
tender exemptions bypass the formal tender application process and prefers service and goods or
product providers that are known to the executing office.
A significant decrease has been observed in annual tenders as well. Only N$ 17,708,764.13 has been
spent on annual tenders in the 2012/2013 financial year compared to N$ 304,238,485.27 in the
2010/2011 financial year.
Annual exemptions categories approved for the 2010/2011 and 2012/2013 financial years are presented
in Figure 3 below:
Figure 3: Annual exemption categories by year
Source: 2010/2011 & 2012/2013 Tender Board Annual Reports
39
During the period 2010/2011 and 2012/2013 tender exemptions represented 70% and 67% of the total
tenders awarded respectively, while formal tenders constituted 26% and 33% respectively. Haimbodi
(2011) also revealed a similar trend and concluded that between 2005 and 2008 tender exemptions in
the public sector amounted to about N$ 5.1 billion, while only N$ 2.1 billion worth of formal tenders
were approved. The exemption is applied in order to smoothen and to accelerate the procurement
process at ministry level. However, and that notwithstanding, tender exemptions can lead to a lack of
transparency in awarding contracts.
5.2 Categories of public sector contracts
Public sector contracts are spread over a number of industries. The Tender Board uses six different
industry classifications which are; construction, electrification, printing, consultancy, labour savings
devices and goods and services. The six aforesaid categories considered and their allocations are shown
in Figure 4 below. The construction companies took the biggest share (30%) in the financial year
2012/2013 which exceeded all categories significantly, while printing took the smallest share (0.05%).
The amount allocated to construction was mostly committed through TIPEEG. A significant amount
was also spent on consultancy tenders (N$ 197 million) as well as on contracts providing goods and
services (N$ 177 million).
Figure 4: Industry allocation of public sector contracts 2012/2013
0.00
100,000,000.00
200,000,000.00
300,000,000.00
400,000,000.00
500,000,000.00
600,000,000.00
700,000,000.00
800,000,000.00
900,000,000.00
1,000,000,000.00
Goods andservices
Furniture Printing Consultancy Construction
2010/2011 891,015,880.11 6,240,132.00 184,490.84 2,000,000.00 69,709,807.60
2012/2013 989,649,122.40 39,766,524.00 1,130,000.00 66,570,374.15 116,200,468.32
Am
ou
nt
in N
$
40
Source: 2012/2013 Tender Board Annual Report
5.3 Allocation of Public Procurement Contracts/tenders by Type of Ownership
This section presents results on the type and allocation of procurement contracts/tenders to Namibian
and non-Namibian companies. The results show that most of the printing services and electrification
services were awarded to Namibian owned companies. The allocation is in line with the objective of
increasing public procurement contracts to Namibian companies. It is also important to note that 31%
of government contracts on construction were given to non-Namibian companies and only 6% to joint
venture companies. The participation of Non-Namibian businesses in the construction industry is
significant and could be associated with the competitiveness of the foreign companies. The distribution
of allocation by type of business ownership is given in Table 6.
Table 6: Percentage distribution of allocation of public procurement contracts by ownership
Category Namibian* Non-Namibian SME/BEE Joint venture
Construction 37 31 26 6
Printing 78 6 16 -
Electrification 73 - 27 19
Goods and Services 57 - 24 -
Consultancy 4 1 - 95
0.00
500,000,000.00
1,000,000,000.00
1,500,000,000.00
2,000,000,000.00
2,500,000,000.00
3,000,000,000.00
3,500,000,000.00
4,000,000,000.00
4,500,000,000.00To
tal V
alu
e (
N$
)
Industry
2012/2013
41
Source: Tender Board Report 2012/2013 financial year
* Please note that these businesses are Namibian owned and registered but may include SMEs who did not formally apply for SME status.
There have been significant strides made to allocate contracts to Namibian-owned businesses including
those with formal SME status. For example, contracts on electrification 27% were awarded to
companies that had registered as SMEs and 73% to Namibian companies that are not registered as
SMEs (Table 6). Slightly more than three quarters (78%) of public procurement contracts for printing
were awarded to Namibian companies that are not registered as SMEs; with 16% going to SMEs and
only 6% to non-Namibian companies. Noticeable, is the low participation of SMEs in government
contracts on consultancy, of which 95% have been awarded to joint venture companies, although these
joint ventures may have been made up of SMEs as well. The contribution of SMEs towards providing
goods and services to government is also significant (24%).
5.4 TIPEEG participation
The public sector has set targets for the proportion of contracts awarded to SMEs. The Targeted
Intervention Programme for Employment and Economic Growth (TIPEEG) programme was introduced
by the Government of Namibia in 2011/2012 fiscal year with the aim of addressing the high
unemployment rate and also supporting strategic high growth sectors. This was to be done through
expediting implementation of government programmes and projects which have the potential to
create huge numbers of direct and indirect job opportunities, in particular for women and the unskilled
youth of Namibia.
For the 2012/2013 financial year, construction tenders awarded through TIPEEG totalled about N$ 780
million (Table 7). A substantial amount of about N$ 316 million, which represents 40.57%, was awarded
to SMEs (see table 7).
Table 7: TIPEEG Construction tender values by ownership
N$ %
SME/BEE 316 863 698.- 40
Namibian 188 919 221.- 24
Joint Venture 137 114 765.- 17.
42
Foreign Owned 141 058 318.- 18
Total 783 953 003.- 100.0
Source: Tender Board Report for 2012/2013 financial year
5.5 Public Sector demands on Consumable Supplies
Consumable items are exempted from Tender Board allocation and are acquired through individual
ministry’s procurement committees. The demands of these items differs from Ministry to Ministry but
are mostly acquired through Central government stores. However, Ministries are also authorised to
purchase consumables directly from local suppliers through a three quotation requirement. The top 10
most common consumable items used at ministry level are as follows:
1. Photocopy paper;
2. Toilet Paper;
3. Cleaning products;
4. Writing pads;
5. Cover files;
6. Examination Books;
7. Exercise Books;
8. Pens and pencils;
9. Cartridges;
10. Envelopes
The Ministry of Health and Social Services indicates that pharmaceutical products top the list of their
consumables. The total value spent on the above consumables could however not be determined due
to lack of data from Government Stores and from the Ministry of Health and Social Services.
43
6. THE SCOPE OF PROCUREMENT IN PARASTATALS
6.1 Parastatals Procurement Policies
The majority of respondent parastatals confirmed the application of procurement policies to guide their
supply contracts. The standard requirement for SMEs to list as suppliers and that enables them to
receive invitations to bid for contracts include:
Company registration certificate;
good standing certificate for the Receiver of Revenue and Social Security Commission;
fixed address and;
shareholding or members interest certificate
A number of parastatals have preferential policies in place and the key determinants of preferential
status are indicated in Table 8 for each participating procuring entity. The most common key
determinants of preferential status are local ownership and SME status.
Table 8: Key Determinants of Preferential Status in Selected Parastatals
Name Preferential
policy
Key determinants of preferential status
Previously
disadvantaged
Local
ownership
Women SME
status
Others
Transnamib No
Social Security Commission Yes √ √
GIPF Yes √ √ √
Telecom Yes √ √ √ √ Price specification
Road Contractor Company Yes √ √ √ -Physically
challenged
-Corporate
governance and
broad based BEE
Nampower Yes √ √ √ √
Oshakati Premier Electricity No
44
The study found that while some companies have preferential policies, these policies are not known to
the potential beneficiaries. Lack of information and awareness of preferential criteria limits SMEs
participation in the tendering process. The study recommends that such policy documents and other
relevant information be made available to the general public to enhance transparency and the flow of
and access to information. Once the new Procurement Bill is enacted, the aligned framework will make
it easier for smaller companies to render goods and services to the entire public service sector.
6.2 Tender Methods in Parastatals
All Parastatals contacted for interviews indicated open tendering as the preferred tender method.
Other tender methods used are closed tender, selective tendering, unsolicited bids and tender by
quotation.
6.3 Supply Contracts
Throughout the years 2010, 2011 and 2013 contracts were issued to SMEs in the following main
categories: construction, stationery, electrical services, cleaning services, maintenance and repairs,
promotional items, provision of computer equipment, protective clothing supplies, supply of cable and
telecommunication equipment, provision of solar water heaters, provision of gas installations, car
rentals, construction of earth electronode lines, security services, consultancy services and courier
services. The parastatals interviewed could however not all supply information on the total values
allocated to the various categories of expenditures listed above. Below, are examples of a few that
provided some details:
6.3.1 The GIPF
Table 9: Type and amount of contracts awarded to SMEs, 2010-2012, GIPF
Type of contract Amount in N$
Construction 11 450 000
Promotional items 900 000
Stationery 1 000 000
Electrical services 350 000
45
Cleaning services 180 000
Maintenance and Repairs 300 000
Total 14, 180, 000
A total of N$14.2 million was spent on contracts that were awarded to SMEs during the period 2010-
2012. The highest allocation of N$ 11.5million was spent on construction while the least amount (N$180
000) was spent on cleaning services.
Figure 5 below illustrates an increasing trend by the GIPF in allocating contracts to SMEs which is
commendable.
Figure 5: Number of SMEs with contracts from GIPF
6.3.2 Social Security Commission
A total of 20 SMEs were awarded contracts worth N$5 million by Social Security Commission during the
period 2010 to 2012. The type of contracts and amounts awarded are shown in Table 10. Social Security
Commission spent N$1.4 and N$1.3 million on building renovations and IT equipment contracts,
respectively, awarded to SMEs.
0
5
10
15
20
25
30
35
40
45
50
Year 2010 Year 2011 Year 2012
Nu
mb
er
of
SMEs
46
Table 10: Type and amount of contracts awarded to SMEs, in the financial year 2010-2012, by the
Social Security Commission
Type of contract Amount in N$
Security Services 380 000
Property management 944 000
Cleaning Services 800 000
Building renovations 1 414 000
Gardening 156 000
IT Equipment 1 300 000
Total 4 994 000
47
48
7. THE SCOPE OF PROCUREMENT BY LARGE PRIVATE COMPANIES
7.1 Large Private Companies Procurement Policies
Six large private companies were interviewed to provide information on procurement policies and
processes. The standard requirements for SMEs to be invited to bid in private procuring entities are
that:
They comply with pre-qualification criteria and understand the company’s procurement
principles.
They are registered with the Ministry of Trade and Industry.
They have adequate equipment, skills and proof that their products are of good market
standard.
They provide references of previous work and indicate the financial stability of their business.
Overall, the six large private companies interviewed highlighted that quality and standard of the
products and services is a key requirement. For example, one of the standard requirements for “Fruit
and Veg Fresh Produce Market” is that commodities must be packed according to the provided
specifications. They also require that a planting programme be in place for an SME to qualify as a
supplier of fresh produce.
Five of the private companies interviewed indicated that they also have preferential procurement
policies in place. The key determinants of preferential status are shown in Figure 6.
Figure 6: Key determinants of preferential status
49
7.2 Tender Methods of Large Private Companies
The preferred tender method amongst the Large Private Companies is open tendering, whereby
procurement contracts are advertised in either weekly local newspapers or on the company website for
a specified period of time. Contract applications are then reviewed and approved by institutional
procurement committees. In most cases, private procuring entities use a point score system depending
on the type of contract. An example of a point score system adopted by many entities is as follows:
Bid: 50 points
Experience – 20 Points maximum: This is calculated according to the personal evaluation of each team
member and considers the following: any experience (good or bad) with the contractor, experience of
the contractor in the area and in similar works.
Equipment and Staff – 10 Points maximum: Again individual team member evaluation is used.
Factors such as the number and age of equipment, suitability of equipment for the work involved,
experience of staff (including operators and supervisors) and support the contractor has in the country
(including provision of fuel supplies, site accommodation, mechanical backup and so on) will be
considered.
0
0.5
1
1.5
2
2.5
3
3.5
4
Previouslydisadvantaged
Local ownership Women SME status Other(disability)
Nu
mb
er
of
resp
on
de
nt
50
Work Programme – 10 Points maximum: Highest points are given to contractors who can complete
the works within the already stipulated project time frame.
Location of Contractor – 10 Points maximum: Based on mobilization distance rather than physical
location of the contractor, this is also determined at the judgment of each team member. As a guide,
highest (i.e. 10) points should be given to contractors located within the local area, an example was
provided where 8 points were allocated for regional locations, 4 points for nationally based contractors
and 2 or less for contractors mobilizing from outside the country.
7.3 Supply contracts awarded to SMEs by Large Private Companies
Research findings are that a number of contracts awarded were for services which included cleaning,
catering, stationery, repairs, maintenance, security and construction. However, most technical
contracts and those that require expertise were outsourced to large companies within or outside the
country. The companies interviewed were not prepared to provide information on total values
allocated to the various categories of expenditures listed above, citing confidentiality. Fruit and
Vegetables retailer, however indicated that 56 SMEs were contracted for three years to supply produce.
51
52
8. ANALYSIS OF SUPPLY CONTRACTS AMONGST SAMPLED SMEs
8.1 Characteristics of Sampled Businesses
8.1.1 Forms of Business Ownership
The majority of SMEs interviewed (69.7%) operate their business as a close corporation. A few others
(20%) are Proprietary Limited (PTY) Ltd and 8.6% sole traders, 1.1% were in the form of trusts (Figure
7).
Figure 7: Forms of Business Ownership
10.1
8.1.2 Regional Distribution
At execution of the study Namibia had 13 regions, and 107 constituencies. The study found that 85
SMEs have operations in more than one region. Figure 8 shows the number of SMEs by region of main
business operation as well as other regions where the business operates. The statistics may be
attributed to the cost and ease of registering an entity, the Pty Ltd costing more and requiring a more
intricate registration process than a close corporation.
0
10
20
30
40
50
60
70
CC Sole Trader PTY Partnership Others
69.7
8.6
20
0.5 1.1
pe
rce
nta
ge
53
Figure 8: Regional Distribution by Business Operation
The majority of businesses have their main business operations in the Khomas Region (78%); a few
others (13%) mainly operate in Oshana region. Apart from the region were the main business is based, a
number of SMEs operate in various other regions. The results also indicate that 15% of SMEs with main
business operations in the Khomas region also operate in other regions.
Respondents were asked about the year of business operation. The sample included businesses which
had been established as far back as 1934 and as recently as 2011. A high percentage of sampled SMEs
started operations after independence (1990; see Figure 9). A similar trend of business operations has
also been reported by Sherbourne (2012).
0
10
20
30
40
50
60
70
80
Pe
rce
nta
ge
Business Main Operations
Other Regions of Operation
54
Figure 9: Percentage distribution of SMEs by year of operation
8.1.3 Business Classification
The distribution of SMEs interviewed by industry classification is shown in Figure 10. The majority of
these SMEs (29.7%) are in the construction industry. Some SMEs operate their business under more
than one industry. A significant number are in information and communication (17.3%); manufacturing
(15.1%); wholesale & retail trade including repair of motor vehicles (10.8%); transport and storage
(8.1%); electricity, gas and air-condition supply (6.5%) and a few others in education; mining; and
accommodation and food services.
55
Figure 10: Percentage distribution of SMEs by Industry
The study found that there is a wide spread of industry participation of SMEs in various sectors of the
economy, with a larger concentration of SMEs in specific industries, such as construction,
communication and manufacturing. There is thus a need to support the creation of SMEs with high
growth potential in other sectors through targeted incentives, by providing finance and other
development interventions such as that being provided by MTI and IUMP. This study recommends that
a focused study be commissioned by MTI to identify SMEs and Industries with high growth potential to
benefit from the targeted development interventions.
8.1.4 Tender Sources
Respondents were asked to indicate the sources of tenders awarded and the results are shown in
Figure 11. Most SMEs secured government tenders (249 government contracts); 110 contracts were
secured from parastatals, 108 contracts came from large private companies, 23 from local authorities
and only 6 came from NGOs.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Pe
rce
nta
ge
Industry
56
Figure 11: Number of tenders by source
8.1.5 Sources of Finance
SMEs were asked to indicate their sources of finance and how the finance was used over the past three
years. The results are presented in Figure 12 and reflect the amount of loans received on average by
SMEs from commercial banks and statutory banks. The highest amounts were received from FNB and
DBN.
Figure 12: Source of Finance and Amount
0
50
100
150
200
250
GRN Parastatal PrivateCompanies
LocalAuthorities
NGOs
Nu
mb
er
of
ten
de
rs
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
FNB StandardBank
BankWindhoek
DBN NedBank
Am
ou
nt
(N$
)
Source
57
Respondents were also asked to indicate the source, type and amount of the loan obtained for the
business in the last 3 years. Of those that responded, 37 (77%) indicated that they obtained loans from
commercial banks and 11 (23%) obtained from statutory banks mainly from DBN (see Figure 13). The
majority (33%) of SMEs sampled applied the funds raised from commercial banks to asset acquisition
followed by operating capital (31%), materials (27%) and 9% for performance guarantees (See Figure
14).
Figure 13: Percentage of SMEs by Source of Loan
Figure 14: Funding source by type of loan
77
23
Commercial Banks
Statutory Banks
0
10
20
30
40
50
60
70
Asset Finance OperatingCapital
Materials PerformanceGuarantee
Commercial Bank 66 63 55 19
Owners' Equity 33 21 14 15
Statutory Bank 1 8 9 4
Suppliers' Credit 2
Nu
mb
er
of
SMEs
58
8.1.6 Tendering Method
Most respondents indicated that they had secured contracts through open tendering. A majority of the
contracts awarded to the sampled SMEs were secured through open tendering (204); 114 through
closed tendering and 51 through other methods i.e. by quotation, by invitation etc. (see Figure 15). The
majority of these contracts were non-fixed contracts 212; and 172 were fixed contracts (see Figure 16).
Figure 15: Number of tenders by tender method
Figure 16: Number of tenders by type of supply contract
Open tender, 204 Closed tender, 114
Others, 51
Fixed contracts, 172 Non-Fixed
contracts, 212
59
8.1.7 Value of Tenders Awarded to SMEs
Respondents were asked to indicate the contracting party and value of contracts awarded for the
period 2010 to 2012. Figure 17 shows the annual average tender values for contracts awarded to the
sampled SMEs. SMEs indicated that on average they were awarded contracts with average values of N$
5 million from the GRN annually, while Parastatals and Private companies annually awarded contracts
with an average value of N$ 3.5 and N$ 2.3 million respectively.
Figure 17: Average tender values by source
8.1.8 Collateral Requirements
Respondents indicated that they generally provide collateral for accessing finance from financial
services providers. The majority of the respondents (28) reported that they used fixed property as
collateral. A few others (12) used their savings and investments, while others (2) used insurance policies
as collateral. Figure 18 shows the number of SMEs and their main means of collateral.
0.00
1000000.00
2000000.00
3000000.00
4000000.00
5000000.00
6000000.00
GRN LocalAuthority
NGOs Parastatal PrivateSector
Ten
de
r V
alu
e (
N$
)
Source
60
Figure 18: Type of collateral offered to financial institutions
8.1.9 Source of procured goods and /services
The majority of respondents reported that they procure input goods locally for the services they
provide, however most of the goods are not locally manufactured. Most of them indicated that they
procure goods from large local suppliers, mainly for building materials, electrical appliances and others.
The five most cited goods that are locally manufactured or produced include:
Fruits and vegetables which are produced by local farmers and supplied to local markets or i.e.
Etunda irrigation project,
Cleaning products;
Toilet Paper;
Promotional and Protective Clothing (e.g. T-shirts, trousers, shirts, shoes) and
Pharmaceutical products.
0
5
10
15
20
25
30
Fixedproperties
Savings andinvestment
CompanyEquipment
Insurancepolicies
Nu
mb
er
of
SMEs
61
9. ANALYSIS OF SUPPLY OF FINANCE TO SMEs IN NAMIBIA
Arnold et al (2005) estimated that SMEs contributed approximately 12% to GDP and employed about
20% of the work force during 2004. In spite of the significance of SMEs to the economy, formal financial
services providers in general have been reluctant to provide credit and financing facilities to SMEs until
early 2000.
Access to finance has been acknowledged by many as one of the major barriers to the development and
growth of small businesses in Namibia. The 2007 IMF country report on Assessment of Financial System
Stability found that SME access to finance remains limited in Namibia (IMF, 2007). Reasons given for
lack of access include; commercial banks’ preference for collateral, the underdevelopment of leasing
and factoring services, the nascent state of development of private and venture capital funds, and the
ineffective use of specialised financial institutions (Nakusera et al. 2008).
After the year 2000, some providers of financing in Namibia established specialised units for SMEs.
Bank Windhoek introduced ESME finance in 2003 with a vision to increase the number of ESMEs and
their growth into sustainable businesses, as well as creating new wealth and opportunities for the
benefit of the Namibian economy. Subsequently, FNB established an SME Business Unit in 2005, and
over 700 SMEs have benefited from FNB’s funding and mentorship program for SMEs since its
inception. Standard Bank introduced an SME division in 2012 and reports that approximately loans of
N$ 43 million have been spent to finance SMEs.
Similarly, alternative financing (Private Equity) firms were established to enhance access to working
capital and other financing needs of SMEs in Namibia. One such firm is The Namibia Procurement
Fund, which has made a significant impact on the provision of bridging finance to SMEs.
Some micro lenders i.e. Fides Bank, have also emerged to provide working capital to SMEs. One of the
principal challenges of microfinance though is providing small loans at an affordable cost. The global
average interest and fee rate is estimated at 37%, with rates reaching as high as 70% in some markets.
The main reason for the high cost of microfinance loans is the high transaction cost of traditional
microfinance operations relative to loan size.
62
In response to the predicaments of the SMEs, the Government of Namibia through its lead agency for
SME development, MTI, came up with several initiatives to assist SMEs in the accessing finance. In this
regard MTI established the Small Business Credit Guarantee Trust (SBCGT) in 1999. The trust was set
up to facilitate and assist small entrepreneurs to access commercial loans from formal financial
institutions and it offers small and medium enterprises not only financial solutions but also mentorship
and monitoring services.
Furthermore, the MTI initiated the establishment of the SME Bank which became operational in 2013.
The SME Bank’s focus is to provide collateral free lending for start-ups and SMEs in expansion mode.
The Bank offers individual and corporate account products. Corporate products are tailor-made for
corporates, government agencies, state owned enterprises, government ministries, pension funds and
local authorities. Some of the benefits for business current account holders include:
Asset/machinery finance;
Tender financing;
Working capital;
Guarantees;
Structured finance;
Franchise finance and
Term loans
9.1 Commercial banking institutions
The Namibian financial system is comprised of the Bank of Namibia as the central bank and five
commercial banks. The commercial banks operating in Namibia are First National Bank Ltd; Standard
Bank Ltd; Nedbank Ltd; Bank Windhoek Ltd, E Bank and Fides Bank Ltd. Only FNB, Standard Bank,
Bank Windhoek, and Fides Bank finance SMEs.
63
9.1.1 Bank Windhoek’s Emerging Small and Medium Enterprises Branch
Product offering
The (ESME) branch offers a comprehensive range of products tailored for the financial needs of small
and medium enterprises, which include:
Article finance;
Commercial Bonds;
Term loans;
Guarantees; and
Investment accounts.
The bank provides these products and services through its policy for financing SMEs. The financing
amount ranges from N$10 000 to N$ 3 million. Interest rates charged varies and are linked to the
assessed risk.
Requirements
For all the products offered, the main requirements are the following:
the business should be commercially viable and sustainable;
repayments of the loan must be established from cash flow projection;
business activities should create and/or retain employment;
that an applicant should be a Namibian citizen or holder of a permanent residence permit;
not have been blacklisted or appear on ITC;
be able to make an own financial contribution to the business; and
applicants should be directly involved in the running of the business.
The bank requires a level of collateral slightly less stringent than conventional branch credit before
granting finance to SMEs. The kind of collateral requested includes pledges over investments and/or
mortgages over fixed properties.
Client Support Services
Additional support such as mentoring and training programmes is offered to clients.
64
Impact
Since the establishment of the ESME Branch, the bank has made significant investments in the SME
sphere by contributing to SMEs access to finance. On average the ESME Branch receives 280
applications for financing yearly. The bank only grants 50% – 75% of the loan/facility requested and the
processing and disbursement of credit or finance takes about 2 to 3 weeks.
Most of the SMEs that benefitted from the bank’s services were given a rating of 3 out of 5, indicating a
good repayment record. (The rating was based on the Likert scale of 1 to 5, with 1 indicating very poor
performance on an item, 2 poor, 3 good, 4 very good and 5 excellent). Bank Windhoek was not prepared
to provide information on the number of SMEs financed and the values of loans disbursed to SMEs
during the period 2010 and 2012, citing confidentiality.
Challenges
The main challenges facing SMEs in qualifying for Bank Windhoek’s products, is the lack of sufficient
collateral and the lack of historical financial records that indicate the SMEs’ financial stability or
otherwise.
9.1.2 FNB SME Business Unit (SBU)
First National Bank launched its SME Business unit in 2007 to cater for the needs of SMEs in the
country. The Unit finances SMEs that do not have easy access to capital, but have high growth potential
and strong management abilities for start-ups. It also finances expansions as well as management buy-
outs and management buy-ins. The key requirements are that entrepreneurs have a viable business
plan and the required skills to manage and run the business.
65
Product Offering
The bank provides a range of financing products to SMEs which entail:
overdrafts;
term loans;
property finance;
asset finance; and
tender finance.
Through its policy for financing SMEs, the bank also offers bridging finance to SMEs which have
procurement contacts or have secured tenders. The bank is currently considering a new product to
finance renewable energy.
Requirements
The requirements to be considered for funding by the SBU are as follows:
Business should be commercially viable and sustainable;
Business owners should adopt formal business practices; adhere to sound corporate
governance and must be registered with the relevant statutory bodies;
Business owners should also demonstrate sound cash flow and illustrate ability to service their
debt. The business should be owned and managed by an entrepreneur with the relevant skills
and experience;
Owners should be Namibian citizens or permanent residents.
For providing bridging finance to SMEs the SME must meet the standard requirements and have a
tender with government or parastatal and be willing to cede the contract income to the SBU.
SBU requires a level of collateral slightly less stringent than conventional branch credit and it can
include:
Insurance cover;
pledges over investments and shares;
mortgages over fixed properties; and
tender contract proceeds (for bridging finance)
66
In addition to the aforesaid, FNB has a Credit Guarantee Scheme supported by the French
Development Agency (AFD) which covers 50% of loans advanced by FNB to Namibian SMEs that are
unable to meet the security requirements. This additional offering of Credit Guarantee Scheme makes
the SBU highly attractive to the SME market as is evident in the number of clients funded.
Client Support Services
FNB also provides support services to their SME clients. The nature of support is mostly in the form of
business mentoring, while internally, training is also provided to the frontline staff working with the
SMEs.
Impact
The bank offers financing from N$ 25 000 to N$ 3.5 million to SMEs; and grants about 50% of the
money requested, a process that takes on average of 3-4 weeks.
FNB supported a total of 100 SMEs in 2012 across various sectors of the economy. The majority of their
SME clients financed in 2012, were in construction (40), the wholesale and retail trade 30) while a few
others were in manufacturing (15), transport and communication (15). The percentage of SMEs which
benefitted from FNB SME products by sector is shown in Figure 19.
Figure 19: Percentage of SMEs by sector (2012)
0
5
10
15
20
25
30
35
40
Construction Wholesale &Retail Trade
Manufacturing Transport &Communication
40
30
15 15
Nu
mb
er
of
SMEs
Sector
67
Challenges
The major challenges for SMEs to qualify for FNB products are reported to include; lack of skills,
training and experience in running the business, financial knowledge, lack of market research as well as
lack of collateral.
The bank is of the opinion that in order to improve the success of SMEs in acquiring finance, mentoring
should be co-offered with finance. The bank also maintains that the revitalization of the national
guarantee scheme and the proposed preference system in tender allocation will certainly support the
economic development of SMEs in Namibia.
9.1.3 Standard Bank of Namibia
Product Offering
Standard Bank has been funding small businesses throughout its existence but in 2013 it established an
SME Unit that deals with financing for SMEs under a particular policy. SMEs qualify to apply for the
products that follow and additionally, the bank recently started offering bridging finance to SMEs
which have secured procurement contracts or tenders. :
Business current account;
SME quick loan (minimum N$ 5 000 and maximum N$ 200 000);
Business overdraft;
Business term loan; and
Instalment sale,
The time it takes to process and disburse credit is 2 to 3 weeks on average. Apart from the above
products, the bank envisages to introduce bundled pricing for SMEs, which may see a decrease in fees
charged against an SME’s account by the Bank.
68
Requirements
The bank does not always require collateral for all its products and some products such as SME quick
loans are guarantee free. The bank requires a level of collateral slightly less stringent than conventional
branch credit before granting finance to SMEs. The kind of collateral requested includes:
pledge over investment;
bonds over property;
cession on contract monies;
cession on book debt;
personal surety and
maritime bonds.
Client Support Services
The bank also embarked on extensive training programmes to ensure that its staff has the requisite
skills to assist and advise new SMEs with regard to their business and financial needs.
Impact
The number of successful applications for SMEs approved by Standard Bank has increased from 1751 in
2010 to 3309 in 2012. The total loans granted to successful applicants over the past three years are
shown in Figure 20.
Figure 20: Total Value Allocation to SMEs by Standard Bank
0
20000000
40000000
60000000
80000000
100000000
120000000
Year 2010 Year 2011 Year 2012
Tota
l val
ue
(N
$)
Period
69
Standard Bank spent approximately N$50 million on loans to small and medium enterprises (SMEs)
over the last year (Namibian Sun, 2013). The amount spent in the current financial year on SME
development constitutes 2,52% of the bank's total business loans. The bank has further proved its
commitment to the sector through special rates for SME customers, including charging SME
transactional accounts a minimum monthly default service fee of N$86 for 2012/13.
Challenges
Some of the major challenges for SMEs to qualify for Standard Bank products are the following:
lack of formal incorporation
low turnover on transactional accounts;
lack of previous experience in the field of business
9.2 Development Financial Institutions (DFIs)
The Development Bank of Namibia (DBN) and Agribank were the only development financial
institutions in the country until 2013 when a third development financial institution in the name the
SME Bank was established to specifically cater for the financial needs of SMEs. The SME Bank’s product
offering will not be discussed in this report, given that the bank was only recently established, and may
not have accumulated the necessary data relevant for this study.
9.2.1 The Development Bank of Namibia
The Development Bank of Namibia was established to provide funding mechanisms for private and
public sector enterprises and for infrastructure development that would materially contribute to the
economic growth and social development of Namibia (DBN Annual Report, 2012). The bank has a
policy for financing SMEs and it also offers bridging finance to SMEs that have secured procurement
contracts from parastatals, private companies or government.
70
Product Offering
DBN provides financing to enterprises through the following facilities:
SME Finance: Finance for start-ups or expansion of SMEs with a minimum loan size of N$ 150
000 over a period of 10 years.
SME Bridging Finance: Working capital for enterprises awarded tenders or contracts by well-
established institutions to supply goods and services. This facility helps emerging
entrepreneurs meet short-term cash flow demands and excludes financing for capital items.
The loan amounts range between N$150 000 and N$ 3 million which is repayable over a period
of 18 months.
Contract-based finance: Financing to implement contracts or tender project finance,
Off-balance sheet finance offered to the private sector to establish a new venture or expand
existing operations in all productive sectors of the economy with a maximum loan size of N$ 5
million over the project period.
Instalment sale finance: This is asset based finance where the asset financed through the
instalment sale serves as collateral.
Receivables Finance entails an advance on delayed payment, serving as cash flow to cover
expenses. DBN advances the client a portion of the invoice, (up to 80 per cent) as a first
payment. Upon payment of the invoice, the transaction is settled and the client receives the
balance, less the amount factored. The advantage of factoring is that it enables the
continuation of operations, cutting out the delay in payment of invoices.
Leasing financing: This product offers SMEs extended use of assets, funded by the bank. The
DBN purchases the asset and leases it to the SME or lessee, for specific instalment payments
over an agreed period. At the end of the lease, the asset is transferred back to the lessor (the
DBN) or sold to the lessee. The advantage of leasing is that it addresses the immediate needs of
SME operators, especially in the manufacturing, mining and service industries, to have
immediate access to productive assets like trucks, buses and other equipment essential to the
business.
The bank grants on average of 50%-75% of the loan or facility requested and the process and
disbursement of credit or finance takes between 3 to 4 weeks.
71
Requirements
The key factors that the Bank considers when making a loan are:
Business should be commercially viable and sustainable;
Business owners should demonstrate that the persons involved in the project have the skills
needed to make the project a success ;
Business owners should provide collateral or guarantee to cover for losses if the project or
enterprise is not a success;
Business will create jobs or infrastructure and the spread of jobs across the regions where there
are not many employment opportunities;
Owners should be Namibian Citizens.
Additionally, DBN chooses to finance Namibian shareholdings or interests in enterprises which will be
transferred to Namibians. Management buyouts on the part of Namibians who are actively involved in
the day to day management of the companies are encouraged.
The kind of collateral required includes the following, depending on the type of project:
properties;
investment accounts;
suretyship and
life cover
It is important to note that the level of collateral required is specific to the project. The bank, however,
reported that in most cases SMEs succeed in offering the collateral requested.
Client Support Services
DBN support services include training; mentoring and evaluation of SMEs. Clients however contribute
2% of total training costs (Nakusera et al, 2008).
Impact
The number of applications from SMEs for financing has been increasing over the past three years from
225 in 2010 to 437 in 2012, and the success rate has been above 60% across all three years. The total
number of loans approved for the past three years are 149, 297 and 306 respectively (see figure 21). The
72
total value of loans granted to successful applicants over the past three years was N$ 162 million; N$
287 million and N$ 235 million, respectively.
Figure 21: Value of finance provided to SMEs (2010-2012)
DBN’s SME clients are distributed across various sectors of the economy with the majority being in
manufacturing, transport and communication and construction. The distribution of DBN clients across
the sectors is shown in Figure 22.
Figure 22: Allocation by sector (2011/2012)
0
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300
2010 2011 2012Am
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)
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73
Manufacturing was the dominating sector in 2012, taking up about 17% of the total loans approved,
followed by transport and communication at 16.5%, and then construction at about 13 %.
Challenges
The major challenges for SMEs to qualify for DBN products include, among others, lack of own financial
contribution, limited business management skills leading to poor business plan preparation and further
putting the viability of the business into question. A further challenge is that the DBN could only finance
businesses from N$ N$ 150 000 upward. This clearly limits the ability of the SMEs to apply for financing
where they require growth capital less than N$150 000.00.
DBN believes that there is need to strengthen cession of contract income agreements, especially from
Government, in order to improve the success of SMEs in acquiring procurement finance. DBN is also of
the view that preference should be given to SMEs in the award of contracts, and that there is a need to
increase the protection of infant industries.
9.2.2 The Agricultural Bank of Namibia
The Agricultural Bank of Namibia Act No. 5/2003 mandates Agribank to advance money to persons,
enterprises or financial intermediaries to promote agriculture and activities related to agriculture. The
Bank supports national objectives of agricultural productivity and food security as advocated by Vision
2030 strategies. Furthermore, the Government implemented a number of policy interventions and
programmes in order to enhance the output of farmers. The Green Scheme, under which the Etunda
Irrigation Scheme falls, is one of the policies implemented by Government. Small scale farmers who
participate in the Etunda Irrigation project are eligible for a production loan from Agribank. With this
support a number of small scale farmers are able to produce and supply the retail chains such as Spar
and other supermarkets in Oshakati and Ongwediva. Agribank has also financed SMEs to acquire
tractors that the SME uses to plough for an income.
74
Product Offering
The bank provides finance according to its lending policy. It offers a wide range of products which are:
Horticulture production loan facilities;
Livestock loans;
Poultry loans;
Draught animal power acceleration programme;
Vehicle and tractor loans;
Infrastructure and implement loans;
Improvement loans;
North- South Incentive scheme;
Ekwatho Meatco financing scheme;
Alternative energy solar farm systems;
Loans for the construction of labourers’ houses
Aquaculture;
Purchase of farmland;
Affirmative action loan scheme and
Bush encroachment or deforestation of dry land and loan consolidation facility.
Agribank offers flexible instalment options to suit the financial needs of clients. The available
instalment options are: monthly, quarterly, bi-annual or annual. The bank foresees introducing new
products for SMEs in future, such as financing informal food traders.
Requirements
The requirements to receive funding from Agribank are as follows:
Applicants should be Namibian citizen and must provide a business plan.
Loans are granted against security of fixed property, investment or any other acceptable form
of security (fixed deposits and surrendering value of policies).
Client Support Services
Agribank offers a variety of client support services which includes training and monitoring. Other
interventions include sponsoring of information days and liaising and working with other stakeholders
whose activities support the development of agriculture in the country.
75
Impact
In 2012 the bank received 595 applications from SMEs and 451 of these were financed to the tune of N$
64 548 636.00. Agribank SMEs clients are distributed among the four sectors namely: agro-industry,
fisheries, manufacturing and tourism. A majority of the Agribank’s SME clients are in the agro-industry
which increased from 5400 SMEs in 2010 to 7200 in 2012. Only a few of the Agribank’s clients are in the
tourism sector (see figure 23 below).
Figure 23: Number of SMEs which benefitted from Agribank facilities by sector
Challenges
One of the major challenges faced by SMEs in qualifying for Agribank products is that some clients do
not succeed in providing collateral or security. The bank maintains that the following measures should
be taken to support the economic development of SMEs in Namibia:
- Training and skills transfer;
- Dedicated monitoring system;
- Affordable interest rates and
- Distribution of marketing centres throughout the regions.
0
1000
2000
3000
4000
5000
6000
7000
8000
Agro-industry Manufacturing Fisheries Tourism
2010 5400 420 120 60
2011 6300 490 140 70
2012 7200 560 160 80
Nu
mb
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of
SMEs
76
9.3 Alternative Finance Providers
Traditional bank finance has been the primary source of finance for business growth in Namibia while
alternative finance has remained in its infancy. It is argued that large businesses can raise money from
commercial banks and external sources, while the micro businesses mainly fund their business
operations through micro lenders.
According to Zaaruka et al. (2005), large businesses are able to access finance from commercial banks
and external sources, whereas micro businesses mainly source finance through micro lenders. However,
the current financial market in Namibia does not provide an adequate solution for medium-sized
companies.
Alternative sources, such as venture capital/private equity financing, or debt might offer financing
options suitable for this target group. In addition to providing finance, Venture Capital/Private Equity
firms offer management expertise, which is a key ingredient for the success of any business venture.
One such alternative financing options available to SMEs in Namibia is the Namibia Procurement Fund
(Nampro Fund).
The Namibia Procurement Fund (Nampro Fund) a product established by Business Financial Solutions
(BFS) is managed through its associate, BFS Nampro Fund Manager, a joint venture operation between
BFS, Trans African Capital Partners and Enterprises Fedha Financial Company (EFFCO). The main focus
of the Nampro Fund is to provide short-term working capital in the form of bridging finance to
Namibian SMEs that are awarded supply contracts by large corporates, government ministries, State-
Owned Enterprises (SOEs) and local government authorities. In addition, the Nampro Fund provides
asset-based financing (lease finance) to SMEs to help them meet their plant and equipment
requirements. The product offering and impact is presented in detail below:
77
Nampro Fund Product Offering
The Nampro Fund product range is comprised of the following:
Working Capital Finance (Supply/Service Contract Finance) which targets SMEs that have
received a contract to deliver a value addition assignment (e.g. building, maintenance). Under
this product, funding support is to be used to cover input costs such as purchase of raw material
(payment is made directly to suppliers) and working capital requirements. Funding is provided
in stages and is dependent on the satisfactory completion of the preceding stage.
Purchase Order Finance (Goods Supply Finance) targets SMEs awarded contracts to supply
goods to Off-Takers (no value add required). The funding is used to finance purchases,
insurance and transportation of goods for delivery to Off-Takers, with payment received on
delivery or on agreed credit terms following delivery.
Invoice/Receivables Discounting Facility targets SMEs that supply goods and services to off-
takers, large retail chains or export on terms. Typically supplying and export terms puts a strain
on the SME’s cash flows, hence this facility is used to discount invoices against goods or
services delivered not exceeding 90 or 120 days.
Performance Guarantees targets SMEs who have secured value added related contracts (e.g.
Construction) and are expected to provide a performance bond guarantee. The performance
bond guarantee is an undertaking to effect payment if the contractor fails to perform its
contractual obligations.
Bid Bonds enable a contractor to tender for a specific job and if a bidder is successful the bid
bond is converted to a performance bond. Both performance and bid bonds are either issued by
an insurance company or a bank on arrangement by Nampro Fund.
Asset Backed Finance Leases this product targets SMEs awarded contracts that require them
to supply plant and machinery to execute the contract over an extended period more than 18
months. The funding is used to purchase the asset and the SME is required to provide a 10%
deposit on the purchase value. The SME retains ownership of the asset, is expected to maintain
it and assumes the risk. A lien is however registered in favour of the Nampro Fund so the asset
can thus not be sold without Nampro Funds authority.
Operating Finance Leases targets SMEs awarded contracts that require that they supply plant
and machinery to execute the contract over an extended period of more than 18 months. The
78
funding is used to purchase the asset where ownership remains with Nampro Fund and the
SME has the right to lease the asset at a monthly rental charge. Where the period of lease is
shorter than the economic life of the asset, the asset can be leased out to another SME after
expiry of the initial lease contract.
In terms of the portfolio spread, the operating lease category was 59% of the portfolio; working
capital was 11%, medium term was 9%, the rest of spread ranged from invoice discounting at
6%, purchase orders at 5%, warehouse facilities at 7% and Guarantees/Letters of Intent at 3%.
Figure 24: Nampro Fund’s portfolio spread.
Requirements
SMEs can apply for funding ranging from N$ 100,000 to N$ 40 million from Nampro Fund. The
requirements for SMEs to be considered for bridging finance are as follows:
the applicant must have a supply contract or purchase order,
the owner of the business should have relevant industry experience,
the business should be preferably Namibian owned or with a minimum of 26% local ownership
the business operations should be within Namibia.
79
Nampro Fund requires some form of collateral before granting finance to SMEs albeit, the level of
security sought is lower than what the commercial banks require and is more flexible as movable assets
are considered. Most Nampro Fund clients succeed in offering the collateral requested and Nampro
Fund described its clients’ performance, with regards to facility repayments and purpose of use, as
good.
Client Support Services
Nampro Fund recognises that it is in the best interest of both the finance provider and the client that
sound business management practices are employed by the client to ensure successful management of
the business and the subsequent and constant repayment of the borrowed funds. Apart from the
financial products offered by Nampro Fund they also offer complementary business support and on-
the-job training through its Enterprise Development Programme to SMEs. The EDP is a result of a
Public-Private-Partnership (PPP) initiative between The Nampro Fund and the German Development
Cooperation (Gesellschaft für Internationale Zusammenarbeit, GIZ).The EDP ensures that clients are
trained in business areas such as performance management, general business knowledge, accounting,
mentoring and key areas of tendering. SME’s that were funded by Nampro Fund and that received the
support services have indicated they benefited from the EDP and their companies have seen an
increase in turn over as a result of the intervention.
Nampro Fund Impact
Since its establishment, the Nampro Fund has made significant investments in the SME sphere and it
specifically contributed to:
Improved access to finance: In only three years of operation, it has funded more than N$250
million in facilities enabling over 70 SMEs to execute procurement contracts successfully;
Support towards entrepreneurial development: through its Enterprise Development
Programme, it provides business support interventions to its portfolio clients to ensure
sustainability of the business and to enhance profits.
80
Employment creation and job preservation: over 1907 jobs have been created/maintained
through the enterprises that benefit from the Nampro Fund facilities.
Empowerment of previously disadvantaged Namibians: over 80% of enterprises supported
through the Nampro Fund are owned by previously disadvantaged Namibians.
Since its establishment, Nampro Fund has experienced an increase in the number of applications of
SMEs requiring access to finance (Figure 24). On average 56% of applications received by the Nampro
Fund over the period 2010-2012 were successful. The amount awarded to successful applicants has also
almost doubled in 2012 since 2010. The total facilities granted in 2012 were N$141 438 715.90 compared
to N$67 664 904.00 in 2010 (Figure 25 (a)).
Figure 25 (a): Number of applications by year
Figure 25: Value allocation by year
0
10
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30
40
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70
2010 2011 2012
32
43
62
21
28 24
nu
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Applications
Successful applications
81
Nampro Fund SMEs clients are distributed over the following sectors of the economy: agro-industry;
mining; construction; electricity and water; transport and communication; and the wholesale and retail
trade. The majority of clients fall under construction, mining and wholesale and retail trade in that
order. The value of investments made by Nampro Fund over the sectors using International Standard
Industry Classification (ISIC) are shown in Figure 24.
Figure 26: Total Amounts Disbursed to SMEs by sector
$0.00
$20,000,000.00
$40,000,000.00
$60,000,000.00
$80,000,000.00
$100,000,000.00
$120,000,000.00
$140,000,000.00
$160,000,000.00
Year 2010 Year 2011 Year 2012
Am
ou
nt
(N
$)
Year
82
Challenges
The major challenges for SMEs to qualify for the Nampro Fund products and services mainly relate to
lack of technical capability, unfavourable credit history, and poorly costed tenders and inadequate
information. In order to improve the success of SMEs in acquiring procurement contracts the Nampro
Fund is of the opinion that SMEs should improve their finance governance capacity. Tendering for
contracts with very low profit margins should be avoided as this increases the performance risk of
SMEs. Continuous training for SMEs on financial and technical management was identified as areas of
need by participating SMEs.
10. IMPACT OF NAMPRO FUND ON SMEs
A total of 14 SMEs who used Nampro Fund either once or on a repetitive basis were interviewed. Most
of them (9) indicated that their main business operations are in the Khomas region. A few others
indicated that their main business operations are in Oshana (3); Otjozondjupa (3); Oshikoto (2) with one
each in the Kavango, Omaheke, Hardap and Omusati regions. The majority of SMEs interviewed are
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
83
fairy young having been in operation for less than 10 years. The distribution of the funded clients shows
that a number of them are in construction (64%); wholesale and retail trade (21%); electricity (14%) and
0.1% each in mining and agro-industry.
Figure 27: Number of tenders by tender methods
Figure 27 shows that a total of 22 (73.33%) contracts were obtained by SMES through open tendering,
only a few were obtained through closed tender, this confirms that bids by limited invitations have a
tendency of excluding new entrants. The majority (83%) of contracts awarded to Nampro Fund clients
are fixed (see Figure 28). A total of 19 (63.3%) contracts were secured from private companies and local
authorities (Figure 29).
Figure 28: Number of tenders by type of supply contract among SMEs that have benefitted
through Nampro Fund products
0
5
10
15
20
25
Open tenders Closed tenders Others
22
6
2 Nu
mb
er
of
Ten
de
rs
84
Figure 29: Number of tenders by tender source awarded to Nampro Fund clients
Figure 30: Number of SMEs vs. Nampro Fund Products
0
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Fixed Non-Fixed
Nu
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Type of contract
85
The clients were also asked to indicate the performance of their businesses prior and post Nampro Fund
financing. The results are presented in Figures 31 and 32. On average, there is an increasing trend in
business turnover. Post Nampro Fund funding, SMEs with a capital base of N$5 000 000 in 2012 made
on average a turnover of N$35 000 000. Similarly, there is evidence in the growth of the number of
employees within enterprises funded by Nampro Fund.
Figure 31: Average capital deployed and turnover by year
Figure 32: Average number of employees by year
0
1
2
3
4
5
6
Operating Capital Materials PerformanceGuarantee
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0
5000000
10000000
15000000
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25000000
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35000000
2010 2011 2012
Am
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(N$
)
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Capital
Turnover
86
The major challenges experienced by Nampro Fund clients in securing and executing the procurement
contracts do not differ much from those experienced by other SMEs. High competition from large and
well established companies in tendering, lack of working capital, lack of collateral and lack of
knowledge and skills to complete tender documents are some of the challenges experienced in securing
contracts. Most tenders in private companies are conducted through a closed bid process making it
difficult for newly established SMEs to access these tenders.
The study found sufficient evidence that suggests that the impact of Nampro Fund activities on SMEs
was positive. SMEs supported by Nampro Fund have been able to grow over the past 3 years in terms
of asset base (capital), turnover (see figure 31) and their general contribution to employment creation
(see figure 32). The financial support rendered to the SMEs allowed them to ensure quality performance
and to successfully deliver on their contracts.
11. CHALLENGES FACED BY SMES IN ACCESSING CONTRACTS IN PUBLIC AND PRIVATE
SECTOR
18
38
48
0
10
20
30
40
50
60
2010 2011 2012
Nu
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Year
87
Despite the fact that SMEs are significant contributors to the Namibian economy, they are under-
represented in the supply of goods and service both in the public and private sectors. The SMEs face a
myriad of challenges that range from lack of finance, lack of skills, training and experience in running
the business, financial knowledge, lack of market research as well as lack of collateral. It is therefore, in
the interest of the public, the private sector and the SMEs to improve access to procurement contracts,
which can be used to secure finance especially in the form of bridging finance.
Public and private procurement covers a wide range of suppliers, services and works required by
government, local authorities, public and private organisations, entities and agencies with varying
contractual values. Whilst some are beyond the capabilities of SMEs to fulfil, a significant proportion of
procurement opportunities are not. Although SMEs are not explicitly discouraged from bidding for
public and private procurement, the procedures and practices used in many tenders puts them at a
disadvantage over large competitors. Large competitors have adequate resources to prepare bids and
execute contracts. This has also been highlighted in the Association of Chartered Certified Accountants
(ACCA) (2009) report.
Apart from the access to appropriate finance, SMEs face numerous challenges in securing and
executing contracts for both public and private sector tenders. Providing expertise, training and
mentoring programs as an integral component of financial products therefore, might be an important
service for the SME clients of financial institutions. Other specific challenges facing SMEs are:
Challenges with respect to the public sector competition with larger companies: The open
bidding process of public procurement, presents a serious challenge for SMEs, who at times
struggle to meet tender specifications. Large companies tend to have adequate human and
financial resources to enable them to meet the requirements of the financial institutions in
comparison to upcoming SMEs. In that regard, competing with these entities in the tendering
process is difficult for SMEs.
Corruption: Favouritism and corruption have been identified by the SMEs as major challenges
for SMEs to access public procurement contracts. Lack of transparency and accountability
systems allows the vast resources channelled through procurement procedures to run the risk
of being entangled with increased corruption and misuse of funds, leading to an increasingly
inequitable distribution of contracts.
88
Late payments: public procurement entities, especially central Government, do not process
payments punctually for work done and this puts undue pressure on the cashflow and thus the
financial stability of most SMEs.
Figure 33: Challenges experienced by SMEs in securing public procurement contracts
Challenges with respect to parastatals
Lack of funds: Pre-qualification requirements such as bid bonds often act as barriers for SMEs
to secure contracts. Furthermore, the capital required to secure performance bonds and to
allow for adequate working capital to commence with contracts, has been raised as a serious
challenge for SMEs who are unable to access funding from a financial institution.
Limited knowledge and understanding of parastatals procurement policies and procedures
seems to contribute to SMEs being excluded from their supporter base.
Figure 34: Challenges experienced by SMEs in securing parastatal contracts
05
1015202530
Nu
mb
er
of
SMEs
89
Challenges with respect to large private companies
Lack of trust in SMEs’ ability to deliver: The perceived lack of skills within the SME businesses
results in a number of SMEs not accessing contracts. Poor delivery by SMEs on contracts
awarded, further exacerbates the concern and limits access to contracts. The SMEs surveyed in
the study indicated a perception that most tenders in private companies are conducted through
a closed bidding process, making it difficult for newly established SMEs to access these tenders.
This perception by SMEs contradicts the responses from the private companies sample group,
which indicated a preference for open tendering.
Lack of skills to complete tender documents: Skills and capacity shortages have been
identified as one of impediments for SMEs securing contracts from large private companies.
Adequate capacity in the form of appropriate structures with fully skilled and professional
personnel is a key success factor for proper contract implementation. The increased complexity
of procurement, including completion of bids, the perceived excessive and complex
documentation, places an additional administrative burden on SMEs which often lack the
technical capacity and the human resources to successfully complete the procurement process.
0
2
4
6
8
10
12
14
16N
um
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Es
90
Figure 35: Challenges experienced by SMEs in securing private procurement contracts
The results indicate that although some challenges are pertinent to specific sectors, most of them cut
across all sectors (Figures 33 - 35).
0
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12. SUMMARY OF FINDINGS
The key findings from the study are summarized below:
12.1 Findings relevant to public sector
The lack of a definition for “SME” limits the targeted interventions required to recognize and
include this sector more dynamically. This situation is further comprised by a lack of
empowerment legislation that could serve as a basis of empowering small Namibian
enterprises. The recently commissioned review of the SME Policy by the Ministry of Trade and
Industry is recognised as a means of providing solutions for this finding.
The Ministry of Finance has drafted a New Public Procurement Bill aimed at streamlining the
public procurement process to address the lack of a procurement regulatory framework and to
increase transparency, efficiency, accountability, integrity and value for money within the
public sector.
The Bill proposes the establishment of a Procurement Policy Office; the Central Procurement
Board to replace the current Tender Board; Procurement Committees within the defined public
bodies, Bid Evaluation Committees and a Review Panel.
The study found that an increasing number of Namibian-owned SMEs benefited from
procurement contracts. For the 2012/2013 financial year, construction tenders awarded through
TIPEEG totalled about N$ 780 million and a substantial amount of about N$ 316 million, which
represents 40.42%, was awarded to SMEs.
The top 10 common consumables used at ministry level are photocopy paper, toilet paper;
cleaning products, writing pads cover files, examination books, exercise books, pens and
pencils, cartridges and envelopes as well as pharmaceutical products
Government as the main consumer of goods and services in the country, can play a significant
catalytic role in empowering Namibian owned SMEs by providing sustainable exclusive
contracts to SMEs to supply certain consumables to government.
92
12.2 Findings relevant to large private companies
Most large companies have internal procurement policies and procedures in place including
procurement committees that handle the procurement process and their preferred tender
method is open tendering.
Of the 6 interviewed large private companies, 5 of them have preferential procurement policies
and the dominant key determinants for preferential procurement is firstly, the previously
disadvantaged status, followed by local ownership, and then businesses owned by women,
followed by SMEs.
Large Private Companies were instrumental in awarding 108 contracts to the sampled SMEs.
Most of the awards were in the following main areas: cleaning, catering, provision of stationery,
repairs, maintenance, security and construction contracts. Technical contracts and those that
require expertise were outsourced to large companies within or outside the country.
12.3 Findings relevant to SMEs
The majority of the sampled SMEs were awarded non-fixed government tenders through
participation in open tender bidding.
An average contract awarded to SMEs by the Government have a ticket value of N$ 5 million,
while Parastatals and Private companies’ average contract size was N$ 3.5 and N$ 2.3 million,
respectively.
Lack of financing to execute contracts, (for working capital, acquiring machinery) is a
fundamental challenge to most SMEs.
The non-existence of a national credit guarantee scheme limits access to finance
93
The five most cited goods that are locally grown or manufactured are fruit and vegetables
cleaning products; toilet paper; promotional and protective clothing and Pharmaceutical
products.
Interviewees cited skills and capacity shortages as some of the impediments for SMEs securing
contracts from large private companies. Adequate capacity in the form of appropriate
structures with fully skilled and professional personnel is a key success factor for proper
contract implementation.
The increased complexity of procurement, including completion of bids, the perceived
excessive and complex documentation, places an additional administrative burden on SMEs
which often lack the technical capacity and the human resources to successfully complete the
procurement process.
SMEs feel that the deadlines for responding to call for tenders are too short and they often
need more time to prepare competitive offers because of staff constraints.
12.4 Findings relevant to financial services providers
All banks interviewed indicated that they provide financing products tailored to SMEs and
indeed some have specialized units solely for SMEs.
Several financing options made available to SMEs by the banks include term loans, overdrafts,
property and asset financing, installment sale, guarantee and bridging finance. While the scope
of financial services available to SMEs is relatively large, SMEs utilize only a few of these
products.
Of the six (6) financial institutions interviewed only four (4) offer bridging finance.
94
Nampro Fund has had demonstrable success in providing bridging finance to SMEs in a variety
of sectors complemented by business support and training services through its Enterprise
Development Programme to SMEs.
Financial Institutions have indicated the following impediments to lending to SMEs:
o low turnover on bank accounts
o unfavorable credit history
o lack of skills, training and experience in business
o lack of appropriate collaterals
o lack of own financial contribution
o lack of formal incorporation
All the financial institutions interviewed were of the opinion that mentoring should be co-
offered with finance to SMEs in order to provide the SMEs with the necessary skills and
expertise to complete, submit and execute the tenders awarded to them.
Financial institutions are of the view that they adequately cater for the needs of SMEs, however
the recipient entities (SMEs) do not share this view. There is a need to reduce this variance in
view, through a solutions based approach to funding SMEs. This can only be achieved with
Government support interventions such as the establishment of a national enterprise
development programme.
12.5 Findings on Impact of Nampro Fund on SMEs
The performance of Nampro Fund supported SMEs exhibited consistent growth with an
increase in turnover and evidence of the creation of new jobs and jobs retained. SME’s financed
by Nampro Fund who participated in the survey applied the funding they secured to operating
capital (43%) while 29% used the finance for performance guarantees, the purchase of
materials (29%) and asset finance (7%).
95
Nampro Fund’s, support through the EDP, allowed its clients to improve the management of
their business, their performance in delivering and completing contracts on time, facilitating
the expanding of their businesses and increasing their turnover.
12.6 Challenges faced by SMEs in securing contracts
Although SMEs are not explicitly discouraged from bidding for public and private procurement, the
procedures and practices used in many tenders places them at a disadvantage relative to large
competitors. Challenges faced by SMEs in securing contracts from both public and private sector are as
follows:
Competition with large companies
Favouritism and corruption
Late payment of invoices
Lack of funds
Lack of trust for SMEs to execute work
Lack of skills to complete tender documents
12.7 General
The study applauds the sections in the Draft Bill that regulate the desired conduct expected
from the staff members of the Boards and the public bodies in order to curb corruption.
Study limitations
There were certain limitations experienced in conducting the study:
o Some of the interviewees were reluctant to provide critical information citing
confidentiality.
o The study was unable to clearly identifying the percentage of locally consumed goods
that are manufactured locally. This is subject of interest that can be pursued through a
different survey.
o Out of the 27 Nampro Fund clients approached to participate in the survey, only 14
participated in the study.
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13. RECOMMENDATIONS
This study puts forward the following recommendations for consideration by the public sector,
parastatals, large private companies, financial providers and SMEs:
Recommendations relevant to the public sector
The commissioned review of the SME policy and programmes, MTI to reach consensus on a
generally acceptable definition of the term ‘SME’ is commended.
A focused study must be commissioned by MTI to identify SMEs and the relevant industries
with high growth potential that will benefit from the targeted development interventions
initiated by Government.
The default tender method of ‘open tendering’ proposed in the Draft Public Procurement Bill
should be reinforced with a provision on the turn-around times for tenders that will address the
bureaucracy that burdens tender processes in general.
Increase access to information: The e-procurement regulations proposed in the Draft Public
Procurement Bill are welcomed in this technologically advanced era. This may certainly assist in
improving access, transparency and competition.
Public and private sector procurement professionals should receive training and support to
increase their understanding of the new procurement system, the challenges faced by the
SMEs and the way they operate.
A national drive to provide advisory services to SMEs through a national enterprise
development programme (NEDP) is essential and it can be established by the MTI in
consultation with MOF.
The revitalization of a Credit Guarantee Scheme
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Recommendations relevant to large private companies
The preferential procurement policy documents and related information should be made
available to the general public to enhance transparency and the flow of information.
Greater effort to include new entrants in the supplier value chain should be made by private
companies. Models such as the Preferential Procurement Council that provides a notification of
bids and registration of suppliers are encouraged.
Large Private companies should be urged and encouraged to procure locally produced and
manufactured products.
Recommendations relevant to financial service providers
There is discord between the product offerings by the financial services providers and the needs
of SMEs. It is thus essential that dialogue is facilitated between these parties in order to
develop suitable and better tailored product offerings that can meet the challenges of SMEs.
Financial services providers should partner with the public sector to establish a national credit
guarantee scheme or to assist in the revitalization of the Small Business Credit Guarantee Trust
(SBCGT), to be accompanied by robust mentoring and support programmes.
Expand access to finance: This study supports the recommendation by Smorfitt (2010) that the
Bank of Namibia needs to craft a banking model for commercial banks which is supportive and
SME friendly. Financial providers should introduce appropriate financial products in a demand
driven manner, in order to fulfil the needs of SMEs which are currently not being met.
This study supports the recommendation by Sherborne (2012), that a one-stop unit for SMEs
support be created to provide advisory services and other support programmes to SMEs- this
could be in the form of the National Enterprise Development program (NEDP).
Awareness for alternative financing sources, such as debt funds, private equity and venture
capital among SMEs should be promoted.
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Recommendations relevant to SMEs
SME’s must endeavour to organize themselves properly especially as it relates to registering
with the relevant authorities in order to be considered eligible for tender awards. This further
means that SMEs must strive to acquire the management and technical skills required to
succeed in the opportunities that they participate in.
The SMEs are encouraged to participate actively and broadly in the review of the SME policy
and programme by the MTI in order for the review to reflect the reality on the ground and to
ensure that the challenges facing the SME sector are addressed vigorously.
Cross Cutting Recommendations
The research found divergent views regarding the key determinants relating to both
procurement processes and access to finance. There is therefore a need for increased dialogue
and platforms for sharing information ensure alignment between service providers and service
recipients
Procurement is potentially an effective catalyst for local procurement. The effective
implementation however requires policy directives, compliance monitoring and associated
penalties related with non-compliance
A study analyzing the demand for goods and production of goods consumed is highly
recommended as a follow on study
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