An Investigation into the Awareness of the

Provisions of the Companies Act by Small and

Medium Sized Companies (SMEs) in Gaborone

District of Botswana

By

Student Name:

Student No:

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Chapter 1 – Introduction

This chapter will introduce the concept of SME’s as it operates in Botswana, the

challenges they face, the provisions of the Company Act, the main research question,

aims and objectives of the thesis and a brief on the methodology.

1.1. Background to the research

Across the world, small and medium enterprises (SMEs) have been identified as vital

instruments for a nation to achieve its industrial and economic objectives. In fact

according to Murphy (2009), SME’s have been regarded as the cornerstone of economic

growth in both developed and developing countries. Governments have recognized

SME’s as major sources of employment, revenue generation and wealth creation. In

addition, this sector is considered to be vital to poverty alleviation and to providing

impetus to the spirit of entrepreneurship. In addition, this sector is linked to large

industries; provide support to rural economies by promoting income generating activities

which in turn leads to increased growth of per capita income, achieves balance in income

distribution and improved economic stability. It also increases the competitiveness of a

country’s industry vis-a- vis those of other countries. The contribution of SME’s to the

economies may be borne out by the fact that in 2009, SMEs contributed to an average of

nearly 50% of national GDP globally (Clifford and Baumback, 2012).

Due to these advantages and benefits, the development of the SME industry is

particularly pertinent to the countries of Sub Saharan Africa. The economies of most of

these countries are either stagnant or experiencing negative growth rates, with economic

growth lagging behind population increase (Expert Group, 2010). In addition to an

explosion in population, these countries are ridden by poverty due to poor economic

management, civil strife, environmental hazards, low foreign direct investment, the

pressures of globalization and poor infrastructure (Expert Group, 2010). Under these

conditions SME’s can play a significant role in enabling marginalized and vulnerable

groups to help themselves to generate revenue and meet their basic needs. These include

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unemployed youth, females of working age and the disabled in both urban and rural

areas.

In this scenario, Botswana is a shining example of what can be achieved by SME’s.

When the country gained independence in 1966, it was one of the poorest in the world.

However within three decades the country has performed an economic miracle

transforming itself into a middle income developing nation with an economic growth rate

of over 9.5% (Ongori, 2009). This can largely be attributed to the prudent management of

the country’s mineral resources including copper / nickel and diamonds as well as to

large beef exports to western countries.

However, as early as 1982, the Government of Botswana embarked on a policy of

economic diversification in order to reduce too much dependence on primary industries

of minerals (capital intensive) and beef (land intensive). Both these industries could

provide only limited employment and opportunity to the vast majority of employable

persons in the country (Nuge, 2012) One of the important ways recognized by the

government of Botswana to achieve economic diversification and hence income

redistribution, employment and social justice to meet its national development goals and

vision for a healthy, just and productive society is through fostering development of

SMEs.

In 1998, the definition of an SME was formulated by the Government of Botswana. These

definitions across micro, small enterprise and medium enterprises are summarized in the

table 1.1.

ItemEnterprise category

Employment levels

Annual turnover in Botswana Pula)

In US$ Dollar (Equivalent)

1Micro Enterprise

Medium EnterpriseLess than 6

WorkersLess than P60 000 US$ 10 000

2 Small EnterpriseLess than 25

WorkersBetween P60 000 and P 1 5000 000

Between US$ 10 000 and US$25

000

3

3 Medium EnterpriseLess than 100

Workers

Between P 1 500 000 and P 5 000

000

Between US$ 250 000 and US$833 333

33Table 1.1. Classification of SME’s in Botswana (Nuge, 2012)

As far as this research is concerned, an SME may be defined as a business that is (1)

actively managed by its owners, (2) highly personalized, (3) largely local in its area of

operations, and (4) largely dependent on internal sources of capital to finance its growth

(Murphy, 2009). The contribution of SME’s to the socio – economic fabric of Botswana

since 1982 has been immense. They have been able to nurture the spirit of

entrepreneurship, characteristic of the people of Botswana. There are currently 6,000

small enterprises and 50,000 micro enterprises (Expert Group, 2010). SME’s employ

32% of the total workforce and contribute to 20% of national output (Jefferis, 2012). 75%

of them are owned by women (Jefferis, 2012). According to Lisenda (2007), they have

played a significant role in lifting the majority of people above the poverty line and

transiting the economy of Botswana from being agriculture based to industrial /

manufacturing based. They have resulted in a more equitable spread of income and

contributed to stability of family income. They are spread across a wide range of sectors

including services, manufacturing, retailing, transport, distribution, construction and

agriculture.

In light of this, it may be inferred that every effort must be encourage and strengthen the

SME base in Botswana. This is particularly pertinent in light of the manifold challenges

being faced by SME’s today. According to Mwobobia (2012), the main problem is

access to finance. The difficulties in accessing finance or ignorance of government policy

with regards to credit is today seen as a major deterrent for SME’s with growth potential

from expanding. Another challenge is that of competition. SME’s in Botswana compete

with each other at the domestic level and at the international level as well (Ongori, 2009).

Lack of adequate training, education and management skills and the consequent inability

to strategize and plan are considered to be other reasons impacting the performance of

SME’s (Ongori, 2009). An inability to properly market SME’s is also seen to be another

limiting factor. Other critical reasons include lack of adequate support for development of

entrepreneurship, an enabling business environment, promotion of exports and sectoral

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development. That these challenges are significantly impacting the SME sector in

Botswana can be gauged from the fact that the failure rate for SMEs in Botswana is over

80 percent, with over 70 percent of start-up firms failing in their first 18 months and only

less than 2 percent of them successfully able to expand their businesses (Mwobobia, 2012).

These alarming statistics call for all efforts in all directions to reverse the failure trend.

The efforts of the Government of Botswana at addressing the challenges faced by SMEs

have been very systematic, focused and holistic. The Citizen Entrepreneurial

Development Agency (CEDA) was established by the Government of the Republic of

Botswana to provide financial and technical support for business development with a

view to the promotion of viable and sustainable citizen owned business

enterprises(Government of Botswana, 1999). This Agency is established to address the

need for coherent and holistic support for the development of small, medium and large

scale enterprises through the soft window and package offered through the subsidiaries.

Botswana Institute for Development Policy Analysis (BIDPA) is a co-ordinated and

focused one-stop shop Authority that provides development and support services to the

local industry needs of SMMEs, encompassing training, mentoring, business plan

finalization, market access facilitation, and facilitation of technology adaptation and

adoption.

In addition to provide a legal and regulatory framework to these initiatives, a new policy

targeted for SME’s was developed in 1998. The new policy resulted from the

recommendations of the SMME Task Force, appointed by the Minister of Commerce and

Industry but comprising mostly private sector representatives who had submitted their

reportings earlier in the year. According to the Government of Botswana (1999), the

SME Company Act is a follow-up to the 1996 Industrial Development Policy. The main

components of the new Company Act include (i) a new legal and institutional framework

for SMME support (Small Business Act, Small Business Council, and Small Business

Promotion Agency); (ii) new sources of finance for SME’s (a micro-credit scheme, and a

credit guarantee scheme to operate through the banks); (iii) regulatory changes,

including reform of the Companies Act, sales tax regulations, licensing laws and reserved

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activities policy; (iv) improving business education and training, both through the school

system and subsidized short courses for entrepreneurs and managers.

The specific objectives that the company act hopes to achieve are to foster citizen

entrepreneurship and empowerment; achieve economic diversification; promote exports;

encourage the development of a competitive and sustainable SME community; create

sustainable employment opportunities; promote linkages between SME’s and primary

industries in agriculture, mining and tourism, and improve efficiency in the delivery of

services to businesses.

Since the government has provided so many incentives for the development of SME’s in

Botswana as enunciated in the provisions of the company act, it is desirable that SME’s

in the country are first made aware of these provisions and then comply with them in

order to avail of the manifold benefits that can accrue to them. Moreover, non compliance

can result in heavy penalty and interest charge payments to the Registrar of Companies,

which can further hamper their competitiveness. This research will study the levels of

awareness amongst SME’s of the new company act, gauge levels of compliance and

identify challenges they face in complying with the stipulations of the company act.

1.2. Aim of the study

The aim of the study is to understand and evaluate the level of awareness of SMEs in

Gaborone, Botswana of the provisions of the companies Act and what challenges they face

in complying with the provision of the act.

1.3. Objectives of the study

The main objectives of the study are formulated below:

To investigate the awareness of SMEs to the provisions of the Companies Act of

Botswana.

To investigate whether non awareness of the provisions of the Companies Act

affects the operations of SMEs.

To make recommendations to assist SMEs to comply with the provisions of the

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Companies Act of Botswana

1.4. Methodology

This research is quantitative using both deductive and inductive methods. The deductive

methods uses secondary literature to analyze SME’s in Botswana, their contribution and

their importance to the economy of the country, the various measures instituted by the

government to encourage SME’s, the provisions of the company act and why SME’s

must abide by these provisions. The inductive method will be used to validate the

findings of the deductive study. The primary research instrument here is a questionnaire

administered online to 100 SME’s operating in the Gaborone region of Botswana.

Gaborone is chosen for this study because it is both the government as well as the business

capital of Botswana and where most businesses are concentrated. It is the largest city

of Botswana with a population of 231,626 which is about 10% of the total population of

Botswana (Clifford and Baumback, 2012). The city is one of the fastest-growing cities in the

world and is headquarters to numerous companies and the Botswana Stock Exchange.

Gaborone is also home to the Southern African Development Community (SADC) a

supranational organization, hoping to increase economic unity.

The main purpose of the questionnaire is to ascertain awareness amongst SME’s of the

Company act, their levels of compliance, their awareness of the consequences of non

compliance and the difficulties they face in complying with its stipulations. The data will

be collected in excel and then analyzed using the descriptive statistics tool of excel. This

tool summarizes the data in terms of statistical parameters of mean, mode and frequency

percentage. Using this statistical analysis, the findings of the literature review will be

validated.

1.5. Structure

This research is structured as follows:

Chapter 1 – Introduction

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This chapter will introduce the topic of SME’s in Botswana, the research question, the

aims and objectives of the research and the case a brief about the methodology that will

be used in this research.

Chapter 2 – Literature Review

This chapter will review extant literature on SME’s in Botswana, their importance to the

economy of the country, the challenges they face, the provisions of the company act and

why it is necessary for SME’s to comply with these provisions.

Chapter 3 – Methodology

This chapter will present the deductive and inductive methods that will be used in this

research. It will explain the statistical tools that will be employed to analyze the data

collected through the questionnaire.

Chapter 4 – Presentation of findings

This chapter will present the findings of the statistical analysis conducted on the data

collected through the questionnaire.

Chapter 5 – Discussion and analysis

This chapter will discuss and analyze the findings of the statistical reports and tie these

findings with the literature review. Whether or not the findings of the literature review

have been validated through statistical research will be ascertained.

Chapter 6 – Conclusion and Future Scope

This chapter will examine whether or not the objectives of the thesis have been achieved

and if the research question has been answered. It will identify gaps in the research for

future scope of study.

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References

BIDPA and Citizen Entrepreneurial Development Agency (CEDA) (2007) Performance and Competitiveness of Small and Medium Sized Manufacturing Enterprises in Botswana. Gaborone, Printing & Publishing Company Botswana.

Bowler A, D., Page, S. (2007) Entrepreneurship and Small business Management. Pretoria, Juta and Co. Ltd.

Burns, P. (2010) Entrepreneurship and small business. UK, Ashford Colour Press Ltd.

Clifford M., Baumback, Z. (2012) How to organize and operate a small business. New Jersey, Prentice-hall International.

Expert Group (2010) Development of Industrial SMEs in Africa ‘Botswana’s Case’. Creating an enabling Environment for Growth and Development, Gaborone, Kigali Publications.

Government of Botswana (1999) Policy on Small, Medium and Micro Enterprises in Botswana, Government White Paper No. 1, Government Printing Press, Gaborone. 

Hillary, R. (2010) Small and Medium Sized Enterprises and the Environment: Business Imperatives. Sheffield, UK, Greenleaf Publishing Limited.

Jefferis, K. (2012) The New Policy on Small, Medium and Micro enterprises. Botswana, Media Communications (Pty) Ltd - Botswana

Lisenda, L. (2007) Small and Medium-Scale Enterprises in Botswana: Their Characteristics, Sources of Finance and Problems. Working Paper No. 14, BIDPA.

Mwobobia, F.M. (2012) Empowering of SME’s in Botswana. Journal of Business and Management Research, Vol. 1, pp. 1 – 11.

Murphy, M. (2009) SMEs Management. Athens,Kleidarithmos Publications

Nuge, N. (2012) Role of SMEs in Botswana. American International Journal of Contemporary Research, Vol. 2, pp. 1-9.

Ongori, H. (2009). “Role of information communication technologies adoption in SMES: evidence from Botswana.” Research Journal of Information Technology,Vol 1 No.2,pp. 79-85.

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