Micro, small and medium enterprises (MSMEs) play a critical role in Namibia’s economic diversification and employment creation, yet their performance, particularly in the manufacturing sector, remains weak.
Despite their central role in economic diversification and job generation, many MSMEs in Namibia do not survive beyond their first few years, with the manufacturing sector being especially vulnerable.
This persistent underperformance is often attributed to weak internal capabilities, limited access to finance and low levels of technology adoption as opposed to lack of entrepreneurial intent.
The consequences are not just for the individual firms, but limit the country’s industrial development, employment creation and Namibia’s overall economic transformation agenda.
Understanding what drives MSMEs’ growth is, therefore, not just academic but also an urgent policy and development undertaking.
Globally, MSMEs are recognised as the backbone of national economies as they account for more than 90% of enterprises, and are responsible for significant contributions to employment and gross domestic product.
In Namibia, MSMEs are at the centre of national development strategies for industrialisation and economic diversification. Policy frameworks emphasise the sector’s potential to create employment, improve local production and reduce the country’s dependence on imports.
Nevertheless, data suggests that Namibian MSMEs, particularly those in the manufacturing sector, still suffer high failure rates and low growth.
Consequently, there is no clear empirical guidance for policymakers and practitioners on growth drivers to be emphasised to enhance MSMEs’ performance.
From a theoretical perspective, enterprise growth is viewed as a function of how firms build, deploy and reconfigure resources and capabilities.
The resource-based view (RBV) assumes that superior performance will be achieved by firms that have valuable, rare and difficult-to-imitate resources such as skilled human capital, financial capability and organisational capabilities.
Complementing this view, Dynamic Capabilities Theory focuses on the capacity of firms to reallocate these resources to respond to changing market conditions.
Applied to MSMEs, these theories imply that growth is less dependent upon firm size or survival in and of itself and more dependent upon conscious investments in an individual’s internal capabilities such as employee training, technology adoption and strategic adaptability, as well as access to external resources such as finance and markets.
The RBV further argues that firms achieve sustained advantage through valuable and inimitable resources such as skills and financial capacity while the Dynamic Capabilities Theory emphasises the ability of firms to adapt and reconfigure these resources in changing environments.
These foundational perspectives provide a basis for analysing MSME growth drivers.
The RBV argues that growth and competitive advantage are based on the possession and effective utilisation of resources such as skilled human capital, financial capacity, organisational routines and technology assets.
Employee training to improve human capital and technology adoption influence how resources are coordinated to achieve growth objectives.
Access to finance also helps to build up the firm’s resource base by allowing investment in these capabilities.
According to our study, strategic adaptability, access to finance and employee training are the most influential drivers of growth of MSMEs, while technology adoption and organisational culture do not show significant effects in the regression model.
Strategic adaptability also emerged as the most influential growth driver which underscores how managerial flexibility and the ability to effectively react to changes in market conditions is important.
Access to finance was identified as an important external resource that allows enterprises to invest in growth-enhancing activities, and employee training was identified as playing a crucial role in strengthening human capital and operational efficiency.
Although the results showed that technology adoption and organisational culture were positively related to MSME growth, the results show that their contribution to growth may be indirect or dependent on other enabling factors.
Policymakers should, therefore, focus on programmes that build strategic and managerial capabilities among MSME owners and managers. Training programmes with a focus on strategic planning, market responsiveness and adaptive decision-making are likely to produce better growth outcomes than generic enterprise support programmes.
In addition, financial institutions and development agencies should craft MSME financing mechanisms, based on the realities of manufacturing enterprises such as flexible collateral requirements for loans, longer repayment periods and financing linked to capability development initiatives.
Third, while the adoption of technology did not reveal direct significant impact on growth, policies should promote the strategic use of technology, in combination with skills development and financial support.
Owners and managers of MSMEs should put more emphasis on continuous skills development for employees, and should have flexible strategic approaches that enable them to timely respond to changes in the market environment.
– This is from a study by Elijah Mukubonda of the Namibia University of Science and Technology.
