SMALL BUSINESS FAILURES IN BOTSWANA WITH SPECIAL REFERENCE TO 
THE FINANCIAL ASSISTANCE POLICY (FAP) FUNDED PROJECTS 
L. K. MOKGWA THI 
MINI-DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE 
REQUIREMENTS FOR THE MASTER OF BUSINESS ADMINISTRATION AT THE 
MAFIKENG CAMPUS OF THE NORTH WEST UNIVERSITY 
SUPERVISOR: MR A.S. PELSER 
DECEMBER, 2008 
LIBRARY 
MAFIKENG CAMPUS 
CALL NO. : 
2021 -07- 2 7 
0 
IA CC .NO.: NORTH-WEST UNIVERSITY 
NWU 
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DECLARATION 
This work is original, except where due reference is made to the author of another study 
that was relevant to the current study. Various sources to which I am indebted are 
acknowledged in the references in the text. 
athi] 
This dissertation has been submitted with my approval as University Supervisor and I 
certify that the requirements for the applicable MBA Programme rules and regulations 
have been fulfilled . 
Signed: ________________  
[A. S. Pelser] 
ACKNOWLEDGEMENTS 
A special thanks to my Supervisor Mr. A.S. Pelser who provided valuable suggestions 
and guidance without which this dissertation would not have materialized. I am awfully 
indebted to him. 
I would like to thank the managers of small business enterprises who were cooperative by 
being involved in providing me with answers to the questionnaire. They sacrificed their 
time to assist me. 
I also convey my sincere thanks to Miss L. Matlou and Miss C. Mooketsi who assisted 
me with typing. 
This work is dedicated to my mother Gaselame Mokgwathi, my brothers Tapologo, 
Mokgwathi, Bolele, Tshipana and Laki, my sister Kabelo, and my son Lerang who used 
to encourage and give me moral support when my moral to carry on was dying. 
The work is also dedicated to the loving memory of my late father B.G. Mokgwathi. 
11 
ABSTRACT 
The study was conducted in order to establish the major causes for small business failures 
in Botswana. The study was carried out specifically using businesses which were 
financed by the Financial Assistance Policy (F AP). Employment generation and 
economic diversification objectives of the policy were emphasized in this study. 
The primary data was collected through a questionnaire and unstructured interviews. The 
questionnaires were distributed to entrepreneurs operating in the 4 areas being Gaborone, 
Pilane, Ramotswa and Molepolole. The original intention was to distribute 40 
questionnaires but finally only 35 were distributed because some entrepreneurs declined 
to accept the questionnaires. 
Literature was reviewed using different text documents, policies and programmes as well 
as edited books and relevant studies. The data was analyzed using tables and descriptive 
information to explain the results. 
Constraints were identified and they accounted for most or all the failures of FA P assisted 
projects. The findings showed that in general, F AP failed to achieve its objectives. It was 
also found that many small businesses collapsed immediately after exhausting FA P 
funds. 
The conclusion made is that The Small Business Sector is faced with many problems and 
some of these can be identified to the owners/managers of the businesses. If the 
Government does not extend the support for small business beyond just financing, it will 
be difficult for this sector to succeed. Government needs to do a lot in terms of training 
and changing the mindset of citizens before this sector can succeed. 
lll 
The administration of F AP was characterized by inappropriate incentives: the main 
incentive was to disburse available funds, not to maximize the survival rates of assisted 
projects. 
It can also be concluded that the F AP was neither a cost effective way of promoting the 
establishment of sustainable jobs nor of diversifying the economy. 
The study has many recommendations some of which being as follows:-
► Support for SME' s should focus on training in business skills and entrepreneurial 
development. 
► The small business should implement all the necessary accounting controls and 
operate on a cash basis to avoid bad debts. 
► Government must instill a culture of entrepreneurship among citizens through 
creating an environment that will result in making citizens committed to their 
businesses. An example is by providing secured loans at subsidized interest rates 
instead of non-repayable grants. 
► The owner/manager must have all round experience in the major activities of the 
business, such as finance, purchasing, inventory, selling, marketing and 
production. 
► The small business should prepare budgets to assist the owners/managers in 
controlling the company; it should prepare financial statements and above all 
maintain its profitability. 
lV 
TABLE OF CONTENTS 
CONTENTS PAGE NO 
DECLARATION 
ACKNOWLEDGEMENTS 11 
ABSTRACT lll 
TABLE OF CONTENTS V 
LIST OF TABLES Vlll 
ACRONYMS AND ABBREVIATIONS lX 
CHAPTER 1 ORIENTATION 
1.1. Introduction 1 
1.2. Defining the concepts 1 
1.2.1. National Development Plans 1 
1.2.2. Financial Assistance Policy (F AP) 3 
1.3 . Statement of the problem 4 
1.4. The hypothesis 6 
1.5. Objective of the study 7 
1.6. Importance of the study 7 
1.7. Study Environment 7 
1.8. Plan of the study 8 
1.9. Conclusion 9 
CHAPTER 2 LITERATURE REVIEW 
2.1. Introduction 10 
2.2 Definition of concepts 10 
2.2.1 Definition of a small business 10 
2.2.2 Definition of entrepreneurship 11 
2.2.3 Small business and entrepreneurship 12 
2.2.4 Need for economic diversification 13 
2.2.5 Definitions on the characteristics of a small business 13 
2.3 What happens in other countries 15 
2.3.1 United States of America 15 
2.3.2 Asia Pacific Countries 15 
2.3.3 Namibia 16 
2.3.4 South Africa 18 
2.3.5 Botswana 20 
2.3 .5.1 Financial Assistance Policy (FAP)- A Review 20 
2.3.5 .2 Administration ofFAP 21 
2.3 .5.3 Small Scale FAP 23 
2.3.5.4 Evaluation ofFAP 24 
2.3.5 .5 Reasons for the poor performance ofFAP firms 29 
V 
2.4 Conclusion 34 
CHAPTER 3 THEORITICAL/CONCEPTUAL FRAMEWORK 
3.1 Introduction 36 
3.1.1 The Small business and its problems 36 
3.2 Factors of Business Management 36 
3.2.1 Business knowledge 36 
3.2.2 Business Management 37 
3.3 Conclusion 43 
CHAPTER 4 RESEARCH DESIGN & RESEARCH METHOD 
4.1 Introduction 44 
4.2 Definition of Research Methodology 44 
4.3 Research Design 44 
4.4 Qualitative and Quantitative Research 44 
4.5 Methodology chosen and Rationale 45 
4.6 Literature Search 45 
4.6.1 Primary Sources 46 
4.6.2 Secondary Sources 46 
4.7 Sampling 46 
4.7.1 Simple Random Sampling 47 
4.7.2 Advantages of Sampling 47 
4.8 Measuring Instrument 48 
4.9 Procedure for Data Collection and Analysis 48 
4.10 Methods of Data Collection 48 
4.10.1 Interviews 48 
4.10.2 Unstructured Interviews 49 
4.10.3 Questionnaires 49 
4.11 Data Analysis 51 
4.12 Ethical Considerations 51 
4.13 Limitations 52 
4.14 Conclusion 53 
CHAPTERS PRESENTATION OF DATA 
5.1 Introduction 54 
5.2 The hypothesis and the questionnaire 54 
5.3 Conclusion 63 
CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS 
6.1 Introduction 65 
6.2 Summary of Findings 65 
6.3 Recommendations 67 
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6.3.1 Recommendations for owners/managers 67 
6.3.2 Recommendations for Government 69 
6.4 Conclusions 71 
BIBLIOGRAPHY 72 
APPENDIX 1 75 
Vll 
LIST OF TABLES 
Number Title Page 
Table 5.2.1 Financial Constraints 55 
Table 5.2.2 Financial Assistance Policy (F AP) 56 
funds applied for 
Table 5.2.3 Frequency of businesses benefitting 56 
from FAP 
Table 5.2.4 Re-Implementation of F AP 57 
Table 5.2.5 Experience of owners/managers 58 
Table 5.2.6 Management courses attended 58 
Table 5.2.7 Knowledge acquired from management 59 
courses attended 
Table 5.2.8 Existence of Marketing plans 60 
Table 5.2.9 Contribution to formal/informal sector 60 
Table 5.2.10 Preparation of budgets and cash flows 61 
Table 5.2.11 Maintenance of monthly management accounts 62 
Table 5.2.1 2 Business plan 63 
Vlll 
ACRONYMS AND ABBREVIATIONS 
AC Administrative Committee 
BEE Black Economic Empowerment 
BOCCIM Botswana Confederation of Commerce and Industry 
BEDU Botswana Enterprises Development Unit 
BIDPA Botswana Institute for Development Policy Analysis 
BMC Botswana Meat Commission 
BURS Botswana Unified Revenue Service 
CEE Citizen Economic Empowerment 
CEDA Citizen Entrepreneurial Development Agency 
DTI Department of Trade and Industry 
DCEC Directorate on Corruption and Economic Crime 
FAP Financial Assistance Policy 
GDP Gross Domestic Product 
IFO Industrial Field Officer 
IFS Integrated Field Services 
ICC Joint Consultative Council 
LEA Local Enterprise Authority 
NACCEE National Conference on Citizen Economic Empowerment 
NDB National Development Bank 
NDP National Development Plan 
NGO Non Governmental Organisation 
PDC Productive Development Committee 
lX 
SMEs Small Meduim Enterprises 
SMMEs Small Medium and Micro Enterprises 
UNDP United Nations Development Programme 
X 
CHAPTER 1 
ORIENTATION 
1.1. INTRODUCTION 
Botswana attained independence on the 30th September 1966 after 80 years as a British 
Protectorate. At that time, the country was poor with a small population of just over half a 
million and of which about 80 percent was rural (National Development Plan (NDP) Vol. 8, 
1991 and NDP Vol. 9, 2003). At independence, Botswana was one of the poorest countries in 
Africa. An overwhelmingly rural population depended mainly on agriculture for a livelihood. 
Beef production was the mainstay of the economy in terms of output and export earnings, but 
both arable and livestock agriculture had been ravaged by a prolonged and severe drought 
(NDP Vol.7, 1991). Apart from the railway line, communications and infrastructure were 
barely developed. Prospects for rapid development of the economy seemed bleak and the 
Government was dependent on foreign aid (mostly from Britain), not only for its investment 
projects, but also to finance its recurrent expenditures (NDP Vol.7, 1991). 
Although the country was poor, the discovery of diamonds in the late 1960 ' s at Orapa and 
Letlhakane and most recently, the diamond mine in Jwaneng completely transformed the 
Botswana economy. By 1989, diamonds alone accounted for 77 percent of total export value 
(NDP Vol. 7, 1991). There were roughly 25 000 people employed in the formal sector of the 
economy with probably an equivalent number employed in the South African mines (NDP 
Vol. 7, 1991 ). The Botswana Meat Commission (BMC) was the only large organisation 
available and as such the only big employer besides Government. The BMC is a government 
autonomous agency which was established on December 1966 to purchase and slaughter 
livestock, process and sell meat and other animal products in such a manner as to promote the 
interest of livestock in Botswana. In the early years of Botswana's development, beef export 
was the only foreign exchange earner (BMC, 2005). 
1.2 DEFINING THE CONCEPTS 
1.2.1. ational Development Plans (NDP) 
The National Development Plan (NDP) referred to above is the ma3or statement of 
Government's development strategy and policies. It explains the general principles on which 
policies are based, as well as incorporating quantitative targets for resource allocation. It pays 
attention to the activities of the private sector, as well as of Government and parastatals, but the 
plan's quantitative targets deliberately concentrate on those areas of development over which 
Government has most control or influence (Planning Officers' Manual, 1996). The Planning 
Officers ' Manual is a document intended to serve as a reference manual to assist planning 
officers in their work as they play an important role of monitoring and evaluating ongoing 
projects as well as the administration of projects. 
In order to achieve sustainable and effective planning, Botswana established a cadre of 
professional planning officers - comprising officers from the rank of Assistant Economist to 
the Secretary for Economic Affairs - the Economic cadre, for whom the Planning Officers' 
Manual is intended (Planning Officers' Manual, 1996). 
Planning in Botswana is intended to ensure that the nation's financial, manpower and natural 
resources are used effectively and in accordance with national priorities. It seeks to balance, 
throughout the plan period, the prospective aggregate demand for scarce resources with the 
probable supply of resources. The demand emanating from Government must be structured to 
promote development without crowding out productive private sector activities which are 
essential to balanced development (Planning Officers' Manual, 1996). 
The NDPs which are implemented over a period of around six years each detail all 
development projects that the Government intends to embark on for that given period. The 
NDPs form the basis upon which the Annual Development Budget is set. What this means is 
that, unless there are compelling reasons to divert from the projects approved in the NDP, the 
Annual Development Budget should reflect those projects that are detailed in the NDP, and 
that are planned to be earmarked during the financial year (Planning Officers' Manual, 1996). 
The Minister responsible for finance (the Minister of Finance) is constitutionally required to 
submit Estimates of Government Revenue and Expenditure to the National Assembly before 
the start of each financial year. These estimates of revenue and expenditure are referred to as 
an Annual Development Budget (Planning Officers' Manual, 1996). Through these 
development plans, development is more focused and can be effectively managed. According 
to NDP Vol. 7, (1991) previous development plans covered the following periods: 
2 
► Transitional Plan for Social and Economic Development (1966 - 1968) 
► National Development Plan (NDP. Vol. 1) 1968-1973 (1968) 
► National Development Plan (NDP. Vol. 2) 1970-1975 (1970) 
► National Development Plan (NDP. Vol. 3) 1973-1978 (1973) 
► National Development Plan (NDP. Vol. 4) 1976-1981 (1976) 
► National Development Plan (NDP. Vol. 5) 1979-1985 (1980) 
► National Development Plan (NDP. Vol. 6) 1986-1991 (1985) 
► National Development Plan (NDP. Vol. 7) 1991-1997 (1991) 
► National Development Plan (NDP. Vol. 8) 1997/98-2002/3 (1997) 
► National Development Plan (NDP. Vol. 9) 2003/04-2008/09 (2003) 
► NDP. Vol. 9 is the current National Development Plan. 
1.2.2 Financial Assistance Policy (F AP) 
As the BEDU initiative was not sufficient to deal with unemployment problems, Government 
decided to consider other alternatives specifically grants. The idea of providing grants to 
productive activities was born in the 1978 report on Employment and Labour Use in Botswana 
(Peat in FAP, 2000:4). 
This report concluded that high levels of unemployment would be likely in Botswana during 
the l 980 's and l 990's unless a wide variety of major policy adjustments could be introduced to 
combat poverty and unemployment side problems. Problems of rural unemployment were 
anticipated to result from population growth and the lack of agricultural employment 
possibilities (FAP, 2000). The report pointed out that the anticipated decline in mining 
employment outside Botswana would lead to urban drift on a substantial scale. This implied 
that in order to avoid economic and social problems of unemployment in both urban and rural 
areas, urgent action would be required. Hence the Financial Assistance Policy was considered 
(FAP, 2000). 
The Botswana Government F AP was a system of grants to assist with the setting up or 
expansion of private sector businesses in manufacturing and some agriculture and selected 
mining and mineral projects. It was launched in May 1982 following the Presidential 
Commission on Economic opportunities in order to assist Botswana businesses to be 
productive. By productive businesses, Government meant those which can generate 
3 
sustainable employment opportunities, those which can replace imports as well as those which 
can produce exportable products. All sizes of companies qualified for assistance be they small, 
medium or large (FAP, 1995). 
For purposes of this research, concentration was on Small Scale F AP which was for small 
businesses. The medium and the large scale FA P was for both foreigners and locals whereas 
the small scale FAP was meant for Botswana citizens only (FAP, 1995). In addition, the 
Government built factory shells all over the country to provide the entrepreneurs with premises 
from which to operate (FAP 1995). The National Development Bank (NDB) a Government 
autonomous agency was tasked with administering the disbursements of F AP funds on behalf 
of Government (FAP, 1982; NDB, 1996; NDB, 1997; and NDB, 1998). 
1.3. STATEMENT OF THE PROBLEM/RESEARCH PROBLEM 
This research proposed to identify the major causes of small business failures in Botswana. 
Concentration was for those which benefited from the FAP (Small Scale) only. Small 
businesses are the heat of the economy of many countries with their buying and selling of 
products and services. Small firms are often seen as a vital source of growth and innovation in 
a dynamic economy (Faulkener, Beaver, Lewis and Gibb 1986 in Ramatlapana, 1993: 1) . 
There are no standard definitions of small, medium and micro enterprises. Their definitions 
vary from country to country. These variations depend largely on the size of the economy and 
the levels of development. The only common considerations are that annual turnover (sales) 
and number of workers are generally used to categorise them (Small, Medium and Micro 
Enterprises (SMME) Policy, 1998). There is a general agreement that a strict definition is not 
really important except when an eligibility threshold is required to process various incentive 
and other promotional and assistance schemes. In such cases, it is desirable to segment 
enterprises as micro, small and medium, if targeted policy intervention and assistance are to 
reach the intended target groups (SMME, Policy, 1998). According to the SMME Policy 
(1998), Botswana Government has accepted a proposal by the SMME task force for defining 
the three categories of enterprises, consisting of annual turnover and numbers of employees. 
Accordingly, the enterprises are defined as follows (SMME Task Force Report, 1998 in 
SMME Policy 1998:2): 
4 
• Small enterprises are defined as those with less than 25 employees and an annual 
turnover of between P60 000 and Pl 500 000. 
• Medium enterprises are defined as those with less than 100 employees and an annual 
turnover of between Pl 500 000 and P5 000 000. (SMME Task Force Report, 1998 in 
SMME Policy, 1998:2) 
• Micro-enterprises are defined as those with less than 6 workers including the owner and 
have an annual turnover of less than P60 000. Small enterprises are defined as those 
with less than 25 employees and an annual turnover of between P60 000 and P 1 500 
000. Medium enterprises are defined as those with less than 100 employees and an 
annual turnover of between Pl 500 000 and P5 000 000. (SMME Task Force Report, 
1998 in SMME Policy, 1998:2) 
It is necessary to explain how the two reports referred to above that is the SMME Task Force 
Report and the SMME Policy came about. On recognising the numerous problems faced by 
SMMEs and being conscious of the need for a comprehensive policy framework, the former 
Ministry of Commerce and Industry established a private sector led Task Force to address 
comprehensively SMME issues and to steer the development of a policy for this sector in May, 
1997. The task force held extensive consultations with business owners and other interested 
parties throughout Botswana and presented a final report to the Minister of Commerce and 
Industry in April, 1998. This was a Small Medium and Micro Enterprises Task Force Report 
(Task Force Report, 1998). A working group comprising members from both the public and 
private sector was set up by the former Ministry of Commerce and Industry currently Ministry 
of Trade and Industry to review the above Task Force Report and its 61 recommendations. As 
a result, this working group came up with a SMME Policy Document which was approved by 
the National Assembly on 15th December 1998. 
The purpose of this policy document was to provide Government with a response to the 
abovementioned SMME Task Force Report of April 1998 (SMME, Policy, 1998) 
It represented policy framework for the development of SMMEs in Botswana, including 
guiding principles as well as an outline of the overall objective of the SMME policy. It also 
identified specific programmes and initiatives of Government in support of SMME 
development and institutional arrangements for the coordination, implementation and follow 
up of the policy. As such, it constituted an integral aspect of the Government ' s strategy for 
5 
industrial development consistent with the theme of sustainable diversification contained in 
NDP Vol. 8. This explains the above references to the SMME Task Force Report and the 
SMME Policy. 
After the implementation of F AP in 1982, many businesses and individuals applied for 
assistance and were given grants. Millions of Pula were disbursed. Not very long after the 
implementation of FAP, unconfirmed reports about project failures surfaced. The FAP was 
evaluated four times the latest being in 2000 (FAP, 2000). The third evaluation report of FA P 
which was carried out in 1995 and the fourth and final one carried out in 2000 confirmed 
reports of project failures. It turned out that some businesses collapsed, others just closed down 
whilst in some cases promoters disappeared at times without a trace (NDP. Vol. 9, 2003; FAP, 
1995 and FAP, 2000). All evaluations confirmed the allegations of failures . According to the 
FA P fourth evaluation of 2000, there appeared to be a tendency for small scale firms to close 
down after the period of FA P grants. This report indicated that for small scale FA P, the 
survival rate was 20 - 25 percent after five years (FAP, 2000). 
1.4 THE HYPOTHESIS 
The study tests the following set of hypotheses 
a. Small businesses in Botswana are not likely to experience financial constraints 
because of the Government financial assistance. 
b. Small businesses are likely to operate inefficiently due to lack of management 
skills of owners/managers . 
c. As a result of lack of management skills, owners/managers of small businesses do 
not have proper marketing plans in place. 
d. Since most owners/managers are not exposed to basic Accounting and Financial 
training, they are not likely to perceive any need to establish budgets, cash flow 
and to maintain books of accounts. 
6 
1.5 OBJECTIVE OF THE STUDY 
The primary objective of this study was to provide information on why the small business 
sector in Botswana has not succeeded after more than 40 years of independence. The research 
project also aimed at establishing the following: 
a. To determine whether small businesses in Botswana are not likely to experience 
financial constraints because of the Government financial assistance. 
b. To determine whether small businesses are likely to operate inefficiently due to 
lack of management skills of owners/managers. 
c. To determine whether as a result of lack of management skills, 
owners/managers of small businesses do not have proper marketing plans in 
place. 
d. To determine whether most owners/managers are not exposed to basic 
Accounting and Financial training, and therefore they are not likely to perceive 
any need to establish budgets, cash flow and to maintain books of accounts. 
1.6 IMPORTANCE OF THE STUDY 
The study provides empirical data to improve and enhance the understanding of issues in the 
management of financial assistance programmes in Botswana. The importance of roles played 
by Government and its agents in creating a conducive environment for citizen participation in 
the economy are studied and analysed empirically. The study provides progress made by 
Botswana through F AP in the creation of sustainable employment and diversification of the 
economy. The questions can be asked as to whether F AP grants benefited the country by 
creating sustainable businesses and whether the leadership of the country is preparing citizens 
for today's business challenges. 
1.7. STUDYENVIRONMENT 
The study was conducted in the areas of Gaborone, Pilane, Ramotswa, and Molepolole. These 
areas have Government factory shells from which small businesses are operating. This made it 
easy to locate entrepreneurs. Those who were involved are owners/managers or proprietors of 
small businesses. 
7 
1.8. PLAN OF THE STUDY 
The study is broken down into 6 chapters as follows: 
Chapter 1 - Introduction 
It includes the historical background of Botswana and the country's economy at the time of 
independence. It clearly indicates why it was necessary for Government to implement 
initiatives necessary to curb the then high rate of unemployment and the eradication or 
elimination of poverty including the need for the diversification of the economy from minerals 
(diamonds) and beef industries. 
Chapter 2 - Literature Review 
It shows the existing and empirical knowledge in the area focused on by this study. It also 
provides history, origins and development of the issue being researched. 
Chapter 3 - Theoretical or conceptual framework 
It contains detailed various factors that were used to analyse the study. (It is from this that the 
hypothesis was derived). 
Chapter 4 - Methodology 
It describes the method or procedure that was used to investigate the questions or hypothesis. 
Chapter 5 - Findings or Results 
This refers to the results of the study. The results were obtained through analysing and 
interpreting the responses of the questionnaires. 
Chapter 6 - Conclusions and Recommendations 
This chapter presents the conclusion and how it relates to the initial hypothesis together with 
their significance and implications. The recommendations are also captured in this chapter as 
well as the lasting comments within the context of the study. 
8 
1.9. CONCLUSION 
On consideration of the above mentioned information, it is quiet obvious that the study 
provides reasons for the small business failures in Botswana. Although the study concentrated 
on enterprises which were FA P funded, the fact is that small business problems are the same 
regardless of their source of finance. Therefore lessons drawn from this study will definitely be 
applicable to small businesses in general and will provide a guideline for the improvement of 
the management or development of the small business sector. The findings and 
recommendations arrived at will be applicable to all small businesses whether they are family 
funded, grant or subsidy funded or loan financed. 
The next chapter deals with the literature review on the topic. 
9 
CHAPTER2 
LITERATURE REVIEW 
2.1. INTRODUCTION 
This chapter is to give analysis of existing knowledge and research that was carried out on the 
research topic. An overview of the developments that are taking place globally with regard to 
the management of the small business sector and its role in the economies of countries is 
provided. 
2.2. DEFINITIONS OF THE CONCEPTS 
2.2.1. Definition of a small business 
According to the book entitled Entrepreneurial Small Businesses, Shepherd and Wiklund, 
(2005) state that when trying to define what a small firm is, it becomes evident that the concept 
of smallness varies and that there is no single, suitable definition of a small firm. Basically 
there are two different ways of defining small firms. The first type of definition could be 
labelled the theoretical. In this definition, criteria for defining a small firm would typically 
include small market share, personalised management, vulnerability to environmental 
conditions and non-economic objective of the manager. The second type of definition could be 
labelled as quantitative. In this case, size itself is the criterion for smallness, and quantitative 
size data regarding sales, employees or equity are usually used when classifying firms as small 
or large (Shepherd and Wiklund, 2005). On the other hand, Bannock, (2005) says that it is 
easier to explain a small business than to define it. One approach to defining the small firm is 
to focus specifically on the features which distinguish the small firm from the large firm. The 
Committee of Enquiry on Small Firms, chaired by the late John Bolton (Bolton, 1971 in 
Bannock, 2005:2) identified 3 characteristics in its economic definition of a small firm as 
follows: 
► A small market share, that is not large enough to influence national prices or 
quantities. Even though a village shop may be the only one, its prices cannot 
get too far out of line from those of major national retailers in the nearest town, 
even though people will pay something for local convenience. 
► It is managed in a personal way, the owners actively participate in all aspects of 
the business, unlike in a large firm where the shareholders and management are 
usually almost entirely separate. 
► Independence or exercise of ultimate management responsibility. A small 
subsidiary of a large firm which has a head office to report to does not share this 
characteristic. 
The abovementioned are to be found in the vast majority of all businesses and therefore most 
businesses are small but the economic definition is of no use for statistical purposes since 
business statistics are not classified in terms of markets, owner' s management and 
independence. For this reason, small firms are usually defined in terms of numbers employed 
(Bannock, 2005). However, for the purposes of this study, the definition that has been 
accepted by the Botswana Government will be used. Small enterprises are those with less than 
25 employees and an annual turnover of between P60 000 and Pl 500 000. It states that micro 
enterprises are those with less than 6 employees, including the owner and a turnover of less 
than P60 000 (SMME Task Force Report in SMME Policy, 1998:2). 
2.2.2. Definition of Entrepreneurship 
In his classic definition of entrepreneurship Schumpeter, (1934) in Shepherd and Wiklund, 
(2005: 1) stressed that entrepreneurship has to do with combining resources in new ways that 
create disequilibrium in the economic system. In other words entrepreneurial firms are 
innovative to such an extent that they have a substantial impact on the market. In another well 
recognised definition of entrepreneurship, Stevenson advocates that pursuit of opportunity is 
the most important component of entrepreneurship (Stevenson, 1984; Stevenson and Jarillo, 
1986; 1990 in Shepherd and Wiklund, 2005:2). This definition concerns the business's relation 
to, and success in the market place, and realising what the wants and needs are, and will be in 
the future. The definitions complement each other. When combined, entrepreneurship is 
defined as taking advantage of opportunity by novel combinations of resources in ways which 
have an impact on the market (Shepherd and Wiklund, 2005). Another definition is by 
Dollinger, (2002) which says that entrepreneurship is the creation of an innovative economic 
organisations or network of organisations for the purpose of gain or growth under the 
conditions of risk and uncertainty. It is hard to imagine a small business taking advantage of an 
11 
opportunity and having considerable impact on the market without growing (Shepherd and 
Wiklund, 2005). 
2.2.3. Small business and Entrepreneurship 
Academic interest in small business is relatively recent. Whether the previous lack of interest 
reflected real-world dominance of big business or simply unawareness of small business by 
researchers could be debated. More important however, is that scholars now recognise that 
small businesses are essential for entrepreneurial activity, innovation, job creation and industry 
(ACS, 1992; Thurik and Wennekers, 2001 in Shepherd and Wiklund, 2005:1). Evidence from 
a range of countries shows that since the 1970's economic activity has moved away from large 
firms to small firms and at present the majority of new jobs are created by small firms 
(Davidson et al, 1994; Thurik and Wennekers, 2001 in Shepherd and Wiklund, 2005:1). As a 
consequence, over the past 25 years, researchers in several academic fields have increasingly 
become interested in various issues related to small business. It is of importance to consider the 
growth, performance and entrepreneurial activities of small businesses (Shepherd and 
Wiklund, 2005). While small businesses are not necessarily entrepreneurial, and 
entrepreneurship also takes place outside of the small business sector, it is clear that the 
entrepreneurial activities of small businesses are related to outcomes of individual small 
businesses as well as the economy at large. Small businesses make a substantial 
entrepreneurial contribution because they are a source of considerable innovative activity, in 
particular of radical innovation, and are important change agents in the economy (ACS, 1992; 
Baumol, 1993 in Shepherd and Wiklund, 2005: 1). 
There is also a close relationship between the entrepreneurial activities, growth and 
performance of small businesses. For a healthy economic development, it is essential that old 
ideas are replaced by new ones and that old products, services and processes are substituted by 
those which are better and more effective. New ideas and innovations are often created by new 
and small businesses that grow rapidly and sometimes even create new industries (Shepherd 
and Wiklund, 2005). Many of the best known and most successful Swedish companies such as 
IKEA, SKF, Tetra Pak, AGA and Electrolux, were founded and developed upon individual 
innovations. More recent examples outside of Sweden are Apple, Microsoft and Netscape; all 
relatively young companies that have grown extremely rapidly and have changed the computer 
industry. Most people would regard these as examples of exceptional entrepreneurship 
12 
WU 
LI AR 
(Shepherd and Wiklund, 2005) . The above discussion implies that entrepreneurship is a key to 
economic development and also illustrates how closely connected entrepreneurship is to small 
business growth. 
2.2.4. Need for Economic Diversification 
Firstly, the realisation that minerals will not last forever and the fear of falling prices which in 
the past had resulted in stock piling of diamonds prompted the government to look for 
alternative ways to maintain its economic performance (Ramatlapana, 1993). The second factor 
that prompted Government to look for alternative ways to maintain its economic performance 
was the ever increasing unemployment, which posed a problem (Ramatlapana, 1993). While 
the mining sector served Botswana well in terms of wealth accumulation and provision of 
Government revenue, it had little direct impact on employment generation for the majority of 
Botswana citizens. 
The mining industry employed a relatively small number of people (Ramatlapana, 1993 and 
Financial Assistance Policy (FAP, 2000). In this respect, there was a need to diversify the 
economy rather than to rely heavily on diamonds and meat in order to achieve sustainable 
future growth (FAP, 2000). Government then implemented the Botswana Enterprises 
Development Unit (BEDU). BEDU was a project which was commenced in August 1974 to 
provide low interest loans and technical services to small and medium scale projects. 
The National Development Bank (NDB) was appointed to act as the agent for Government in 
the disbursement and administration of funds made available under the BEDU programme. 
BEDU also provided serviced land and factory shells to investors at reasonable rentals (NDB, 
1995). However, by 1980 it had been realised that this initiative was not sufficient to deal with 
the looming unemployment problems. Hence, the idea of a grants policy to create new 
employment opportunities was born. (With which Government wanted to develop 
entrepreneurship) (FAP, 2000) . 
2.2.5. Definitions on the characteristics of a small business. 
For purposes of this research, a small business would have the following characteristics: 
13 
► Management - Responsibility for the firm rests with the owners. Usually the 
owners are the managers (Ramatlapana, 1993). 
► Capital - initial funds to start the business are supplied by the family, financial 
institutions, or through government funding (Ramatlapana, 1993). 
► Financial Assistance Policy (F AP) officers - Officers who were responsible for 
monitoring FAP projects (FAP, 2000). 
► Industrial Field Officers - Officers employed by the former Ministry of 
Commerce and Industry to undertake training of entrepreneurs on management 
skills required for businesses in which they wanted to venture (F AP, 2000) . 
► Integrated Field Services (IFS) - A unit of the former Ministry of Commerce 
and Industry under which Industrial Field Officers fell. This Unit was 
responsible for skills and technical training of F AP recipients (NACCEE, 2000). 
► Opportunity Identification - This is a process by which an entrepreneur comes 
up with the opportunity for a new venture (Dollinger, 2002). 
► Risk and uncertainty - The two are not the same. Risk refers to the variability of 
outcomes ( or returns). If there is no risk, the return is certain (Dollinger, 2002). 
► Gross Domestic Product (GDP) - Refers to the total value of goods produced 
and services provided within a country during one year (Oxford Dictionary) . 
► Collateral Investments - First liens on assets, personal guarantees etc (Oxford 
Dictionary). 
► Pula - Botswana Currency 
The problem of small business failures is experienced by many countries. Hence, many 
research endeavours have been carried out in various countries to identify the major causes of 
small business failures. A known business failure is bankruptcy or other withdrawal from 
business with known losses to creditors. Many businesses unable to pay debts simply close 
down (Ramatlapana, 1993). As mentioned earlier, there is now considerable academic interest 
in the operation of small business. At the aggregate level, scholars have started to accumulate 
evidence of the importance of small businesses. Whereas small businesses appear to be a vital 
part of the economy, the prospect for any individual business is uncertain. Many small 
businesses die during their first years of operation, or struggle to survive. The number of small 
businesses that achieve large economic returns for their owners and grow substantially is 
limited (Shepherd and Wiklund, 2005). Research has revealed that the majority of small firms 
14 
do not grow, and that many are not even interested m pursumg growth (Storey, 1994; 
Shepherd and Wiklund, 2005) . 
2.3. WHAT HAPPENS IN OTHER COUNTRIES 
2.3.1. United States of America 
In the United States, approximately 600 000 new small businesses are registered each year. 
Fifty percent never proceed to the 2nd year of operations, thirty percent collapse within the next 
five years, and the remaining twenty percent are bought by bigger companies (Albert, 1977 in 
Ramatlapana, 1993:7). Despite their high failure rate, small business accounted for 43 percent 
of the United States business output, one third of Gross National Product and employed over 
50 percent of workers in the private sector (Fubara, 1987 in Ramatlapana, 1993:8). The small 
business industry in the United States is identified as the driving force behind the American 
economy (Albert, 1977 in Ramatlapana, 1993:9). The United States powerful multinational 
companies such as IBM, Ford, Polaroid, Xerox and Hewlett-Packard, all had one thing in 
common; they all started as small businesses. (Albert, 1977 in Ramatlapana, 1993:9). 
2.3.2. Asia Pacific Countries 
According to Mowat, (1999) in Moha and Mohd, (2000:221), 99 percent of the total number of 
establishments in Canada are SME's (Small Medium Enterprises), 99 percent of all firms in the 
United Kingdom with employment of less than 50 people represent a major part of the United 
Kingdom 's economy (Smallbone, 1999 in Moha and Mohd, 2000:221). According to Ganguly, 
(1985) in Ramatlapana, (1993 :7), in the United Kingdom, 50 percent of new small businesses 
collapse within two and a half years, 33 percent in the next two and half years and the rest in 
the next 5 years. 
SME's account for 99.3 percent of the total number of enterprises in South Korea with 39.7 
percent of the total value added production and 70 percent of the employment; SME's play an 
important role in the expansion of manufactured export in Thailand's economy since SME's 
comprise 98.3 percent of the total number of establishments with 118,648 enterprises 
(Watcharapun, 1999 in Moha and Mohd, 2000:221) . There are more than 700 000 SME's in 
Taiwan, comprising over 98 percent of the total number of enterprises (Y oun-Jai, 1999 in 
15 
Moha and Mohd, 2000:221). SME's represent over 99 percent of the total number of 
establishment in New Zealand (Beal, 1999 in Moha and Mohd, 2000:221). More than 95 
percent of the total business establishment comprises SME's in Malaysia (Moha, 1999 in Moha 
and Mohd, 2000:222). 
There are 5072 922 SME's in Japan, a 99.4 percent share of the total number of firms with 60.1 
percent of the total employment and 55.7 percent of the total value added. In China SME's 
employ more than 42 percent of the total labour force and generate 87 percent of the total rural 
output value. About 90 percent of the total establishment are classified to be SME's in the 
Philippines whereas in Pakistan, over 98 percent of the total number of establishments are 
SME's (Rebulida, 1999 in Moha and Mohd, 2000:222). 
2.3.3. Namibia 
According to the Joint Consultative Council (JCC, 1997: 10), SME development in Namibia had 
largely been guided by the Ministry of Trade and Industry 1997 document titled, 'Namibia; 
Policy and Programme on Small Business Development. It was recognised that the 
development of SMEs would contribute strongly to the country's socio economic development, 
but since resources were limited, the government intended to focus support on small business 
over the medium term. Of major concern to the government had been the creation of 
opportunities for people through key variables such as access to finance, markets, skills 
training, technology transfer and provision of infrastructure (with particular reference to sites 
and premises). This resulted in the implementation of Black Economic Empowerment (BEE) 
(JCC, 1997: 10). To that extent, Government had played its chief role as a facilitator, ensuring 
SME growth through key establishments as follows (JCC, 1997:18): 
► The Small Credit Guarantee Scheme, designed to enhance the plight of small 
businesses in accessing capital; 
► The vendor development programme, ensuring the provision of infrastructure 
and premises; and 
► Training and development assistance. 
There were however problems for SMME' s, and they were identified as follows (JCC, 
1997: 18-20): 
16 
► Lack of competitiveness among SME's; 
► Lack of resources for SME development; 
► Lack of managerial skills; 
► Poor quality products and inefficient service delivery; 
► Failure to honour contractual obligations; 
► No upfront capital to start with; 
► Lack of technical and management capacity; 
► Lack of skills; 
► Access to capital challenges or lack of funding; 
► Low levels of economic literacy; and 
► Lack of capacity. 
In addition to this, the President of the Namibia Economic Society (NES) in the paper on 
economic transformation and development with regard to BEE wrote that out of a random 
sample of 10 SMEs contacted the following was observed (JCC, 1997: 11 ): 
► Eight mourned the lack of access to capital; 
► Seven noted that competition from big businesses was intense and fierce; 
► Six highlighted the unwillingness by bigger companies to engage SMES; 
► Six urged government to open up and allocate more business (tenders) to 
SMES; 
► Five felt government needed to do more with regard to support; and 
► Eight wished there was a legal instrument to foster SME engagement and BEE. 
Studies to date have confirmed that SME development is arguably the single most critical tool 
in enhancing BEE. Empowerment of the majority thus could not be complete without a strong 
push for small businesses. Over the years, SME contribution to Gross Domestic Product 
(GDP), employment creation and share of labour force have been on an increase. According to 
the 1998 Ministry of Trade and Industry small business baseline survey, the SME sector 
provided employment to 160 000 people, of which 60 000 are permanent (JCC, 1997: 11 ). 
However the Joint Consultative Council/Namibia Economic Policy and Research Unit, 
(JCC/NEPRU) Small Business Impact Assessment 2003 estimated that 107,166 people were 
17 
employed within the SME sector (about 19.79 percent of the total labour force) . This figure 
does not include part time, occasional or commission workers or the SME owners themselves. 
The JCC/NEPRU survey also revealed that women ownership of SMEs was at 37.1 percent 
and continues to rise. It concluded that SMEs were key in alleviating poverty and generating 
economic growth. (JCC, 1997:2). The study further revealed that the small business sector 
contribution to GDP rose from 8.04 percent in 2002 to 11.01 percent in 2003, the Namibian 
labour force working full time in the small business sector increased from 15 percent in 2002 
to 19.8 percent in 2003 (JCC, 1997:11). 
2.3.4. South Africa 
Following the 1994 democratic elections in South Africa, the Government decided to re-
distribute wealth and create some jobs. Some strategies for Black Economic Empowerment 
(BEE) were implemented. The Government therefore targeted the SME sector as one of the 
economic empowerment vehicles to empower people. As a result, the SMME sector received 
significant attention and investment ranging from the establishment of state initiated projects to 
supportive legislation; a variety of funding institutions and government incentives through the 
Department of Trade and Industry (DTI). The Small Business Act, passed in 1996, helped to 
establish many of the supportive structures now in place (South Africa. Info 2006:1). However, 
it should be noted that the gap between the rich and poor has grown since 1994. This has been 
mirrored by a substantial increase in the income gap within the black community. According to 
the F.W. De Klerk Foundation, South Africa has failed quite re-markedly to realise one of the 
central goals of the constitution - the promotion of greater equality among all South Africans 
(JCC, 1997:26). In 2004, 57 percent of South Africans were living below the poverty line of 
Rl 290 a month for a family of four. At the RIO 000 per capita per month income levels, less 
than 10 percent of Africans, 20 percent of Coloureds and 40 percent of Indians have this real 
monthly income or more, whilst the equivalent proportion of whites is just under 80 percent 
(JCC, 1997:26). 
This is underscored by the Theil index that showed a declining share of between group 
inequality from 62 percent to 40 percent between 1975 and 2001 , whilst within-group 
inequality rose from 38 percent to 60 percent during the same period. The former Archbishop 
of the Anglican Church criticised South Africa ' s BEE when he gave the 2005 Nelson Mandela 
lecture saying it enriched only a small elite not the vast majority (JCC, 1997:26). According to 
18 
Towards a Ten Year Review, a discussion document reviewing the impact of the government's 
policies since 1994, there were 2.3 million people who owned at least one Value Added Tax 
(VAT) unregistered company. Of these, only 338 000 owners had employees, a total of 734 
000. The above numbers may raise the question of the job creation potential of these 
enterprises, but it also demonstrates the level of self employment, a large portion of which may · 
be survivalist (South Africa Info. 2006: 1) . 
Value Added Tax (VAT), or goods and services tax (GST), is tax charged on the consumption 
of goods and services, (VAT Act No. 1 of 2001 in Botswana Unified Revenue Service (BURS, 
2001 :3). BURS is a semi autonomous agency of government responsible for assessing and 
collecting tax revenue as well as border administration (The Botswana Gazette, 3rd - 9th 
October, 2007:4). 
Data on small and medium enterprises suggested that these enterprises contributed about half 
of total employment, more than 30 percent of total GDP. Also one out of five units exported is 
produced in the small and medium sector in South Africa. That Small, Medium, Micro 
Enterprises (SMME's) generate jobs, has been proved by the fact that between 1996 and 1999 
employment in the informal sector increased from 19 per cent to 26 per cent (South Africa 
Info. 2006: 1) . 
The above statistics clearly show that SMEs play a vital role in the national economics of the 
respective countries. Nonetheless, much more important than their numerical predominance, is 
the significant role SMEs play in the overall economic development in these countries. In 
short, SMEs employ more workers per unit of capital as compared to large enterprises; they 
have formidable impact on regional economic development; they serve as a ' training platform' 
for upgrading and developing skills of industrial workers and entrepreneurs; and they 
contribute significantly to forward and backward linkages, and they play a vital complementary 
role to large and giant firms in the economy. SMEs create substantial employment 
opportunities because they use relatively labour intensive production techniques (Moha and 
Mond, 2000). 
19 
2.3.5. Botswana 
2.3.5.1. Financial Assistance Policy (F AP) - A Review 
The over dependence of Botswana in beef-cattle raising and diamond mining industries has 
resulted in high and growing level of unemployment and overdependence on imports of 
industrial goods as well as consumer goods (Chankuluba, 1998). 
On the positive side, the dependence on the 2 dominant industries had resulted in the country 
accumulating large budget surpluses. The high unemployment level and over dependence on 
imports for industrial and consumer goods had been issues of greater concern to the 
Government and the Government found it necessary to attend to such issues. To do this, the 
Government decided to make use of the surpluses accruing from the dominant industries, and 
accomplish national objectives of increased employment and economic diversification 
(Chankuluba, 1998). With the above objectives in mind, the Botswana Government in May 
1982 launched the F AP (Chankuluba, 1998). 
According to the report of the National Conference on Citizen Economic Empowerment 
(NACCEE, 2000), the FA P was the Botswana Government Financial Assistance through the 
provision of non-repayable grants to eligible business. The third evaluation of the F AP defines 
it as a scheme for giving government grants to new businesses in the private sector, plus 
additional grants for expansions of existing businesses (FAP, 1995). The key objective of the 
F AP was the creation of employment opportunities through productive activities. 
Complementary objectives included economic diversification and development of local 
entrepreneurial skills (FAP, 2000). The specific objectives of FAP were to (FAP Policy, 1982 
and FAP, 2000): 
► Create sustainable employment for unskilled labour; 
► Produce goods for export or to substitute for imports; 
► Diversify the economy to lessen its dependence on large scale mining, beef 
exports and growth of the public sector; and 
► Improve citizen skills levels through training 
20 
Given the emphasis on employment creation, FA P incentives were structured so as to 
encourage maximum employment of unskilled and semi-skilled workers (World Bank, 1993 in 
FAP, 2000:5). 
2.3.5.2. Administration of F AP 
Application forms for FAP could be obtained from the Ministry of Finance and Development 
Planning, Botswana Development Corporation (BDC), Commercial Banks, National 
Development Bank (NDB), Consulting firms, Rural Industries Offices in rural areas, Town 
Councils in urban areas as well as Ministries of Commerce and Industry (Now Ministry of 
Trade and Industry), Ministry of Mineral Resources (Now Minerals, Energy and Water 
Affairs) and the Ministry of Agriculture (FAP, 1995; FAP, 2000 and NACCEE, 1999). NDB 
is a government autonomous agency which carries out various agency functions for 
government for a fee, BDC serves as the Government's main arm for commercial and 
industrial development for example BDC was the source of finance for FAP beneficiaries' 
contributions. 
Integrated Field Services (IFS) offered training and advisory services to small and medium 
scale manufacturing enterprises. This division which fell under the former Ministry of 
Commerce and Industry offered two types of training; which is Business Management training 
and technical training (NACCEE, 1999). 
However, according to the Small, Medium and Micro Enterprises (SMME's) Task Force report 
in NACCEE (2000:242), the officials themselves did not have the skills or expertise to offer 
such training. Furthermore, the vastness of the area to be covered made it difficult for officials 
to reach all entrepreneurs. This suggests that the programme was not very effective in 
promoting citizen participation in economic activity (NACCEE, 2000). 
Any Motswana aged 18 years or more was eligible for assistance. Even public officers could 
apply for assistance, provided their proposed projects complied with the general orders 
concerning their employment by Government (NACCEE, 2000). 
Appraisal and evaluation of the F AP projects was based on information submitted by the 
project promoter. In most cases the promoter would have solicited the assistance of the FA P 
officer for help in completing the application form (FAP, 2000). After evaluation, 
21 
recommendations were submitted to the local Productive Development Committee (PDC) in 
rural areas and Local Administration Committee (AC) in urban areas for approval. The PDC or 
AC was supposed to consider recommendations for financial assistance from F AP officers. 
Each project was evaluated for compatibly with the FAP rules and procedures with particular 
attention to (FAP, 2000): 
► The nature of the project or activity; 
► Project promoters and details of origin; 
► Location and conformity to land allocation requirements; 
► Total investment envisaged in terms of size; 
► Project employment; 
► Market situation for example over trading; and 
► Applicable grant (amount and form) . 
Once the PDC or AC has approved a project, F AP officers took over the implementation in 
their respective areas by way of checking and implementing conditions prior to disbursement 
of funds . The same officer who presented the application would be the one who oversees its 
implementation, having served as the project advocate at the PDC or AC in his role as a 
member (F AP, 2000) . This was not an ideal situation because the officers were already 
interested parties from the beginning. 
Since its inception, FAP has been based on two basic principles; first, the benefits in the form 
of new jobs, generated tax revenues and it developed skills that should out-weigh the total cost 
of assistance provided by Government. That is cost benefit analysis which means the grant 
was offered, if and only if the expected benefit - cost ratio exceeds one. Second, the assistance 
from Government should be temporary. That projects should be able to continue on their own 
after the assistance period of 5 years expires (Ramatlapana, 1993). Eligibility for assistance 
from FAP was also restricted to certain types of 'productive ' economic activities. Originally 
productive activities, in the context of FAP, meant businesses or investment projects that 
produce or process products that were either exportable to other countries or that would replace 
products that were imported. Thus the focus was on manufactured products, small and 
medium scale mining, mineral processing and agriculture ( other than meat processing). 
Selected linking service industries and tourism came later as being eligible for assistance under 
F AP. Some businesses and industries were specifically excluded such as entertainment 
22 
(including casinos), shops and wholesalers, brewing and distilling, construction and other non-
linking services sector industries. The amount and type of assistance potentially available 
depended upon the size of the proposed project (FAP, 2000). Businesses that were eligible for 
FA P had always been divided into three size categories. These were small, medium and large 
scale projects. Each category had rules and regulations governing it (FAP, 1995). The FAP 
was coordinated by the Ministry of Finance and Development Planning, Sectoral Ministries: 
which is the former Ministry of Commerce and Industry, the Ministry of Agriculture and the 
former Ministry of Mineral Resources and Water Affairs played major roles in the 
implementation of the FAP policy (FAP, 1995). 
2.3.5.3. Small Scale F AP 
The Small Scale FAP scheme had for many years been the Government's main form of 
financial assistance to small and micro enterprises in Botswana. It was restricted to Botswana 
citizens, and was applicable to enterprises in manufacturing, certain agricultural activities, and 
services including tourism and repair services. Assistance took the form of cash grants payable 
against the capital cost of establishing enterprises or expansions of existing ventures in the 
eligible sectors, as well as a small contribution towards capital. The level of grant payable to a 
project was determined according to a range of criteria, including the location of the project, 
whether the promoter was male or female and the number of jobs that were projected. The 
maximum grant payable was 90 percent of the capital cost of the project. FAP, Small scale 
projects were defined as those with a maximum investment in fixed assets of P25 000 and the 
owners contribution was five percent. However as a result of the recommendations of the 1995 
evaluation report the maximum investment figure was increased to P75 000 and owners 
contribution to 20 percent (FAP, 2000). All payments or disbursements were made in the first 
three years of the project's operation, although grantees could apply later for expansion grants. 
NDB regional offices disbursed FAP funds to small scale projects. When payment has been 
done by NDB, responsibility then reverted to F AP officers for actual implementation and 
monitoring (FAP, 2000). Small scale businesses received a 'once off capital grants to assist 
with start up or extension of certain projects in manufacturing, agriculture and tourism (FAP, 
2000). 
23 
The former Ministry of Commerce and Industry and the Ministry of Agriculture each kept a 
computerised data base of their respective small scale projects. The data bases had provision 
for the following information (FAP, 1995): 
► FAP code; 
► Location; 
► Activity description; 
► Entrepreneurs names and sex; 
► Projected employment levels; and 
► Approved amount. 
There was also a space in the data bases for the actual amount disbursed but this information 
was not always entered (FAP, 1995). Information available at the former Ministry of 
Commerce and Industry (Now Ministry of Trade and Industry) indicated that between 1982 
and 1994, the number of F AP small scale grants approved was 4400 and between 1994 and 
1999 FAP small scale projects approved were 7121. The above information was supplemented 
by data from IFS stations (FAP, 2000). Disbursements under small scale FAP at current prices 
between 1982 and 1993 was P39.3 million (FAP, 1995). However, after the 1995 evaluation 
there was a high increase in Small Scale disbursements resulting in the expenditure rising to 
P232 million between 1982 and the 1998/99 financial year (FAP, 2000). 
The assisted projects were being monitored for performance profitability and sustainability, but 
there were no systematic or regular monitoring schedules nor was there capacity to carry out 
the required monitoring (FAP, 2000). This was one of the serious weaknesses. In principle, 
Small Scale FAP projects were being monitored by the FAP unit of NDB through its 
monitoring section and through the extension services of the sectoral ministries, that is 
Integrated Field Services and the regional and district agricultural offices. The industrial 
officers and the agricultural officers were supposed to visit each small scale project within their 
areas once every three months for the first five years of its operation (FAP, 1995). 
2.3.5.4. Evaluation of F AP 
The FAP was evaluated four times in the years 1984, 1988, 1995 and 1999. The 1984 study 
was prepared for the Botswana Government by the Christian Michelsen Institute (CMI) 
24 
Norway after the F AP had been in operation for two years. The main conclusion was that FA P 
was a worthwhile effort and should be continued. The recommendations were broadly 
supported by Government (FAP, 1995). The second study was done in 1988. The study was 
prepared for the Botswana Government by the National Institute for Development Research 
and Documentation (NIR) of the University Of Botswana (UB). Again the evaluation was on 
the favourable but some recommendations were accepted, some amended and some were 
rejected (FAP, 1995). 
The Ministry of Finance and Development Planning published detailed Terms of Reference for 
the Third Evaluation of the F AP in 1993. The evaluation was done by Phaleng Consultancies 
(PTY) Limited. The study found that since its inception in 1982, the F AP had succeeded in 
meeting its main goal, that of creating new jobs for unskilled citizen employees in a fairly cost 
effective manner (FAP, 1995). 
The objective of encouraging citizens to go into business had been achieved. Jobs had been 
created throughout the country, including most parts of the rural areas. A large number of 
women had been encouraged to become entrepreneurs. There had been considerable 
diversification of economic activity, but most of that took place early in the programme. The 
cost to government of job creation in small scale firms was estimated to have been reasonably 
low, the same order of magnitude as creating jobs on labour intensive employment schemes 
(FAP, 1995). 
Administration of small scale F AP had been weak as the system for maintaining a computer 
data base was poor. The small scale F AP had suffered from problems due to poor monitoring 
and some abuse of F AP had occurred. There had been a tendency to continue approving small 
scale projects in over traded sub-sectors. The third evaluation (1995) report observed that 
reducing unemployment still remained a major challenge. It argued that it would be crucial for 
FA P to focus on labour intensive enterprises. The study made several recommendations. 
Among these were (FAP, 1995): 
► Recruitment of monitoring officers for FAP projects; 
► The extension of F AP to Tourism and Borehole repair (National Budget Speech, 
1997); 
25 
► The boundary for the small scale FA P was among the major changes in F AP as 
a result of the recommendations of the Third Evaluation. The fixed investment 
was increased from P25 000 to P75 000; and 
► The minimum equity contribution by the entrepreneur was increased from 5 
percent to 20 percent of the start-up investment (National Budget Speech, 
1996). 
In April 2000, the Ministry of Finance and Development Planning published a report entitled 
"Report of the National Conference on Citizen Economic Empowerment'' (NACCEE, 1999). 
This conference took place from 5th to ih July 1999 in Gaborone. In opening the conference, 
the then Minister of Finance and Development Planning noted that preparations were made by 
a committee of Government and private sector representatives following up a recommendation 
of the National Business Conference held in Francistown in October 1998, and that a wide 
spectrum of interest groups had been invited to be represented at the conference. The Minister 
summarised the objectives of the conference as to (NACCEE, 1999): 
► Agree on a working definition of Citizen Economic Empowerment (CEE); 
► Consider practical options to achieve sustainable Citizen Economic 
Empowerment; 
► Assess the present status of Citizen Economic Empowerment in Botswana 
including government policies and measures by the private sector and Non 
Governmental Organisations (NGO's); 
► Consider whether and in which areas of Citizen Economic Empowerment 
further measures need to be taken by the Government, the private sector and 
other stakeholders; and 
► Consider appropriate recommendations for a National Policy on Citizen 
Economic Empowerment. 
At this conference, the F AP was also discussed and it was found that benefits under the small 
scale FA P were short lived. The conference concluded that a lot had been done for citizens to 
participate in the economy, but efforts to improve implementation of policies like F AP should 
be improved (NACCEE, 1999). As a result of the discussions at the above conference, in 1999, 
the government (through the Ministry of Finance and Development Planning) commissioned 
the Botswana Institute for Development Policy Analysis (BIDPA) to carryout the fourth 
evaluation ofFAP. 
26 
The Terms of reference and subsequent discussions with the reference group for the project 
indicated that the review should assess F AP as a whole, rather than concentrating on "fine-
tuning" it. Therefore the evaluation had focussed on two main questions. First, has F AP been 
successful in achieving its objectives of sustainable employment creation, especially during the 
period since the last evaluation in 1995? Second, is F AP or something similar to it, likely to be 
an appropriate investment incentive for Botswana over the next one or two decades (FAP, 
2000)? 
The main questions that evaluation was seeking to answer were the following (FAP, 2000): 
► To what extent had small scale F AP been successful in achieving its objective 
of assisting in the establishment of sustainable small enterprises and sustainable 
jobs? 
► Is the scheme cost effective in achieving its objectives? 
► What are the main problems encountered in the implementation of small scale 
FAP? 
Depending on the answers to these questions, recommendations were to be made as to whether 
small scale F AP should be continued, and if so what kind of reforms should be introduced in 
its operation (FAP, 2000). The 4th FAP evaluation report observed the following (FAP, 2000): 
► That small scale FAP had expanded enormously since the 3rd evaluation with 
major increases in the number of projects approved and in grants committed and 
disbursed; 
► The number of jobs projected to be created in small scale FAP projects has not 
kept pace with the rising expenditure on small scale F AP; 
► The number of actual jobs created by Small Scale F AP was well below the 
projected number of jobs. 
► The net result of the above developments was that the cost to Government of 
creating a job through small scale F AP had risen enormously. To create a 
sustainable job (one that lasted for five years or more) costed P170 000 for 
industrial projects and P207 000 for agricultural projects. To create one job-year 
27 
of employment in a small scale F AP enterprise costed P9 700 for industrial 
enterprises and P16 600 for agricultural enterprises (FAP, 2000). 
► The survival rate for small scale F AP enterprises was by then much lower than 
that found at the time of the 1995 evaluation; it was estimated that 25 per cent 
of all small scale individual projects failed each year, and that only 25 per cent 
lasted for five years or more, and that 33 percent of all small scale agricultural 
projects failed each year with only 15 percent lasting for five years or longer 
(FAP, 2000) . 
The same sentiments were repeated by then Minister of Finance and Development Planning 
in the National Budget Speech of 2001. He stated that about 7 5 percent of small scale F AP 
projects have not survived beyond the period of existence that is five years. This situation 
shows that small businesses are in a high risk area with a failure rate of between 90-95 
percent (Ramatlapana, 1993). 
With such a high failure rate, why would any sensible person start a small business? 
According to Megginson, Scott, Trueblood, Megginson in Ramatlapana, (1993 :7), there are 
three reasons why people start small businesses. One of the reasons was stated as to 
achieve independence. This independence means the ability to make any decision and take 
action without control of supervisors (Megginson et al in Ramatlapana, 1993 :7). 
The second reason is that people start small businesses to obtain needed income or to 
supplement existing sources of income (Megginson et al in Ramatlapana, 1993:7). 
Thirdly, formation of small businesses might be necessitated by non-availability of certain 
products elsewhere. The small businessman in starting a small business, attempts to satisfy 
personal desires and goals. In certain situations people start small businesses not out of 
choice, or desire to supplement their income, nor in pursuit of independence but largely 
because of unemployment (Megginson et al in Ramatlapana, 1993:7). 
The creation of employment to a small business is a secondary objective, while to the 
Government; employment creation is a primary objective (Ramatlapana, 1993). In setting 
up a business to satisfy his desires, the businessman indirectly is satisfying Governments 
28 
prunary objective of creating employment, the invisible hand of Adam Smith 
(Ramatlapana, 1993). 
In Botswana the availability of the F AP can be considered the 4th factor which influenced 
people to start business. The need for initial capital was greatly reduced. Hence, those 
who may not have started businesses in the absence of FAP may have done so because of 
the existence of financial assistance to be offered (Ramatlapana, 1993). 
According to Fubara (1987) in Ramatlapana, (1993 :8), research evidence shows that those 
who started their own businesses were: 
► People who had retired from paid employment; 
► Those not satisfied with paid employment; 
► Those who wanted independence; 
► Those unable to obtain paid employment; and 
► Those who wanted to be entrepreneurs 
It is therefore of vital importance that before one starts a small business, an opportunity must 
have been identified in that kind of business. The above five factors must therefore be coupled 
with opportunity identification. 
2.3.5.5. Reasons for the poor performance of small scale F AP firms 
There were many reasons that led to the failure of many small scale FA P projects. Some of 
these reasons were indicated in 1999 by the then Minister of the former Ministry of Commerce 
and Industry when answering a question in parliament. 
According to the Botswana Daily News paper, the Minister said that many small scale 
businesses failed because they were run by entrepreneurs with limited skills in management, 
particularly in maintaining and use of business records. Other factors which contributed to 
failure of projects included inadequate skills in managing the work force, timely purchasing 
and maintenance of inventory or raw materials, efficient production and effective marketing of 
their products. He continued to say besides failure to capture adequate export markets, some 
29 
businesses collapsed because their owners did not devote sufficient time to managing them 
(The Botswana Daily News, 15th March 1999) 
In today's fiercely competitive market, these constraints need to be eliminated. In addition the 
4th evaluation of the F AP stated that discussions with officials in the administration and 
implementation of small scale F AP revealed a number of major problems that lay behind the 
scheme's poor performance. These included (FAP, 2000): 
► Inadequate appraisal of projects and lack of clear effective criteria on 
which to base decisions; 
► Inadequate monitoring and after care of grant recipients; 
► Over trading in certain sectors; 
► Perceived political pressure maximised grant approvals and 
disbursement at the expense of quality; 
► Lack of commitment by grant recipients to their projects; 
► Numerous Integrated Field officers reported instances of political 
interferences in decisions to award small sale F AP grants. Such 
interference came from Councillors and Members of Parliament. On a 
more general level, politicians had undermined small scale F AP by 
promoting it as a "right" (like drought relief) and not emphasising that it 
is only intended for those people who have a realistic chance of 
becoming successful entrepreneurs. They saw it as a scheme with which 
to buy votes (FAP, 2000); and 
► There was widespread fraud and abuse of small scale F AP grants by 
recipients and suppliers of equipments. According to the evaluation, 
fraud and abuse characterised the majority of grant applications and 
approvals. Almost universally, the price of capital goods provided under 
the FAP grants was inflated to provide the entrepreneurs obligatory 
contribution (FAP, 2000). 
Other types ofFAP abuse included (FAP, 2000): 
► Suppliers providing second hand instead of new equipment, or in other ways 
not providing the equipment that was specified and paid for; 
30 
► Suppliers not supplying equipment at all despite being paid for it, or 
supplying it "on loan" so that it is available for inspection by Integrated 
Field Services (IFS) officers prior to removal and later supply to another 
small scale F AP "project" 
► The sale of equipment by grantees during the initial two year period where 
the equipment belonged to government and the grantee was just a trustee; 
► The inflation of employment projections above realistic levels so as to 
secure higher level of grant; 
► Fronting of female for male applicants or of Botswana citizens for 
foreigners. Grants for women were 15% over and above those of men; 
► Since the 3rd evaluation; however, there had been mounting evidence that 
the number of cases of abuse was growing. In particular, collusion between 
suppliers and recipients initially aimed at obtaining the F AP recipient 
contribution had escalated and become more sophisticated, and crossed the 
line from abuse to fraud. That increasing sophistication of F AP related 
fraud - involving schemes deliberately designed to defraud government 
resulted in the establishment of the specialised unit within the Directorate on 
Corruption and Economic Crime (DCEC); 
► There were also an increasing number of cases identified by IFS officers 
some of which were reported to DCEC where F AP applicants had no 
intention of starting a project and colluded with suppliers with the sole 
objective of defrauding government. A typical example of such fraud is 
where an application was made for an FAP grant supported by supplier's 
quotations for equipment. After the approval of the grant, the equipment 
was delivered to the applicants' premises and signed for by the applicants. 
However after being checked by an IFS officer, the equipment was then 
taken back by the supplier after paying an agreed amount to the bogus FAP 
applicant. In some cases the equipment was recycled across a number of 
bogus schemes; 
► A variation on this type of fraud consists of genuine F AP projects, but 
involved collusion between suppliers and the applicants for the oversupply 
of equipment or raw materials. Again after it had been checked by IFS 
31 
officers, the extra equipment would be taken back by the supplier who 
shares the profit with the F AP beneficiary; and 
► The reduction in the number of small stock for which a small scale FA P 
grant could be obtained had given rise to similar ' scams' using the same 
flock of goats or sheep to obtain multiple grants. The goats were moved 
around the various bogus FAP projects whenever an IFS officer/Integrated 
Field Officer made a visit. 
In some instances, genuine F AP applicants were defrauded by suppliers in the following 
ways (FAP, 2000): 
► Cases included suppliers who required FA P beneficiaries to sign for goods 
before they were received and then claimed payment from NDB against the 
signed delivery note. The equipment however was never delivered; 
► Other examples of how small scale FA P beneficiaries and government were 
defrauded, were through the supply of reconditioned equipment being passed 
off as new, and the supply of obsolete or inappropriate equipment; 
► For example there were documented cases where sewing projects in rural areas 
had been supplied with electrically driven sewing machines, but the FA P 
recipient had no electricity. Other cases were where three phase industrial 
sewing machines were supplied in areas where only single phase power was 
available; and 
► According to the DCEC, there were an increasing number of suppliers 
establishing themselves in Botswana with the primary purpose of providing 
equipment for FAP supported projects. Many suppliers according to the DCEC 
had also started a dual pricing system - with higher quoted prices for FA P 
supported projects compared to non - FA P projects. 
Abuse and fraud had a large number of undesirable effects including (FAP, 2000): 
32 
► Inflating the cost of projects and hence job creation; 
► Reducing the survival rate of projects approved because some of them are 
'bogus' projects where there was never any intention; 
► Helping to enrich corruption in the fabric of society; 
► Wasting public funds; and 
► Reducing the entrepreneur's commitment to the project as their effective 
contribution is very small or zero. 
The main findings of the 4th evaluation of FAP, 2000 were that the programme was no longer 
effective in achieving its objective of promoting sustainable employment creation. 
Furthermore, it had become inappropriate to Botswana's needs and was not addressing the 
main constraints to investment and the development of sustainable productive enterprises. The 
review concluded that the programme's shortcomings could not be dealt with while its basic 
structure remained in place. It was then recommended that the programme be terminated and 
replaced with an alternative form of support for the promotion of sustainable productive 
activities. As a result, the programme was terminated in June 2001 and replaced by the Citizen 
Entrepreneurial Development Agency (CEDA), which provides loans and mentoring to citizen 
owned projects in all sectors of the economy (NDP. Vol.9, 2003). 
In 2001 , when the Citizen Entrepreneurial Development Agency (CEDA) was established, the 
administration of the F AP was transferred from the NDB to CEDA. CEDA is an autonomous 
institution which was established in an effort to improve the efficacy of citizen enterprise 
development programmes. The institution was to coordinate and manage some of the existing 
as well as additional programmes aimed at the development of citizen owned business 
enterprises through the development of entrepreneurial and managerial skills (National Budget 
Speech, 2001). 
An unpublished report from CEDA entitled "Report On F AP Clean Up as at September 2006" 
states that the report itself was prepared to map the process of winding up the FA P Scheme. 
The report indicated that the FA P was discontinued in June 2001 with the last grants approved 
in 2002. According to the report, there were grantees whose projects had balances because 
they were not disbursing and some could not even be located during the monitoring exercise. 
The report concluded by indicating that it was no longer cost effective to continue monitoring 
projects which were not viable and non existent. The report called on management to take a 
33 
decision to make the announcement setting a deadline for grantees to have disbursed all their 
grant balances. The F AP policy is clear that after two years, ownership of assets passes to the 
grantee. The announcement was carried out in the newspaper called the Mirror (22 November, 
2006:6) 
2.4. CONCLUSION 
Small business firms form a substantial proportion of the total number of establishments in 
many countries. Despite their failure rate, they have the following advantages: 
► They generate more job opportunities than large organisations; 
► They are a source of innovation; 
► They result in many citizens participating in the economy; 
► They serve as training ground for skills development of industrial workers and 
entrepreneurs; and 
► They assist in diversifying economies of countries. 
It is obvious that as countries develop, small business will become even more important and 
will be accorded greater priority. Nonetheless, the development of small business firms is 
constrained by a number of problems. The most serious problems faced by the small business 
are financial aid, premises, shortage of skilled labour, training and technology, limited skills in 
management, inadequate skills in managing the work force, timely purchasing, and 
maintenance of inventory or raw materials and marketing of products. 
The above discussion indicates that small businesses require vanous forms of assistance. 
Small business needs highly organised and systematic entrepreneurs even more than giant 
entrepreneurs. This is because they have relatively small limited resources to withstand any 
major mistakes in their resources. 
If government policies were more favourable and if adequate financing, technical assistance, 
extension and advisory service as well as infrastructure support were available and economical, 
a more prosperous growth and development of individual small businesses in all countries 
could be expected. This means that for the small business sector to flourish and prosper, 
34 
Governments must create a conducive environment for such. The next chapter deals with the 
theoretical/conceptual framework. 
35 
CHAPTER3 
THEORETICAL/CONCEPTUAL FRAMEWORK 
3.1. I TRODUCTION 
This chapter discusses a critical review of the various theories/factors that have a bearing on 
the problem, in this case on small business failures in Botswana. The guidelines which will 
culminate in the hypothesis or research questions are drawn from this chapter. 
3.1.1. The Small business and its problems 
The importance of the small business in national economic development is widely recognised 
in many countries, developed and developing alike. However, a small business is confronted 
by many problems. Some of the major problems faced by the small business are inherited, like 
the small size. Problems faced by the small business inhibit their full potential. (Moha and 
Mohd, 2000). The nature of the small business makes it difficult to manage efficiently. One of 
the major weaknesses is that the owner or manager is involved in a 'one person show doing 
everything and delegating nothing ' (Ramatlapana, 1993). 
The owner/manager believe that there is only one way of doing things, and that is the 
manager's way whether it is right or wrong. Decision making is extremely centralised. When 
the manager is not available, the business is paralysed (Ramatlapana, 1993). 
As the manager is responsible for running the entire firm, he does not allocate enough time to 
vital business areas such as strategic planning, organising, leading and controlling 
(Ramatlapana, 1993). 
3.2. FACTORS OF BUSINESS MANAGEMENT 
3.2.1. Business Knowledge 
Failure to have adequate knowledge about the business leads to a situation where external 
opportunities are not taken care of and firms' weaknesses are not identified. If weaknesses are 
36 
identified, they can be turned into strengths. Small businessman fails to take an active part in 
business organizations such as Chamber of Commerce. Hence they are not exposed to new 
opportunities and new approaches to solving business related problems. The businessman is 
not familiar with all suppliers of commodities he is trading in (Albert, 1977 in Ramatlapana, 
1993:13). 
3.2.2. Business Management 
It is well documented that the effectiveness of the management of enterprises is very much 
affected by the entrepreneurs. The ability of managers to perform has very important bearings 
on the performance of the business (Hornaday, 1982; Foley, 1987, Anderson, 1987 in Maha 
and Mohd, 2000:7). Management problems in small business arise largely because many of 
their entrepreneurs have neither a high level of education nor any professional training. 
Simultaneously, these entrepreneurs have to be familiar with many aspects of management 
such as finance, personnel, sales, production. Small business entrepreneurs perform poorly in 
many areas of management such as book-keeping, marketing, costing, warehousing, stock 
control, production scheduling and quality control. The entrepreneurs, in some cases, either do 
not understand financial statements or do not use them for planning purposes (Maha and 
Mohd, 2000). 
The value of physical assets such as machinery, plant, tools and equipment is unknown and no 
systematic inventory is made. Stock is rarely recorded according to type, quantity and value. 
Many entrepreneurs tend to adopt an autocratic approach in management style of their 
enterprises (Maha and Mohd, 2000). In most cases, small business entrepreneurs do not even 
understand cash management. The revenue from sales is regarded as their own personal 
money as some of them do not even maintain a bank account. They do not understand the need 
for daily banking or depositing as and when money becomes available. Some of the money 
received from business is utilized without ever going to the bank for those who maintain bank 
accounts. Business expenses are not distinguished from personal expenses. Furthermore, 
Albert, (1977) in Ramatlapana, (1993:13) stated that "Good management is the life blood of a 
successful business'. The ability of small businesses to retain their strategic positions in the 
economy to compete effectively with large business firms rests primarily on the shoulders of 
the owner/manager. The leadership provided by competent managers is paramount for 
strengthening the firm 's position in the business community. 
37 
According to Wood, ( 1978) in Ramatlapana, ( 1993 : 13 ), the good manager focuses attention on 
opportunities not problems. He spends his time on activities that will produce the greater 
results. Small business managers are said to spend their time "trying to do things right" that is 
efficiently, instead of 'doing the right things ' (Wood, 1978 in Ramatlapana, 1993:14). 
Too many small firms are run inefficiently, offering poor service, late payment, low wages and 
poor working conditions. If the managers of these small businesses paid more attention to 
improving profitability, the small business would be able to offer better service, prompt 
payment, higher wages and better working conditions (Ramatlapana, 1993). 
Success in practicing the art of management calls for imagination, courage, enthusiasm and a 
shrewd sense of judgment. It demands the ability to recognize and exploit new opportunities 
and new ideas. Pickle and Abrahamson, (1984) in Ramatlapana, (1993 : 14) identified the 
following as the consequences of inadequate management: 
a. Credit Control 
Small firms must guard against extending too much credit which often results in substantial 
bad debts. 
b. Sales Volume 
Inadequate sales represent a common problem of the small firms. Income for the firm is 
generated by the sales. Without income the result is obvious, failure of the business. Many 
reasons contribute to a poor sales record. Some of the most commonly identified factors 
include poor location, inferior products, ineffective advertising, and prices out of line with 
those of competitors and poor customer service. 
c. Inadequate Inventory Control 
Small businesses often do not have specialized and technical skill required for proper 
management of the firm such as control of inventory. An excessive inventory results in too 
much capital been locked up in stock and inadequate inventory may lead to loss of sales. 
38 
NWU 
LIBRA-R·Y  
d. Location 
This is one area which it is said is not receiving the attention it deserves. A location is often 
selected for some reasons such as reasonable rent, and proximity to owner/managers without 
giving priority to salient locational factors necessary to build a successful business. 
e. Negligence 
The owner/manager is often faced with problems of appropriate time allocation between his 
business needs and other family needs and community needs. Sometimes the business is 
neglected because of the owner's poor health, laziness, and due to marital problems 
(Ramatlapana, 1993). 
Managers need to be trained in management tactics and strategies. The managers of small 
business are often technical people who do not know anything about management. 
Appropriate training should be given to management if they are to fully execute their 
managerial functions. According to "Business failure record" published by Dun and 
Bradstreet, (1985) in Ramatlapana, (1993:15), nine out of ten small business failures can be 
traced to lack of managerial experience and lack of aptitude. 
According to Albert, (1977) in Ramatlapana, (1993:15) "The decline of the Ford Motor 
company during the thirties was attributed by modern business writers to Mr. Ford's refusal to 
develop a management team. 
f. Resource Planning 
Businesses that fail to plan are said to be planning to fail. A written plan is a road-map for 
reaching a goal. The worst plan is having no plan. Without proper planning, an organization 
cannot control and direct its activities towards achieving the organization goal. Small 
businesses are not in the habit of preparing budgets. Budgets are an essential management tool 
for control of company activities through comparing actual performance against budgeted 
performance and allow management to concentrate on areas which show unacceptable 
variations from budgets. (Jones and Persy, 1983 in Ramatlapana 1993: 17) 
39 
Delaney (1984) in Ramatlapana, (1993 :17) stated that, "No amount of effort, dedication, hard 
work or devotion can ever turn a bad or non existent plan into a good plan. However a good 
plan does not guard against failure sooner or later". And also that "There is no better way to 
prepare for successful business operation than by learning the ingredients of good planning, 
having experience in the particular line of business and knowing the essentials of 
management". Managers are too involved in day to day operation such that they end up failing 
to execute their managerial function. According to Kuel, Lambing and College, (1987) in 
Ramatlapana (1993 :18), a business plan can assist with management control to help obtain 
finance and provide a roadmap for the company. 
g. Experience 
Decision making in an organisation is often based on personal judgment. It is believed a new 
manager does not have the rich experience in running the business like a long serving manager 
(Ramatlapana, 1993). Albert (1977) in Ramatlapana, (1993 :18) identified poor record keeping 
as one of the major causes of small business failures. He went on to say, "Good records are an 
essential part of operating a successful business. Accurate and up to date records, are 
necessary to exercise managerial control". He further stated that good records can be used to 
obtain finance from the bank, to project meaningful budgets, to substantiate the performance of 
the business if you decide to sell and that they are an integral part of a good business operation 
to satisfy government requirements. 
Delaney (1984) in Ramatlapana, (1993: 19 stated that: 
"In business it is simple. You are winning when you are making profit and you are losing 
when you are not". However what if you cannot tell the difference? This signifies the 
importance of keeping proper records. Because of limited financial resources and expertise, 
small business entrepreneurs have relied on "hunch" or intuition rather than marketing research 
techniques. Marketing research is the process of collecting, recording and analyzing data 
pertaining to the target market to which the firm caters. Marketing research survey can provide 
the small business owner with the means to accomplish the following: 
► To determine if the firm is obtaining a reasonable share of the market; 
► Identify changes in consumer interests, tastes and habits; and 
40 
► To identify what consumers like about the business so the features may be 
continued and reinforced. 
Marketing research is very important for the long term survival of the small business because it 
enables the small business owner to base decision on facts instead of hunches. 
h. Credit facilities 
The financial system in most countries is developed especially in terms of a number and 
variety of institutions. Nonetheless despite the fact of the existence of these institutions and 
the large amount of credit extended by them, it is observed that small businesses are still 
generally short of credit. This inhibits the expansion and development potentials of small 
business. (Ramatlapana, 1993). 
i. Market and Export Penetration 
According to Moha and Mohd (2000), SME's are also staffed by employees who suffer similar 
deficiencies as entrepreneurs. Most SME's employers have lower or little education and 
qualification, and little preview training. The problem affects SME's severally because SME's 
are often unable to compete with their large counterparts for skilled and highly qualified 
employees. In many cases SME's find it difficult to obtain and retain skilled labour because of 
their inability to pay competitive wages. Problems in marketing SME's products are due to a 
number of factors such as poor designs, poor quality of finished goods due to use of poor 
quality raw materials and lack of quality control, lack of skilled labour, lack of after sales 
services (Moha and Mohd, 2000). As a result SME's face problems in marketing and lack of 
export penetration, including keen competition, delivery difficulties, customer problems and 
export market. 
The difficulties in finding an export market are also due to a number of external factors like 
stiffer competition from other exporting countries, the price increase of raw materials and the 
fluctuations in international currencies. However, SME's seem to play a more significant role 
in the export of manufactured products in more advanced countries. Evidence shows that 
SME's in Japan accounted for nearly 60 per cent of total manufactured exports while SME's in 
South Korea contributed around one third of the country' s total exports (Moha and Mohd, 
2000). 
41 
j. Technology 
SMME's have problems with poor access to technology. This is generally manifested in their 
labour intensive type of production, traditional methods and low productivity and low quality 
of products. In this relation, their production methods have failed to keep up with new 
techniques or modem technology. In many cases factory layout is often poor with simple 
outdated machinery and no testing facilities as well as quality control being limited and 
minimal. All these, in tum result in a large proportion of SME's products being defective 
(Moha and Mohd, 2000). 
k. Premises and sites 
SME's are found to have inadequate space, unsuitable sites and offices. Many of them are also 
believed to have insufficient land, sites or premises for expansion or in some cases even for 
their present scale of operation. The shortage and narrow choice of site and premises as 
compared to large enterprises is largely due to their shortage of capital. This limitation forces 
some SME's to locate their operations in places that are not suitable for industrial purposes 
such as residential areas, illegal land, or backyard factories. This may affect volume and 
quality of production when the factory space is small, layout is not functional and the work 
place is clustered with raw materials, machinery and tools. Moreover, some SME's do not 
have a conducive working environment where factories are poorly lighted, ventilation is poor 
and the floor is dirty and strewn with all kinds of equipment and materials (Moha and Mohd, 
2000). For some SME's located in illegal sites, they create environmental problems for 
residential areas in the form of noise, dirt, refuse and fire risks. Indeed, relocation is not easy. 
Besides new locations that are not suitable, lack of incentives and more importantly the high 
cost deter the effort to relocate SME's and hence they are left with very real constraints with 
regard to sites and premises (Moha and Mohd, 2000). 
According to Ramatlapana, (1993) a survey of 703 small business companies conducted by 
Minolta Corp (USA) identified five major areas that cause business failures as follows: 
► Lack of capital 48 percent 
► No business knowledge 23 percent 
► Poor management 19 percent 
► Inadequate planning 15 percent 
42 
► Inexperience 15 percent 
3.3. CONCLUSION 
It is undoubtedly clear that the abovementioned factors are key determinants for the success of 
the small business. It is therefore of vital importance that owners/managers of small businesses 
must know these factors and understand how they affect the business. Some of these factors 
affect the business environment and any business that ignores environmental scanning cannot 
survive. This therefore means that owners/managers of small business cannot afford to ignore 
these factors if they want to see their businesses growing and succeeding. If entrepreneurs 
continue to ignore these factors, the small business sector will not grow regardless of the size 
of funding used to assist the sector. 
The next chapter deals with the Research Design and Research Method. 
43 
CHAPTER FOUR 
RESEARCH DESIGN AND RESEARCH METHOD 
4.1. INTRODUCTION 
In this chapter, a detailed description of the research design and methodology along with the 
context of the study is presented. In addition, the instrument of data collection is discussed. 
Also mentioned is the justification for the methods chosen to perform this study. 
4.2. DEFINITION OF RESEARCH METHODOLOGY 
The term methodology refers to the theory of how research should be undertaken (Saunders, 
Lewis and Thornhill, 2003) . Research methodologies describe how to translate the research 
perspective into a way of studying the world. If research philosophy concerns the "study" of 
study; then research methodology concerns the 'study' of how to study. A research 
methodology may be implemented through several different research designs, the plan for 
conducting your study, through translating methodology into specific research methods, the 
techniques you use to collect and analyse data. In tum, research methods comprise specific 
techniques and tools, the physical or electronic artefacts associated with particular methods, for 
example a web survey, a questionnaire or an interview schedule (Maylor and Blackmon 2005). 
4.3. RESEARCH DESIGN 
The research design is how a researcher is going to conduct a research (Velde, Jansen and 
Anderson, 2004). According to Hair, Babin, Money and Samouel (2003), a research design 
provides the basic directions or ' recipe ' for carrying out the project. 
4.4 QUALITATIVE AND QUANTATIVE RESEARCH 
Velde et al (2004) states that Quantitative research is where the results are numerical in nature. 
Qualitative research is where the results are not directly numerical in nature, but are composed 
for example, of words, narrations or descriptions of behaviour, which must later be 
catergorised and quantified (converted into numerical value). According to Hair et al (2003), 
44 
Quantitative data are measurements in which numbers are used directly to represent the 
properties of something. Qualitative data represent descriptions of things that are made 
without assigning numbers directly. 
4.5 METHODOLOGY CHOSEN AND RATIONALE 
According to Velde et al (2004) it is common to use a combination of the methods and he calls 
it 'method triangulation '. He further stated that the researcher combines qualitative research 
(usually defined as observation research and interviews) and quantitative research (usually 
existing data and written questionnaire survey). He says 'in this way data sources complement 
each other and the researcher has the possibility of checking the information (d o the various 
sources provide the same results?) 
Based on Velde's et al contention above, this research used multi-programmed or method 
triangulation approach involving qualitative and quantitative methods of research. Qualitative 
technique was used for collecting, reviewing and analyzing literature. The qualitative design 
was most suitable as it facilitated flexibility and allowed entrepreneurs to describe their views 
and experiences. Analysis of responses from small business entrepreneurs was done through 
quantitative technique to determine results. Through this design, the researcher was able to 
appreciate the experiences of small business entrepreneurs and identify contributory factors to 
small business failures in Botswana. The survey strategy was adopted to collect empirical data 
from small business entrepreneurs because the survey method was found to be the most 
appropriate method for this research. The survey strategy is also simple to use. 
4.6 LITERATURE SEARCH 
Maylor and Blackmon (2005) state that a literature search mean the process of finding out 
more about a research topic, in particular a theoretical problem. The literature is the record of 
other peoples' research. It contains information about research topics, questions and data that 
accumulates as researchers conduct research projects and report their findings . A 
comprehensive literature search was undertaken in order to generate and refine the research 
ideas and assist in the formulation of the hypothesis propounded, secondly to indentify relevant 
material on the research topic for critical review and lastly to provide an idea for the empirical 
45 
research undertaken. Various sources were consulted and these compnse pnmary and 
secondary sources. 
4.6.1. Primary Sources 
According to Saunders (2003), primary literature sources are the first occurrence of a piece of 
work. He further said they include published sources such as reports and some Central and 
Local Government Publications such as White Papers and planning documents. They also 
include unpublished manuscripts sources such as letters, memos and committee minutes that 
may be analysed as data in their own right. Hair et al (2003) states that primary sources are 
collected for the purpose of completing the current research projects. He further said "Thus the 
researcher has been involved in every aspect of turning the data into knowledge. For this 
research, primary sources used were Central Government publications like White papers, 
planning documents like National Development Plans. 
4.6.2. Secondary Sources 
Saunders et al (2003) states that secondary literature sources such as books and journals are the 
subsequent publication of primary literature. Hair et al (2003) states that secondary data are 
data that have been collected for some other research purpose. For this research secondary 
sources such as books and journals have been used. 
4.7 SAMPLING 
Hair et al (2003) defines a sample as a relatively small subset of the population. Jankowicz 
(2000) defines sampling as the deliberate choice of a number of people, the sample, who are to 
provide data from which you will draw conclusions about some larger group, the population, 
whom these people represent. Saunders et al (2003) identified various techniques that can be 
used in random sampling. These are simple random sampling, systematic sampling, stratified 
sampling, and cluster sampling. 
46 
4.7.1. Simple Random Sampling 
Saunders et al (2003) define it as: "probability sampling procedure/technique that ensures that 
each case in the population has an equal chance of being included in the sample". The 
technique is used when the characteristics of the whole population are similar. Hair et al 
(2003) defines it as a straightforward method of sampling that assigns each element of the 
target population an equal probability of being selected. Jankowicz, (2000) states that simple 
random sampling involves a straight forward sampling frame of all people in your population 
not to classified in any way. 
4.7.2 Advantages of Sampling 
► Sampling can be very accurate as well as saving much time and money. Clearly 
using a sample instead of a census will save time and money, but if done right, 
samples can also be just as accurate as census. 
► Taking a sample allows survey research to be conducted at a single point in time 
so that opinions of all respondents are comparable. 
► A sample may achieve a greater response rate and greater cooperation in general 
from respondents and thus may be more accurate. 
For this research, simple random sampling technique was used to select small business 
entrepreneurs to which questionnaires were administered as it gave every entrepreneur a 
chance to be selected. The rationale for using a survey questionnaire as opposed to other 
methods was that it is reasonably cheaper, easy to administer, allows the collection of both 
qualitative and quantitative data though it can suffer from response rate. Additionally, 
unstructured interviews were also conducted at the time of data collection. This was especially 
necessitated by a need for clarity whereby either the respondent did not understand the 
question or researcher needed some clarification. A total number of 35 questionnaires were 
distributed to small business entrepreneurs in Gaborone and surrounding villages of Pilane, 
Ramotswa, and Molepolole 
47 
4.8 MEASURING INSTRUMNET 
The questionnaires containing 17 open ended questions were used to collect empirical data 
from small business entrepreneurs. 
4.9 PROCEDURE FOR DATA COLLECTION AND ANALYSIS 
Keizer and Kempen (2006) states that once it is clear what needs to be investigated, it must be 
decided how the required information will be collected. There are various methods of 
collecting information. The researcher must weigh up the pros and cons of each method and 
decide which is best. It is practically impossible to give general guidelines for doing this. The 
important point for the student to bear in mind is that the research results must be ' solid' 
enough to back up the proposals for organisational changes. The student' s results must stand 
up to claims that they are ' only' the researchers' subjective impressions. 
4.10. METHODS OF DATA COLLECTION 
Keizer and Kemper (2006) state that ' to set up the working plan and project organisation, it is 
necessary to decide which data collection methods will be used. They further said possibilities 
are participation, interviews, observations, analysis of documents, and measurements. 
According to Velde et al (2004), various data collection methods can be used as part of the 
research strategies and the methods were indicated as observation, interviews questionnaire 
and multi method. 
4.10.1. Interviews 
According to Robson (2002), interviewing as a research method typically involves you, as 
researcher, asking questions and, hopefully, receiving answers from the people you are 
interviewing. Interviews can be structured, semi-structured and unstructured. Interviews can 
be conducted face to face or through a telephone. 
48 
4.10.2. Unstructured interviews 
The interviewer has a general area of interest and concern, but lets the conversation develop 
within this area. It can be completely informal. An interview is a very useful method for 
qualitative (especially semi-structured and unstructured interviews) data collection and where 
probing is required to get the real views of the respondent. Interviews also allow the researcher 
to interact with the subjects of the research to provide clarification or expand areas of interest 
which in effect enriches the research and allow the researcher an opportunity to record some 
other fo rms of communication such as body language. However the problem with interviews 
is that they are difficult to arrange and are time consuming, as they require careful penetration, 
making arrangements to visit, securing necessary permission which talces time. This can 
restrict the size of the sample. The other problem is that the researcher may have an influence 
on the responses. 
4.10.3. Questionnaires 
Saunders et al (2003) describes a questionnaire as a general term to include all techniques of 
data collection in which each person is asked to respond to the same set of questions in a 
predetermined order. According to Walliman (2001) "asking questions is an obvious method of 
collecting both qualitative and quantitative information from people." He further explained 
that a questionnaire enables the researcher to organize questions and get replies without having 
to actually talk to every respondent. Questionnaires are cheaper to complete as both hand, 
postal and/or e-mail provide a cost effective method of contacting large sample size. However 
the method can suffer from poor response rates and if poorly constructed can have 
misinterpretation, hence lead to misleading results. The following are general principles to 
consider when drafting items for a questionnaire (Walliman, 2001): 
► Make sure that the question is clear; 
► A void any jargon or specialist language; 
► Avoid 'personal ' questions; 
► Do not ask two questions in one item; and 
► Avoid ' leading' questions which suggest indirectly what the right answer might 
be. 
49 
Advantages of a questionnaire (Walonick, 2003): 
► Questionnaires are easy to analyze, as data entry and tabulation for nearly all 
surveys can easily be done with many computer software packages; 
► Cost effective in time and money, as compared to face to face interviews; 
► Questionnaires are familiar to most people - nearly everyone has had some 
experience completing questionnaires and they generally do not make people 
apprehensive; 
► Questionnaires reduce bias. There is a uniform question presentation and no 
middleman bias. There are no verbal or visual clues to influence the 
respondent. 
► Questionnaires are less intrusive than telephone or face to face surveys; the 
respondent is free to complete the questionnaire on his own timetable. 
Disadvantages of a questionnaire (Walonick 2003): 
► Possibility of low response rates due to non-returns, which 1s a curse of 
statistical analysis. 
► Inability to probe responses, as they are structured instruments; as such they 
allow little flexibility to the respondent with respect to response format. This 
can be partially overcome by researcher allowing frequent space for comments. 
► Misinterpretation - When the respondent does not understand either the survey 
instructions or the survey questions. 
► Valid problems - The respondent can deliberately choose answers to mislead 
the researcher, or he can give the questionnaire to a friend to complete. 
For this study, both the questionnaire and unstructured interviews were used to collect data 
from entrepreneurs. The interviews were conducted face to face. The above general principles 
to consider when designing a questionnaire as recommended by Easterby-Smith et al, 1991 
were complied with. 
50 
4.11. DATA ANALYSIS 
Data analysis is the process of testing the research hypothesis. This means that the analysis 
tools used must be capable of providing some basis for determining whether the hypothesis is 
true or false . After the hypothesis have been developed, and before any information is 
collected, the researcher must decide how the hypothesis will be tested. For this research, the 
researcher had developed a hypothesis and tested it. The hypothesis tested was related to the 
questions in the questionnaire. The responses in the questionnaires were analyzed one after 
another. The data analysis was based on the frequency distribution (percentages) of responses. 
Aggregate response levels were calculated for all parameters under consideration. 
4.12. ETHICAL CONSIDERATIONS 
Saunders et al (2003) states that ethical concerns will emerge as you plan your research, seek 
access to organisations and to individuals, collect, analyse and report your data. In the context 
of research, ethics refer to the appropriateness of your behaviour in relation to the rights of 
those who become the subject of your work, or are affected by it. They define ethics in terms 
of code of behaviour appropriate to academics and the conduct of research. The ethical issues 
that affect the research generally as follows (Saunders et al, 2003): 
► Privacy of possible and actual participants; 
► Voluntary nature of participation and the right to withdraw partially or 
completely from the process; 
► Consent and possible deception of participants; 
► Maintenance of the confidentiality of data provided by individuals or 
identifiable participants and their anonymity; 
► Reactions of participants to the way in which you use, analyse and report 
your data; 
► Behaviour and objectivity of the researches 
Saunders et al (2003) further states that ' the maintenance of your objectivity will be vital during 
the analysis stage to make sure that you do not misrepresent the data collected. This includes not 
being selective about which data to report or, where appropriate, misrepresenting its statistical 
accuracy. For this study, the researcher complied with almost all the above ethical issues. The 
51 
entrepreneurs were each interviewed privately, the participation was voluntary, their identity was 
anonymous and the data was kept confidential. The interviews were conducted in a relaxed 
environment to enable respondents to be free. Similarly other individuals, who provided 
assistance during literature search, did it voluntarily. Furthermore the researcher was objective 
and reported the results as they were without being selective of what to report and without any 
misrepresentation. 
4.13. LIMITATIONS 
This survey project has never been without problems. Originally the intention was to distribute 40 
questionnaires in all the 4 areas but finally only 35 were distributed. This was so because some 
entrepreneurs were uncooperative and refused to accept the questionnaires. They mentioned 
being sick and tired of participating in interviews which never benefit them. They also indicated 
that many people have interviewed them in the past pretending that they wanted to assist them 
only to realize later that those interviewers used the responses for their own benefit. Such 
intimidation and mistrust by the entrepreneurs also made this exercise a lot more laborious. 
Another factor that affected our sample size was that most entrepreneurs who had been operating 
from factory shells which were constructed by the former Ministry of Commerce and Industry 
had either relocated to other places or closed down. This was so because after the establishment 
of the Local Enterprise Authority (LEA), the Ministry transferred the factory shells to LEA. LEA 
was established by the Small Business Act of 2003 as a Statutory Authority of the Botswana 
Government intended to create a coordinated and focused one stop shop authority that will 
provide support services to the local industry needs of SMMEs, encompassing training, 
mentoring, marketing and technology support. (The Botswana Daily News, 3rd August, 2007, 
p.5). Before the establishment of LEA, some of the abovementioned functions like training were 
performed by the former Ministry of Commerce and Industry through the Department of 
Industrial Affairs. LEA started operating in 2005 and in 2007 the factory shells which were under 
the above Ministry were transferred to LEA. Immediately after the transfer, LEA instructed the 
entrepreneurs to have vacated the premises by 30th September, 2007. Although some 
entrepreneurs have not yet vacated, some had already done so. It was therefore difficult for us to 
locate some of the entrepreneurs. 
52 
4.14. CONCLUSION 
This chapter discussed the available research methods and research designs. It clearly shows the 
method used by the researcher and provides a justification for the method chosen. According to 
Gill and Johnson (1997), there is not necessarily one best research methodology - approach. And 
they have argued that we can discriminate between different approaches in terms of their relative 
emphasis upon deduction and induction, according to their degree of structure, the kinds of data 
they generate and the form of expectations they create. 
53 
CHAPTERS 
PRESENTATION OF DATA 
5.1. INTRODUCTION 
This chapter indicates a presentation of primary data for small business entrepreneurs in 
response to a questionnaire. A questionnaire was designed and distributed to small business 
entrepreneurs. Data was critically evaluated and analysed. The data presentation is in the form 
of tables followed by a detailed analysis. A total of 35 copies of the questionnaire (see 
Appendix 1) were distributed to small business entrepreneurs in Gaborone, Pilane, Ramotswa 
and Molepolole. A total number of 28 respondents completed the questionnaires representing 
80 percent response. Of the twenty eight respondents, only twenty five had benefited from the 
Financial Assistance Policy (F AP). This therefore restricted the researcher to focus the analysis 
on 25 respondents because the research problem is concentrated on businesses which were 
F AP funded. The other three respondents were financed by own capital. The number of 
hypothesis posited in search of answers to the research problem was 4. The posited hypothesis 
shall be examined one after another to see how the responses reflect on each one. 
5.2. THE HYPOTHESIS AND THE QUESTIONNAIRE 
The questions which appeared in the questionnaire were directly related to the hypothesis as 
shown below: 
► Hypothesis a - Questions 6,7,8 and 17 
► Hypothesis b - Questions 9 - 11 
► Hypothesis c - Questions 12 - 13 
► Hypothesis d - Questions 14 -16 
• Hypothesis a 
Small businesses in Botswana are not likely to experience financial constraints because of 
the Government financial assistance. 
The purpose of the hypothesis was to highlight that as small businesses in Botswana were 
provided with non-repayable grants to either establish themselves or to expand, they would 
54 
not experience financial difficulties in their day to day operations. The objective of the 
Financial Assistance Policy (F AP) was to facilitate diversification of enterprise from the 
mineral led economy. Hence the provision of grants was seen by Government as an 
essential policy instrument to assist entrepreneurs venture into other business outside 
diamond. The following is a presentation of a summary of the data collected in response to 
a question which was meant for entrepreneurs who benefitted from FAP. 
Table 5.2.1 - Response to question 17 saying "Does your company have any financial 
constraints" 
Financial Constraints 
Not Having Financial Having Financial Total 
Constraints Constraints 
No. of Businesses 5 20 25 
20% 80% 100% 
The results of the above show that of all businesses that have benefitted from FAP, only 20 
percent are not facing financial problems. The findings do not support the hypothesis that small 
businesses in Botswana are not likely to experience financial constraints because of the 
Government financial assistance. The provision of financial assistance by Government was not 
automatic for small businesses. The business owner was to satisfy certain conditions before the 
assistance could be granted. The Government realized that full financial assistance could not 
arouse the required commitment from the businessman to efficiently manage the business. 
Most of the small businesses are still plagued by lack of adequate funds to finance their 
operational expenses and capital acquisitions. The financial institutions reqmre a high 
contribution and collateral security which small businessman find difficult to raise. 
55 
Table 5.2.2 - Response to question 6 saying "Did you seek FAP funds for the business" 
Financial Assistance Policy funds applied for 
Applied for F AP funds Did not apply for FAP funds Total 
No. of 25 - 25 
Businesses 
100% - 100% 
The results show that all the respondents seek and received FAP funds . This means that all 
needed financial support and some could have collapsed if they were not fmanced. 
The fmdings support the hypothesis that small businesses in Botswana are not likely to 
experience fmancial constraints because of the Government Financial Assistance. 
Table 5.2.3-Response to question 7 saying "How many times have you benefitted from FAP" 
Frequency of businesses benefitting from F AP 
Benefitted once Benefitted more than Total 
once 
No. of Businesses 12 13 25 
48% 52% 100% 
The results show that 48 percent of businesses have benefitted from F AP once. This means that the 
52 percent which benefited more than once continued to experience fmancial constraints despite 
having been financed before. There is likelihood that if these businesses were not financed more 
than once, they would not have survived. The findings do not support the hypothesis that small 
businesses in Botswana are not likely to experience fmancial constraints because of the 
Government Financial Assistance. This is so because despite having been fmanced more than 
once, they still struggle to survive. It appears being fmanced over and over again does not benefit 
the small business sector. 
56 
Table 5.2.4 - Response to question 8 saying "Would you like FAP to be re-implemented" 
Re - implementation of F AP 
Want FAP to be Re- Do not want F AP to be Re- Total 
implemented implemented 
No. of 25 - 25 
Businesses 
100% - 100% 
The results show that 100 percent of businesses want F AP to be re - implemented. This is 
surprising because according to table 5.2.1, only 80 percent had indicated having financial 
constraints. However, the results may be so because F AP funds were free grants and everybody 
would like to have money given to them. Some of them have been assisted more than once, but are 
still struggling to survive. 
The findings do not support the hypothesis that small businesses in Botswana are not likely to 
experience financial constraints because of Government assistance. 
• Hypothesis b 
Small businesses are likely to operate inefficiently due to lack of management skills of 
owners/managers. 
The purpose of this hypothesis was to find out if small businesses are run by owners/managers 
who are adequately skilled in management. Small businesses are started for various reasons by 
people from all walks of life, some with management skills and others without. 
57 
Table 5.2.5 - Response to question 9 saying "How long have you been in a managerial position" 
Experience of Owner/Manager 
Experienced Inexperienced Total 
owners/manager Owners/Managers 
No. of 2 23 25 
Businesses 
8% 92% 100% 
The results show that 92 percent of the respondents lack adequate experience to manage. Those 
who have experience held management positions for over 5 years. The findings support the 
hypothesis that small businesses are likely to operate inefficiently owing to lack of management 
skills of owners/managers. 
Table 5.2.6 - Response to question 10 saying "Have you ever attended any course in 
management" 
Management courses attended 
Courses not Courses attended Total 
attended 
No. of 1 24 25 
Businesses 
4% 96% 100% 
The results show that 96 percent of all the respondents have attended management courses. 
This may be so because at the time of FAP, beneficiaries were encouraged to pursue short 
courses although this was not a requirement. The findings do not support the hypothesis that 
small businesses are likely to operate inefficiently owing to lack of management skills of 
owners/managers. 
58 
Table 5.2. 7 - Response to question 11 saying " Are you satisfied with the knowledge 
acquired from management course/courses attended" 
Knowledge acquired from the management course/courses attended 
Knowledge Knowledge acquired Total 
acquired not satisfactory 
satisfactory 
No. of 5 20 25 
Businesses 
20% 80% 100% 
The results show that 80 percent of entrepreneurs were not satisfied with the knowledge they 
acquired from management courses attended. There is likelihood that the courses may have 
been too short for the participants. The findings support the hypothesis that small businesses 
are likely to operate inefficiently due to lack management skills of owners/managers. 
• Hypothesis c 
As a result of lack of management skills, owners/managers of small businesses do not have 
marketing plans in place. The purpose of the hypothesis was to find out if owners/managers of 
small businesses have the capability to promote their products to facilitate growth. 
59 
Table 5.2.8 - Response to question 12 saying "Does your company have a marketing 
plan" 
Existence of marketing plans 
Prepare Not preparing proper Total 
proper marketing plans 
marketing 
plans 
No. of 3 22 25 
Companies 
12% 88% 100% 
The results show that only 12 percent of the compames develop marketing plans. The 
owners/managers who prepare the marketing plan have management skills. The three 
owners/managers in this case have attended self sponsored short courses on management. The 
results highlight the fact that without managerial skills, it is almost impossible to successfully 
prepare comprehensive marketing plans. Management skills are inseparable from 
owners/managers. 
The findings support the hypothesis that as a result of lack of management skills, 
owners/managers of small businesses do not have proper marketing plans. 
Table 5.2.9 - Response to question 13 saying "Does this marketing plan only contribute to 
the formal sector" 
Contribution to formal/informal sector 
Contribute to Contribute to Total 
formal sector informal sector 
No. of 2 23 25 
Companies 
8% 92% 100% 
60 
The results show that 92 percent of respondents sell their products to the informal sector. The 
results indicate that small businesses do not market their products to facilitate growth. 
Alternatively it may be that small businesses do not have the capacity to meet the demands of 
the formal sector. The informal sector is unreliable and as such it becomes difficult to plan 
ahead due to the uncertainty of the income generation. With the formal markets, the supplier is 
assured of payment and as such can plan ahead based on the income expectations. If the small 
businessman had management skills he would know the benefits of having a market plan in 
place. 
The findings support the hypothesis that as a result of lack of management skills, 
owners/managers of small businesses do not have marketing plans in place. 
• Hypothesis d 
Since most owner/managers are not exposed to basic Accounting and Financial training, they 
are not likely to perceive any need to establish budgets, cash flows and to maintain books of 
accounts. 
The purpose of this hypothesis was to find out if small business owners/managers perceive any 
need to establish budgets, cash flows and to maintain books of accounts. 
Table 5.2.10 - Response to question 14 saying "Are budgets prepared on a yearly 
basis" 
Preparation of budgets and cash flows 
Prepare an Do not prepare an Total 
effective effective budget and 
budget and cash flow 
cash flow 
No. of 4 21 25 
Businesses 
16% 84% 100% 
61 
The results show that only 16 percent of small businesses prepare budgets and cash flows . This 
shows that some owners/managers perceive the need to establish budgets and cash flows but other 
managers may perceive the need but are not capable. 
The results show that the owners/managers who prepare budgets and cash flows are 
owners/managers who have pursued short courses for self development. The fact that 84 percent of 
the respondents do not prepare budgets and cash flows reflects that such companies do not 
maintain any book-keeping records and are not sure of how they would be proceeding. 
The findings support the hypothesis that since most owners/managers are not exposed to basic 
Accounting and Financial training they are not likely to perceive any need to establish budgets and 
cash flows. 
Table 5.2.11 - Response to question 15 saying "Does your company maintain monthly 
management accounts" 
Maintenance of Monthly Management Account 
Accounts Accounts not Total 
maintained maintained 
No. of Businesses 4 21 25 
16% 84% 100% 
The results show that only 16 percent of small businesses maintain monthly management accounts. 
This indicates that most of the small businessmen do not have basic book-keeping knowledge and 
as such they do not even know whether they are making a profit or not. 
The findings support the hypothesis that since most owners/managers are not exposed to basic 
Accounting and Financial training, they are not likely to perceive any need to establish budgets, 
cash flows and maintain books of accounts. 
62 
Table 5.2.12 - Response to question 16 saying "Does your company have a business plan" 
Business plan 
Business plan Business plan not Total 
available available 
No. of 7 18 25 
Companies 
28% 72% 100% 
The results show that only 28 percent of the respondents establish business plans. The reason 
for not establishing business plans may be associated with the fact that managers do not have 
any training in management skills. 
The findings support the hypothesis that since owners/managers are not exposed to basic 
Accounting and Financial training, they may not perceive any need to prepare budgets, cash 
flows and to maintain books of account. 
5.3 CONCLUSION 
The arm of this research project was to provide reasons for small business failures in 
Botswana. The reasons were arrived at by testing a set of the hypothesis. This chapter therefore 
discusses the results of the hypothesis tested. The hypothesis tested confirmed that there are 
mainly four reasons which lead to small business failures in Botswana namely:-
► Financial - Difficulty with raising funds both for day to day operations and 
capital; 
► Lack of management skills - Almost all the entrepreneurs contacted have never 
gone for long term training. Most of them lack adequate experience and have 
attended courses of short duration ranging from one to four weeks. Only two of 
them attended courses which took up to six months; 
► Lack of basic Accounting and Financial training - Most of them has no idea 
about basic Accounting and Financial knowledge. 
► Non development of marketing plans - As a result of lack of management skills, 
small business entrepreneurs do not develop marketing plans. It has also come 
63 
out clear that the small business entrepreneur himself is the cause of most of 
these problems. This is so because in spite of all his limitations, the small 
business entrepreneur seldom seeks assistance from knowledgeable and 
experienced people. 
From the literature review conducted, the project has also shown that problems associated with 
the small the business sector are not confined to Botswana only. Some countries are also facing 
the same problems. Examples of such countries are the United States of America, the United 
Kingdom, Namibia and South Africa. 
64 
CHAPTER6 
CONCLUSIONS AND RECOMMENDATIONS 
6.1. INTRODUCTION 
This chapter is aimed at outlining the findings and conclusions from the analysis of empirical 
data with recommendations for a way forward. The conclusion is based on data analysis. 
6.2 SUMMARY OF FINDINGS 
The research findings show that lack of funding is still a problem in Botswana, despite the 
availability of a Government Assistance Policy. Small business requires fixed capital and 
working capital to get the business started and to assist with the day to day running of the 
business. 
To compete with their rivals, small businesses require finance to recruit and retain the skilled 
employees, to promote the product, to purchase stock, to buy fixed assets and to have adequate 
working capital to finance day to day business operations. 
Financial institutions are prepared to assist small businesses provided they satisfy the necessary 
conditions, but in most cases, small businesses fail to satisfy such conditions, claiming that 
financial institutions require a high contribution and collateral security which they cannot raise. 
This situation leaves the small business with no where to go to seek financial assistance. 
Hence lack of funds becomes one of the major causes of small business failures in Botswana. 
As stated earlier, financial institutions are prepared to assist small business provided they meet 
the banks ' conditions. 
The only feasible way for small businesses to get financial assistance from financial 
institutions is to maintain proper accounting records, to have an effective manager and to make 
a profit. If the small business is profitable, there is no reason why it cannot raise the required 
contribution and collateral security. The financial institutions would certainly not refuse to 
assist where it is obvious that the business is viable, is making profits and is under sound 
65 
effective management. In summary, accounting information 1s very important to any 
organization. 
Most of the business decisions taken by the owner/manager must be based on accounting 
information. Hence, without any accounting information, decision making would be a trial and 
error game. 
The failure of small businesses can be identified to the owner/manager of the business. The 
people who start these businesses are mostly unskilled in management. They also do not 
attend part time courses to equip themselves with the necessary skills. Hence, most small 
business owner/managers are not capable of executing their managerial functions and the 
business gradually fails. 
The research has clearly indicated that small business failures are partly due to an 
inexperienced and/or unskilled owner/manager. Small businesses do not only serve the 
objectives of the owner/manager but also help members of the community in providing 
employment and offering goods and services which the community needs to satisfy its desires. 
Therefore poor management of the small business is not only the problem of the 
owners/managers but also a cause for concern for the community at large. In today's world of 
tough competition, the success of the company depends on the competence of its manager. The 
owners/managers must be able to execute their managerial functions of planning, organizing, 
controlling and leading. These are the essential ingredients for a successful manager. The 
owner/manager must be a generalist who can perform any activity within the organization. 
Small businesses are not marketing their products despite the high level of competition. Small 
businesses do not promote their products or services and as a result their products and services 
are known only by a few customers. Product promotion is important because it informs 
members of the public about businesses' products and at the same time persuade and arouse 
their interest in the product 
A marketing plan is an essential tool that guides the business action to achieve its marketing 
objectives. A business that does not understand its market and competitors has little chance of 
success. The marketing plan details how the business should price its products, how the 
distribution process will take place and how the products would be promoted. It also identifies 
66 
the internal weaknesses and strengths of the organisation and external opportunities and 
possible threats to watch. This will enable the business to take appropriate action to strengthen 
its weaknesses, to take advantage of external opportunities and to formulate strategies to 
counteract the activities of the competitors that have direct impact on the company's 
performance. A business plan serves as a guideline for the actual running of the business. 
In summary, this study has identified four major causes of business failures in Botswana which 
are: 
► Financial Constraints; 
► Lack of management skills; 
► Non development of marketing plans; 
► Lack of Basic Accounting and Financial training 
It is obvious that the inability of business to meet its day to day finance requirements is the 
primary cause of business failures. 
Other contributory factors to small business failures are inexperienced managers, and failure to 
keep proper records. 
With so many challenges facing the small business sector, the implication is that the 
Government, apart from funding did not do enough to assist small businesses. The economy 
will grow at a very slow pace resulting in increased unemployment. 
6.3. RECOMMENDATIONS 
The recommendations have been divided into two sections: 
6.3.1. Recommendations for owners/managers 
From the findings, it is recommended that, the small business should prepare budgets to assist 
the owners/managers in controlling the company; it should prepare financial statements and 
above all maintain its profitability. 
It is recommended that during the early years of the business, the owners/manages should seek 
assistance of accounting services to prepare records of the company. At the same time the 
67 
owner/manager should also attend seminars on accounting or attend part time business courses 
that will equip them with the necessary skills to be able to read and interpret the financial 
statements. Such financial statements will be useless for decision making if the 
owners/managers cannot interpret them. 
The small business should implement all the necessary accounting controls and should operate 
on a cash basis to avoid bad debts. 
The owners/managers should have managerial expenence m the maJor activities of the 
business, such as finance, purchasing, inventory, selling, marketing and production. 
The owner should learn how to delegate because this would give him adequate time to attend 
to the most pressing issues of the organisation. 
The owners/managers of small business should also recognize their weaknesses when it comes 
to management. They should be willing to learn more to improve their managerial 
performance. Owners/Managers should also not shy away from seeking assistance from those 
who are well experienced managers. In that way, they are consolidating their knowledge. 
Owners/Managers who lack managerial skills to run the company should not hesitate to 
employ even on part time basis, a skilled manager. It is only when a business is managed by a 
skilled manager that profits are likely to be made. The owners/managers should all the time 
understudy the part time manager and he should also attend seminars and short courses that are 
geared at improving managerial skills. 
Owners/Managers need to do a lot of learning if they harbor any hopes of making it big. They 
should forget the 'it ' s my business thinking' and concentrate on equipping themselves and their 
employees with the necessary skills to be able to take right decisions when the going is tough. 
The owners/managers should improve their public relations skills. Public relations are very 
important especially where customers, suppliers and employees are involved. Successful 
entrepreneurs must have good human relations. 
The owners/managers who lack marketing knowledge have to hire the services of marketing 
consultants. The consultant would prepare a marketing plan. 
Owners/Managers have to improve their managerial skills if small businesses are to compete 
with big businesses. 
68 
The owners/managers should endeavour to join the local Chamber of Commerce to take 
advantage of its training assistance to small businesses. In the case of Botswana, it is the 
Botswana Confederation of Commerce, Industry and Manpower (BOCCIM). The Local 
Enterprise Authority (LEA) is also offering training to small business managers, and this is an 
opportunity that should not be missed by owners/managers of small businesses. 
6.3.2. Recommendations for Government 
Support for the Small Business Sector should focus on training m business skills and 
entrepreneurial development. Although the Local Enterprise Authority (LEA) is there to 
support small businessmen, the private sector can also assist. 
There is a need to address the issue of how to solve the problems in the short term and in the 
long term. In the short term these small business managers should join hands with Chambers of 
Commerce i.e. the Botswana Confederation of Commerce, Industry and Manpower (BOCCIM) 
to arrange for professional services that are being 50 percent subsidized by Government. 
BOCCIM runs courses for the small business sector at 50 percent costs for members and 100 
percent for non-members. 
During the days of the Financial Assistance Policy, Government should have provided 
accreditation of consultants in Engineering, Accounting, Management, Marketing and Finance 
who could have provided assurance to small business organisation. 
With reference to solving the problems in the long term, Government has established Local 
Enterprise Authority (LEA), and with this it is anticipated that these problems will be resolved. 
As mentioned before, LEA was established by the Small Business Act of 2003 as a Statutory 
Authority of the Botswana Government, intended to create a coordinated and focused one stop 
authority that will provide support services to the local industry needs of SMMEs, 
encompassing training, mentoring and technology support. 
Government should instil a culture of entrepreneurship among citizens. This can be done 
through training and by creating an environment that will enforce citizens to be serious and 
committed to their businesses. One way of creating an environment that will enforce people to 
69 
NWu 
LIBRARY 
be committed to businesses is by doing away with non-repayable grants and instead provide 
citizens with secured loans at reasonable rates of interest. Once a loan is secured, beneficiaries 
will be committed and therefore work hard because they will not want to loose their property 
or whatever assets that may have been used to secure the loan. 
Both LEA and financiers specifically Government financiers like the National Development 
Bank (NDB) and the Citizen Entrepreneurial Development Agency (CEDA) should each 
maintain a data base on the performance of their clients in order to be able to know those 
clients doing well, those who need assistance and those who abused past Government 
initiatives. It is well documented in the research that some F AP beneficiaries continued to 
benefit over and over again despite having abused past grants. In addition, some F AP abusers 
also benefitted in later schemes that were meant to assist small businesses. This was due to the 
absence of an informative data base. The Government should propose a policy that will prevent 
abusers of any Government initiative to benefit from initiatives which are given at a later stage. 
There must be coordination between Government financiers such that on receiving application 
for assistance, the financier requests a confidential report from the other financier. The reason 
for the request of the confidential report is to find out how the applicant handles his financial 
affairs with the other financiers if he has any dealings with them. This will also assist in 
making people serious about their businesses. The way the applicants conduct their financial 
affairs with other financiers must be taken into account when considering their applications for 
finance. 
Government should, in collaboration with the private sector, establish small business 'hives ' or 
premises where small businesses can be located, and benefit from centrally provided support 
services. These hives should be managed by the private sector on a competitive basis. 
Government, local authorities, parastatals and large comparues should enhance their 
procurement policies in order to accommodate small businesses. For the small business to 
grow they need access to markets, both in the public sector and private sector. The public 
sector can assist in accelerating the growth of the small business in Botswana. This will 
however require that Government makes its procurement procedures amendable to purchasing 
from the small business. The amendments can include breaking the large quantities or volumes 
70 
of procurements into smaller units to allow the small business to meet the supply requirements 
of procuring entities. 
The large businesses can play a role by purchasing some of their basic inputs from the small 
business. Examples of such inputs are goods like horticulture produce, bread, candles and 
many more one can rmagme. 
6.4. CONCLUSION 
The study revealed that there are several problems that are being faced by small businesses. 
These problems result in small business failures in Botswana. The failure of small businesses 
can be identified to the owner/manager of the business. Most of small business entrepreneurs in 
Botswana are ignorant but they do not see the need to employ qualified managers. This is 
adversely affecting the performance of the small business sector. 
The lesson got from this study is that when people are given free grants like in the case ofFAP, 
they do not become committed to the business because they have nothing to lose. 
If the Government does not extend the support for small business beyond just financing, it will 
be difficult for this sector to grow. Government needs to do a lot in terms of training and 
changing the mindset of citizens for the small business sector to succeed. 
The administration of FAP was characterized by inappropriate incentives: the main incentive 
was to disburse available funds, not to maximize the survival rates of assisted projects. 
The F AP was neither a cost-effective way of promoting the establishment of sustainable jobs 
nor of diversifying the economy. Even though some of the earlier evaluations of F AP were in 
its favour, this resulted in increasing abuses leading to loss of government funds unnecessarily. 
71 
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APPENDIX I 
QUESTIONNAIRE 
1. NAME OF BUSINESS 
2. Occupation 
3. Are you the manager/owner of the business? 
4. If you are the owner, what motivated you to start the business? 
5. When did you start your business? 
6. Did you seek Financial Assistance Policy (F AP) funds for the business? 
7. How many times have you benefitted from FAP? 
8. Would you like FAP to be reimplemented? 
9. How long have you been in a managerial position? 
10. Have you ever attended any course in management? 
75 
Nwu 
LIBB_IJ-RY .. , 
11 . Are you satisfied with the knowledge you acquired from management courses attended? 
12. Does your company have a marketing plan? 
13 . Does this marketing plan only sell to the formal sector? 
14. Are budgets prepared on a yearly basis? 
15. Does your company maintain monthly management accounts? 
16. Does you company have a business plan? 
17. Does your company have any financial constraints? 
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