Mapping Innovation Support Programmes for Micro, Small and Medium Enterprise Development

With more than 95 percent of the business enterprises in Nepal categorized as micro, small and medium enterprises, these small businesses play a vital role in Nepal’s economy. In a country where there are about only 1,100 large industrial enterprises, providing direct employment to about 150,000 people, smaller firms drive the economy. SMEs are estimated to contribute 22 percent to the gross domestic product (GDP) and employ around 1.7 million people. Hence, SMEs not only play a vital role in keeping the economy going but also contribute to creating decent jobs, reducing poverty and overall national productivity.

Challenges facing MSMEs have led to a proliferation of innovation support programmes in Nepal. Although innovation is generally understood as the invention of new products or technology closely related to a scientific and technological breakthrough, that is only one dimension. Innovation in businesses is equally about changing production techniques, implementing new product designs, branding, etc., which are mostly driven by the firm’s ability to create, seek and manage new ideas. However, small businesses face constraints in terms of sourcing innovative ideas or have limited capacity—in terms of finance, human resources, etc.—to implement those innovations. Moreover, innovation in developing countries often is restricted by weak firm capabilities and government capabilities to foster and implement innovative practices and technologies.

SAWTEE, with support from International Development Research Center, has published a report titled ‘Mapping Innovation Support Programmes for Micro, Small and Medium Enterprise Development: Findings from Nepal’. This study examines the innovation support landscape in Nepal, describing existing policies and major innovation support programmes for MSMEs, presenting stakeholders’ views on the same, examining the availability of credible empirical evidence on the effectiveness of these policies and programmes. The study has a special focus on the support available to growth-oriented startups and export promotion.

The study found that at a glance, there are many innovation support programmes in operation for small businesses in Nepal. However, it appears that the scale and kind of support currently available do not meet the needs of the enterprises. While necessary to understand the effectiveness of the support available to firms, there is a dearth of Nepal-specific evidence on the type of interventions and supports that work best as per the need of the enterprises they are meant to support.

Government and/or non-government entities that provide support need to evaluate the effectiveness of their interventions. There are projects such as MEDPA that has done a significant amount of work in poverty alleviation and income generation by supporting thousands of households. However, the number of businesses that have graduated to larger businesses—from micro to small—is less than one percent. Hence, based on stakeholder consultations done for this study, it can be inferred that while such projects could be useful in poverty alleviation, their role in enterprise development is limited. Other similar programmes offered by the Micro, Cottage and Small Industries Promotion Board are also limited to supporting grassroots-level enterprises. Missing are more specialized support policies directed towards small enterprises that could graduate into medium-sized enterprises with a little push. These enterprises are the ones that can adopt innovative solutions. At present, local bodies and provincial governments are replicating similar programmes based on little or no evidence. The decisions to scale up or expand programmes should be based on the evidence of how useful the programmes have been to targeted beneficiaries.

In the innovation landscape of Nepal, the academic and commercial spaces are disconnected. Although science and technology academic institutions have research and innovation centres, they are disconnected with the businesses that could use their outputs commercially.

The private sector in Nepal also fails to seek out innovative solutions to their problems. For example, the private sector or private sector umbrella organization could seek help from existing engineering institutions and other research facilities to develop customized machines that could make the spinning of allo fibre easier, or provide alternative solutions to the firewood drying of large cardamom. Cardamom and products made from allo fibre have high export potential. There are many areas of interventions where innovation—R&D related—could be a game changer in increasing the productivity of enterprises.

This partly comes down to the absence of a national innovation system in Nepal which would create linkages between people, enterprises and institutions. Since innovation is the result of a complex set of relationships among actors in the system, which includes enterprises, universities and government research institutes, innovation cannot be expected to take place from the attempt of any one of these entities alone. It is necessary to develop a national innovation system that captures both entrepreneurial and STI aspects. Existing policies prepared by agencies in their own silos may not be able to provide the required direction to the entire innovation system. For example, the Ministry of Education prepared the Science and Technology Policy but it is disconnected with the business support policies prepared by the Ministry of Industry. Similarly, when the Ministry of Industry prepares the technology transfer guidelines for small businesses but does not link entrepreneurs with potential sources of innovative technology, the programme may not bring the best outcome.

To access the full report please follow the link: Mapping Innovation Support Programmes for Micro, Small and Medium Enterprise Development: Findings from Nepal (sawtee.org)