Abraham Shilomboleni
It is very important to note that SMEs are a pivotal backbone to any given economy. Hence, they should be well nurtured and streamlined in the means of economic production by creating an economic atmosphere that is receptive and welcoming. It is against this background that offtake agreements are key to SMEs in all various sectors. Generally, an offtake agreement is deemed to be an arrangement between a producer and a buyer to purchase or sell portions of the producer’s upcoming goods. It is normally negotiated before the construction of a factory or facility to secure a market and revenue stream for its future output. Offtake agreements are typically used to help the selling company acquire project financing for future construction, expansion projects, or new equipment through the promise of future income and proof of existing demand for the goods. It is quite vital that offtake agreements be highly embraced, encouraged and put into use for the benefit of SMEs in an economy. The setting of our economic activities should be receptive to allow more and more transactions of SMEs linked to offtake agreements, as it will help lock in a price and guarantee the supply of a product and future demand. An offtake agreement allows the producer/seller to guarantee a minimum level of profit for its investments. In the agricultural sector, offtake agreements are some of the bankable ways that can make producers fill up the bracket of food security. In the energy sector, we should enforce more offtake agreements of various sizes, as one of the keys to achieving the above aims is a well-structured market segment. Offtake agreements are a crucial component of the supply chain for many businesses inclusive of SMEs. They guarantee that both parties will have access to consistent supplies and demands. This provides stability and certainty for both parties, which are often lacking in markets of high volatility. Offtakes, enable the producers to obtain easy finance and a guaranteed buyer for its future products. This type of agreement benefits both the buyer and the seller alike. While the seller has an assured market for its creation, at the same time the buyer enjoys protection against future price rises and supply shortages. Take or pay contract, hedging contract, long-term sales contract, blended contract and many others are some of the hybrid ways that we should enforce toward SMEs in order to stimulate and drive the economy.
* Abraham Shilomboleni holds a Bachelor’s Degree in Accountancy, of which Micro and Macro-Economics has formed as an integral part of his studies and career. He’s a pursuant of an Honors Degree in Business Management. Abraham is an author and a knowledgeable financial and economic expert. He also works for NUST.