SMEs Driving Growth in Developing Countries
By admin April 13, 2017

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Recognizing the importance of micro-, small- and medium-sized enterprises(SMEs)in achieving the global development goals, the United Nations General Assembly recently designated 27 June as International Day for those actors.

“These enterprises can in fact become the engines that sustain growth for long-term development in developing countries,” said the representative of the delegation of Argentina, which introduced the resolution. As emphasized in Goal 8 of the 17 Sustainable Development Goals (SDGs) agreed by United Nations member states, SMEs are important to sustained, inclusive and sustainable economic growth for all.

In developing countries, SMEs are a fundamental part of the economic fabric and play a crucial role in generating employment, creating wealth, innovation, and prosperity. Recent studies show that SMEs and informal enterprises account for over 60 percent of GDP and over 70 percent of total employment in low-income countries, while they contribute over 95 percent of total employment and about 70 percent of GDP in middle-income countries. SMEs are also seen as key innovators and contribute to the competitiveness and entrepreneurship of the countries.

Take Uganda as an example, SMEs are taking an increasingly important role in generating domestic and export earnings, and contributing to poverty alleviation. It is estimated that there are 800,000 SMEs in Uganda. They are spread across all sectors with 49 percent in the service sector, 33 percent in the commerce and trade, 10 percent in manufacturing, and 8 percent in other fields. Over 2.5 million people are employed in SMEs, where they account for approximately 90 percent of the entire private sector. Some of the strong SMEs were formed through joint venture with foreign partners from the United Kingdom and the United States, which built business linkages within sectors and created opportunities in both rural and urban areas. In recent years, the government has adopted favorable policies to create conducive business environment for SMEs, such as entrepreneurship training programmes, advocacy for SMEs, and cluster based development approach.

Despite promising opportunities for SMEs, they are also faced with many constraints in many developing countries. One of the major constraints is their small sizes, which limited access to the financial resources they need to grow and expand. Nearly half of SMEs in developing countries either find it hard to borrow from local banks, or face strongly unfavorable lending conditions. In addition to financing investment and working capital, constraints also exist in market access, for example, lack of knowledge of opportunities in foreign markets. The Deloitte Kenya Economic Outlook 2016 noted poor infrastructure, inadequate knowledge and skills amid rapid technology changes, corruption, and unfavorable regulatory environment as key challenges for Kenya SMEs.

Collaborated efforts from the public and private sectors are needed to overcome challenges faced by SMEs in the developing world. In terms of financing, improvements in access to financial resources are essential. Overall, there is need for changes to law, fiscal policies, financial institution strategy as well as business environment in order to enhance the role of SMEs in developing economies.


Read more:

UN General Assembly creates International Day for small, medium-sized enterprises

The Importance of SMEs in Developing Economies

SMEs in developing countries: Caught in the middle

Report on Support to SMEs in Developing Countries Through Financial Intermediaries

Challenges to SME growth in Kenya

Thanks for sharing !

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