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WHY SMALL BUSINESSES MATTER

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WHY SMALL BUSINESSES MATTER

August 11, 2017 | ignite | blog

SMEs are engines of growth, vital to most economies. Research suggests that micro businesses and SMEs account for 95% of firms in most countries. They create jobs, contribute to GDP, aid industrial development, satisfy local demand from services, innovate and support large firms with inputs and services.

In Africa, SMEs create 80% of employment, establishing a new middle class and stimulating demand for new goods and services. The IMFs Regional Economic Outlook for Sub-Sharan Africa, released in April 2015, says: “Over the next 20 years, sub-Saharan Africa will become the main source of new entrants into the global labor force”. This is an emerging Africa that is absolutely determined to succeed. As a follow up to their bold commitment to infrastructure investment, African governments have now turned to entrepreneurs to support future growth. A vibrant SME sector is a vital ingredient for a healthy market economy. SMEs are responsible for large contributions to value added activities and employment.

The role of small businesses in poverty alleviation, economic growth and job creations has emerged as an important topic in Africa. The importance of small businesses arose in view of the dismal performance of previous policies that emphasized large scale industrialization. Recent economic reforms in African countries have also created opportunities for the fledgling small businesses, and thus generated interest in small business research initiatives. It is generally agreed that encouraging the development of small businesses is an effective way of fostering growth and alleviation of poverty.

Indeed, the foundation of any long-lasting venture in Africa depends on the continuous empowerment of regional SMEs and young entrepreneurs. Governments, the private sector and international investors are encouraged to consider Africa’s young people and SMEs as central to the stability of the world’s economy. These millions of future entrepreneurs need to be nurtured so that the world at large can benefit. Helping African SMEs to flourish is crucial not only for Africa but for the global economy, because it creates a growing middle class with disposable incomes, in tandem with market opportunities for new investors.

However, due to internal inefficiencies and constraints in the business environment, the output of most SMEs can be well below their potential. While small businesses tend to be more flexible and quick to change than larger corporates, they are much more vulnerable to deterioration in the business environment and suffer heavily from stringent policies. They also have fewer resources to draw on when times are hard. Nonetheless, small businesses are very crucial in any economy. While a single, small business may not generate as much money as a large company, it is a critical component of and major contributor to the strength of local communities.

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