LIST OF ACRONYMS AND ABBREVIATIONS
CHAPTER 2: SMEs IN THE GLOBAL WORLD
2.3 SMEs IN THE GLOBAL CONTEXT
2.3.3 SMEs in the developing countries of Africa
The UNDP (1994) views developing countries as those less-developed nations that have a lower standard of living for their populations, poor and slow industrial development, undeveloped infrastructure, and a low HDI. The HDI measures levels of poverty, literacy, education, and life expectancy. If the HDI in Africa is low, it means that there is a high level of poverty, a low literacy rate, low standards of education, and a shorter life expectancy for the population. The World Bank (2011) observes that developing countries have a low GDP and a low per capita income, and rely on agriculture as the mainstay of the economy.
Burundi’s economy, for example, is predominantly agricultural, with more than 90 % of the population depending on agriculture (East African Community (EAC), 2009). In Malawi 84.5 % of the population depend on agriculture (USAID, 2007). The Ugandan economy is also mainly agrarian (EAC, 2009). In the Democratic Republic of the Congo (DRC), 71 % of the population lives in abject poverty, and the quality and efficiency of education is low, with only 18 % of pupils advancing to secondary schools (AfDB & African Development Fund (ADF), 2013). In Mozambique 60 % of the adult population and 76 % of all women cannot
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read and write (WBG, 2004). Less than 26 % of the population in the DRC have access to basic health, and the health facilities are poor (AEO, 2005). In Burundi, one of the poorest countries in the world, 68 % of the population lives below the poverty line on an income of less than US$1 per day, and it is near the bottom of the HDI (EAC, 2009). In Malawi, one of the poorest countries in central southern Africa, 84.5 % of the population lives below the poverty line (USAID, 2007).
Africa has 40 of the world’s poorest countries and 19 of these are fragile and affected by conflict (African Economic Outlook, 2005). War and civil unrest, poor governance, and poor economic performance have stifled SME growth in Africa (IFC, 2013a). For example, the business environment in the DRC has been affected by a long period of political instability that has made the country fragile (AfDB & ADF, 2013). Asset losses due to wars and years of financial crisis in the DRC and Burundi have made access to finance difficult for SMEs (African Economic Outlook, 2005). The January 2011 civil uprising against poor governance in Egypt had such a negative impact on SMEs and the economy as a whole that the economy of Egypt almost collapsed (German Development Institute and Egyptian Centre for Economic Studies, 2013). In Mozambique, a civil war that lasted for 16 years also stifled the country’s general economic development and SMEs were affected in the process (Dos Santos, 2008).
Social unrest in Libya in 2011, which was caused by corruption, macroeconomic imbalances and poor governance, led to macroeconomic instability (Mejia, 2012). Civil wars and social unrest create unstable macroeconomic environments in which SMEs cannot effectively operate, since war and unrest lead to the destruction of the infrastructure critical for SME development (Dos Santos, 2008). The socio-economic and political climates have an influence on the nature, development and performance of SMEs (Zarook et al., 2013).
Developed economies have large and sustainable SMEs due to infrastructural development, economic and political stability, and unwavering support for SMEs (Serrasqueiro et al., 2008, cited in Zarook et al., 2013). African SMEs, however, face a multiplicity of challenges that arise from the poor socio-economic and political milieu. That is what makes African SMEs different from those of developed economies.
In developing countries, SMEs account for 90 % of all businesses, and contribute more than 50 % of employment (Al Saleh, 2012; Inyang, 2013) and 60 % of the GDP (OECD, 2004a;
Inyang, 2013). They are an important source of export revenue for African developing countries. For example, in Ghana SMEs contribute 70 % of the export revenue (Ahiawodzi &
Adade, 2012). They are viewed as a means by which poor people gain access to economic opportunities (Al Saleh, 2012). UNECA (2012) quotes Macpherson (1996) as having
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observed that between 15 and 75 % of SMEs in Africa are in the manufacturing and construction sectors.
In Ghana SMEs account for 92 % of all businesses, provide more than 80 % of employment (Ahiawodzi & Adade, 2012; Akorsu & Agyapong, 2012; Quaye et al., 2014; Uppong et al., 2014) and account for 75 % of the GDP (Akorsu & Agyapong, 2012).
In Malawi, SMEs employ about 38 % of the labour force and contribute 15.6 % of the GDP (Government of Malawi, 2012; UNECA, 2012). In Ivory Coast, SMEs account for about 78 % of employment in the manufacturing sector (UNECA, 2012).
Moroccan SMEs account for 98 % of all businesses, contribute 40 % of the GDP and employ 40 % of the workforce (Adama et al., 2013; North Africa, 2014). SMEs also contribute to exports. These businesses account for 30 % of Moroccan exports (North Africa, 2014).
In Mozambique 90 % of the 9.3 million workers are employed in SMEs and the informal sector, and 77 % of the registered businesses are small businesses with fewer than 10 employees (WBG, 2004a). SMEs in Mozambique contribute 16 % of the GDP (Dos Santos, 2008), and of all the SMEs, 68 % are in commerce, 13.1 % in the manufacturing sector and 8.7 % in the services sector (WBG, 2004).
SMEs in Kenya account for approximately 20 % of the GDP and 85 % of total employment (African Outlook Economic Report of 2011 in Odhiambo & Ong’olo, 2013; Kiveu & Ofafa, 2013). Kenya’s 2009 Economic Survey indicated that 92 % of the new jobs that were created in 2008 were from SMEs (Capital Market Authority, 2010; Ochanda, 2014). Approximately 98 % of all businesses in Kenya are SMEs (Gok, 2009, cited in Kiveu & Ofafa, 2013).
Table 10 presents the contribution of SMEs to economic development of various countries in the world. The contribution of SMEs to employment, GDP and exports is illustrated.
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TABLE 10. THE CONTRIBUTION OF SMES TO ECONOMIC DEVELOPMENT IN SELECTED COUNTRIES
Country Number of SMEs(% of all SMEs)
Contribution to employment
(% total)
Contribution to GDP (% total)
Contribution to exports (% total)
UK 99 59 49.8 33
U.S. 95 90 39 29
Canada 99 54 45 20
Mexico 99 64 40 25
India 90 40 40 40
South Africa 95 60 57 34
Malaysia 99.2 56 32 16.6
China 99 45 60 68
Brazil 99.5 96 20 20
Morocco 98 40 40 30
Ghana 92 80 75 70
Mozambique 80 90 16 46
Kenya 98 85 20 45
Sources: Dos Santos (2008: 4, 6); Avecedo & Tinajero (2010: 2); Kongolo (2010: 2290);
RMTI (2010: 11–12); USITC (2010: 4,17); Haner (2011: 3); Khalique et al. (2011: 398);
Akorsu & Agyapong (2012: 138); Belanger & Hart (2012: 17); Cardoza et al. (2012: 4);
Inyang (2013: 125–126); Kiveu & Ofafa (2013: 29); Ong’olo & Awino (2013: 2); UKDBIS (2013:13); Zaidi (2013: 413); North Africa (2014: 8); Quaye et al. (2014: 340); Royal Bank
of Canada (2014: 1).
Though there are certain similarities in the economic statistics relating to SMEs, in developing countries in Africa this sector performs below its potential when compared to SMEs in developed nations (Ihun, 2009). This is attributed to the fact that SMEs in developed economies receive more support from governments (Ihun, 2009). However, in both developed and developing economies SMEs play an indispensable role (Stefanovic et al., 2009;
Mwobobia, 2012). Therefore, support for SMEs is critical for the socio-economic
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development of any economy. Whilst the importance of SMEs is well documented the world over, their ability to survive and grow is stifled by a plethora of challenges confronting the sector (Olawale & Garwe, 2010; Khalique et al., 2011).
2.4 BUSINESS OWNERSHIP RATE AND GROWTH