The Importance of Small, Medium Enterprises (SMEs) in the economy
SMEs are important to almost all economies in the world, but especially to developing countries like Namibia with major income discrepancies between the rich and the poor, and with a headache of unemployment. On what we may call the “static” front, SMEs contribute to output by participating in the mainstream economy and to the creation of some “decent” jobs especially to the few that runs the SMEs. All that information, coupled together will make SMEs the biggest employer and can close the inequality between the rich and the poor.
On the other hand SMEs are a nursery for the larger firms of the future - more and more large firms started as SMEs before there grew large. It is therefore with this regard that SMEs are the next and important step up for expanding micro enterprises; they contribute directly and often significantly to aggregate savings and investment for any nation, and they are involved in the development of appropriate technology also. With increasing competition within the SMEs new solutions will be brought forth across different sectors.
In asking ourselves an important question, how “important” the SME sector is we must of course go beyond simply looking at its share of output, employment or any other aggregate variable to the key question - How much difference does it make to overall economic performance whether the SME sector is large or small, or whether it grows rapidly or slowly?
It is a fact of life, at any level of a country’s development, that some needed activities involve few or no economies of scale while others involve considerable higher economies of some sort. The size of this distribution is greatly influenced by SMEs. That distribution can also be influenced by international trade. An important challenge in Namibia is to assure that a significant share of output takes place outside the overly capital intensive large scale sector by giving the SMEs some chuck of the activities in the economy. Achievement of this goal is more difficult if SME activity in general is discouraged by policy or setting from within.
It can be facilitated when large firms, subcontract majority of their work or part of that process to smaller more labour intensive SMEs. It can also be facilitated by the phenomenon referred to as “clusters” in which small firms collaborate together to handle those aspects of the business that are indeed characterised by economies of scale. By getting together the SMEs can achieve massive solution while on the same time contributing aggressively in the national affairs.
The ideal setting within which SMEs can play their positive contribution to the maximum in the economy includes taking cognisance of the foresaid structures. In a country like Namibia with large informal or micro enterprise sectors, SMEs should constitute the middle of the size range, a fact that explains much of their strategic importance. In terms of organisational structure, SMEs are, on average, considerably more complicated, involving largely the self-employed and people employed in other larger companies.
Government policy, including tax policy, can make a considerable difference to how well the SME sector fulfils its potential role in contributing to a healthy economy. One of the significant characteristics of a flourishing and growing economy is a booming and blooming small and medium enterprises (SMEs) sector. SMEs play an important role in the development of a country and mainly by employing a good number of people.
According to the United Nations Industrial Development Organization (UNIDO), for developing countries like Namibia, integration into the global economy through economic liberalisation, deregulation, and democratisation is seen as the paramount way to coup poverty and inequality. Significant to this process, is the development of a private sector, in which SMEs can play a central role.
SMEs have an inclination to employ more labour-intensive production processes than large enterprises. Consequently, they contribute significantly to the provision of productive employment opportunities, the generation of income and, eventually, the reduction of poverty. SMEs can become a major contributor to private sector employment.
SMEs play significant contribution in the transition of agriculture-led economies to industrial ones furnishing plain opportunities for processing activities which can generate sustainable source of revenue and enhance the development process. SMEs shore up the expansion of systemic productive capability. They help to absorb productive resources at all levels of the economy and add to the formation of flexible economic systems in which small and large firms are interlinked. Such linkages are very crucial for the attraction of foreign direct investment (FDI). Investing larger corporations look for sound domestic suppliers for their supply chains. SMEs are the major growing force behind the fastest growing economy of China, in terms of contribution to the national GDP (accounting for 40%), scale of assets, diversification of products, and the creation of employment. Similarly, the role of SMEs is well acknowledged in other countries such as Japan, Korea, and all other industrialised economies in terms of creating employment, reducing poverty and increasing the welfare. There are a number of factors responsible for the importance of SMEs in Namibia. First, SMEs bolster an entrepreneurial spirit and put forward flexibility in the economy. Second, SMEs emanate the fastest growing export sub-sectors, such as maize farming and construction. Third, they can support the poverty alleviation endeavours through employment generation process. Above all, SMEs are more efficient in resource allocation as compare to that of large scale companies from a social point of view. They provide for and facilitate for a more number of people.
It is level-headed to say that Namibia`s economy is an economy of that can easily be grown by SMEs. However, efforts had remained restricted focusing on the large enterprises, and neglecting SMEs which are the back bone of the economy. For instance, institutions established to facilitate business activities, have been focusing their efforts on large companies leaving the SMEs. SMEs are a distinctive mainstay of the economy that requires owing special treatment.
The evidence from the Namibia shows that small firms are discriminated against relatively large firms in most cases due to experience. Large scale firms can cope and solve their hurdles due to possessing sound experience and financial position. SMEs due to their small size and the resulting peculiarities are far less capable of adjusting and carrying on successful business which in most cases require push start from the procurement company.
There are also some hidden and apparent obstacles in the path of growth of SMEs in Namibia. The most important are; law and order situation; financial constraints; energy crisis; taxation problems; labour issues; lack of coordination and regular information exchange mechanism among institutions, etc. What it requires is to pursue the precise policy and regulatory reforms to turn SMEs into an effectual instrument for the enhancement of economic growth and employment. Furthermore, the setting for SME is incessantly changing, especially in the scenario of globalisation and openness of the economies. Therefore, the course of action for SMEs should be set for long-run period keeping in mind the predictable behaviour of all stockholders.