Importance of Small and Mediun Entreptises in a Developing Economy

ID NUMBER: 11060659 COURSE: MANAGEMENT OF SMALL AND MEDIUM SCALE ENTERPRISES (SMEs) LECTURER: MR. ADAMS FADIR-RAHMAN DATE: 21-4-2010 QUESTION: TO WHAT EXTENT DO CAN IT BE SAID THAT GHANA CANNOT DEVELOP WITHOUT THE ACTIVITIES OF SMEs OPERATORS Small and medium enterprises (SMEs) are companies whose headcount or turnover falls below certain limits. And the limit depends on the country in which the company is operating. SMEs contribute immensely to the economic development of a country . And it can be said that a developing country like Ghana cannot develop without the contribution of SMEs due to the following reasons: Firstly, SMEs contribute significantly to the provision of productive employment opportunities for rural and urban growing labor force in Ghana. The provision of employment opportunities increases the generation of income by the people . And when most of the people in the country are employed, it leads to the reduction of poverty. Secondly, they help to absorb productive resources at all levels of the economy and add to the flexible economic system in which small and large firms are interlinked. Such linkages are very crucial for the attraction of foreign investment. This is because the investing transnational corporations look for sound domestic suppliers for their supply chain. Thirdly, SMEs provide substitution for imported goods which create competition and leads to production of quality goods at affordable prices. This is to say that the substitutes of imported goods produced in Ghana by SMEs helps to create competition between the SMEs and the foreign producers. And this forces them to produce quality goods at affordable prices since there is competition. Furthermore, SMEs help in the provision of capital to individuals, other businesses and even the government. When the SMEs generate their income, they deposited them in the various commercial banks in Ghana. It is from these funds that the banks advance loans to their needy customers. And these funds are sometimes loaned to the government to finance its developmental projects. Also, the income generated by the SMEs is subject to tax. Thus their returns are taxed for the development of the nation. These taxes, when collected, are used for the construction of roads, schools, hospitals and other social amenities. More so, SMES help to produce and enhance the movement of goods outside the country. They also help to the country to export its raw materials or natural resources to foreign countries for foreign exchange. And it also paves the way for some local goods to be marketed outside the country. And this help to increase the gross domestic product (GDP) and per capital income of the country. Lastly, Most of the current larger enterprises have their origin in small and medium enterprises. This is to say that most of the large scale enterprises in Ghana were SMEs before their current state. SMEs are different from large scale enterprises in three main aspects; uncertainty, innovation and evolution. Therefore we can say that SMEs are the starting point of development in the Ghanaian economy towards industrialization. In a nutshell, judging from above, we can see that there is no way that Ghana can develop without the operations of SMEs. So what is required is for the government of Ghana to pursue the precise policy and regulatory reforms to turn SMEs into an effective instrument for the enhancement of economic growth. REFERENCE: SMALL AND MEDIUM SCALE ENTREPRISES,JONATHAN BLAY ,1993,CANADA IMPORTANCE OF SMALL AND MEDIUM SCALE ENTREPRISES IN ECONOMIC DEVELOPMENT,BASHIR AHMED FIDA,PAKISTAN,2008. WWW. THEFREELIBRARY. COM