1. BACKGROUND
Government has taken up many initiatives to promote the growth of Small and Medium Enterprises as well as promoting Regional Integration through Trade between Partner states to ensure that Uganda as a country can grow and attain Vision 2040.
There is need for strategic industrial and business development for our country and the need to increase our exports as we create more business and employment for our people which in turn aids the growth of our Economy. The Government has supported the Economic Partnership Agreement and the African Continental Free Trade Area because it is the leverage for the business people and professionals to ensure the widening of markets for them to do business.
There have been attempts to also make it convenient for investors to export their products within Africa and beyond and as such the SME’s are key to aiding this initiative.
2. A GLOBAL PERSPECTIVE
All over the world, there is growing evidence that SMEs and small businesses play an important role in the national economic development of any country. The extra growth in the World’s economy over the past years has been largely due to the growth of SMEs. SMEs are becoming more and more a subject of high attention in the developing countries and countries in transition but also in countries with developed economies. In market economies like Uganda, SME’s are the engine of economic development thanks to their private ownership, entrepreneurial spirit, their flexibility and adaptability as well as their potential to react to challenges and changing environments, SMEs contribute to sustainable growth and employment generation in a significant manner with the main areas of their presence as manufacturing, distribution and logistics industry as well as the services industry.
In the manufacturing industry they produce goods by using skills developed historically and accumulated by individuals, they also produce products whose raw materials and goods are limited in terms of transferable time they operate fields in which are many processing and manufacturing methods and whose economic efficiency can be enhanced by specializing them in the areas of expertise and they produce products whose market size is too small for big companies to enter while operating in markets where innovative entrepreneurs take risks, commercialize new technologies and develop new business.
In the distribution and logistics industry they distribute a variety of goods efficiently from the manufacturers to consumers and for that reason the existence of many SMEs having businesses tie-ups is essential in any economy.
In the Services Industry they operate in the presence of many services provided both to businesses and individuals where due to constraints of time and distance, a large number of SMEs are needed to provide them.
Until recently, the private sectors of many emerging economies were missing the middle level of development. Globally, Investors, policymakers, and professionals dedicated most of their efforts to big companies of over 500 employees, larger enterprises or multinationals. Large Enterprises and Multi-National Corporations were a target of TAX incentives and subsidies whereas organizations like World Bank and UNDP were focused on supporting the micro-enterprises, which usually have less than 5 employees. Between these two extremes, lie the SME businesses. In the past, SMEs were considered non-essential to the economy, however, lately there have been many promising initiatives to support the SMEs operating in crucial segments of emerging economies not only by investors but by business leaders as well, leaders who clearly recognize the role of SMEs in sustainable economic development.
3. ROLE OF SMEs IN THE TRANSITION OF THE ECONOMY.
Integration into the global economy through economic liberalization, deregulation, and democratization is seen as the paramount way to triumph over poverty and inequality in Countries with transitional economies. Important to this process, is the development of an animated private sector, in which small and medium enterprises can play a central role. SMEs have a propensity to employ more labor-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.
Meanwhile entrepreneurs have established enterprises on their own resources, efforts and self-responsibility in order to make the living for their own and their employees.
For the economies in transition, it is important that the development of SMEs offset the effects of difficulties caused by the reconstruction of the state enterprises and provides enough tax revenue to maintain the development of the society.
SMEs development together with the FDIs seems to be the only two alternatives at this phase but we have to recognize the second alternative is not that advisable because the economy may be dominated and depending from the business conditions or policies defined by the foreign capital companies. Therefore, the role of SMEs that creates corporations and conduct business activities is very important. So, the main objective is to ensure incentives for such activities while promoting business practices that enhance the fair competitiveness among them.
SMEs also make a significant contribution to 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.
4. BENEFITS OF SMES
SMEs being less mobile than large corporations are more likely to have ties of dependence and familiarity to their communities, which ensures that they protect their reputation and relationships among customers and neighbors. One study of European SMEs notes that 67.5 % of them regularly practice forms of social responsibilities such as supporting local charity activities.
The presence of a developed SME environment correlates with several economic factors including the growth of national GDP. There are many acknowledged benefits of SMEs in growing an economy. Researchers have shown the following findings for SMEs: They;
• Are labor-intensive, providing job opportunities for low-skilled employees
• Are correlated with lower inequality in the income distribution
• Are an important part of the supply chain for MNCs
• Are necessary for nations being under the transition phase from agriculture-oriented to industrial and service oriented economies
• Are excellent for innovation and sustainable initiatives due to their flexibility and risk-taking qualities
• Serve as a train of knowledge spillover
• Expand the competition for new ideas and human capital
• Expand market diversity and productivity.
5. CONCLUSION
African Governments have to commit to the growth and establishment of more SME’S as this will accelerate the growth of a common market for the whole of Africa and avail these businesses with all they need to tap into the various opportunities available for the next phase of development. Growing the purchasing power of Africa would attract investments within the region and Africa at large upon the integration of the African Market.
Africa is now the newest destination for emerging markets investors. From 2001 to 2010, six out of the 10 fastest-growing economies were in Sub-Saharan Africa and actually the economies of most African nations have grown by an average of 5-6% per year over the past decade giving momentum to the continent as a whole.
SMEs help provide home-bred solutions that work for the various unique African business challenges we’re faced with, and to provide an opportunity for Africans to work with Africans because in the end we all have the same objective.
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