Smal and Medium Enterprise

LITERATURE REVIEW ON SMALL AND MEDIUM ENTERPRISES

(SMEs ENTERPRISES)

INTRODUCTION:

SMEs all over the world are known to play a major role in social economic development. SMEs contribute significantly to employment creation, income generation and stimulation of growth in both urban and rural area.
There are formal and informal SMEs, the informal are the largest of the two, engaging more people in income generation activities. They are sometime referred to as micro, small and medium enterprises
Definition
Small and medium enterprises or SMEs also called small and medium sized enterprise means micro, small and medium business that produce goods or services for sale. However, there is no universally accepted definition of SMEs
Categories of SMEs
Different countries use various measures to categories SMEs. The commonly used yard sticks to categorize SMEs are total number of employees, total investment and sales turn over.
In Europe micro business with fewer than 10 employees and small and medium with fewer than 250 employees and which are independent from large companies are referred to as SMEs.
In the United State small business are those with less than 100 employees, while medium- sized business are those with less than 500 employees. In Tanzania micro enterprise are those with 1-5 employees mostly family members or employing capital amounting up to Tshs. 5.0 million. The majority of micro enterprise fall under the informal sector. Small enterprises are mostly formalized undertakings engaging between 5-49 employees or with capital investment from Tshs 5 million to Tshs 200 million. Medium enterprises employ between 50 to 99 people or use capital investment from Tshs. 200 million to Tshs. 800 million. other criteria to categorize the sector are the annual turn over, assets, tax registration, business registration as independent businesses.

This paper will highlight the historical review of SMEs, empirical review, policy review, and end up with a conclusion
HISTORICAL REVIEW
Literature for the promotion of SMEs date back to the twentieth century following the political –economy concern over lack of industrialization in developing countries. During the period, macroeconomic and sector policies were in favor of large enterprises, often leaving small enterprises at a disadvantage.
By 1970s the literature on development policy had yielded a new intellectual dichotomy between informal and formal sector firms. The result of this dualism was polarization of mainstream industrial development policy and small scale sector development, creating an environment in which formal and informal sector viewed each other as adversaries, preventing meaningful linkages and mutual beneficial synergies. This was reinforced by a variety of measures, ranging from separate institutional arrangements of business, associations an various form of policy intervention.
In the early 1980s Tanzania’s economy was not doing well in many sectors including industries. By 1982, the recorded annual growth rate of GDP was 2%. To arrest this trend, deliberate efforts have been taken to review policies. These policies include the Economic and Social Economic Revival Programs I &II, (ERP-1989/90 and1991/92).the 2nd Union Development Plan 1992/93, and the Rolling Pan and Forwarding Budget 1993/94-1995/96
Under these economic changes the Government has initiated private sector development through liberalization of the economy, market decontrolling measures, etc. The Central Government has pulled out of productive activities, and instead the private sector is encouraged to invest in these activities. These measures have brought a direct impact on SME development. However, the sector has not yet developed due to various bottlenecks such as weak financial infrastructure, poor communication, lack of entrepreneurial culture etc
Analysis of SMEs
SME varies from country to country depending upon the level of development. There is no agreeable definition which is used by different institutions and sectors working with SMEs and private sector. Under some definitions, SME do not include agriculture activities, they consider economic activities mainly in manufacturing, commerce and services.

SMEs have a big contribution in economic of developed of developing and underdeveloped countries, it contributes in the generation of employment, breeding ground for entrepreneurs, poverty alleviation and driving force behind interrelated flow of trade, investment and technology.

Micro enterprise as a category of SME is usually very small businesses, often involving the owner or family members or few paid staff. They usually lack formalities licensees, VAT, registration, formal business premises, operating with permit and accounting procedure. Mainly women are engaged in this category of SME.
Some banks are not willing to finance SMEs Legislation and regulation on collateral excludes movable assets as mortgages, thereby putting smaller businesses that own more of these assets into disadvantaged position. Complex, bureaucratic and costly, legal, regulation and administrative environment are also hindrances to Small and medium enterprise SMEs can be easily adopted in the communities since their requirements in terms of capital, technology, management and even utilities are not as demanding as it is the case for large enterprises. Such enterprise can be easily established and thus add value to agro products and at the same time facilitate the dispersal of enterprises.
SME in communities strengthens the promotion of economic development and are closely associated with more equitable distribution of income and thus important as regards to poverty reduction.
Women entrepreneurs in communities can be provided with small loan to start micro businesses with the ultimate goal of increasing the political and economic power and participation of poor women
.
SMEs have a significant role in economic development. They raise the capacity of communities in terms of knowledge, access to resources, poverty eradication, participation and accountability.

Recently the sector has faced a big challenge due to HIV/AIDS infection that has negatively impact to economic development. The sector has been affected by reducing its contribution to the National economy and poverty reduction. This is due to the long illness for entrepreneur who is affected by AIDS. Resources are used for health care, funeral and care of orphans. The sector has no social protection of entrepreneurs facing problems.


Empirical Review
In Zanzibar before the revolution people were engaged in micro, small and medium enterprises as artisans and other activities in urban areas. In rural areas SMEs engaged people in agricultural activities and business involving agriculture products and other consumable.
After independence the Government initiated a number of SMEs enterprises such as nails industries, garment, cooking utensils, electrical wires, soap making industries and others. The government mainly owned these small and medium industries and there were other local industries in the areas of carpentry, oil milling and soap making
The SMEs in Zanzibar create job opportunities among the low skilled people and therefore hold the key to employment and income generation.
In 70s SMEs were engaged in cooperatives activities especially for women groups. Governments and Cooperative Union promoted SME activities in the form of technical advice, training in management, book keeping, marketing skills, soft loans and working tools at a reasonable price
Nevertheless, the sector is constrained by limited management and technical skills, limited access to finance and is often unable to respond effectively to business opportunities. In addition to that the Government of Zanzibar experienced economic difficulties which led the Government in mid 80’s to pursue liberalization policies through trade and investment opportunities. These initiatives are currently the basis of SME development
SMEs have a vital role in the promotion of tourism in Zanzibar. Generally SMEs activities are in the form of batik making, antiques, handcraft works, medicine soap making, oil milling and other tourism articles.
People travel from different countries such Kenya, Uganda, Burundi, Comoro to engage themselves in SME activities in Zanzibar town as one of the tourist center which promote SME through traditional hand works
Micro, small and medium enterprises is a very important sector in the Zanzibar Economy and it is stipulated in the Zanzibar strategy for Growth and Poverty Reduction as of the steps towards addressing the concerns and measures indicated in the Zanzibar vision 2020.

Stake holders of SMEs in Zanzibar
In the operation of SMEs activities in Zanzibar there are number of stakeholders that have a role in the promotion of the sector. The roles of different actors in the SME sector change according to political and economic environment in the country at a particular time. In Zanzibar the Government has changed its roles from central economic control to facilitation, while the private sector is encouraged to participate actively in economic ventures. The stakeholders include I) the Government, ii) NGOs iii) Development partners and iv) community.
Role of the Government
It the Government role to create supportive macro- economic conditions and legal, regulatory and administrative environment that allows SMEs to emerge, survive and grow.
The Ministry concerned with the promotion of SME has a responsibility for providing coordination and support for the implementation of the SME development policy, facilitate information sharing among relevant government agencies and other activities related to the sector
The of Roles NGOs
NGOs complement government efforts in promoting the SME sector in providing financial support through soft loans and other financial services to poor and medium entrepreneurs, technical support. NGOs promoting the SMEs sector in Zanzibar include PRIDE Tanzania, Presidential Trust Fund, Changamoto LPF, Women Entrepreneur Development Trust Fund (WEDTF), Catalyst organization for women progress in Zanzibar (COWPZ) etc
The role of Development Partners
Development partners provide start up capital for microfinance operations, finance physical infrastructure investments and provide assistance in building- up capacities.
Development partners play a major role in the design and implementation of sustainable interventions for SME development programs

The role of Community
Community is to support the sector and help it participate fully in investment activities to become an engine of economic growth, generation of income and poverty reduction.
Financial institutions
Policy Review
In the process of improving its social and economic development the Zanzibar government has adopted a long term development goal of the eradication of absolute poverty and the attainment of sustainable human development. The vision 2020.( 2000) priorities is the promotion of sustainable industrialization including the development of SMEs ( Micro-Small and Medium Enterprises).
Hence” SMEs are given a vital role in the social economic development. SMEs and the private sector are described as partners in combating poverty and to improve the well-being of the people” ( The final background report on Zanzibar SMEs development policy frame work by UNIDO @G 7 -2007 )
In relation to this, the Zanzibar growth strategy places a strong emphasis on strengthening public private partnership and a number of government policies give priority to the development of Micro, Small and Medium enterprises, these include the Zanzibar Strategy for growth and Poverty Reduction which provides for measures to reduce income poverty, to increase access to social services, to enhance the survival and well-being of the population and to contain extreme vulnerability. Support for SME takes on central role towards the achievement of goals setout in ZSGPR.(2006-2010)
The Zanzibar Industrial policy (1998-2008) is one of the first Government policy documents that has accorded priorities to the development of small and medium enterprises. The industrial policy clearly states that SME sector is the driving force for development and provide strategies for private sector promotion, including privatization of state owned enterprises.
The Zanzibar Investment policy also promotes SMEs (2004). Among its priority is manufacturing, especially with an export orientation and emphasis on SMEs.
Other policies promoting SMEs, are The Zanzibar trade policy (2006), The Zanzibar Agriculture policy (2002) .The Zanzibar Small and Medium enterprises policy (2005) etc.
In Tanzania Mainland there are a number of government policies that promote SMEs including the revised industrial policy namely Sustainable Industrial Development Policy (SIDP) (1996-2020) Gender and Women Development policy, The National Energy Policy Cooperative Development Policy, the National Environmental Policy Rural Development Policy, the Small Industries Development Organization Act 1973 and others policy papers and Acts that have been prepared in favor of this sector include
Vice President’s Paper on poverty Eradication (2000), National Policy for Micro Enterprise and Informal Sector Promotion, Youth Policy, National Employment Policy are also focused toward SMEs development.
CONCLUSION
There is no universal definition of SME which is applicable globally. The criteria used vary from country to country, organization to organization, community to community as well as nationally and regionally..
In general SMEs can be used to represent all informal sector enterprises. This has been sited from the document commission of the European Communities (2003) micro-enterprises are categories of small enterprises particularly important for the development of entrepreneurship and job creation.

A clear and precise policy for SME is important for supporting the sector and to act as guidance for action for the government and other stakeholder .This is supported by the definition of SMEs given in the document Tanzania’s SME policy (2001) SME sector requires effective policies that can address the varieties of development issues involved. A good SME policy should act as guiding document and provide vision towards the sector development”

SME play a vital role in economic development of any country, it contributes to employment, it contribute to GDP, it is the source of government revenue. In Tanzania SME contribute about 50% of industrial products GDP. “In Kenya SME is estimated to have 90,000 enterprises employing some 2 million people or nearly 25% 0f the total labor force” according to Enterprise Development news letter vol.2/issue 1 1995. According to Europe fact and figures “ 99% of all enterprise are SME providing over 100million jobs in Europe”

It is recognized that SME are key for poverty reduction and improvement of general social well-being. It is considered as among the main drivers of achieving country’s target for growth, productivity and employment.
The success of SMEs include having an elaboration policy of SMEs, an understandable program, acceptance and commitment from the Government, national SME strategy and a clear role of financial institutions in supporting SMEs.. SMEs can be effective agents of poverty reduction as stipulated in the Zanzibar Vision 2020 (2000) and the Zanzibar Strategy for Growth and Poverty Reduction (2005).

Contribution from audience
This paper needs your contributions (i) why women micro entrepreneurs are not sustained long and ( ii) what should be done to support them.










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