2.6. Finance sector and
SMEs
Small and medium enterprises (SMEs) make up an estimated 90
percent of businesses and over 50 percent of employment worldwide. A thriving
SME sector can drive growth and jobs in developing countries. However, access
to financial services for SMEs remains severely constrained in many emerging
markets. The global financial crisis created a financing gap that particularly
affected SMEs, making it more difficult for these enterprises to find the
capital to grow their businesses and create jobs. Even as liquidity is restored
to financial institutions, lending volumes remain depressed and SMEs still have
limited access to financing.
The World Bank Group provides support for SMEs in two ways: we
work primarily with private sector partners to target financial and knowledge
bottlenecks to get finance and business support for SMEs. We also work with
governments to create a better investment climate for SMEs. (Aliza Marcus,
2010)
2.7. The Importance of
Agriculture in Development
Economist as early as the beginning of the 20th century
observed that wealthier countries were characterized by a smaller portion of
their output coming from agriculture and relatively less labor resources tied
to the same sector.
They also noted that the process of development itself was
characterized by a monotonic decline in the relative importance of agriculture
and the primary sector in the economy, both in terms of GDP and employment.
One of the first economists to point this out was G. B. Fisher
(1939). Later, this same generalization was formalized by Kuznets (1957),
showing that this secular decline of the primary sector with development can be
observed both across countries and across time. (Gustavo and stamoulis, 2007:
8)
Some economists argued that agriculture plays an important
role in development. One of the first arguments in favor of the role of
agriculture in development was placed by Lewis (1954) who suggested that
«there are large sectors of the economy where the marginal productivity of
labor is negligible, zero, or even negative.» Of course these labor
resources are tied to the primary sector, and are a key ingredient for
industrial growth, which will occur thanks to a growing labor force coming from
the primary sector. Hence, the primary sector plays, although passive, an
important role in development.
Later, Johnston and Mellor (1961), identified some active
roles that the agricultural sector performs throughout the development path: i)
agriculture provides food necessary for a growing economy, as food demand,
although at a decreasing rate, grows with income (Engel's Law); ii)
agricultural exports generate the foreign exchange necessary to import capital
goods; iii) agriculture, as the larger sector in less developed countries, is
the only sector capable of generating the savings mass that the
non-agricultural sector needs for capital accumulation; and iv) a growing
agricultural sector creates a larger local market for the non-agricultural
sector. These Johnston-Mellor linkages still remain relevant for developing
economies with a large primary sector.
Johnston and Mellor were perhaps also the first to note that
successful industrialization experiences are usually preceded by periods of
dynamic agricultural growth.
Although this does not amount to a causality link, the authors
observed that countries that embark in a successful industrialization path,
first experience fast agricultural expansion, fueled not by absorbing resources
from the rest of the economy, but by rapid increases in productivity. (Gustavo
and stamoulis, 2007:9)
Therefore, any successful rural development strategy will
contain an agricultural development component; but they are not the same thing.
While agricultural development aims at improving the welfare of populations
through sustained improvements in the productivity of the agricultural sector,
rural development aims at the improvement of welfare of rural populations
through the sustained growth of the rural economy, which includes agriculture,
but may not be its only component and not necessarily the most dynamic.
(Gustavo and stamoulis, 2007:21)
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