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The role of SMEs in rwanda from 1995 to 2010

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par Clotilde MUKAMUGANGA
National University of Rwanda - A0 2011

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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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