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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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2.1. Introduction

This chapter broadly aims to review the existing literature to arrive at conceptual understandings. It expands on the definitions of the key terms according to different authors and these include: rural development, small and medium enterprises and their role (advantages).

It is logical that most of developing countries should be seeking to industrialize on the basis of their agricultural production. The output of crops and livestock is both their main source of wealth and their most obvious raw materials for industry. In many important cases, products which were formerly exported in their primary state are now being processed in varying degrees before shipment, so that the national economy gains the value added by processing.

In other instances, locally processed products are being sold on the domestic market as substitutes for imported goods. In both cases, the implication for a country's balance of trade can be highly important. At the same time, the new processing industries help to make more effective use of labor, and thus reduce unemployment. Agricultural development itself may be notably helped if the processing enterprises provide a new and reliable market for production. Also, major processing projects have significant linkage effects by promoting new business for service companies, transporters, traders and various others who are affected by its operations. Finally, there may be welfare benefits, such as the improvement of public nutrition that should follow the successful establishment of a milk plant.

Although the importance of stimulating agricultural processing industries on these grounds is well appreciated, there is not always a full understanding of the marketing and economic factors which vitally affect the success or failure of a project. It is a particular feature of most agricultural processing that the value added by the process is low in relation to the value of the primary commodity and the other modality used. (John: 167).

2. 2. Definition of the concepts

2. 2. 1. Rural development

Rural development refers to the transformation of rural areas from low to high standard of living. It includes agricultural development, establishment of rural industries and infrastructures. So policies for rural development should integrate all sectors in the rural areas. There is also need to integrate the rural sector into the overall economy. However, since agriculture is the major activity in most rural areas; its development would partly lead to rural development. The application of principles of economics to explain problems and solutions of rural areas in becoming an important area in economics.(Tayebwa, 2007:364).

According to Johnston: 1970, rural development is defined as it has evolved through time as results of changes perceived mechanisms and goals of development. A reasonable definition of rural development would be: development that benefits rural populations; where development is understood as the sustained improvement of the population's standards of living or welfare. This definition of rural development, however, has to be further qualified.

Rural development is essentially a part of structural transformation characterized by diversification of the economy away from agriculture. This process is facilitated by rapid agricultural growth at least initially, but leads ultimately to a significant decline in the share of agriculture to rural employment and output in the proportion of rural population to total population.

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