Memoire Online - Contribution of small and medium enterprise to the economic development of Rwanda

ASSESSMENT OF THE CONTRIBUTION OF SMALL AND MEDIUM ENTERPRISES TO THE ECONOMIC DEVELOPMENT OF RWANDA

A dissertation submitted to the College of Business and Economics in Partial fulfillment of the requirements for the award of Bachelor's Degree in Economics.

DECLARATION

I, NYANDWI Valens, hereby declare that this dissertation entitled « Assessment on the contribution of small and medium enterprises to the economic development of Rwanda » Case of Huye water enterprise, is my original work and has never been presented elsewhere for any other academic qualification at any university or institution of higher learning.

DEDICATION

ACKNOWLEDGEMENT

It is with heartfelt gratitude that I first thank Almighty God; I believe that He has always been

My thanks go to the government of Rwanda through the University of Rwanda- Huye Campus for grating me access to university education scholarship. Equally the faculty of economics and management observe mention tiresome efforts in searching for suitable lectures to prepare us for the challenges of this work.

.I would like also to express my appreciation to my supervision Mr. BIZIMANA Claude for his incomparable commitment during the course of this work. Although he had a lot to do, he was never too busy to receive me for advice.

I would like to express my appreciation to my family especially my Mum NAKABONYE Anne-Marie, My Cousin Mr. NYANDWI Alphonse, for sending me to school and inspiring me towards hard work, time respect, and tolerance.

To my friends here in I would also like to express my thanks Brother Jean Bosco BIKORIMANA and Mr. MUNYURASHYAKA Gerald for their incomparable advises, and others whose helping me to have another outlook on my dataset and for assisting me in reflecting data entry, processing, and analysis.

Finally, I am indebted to thank my classmates in four year Development Economics, my friends and roommates for cooperation we shared.

LIST OF TABLES

LIST OF FIGURES

LIST OF APPENDICES

Appendix: Interview guide (Questionnaire) addressed to Respondents (beneficiaries of

The aim of this dissertation is to assess on the contributions of small and medium enterprises to the economic development of Rwanda, this has been done considering Huye water enterprise as a case study. The task has been accomplished by designing the questionnaire and carrying out the interview questions, in order to find out these contributions in economic development of Rwanda.

Firstly, there is consensus among policy makers, economists, and business experts that small and medium enterprises are drivers of economic growth. A healthy SME sector contributes prominently to the economy through creating more employment opportunities, generating higher production volumes, increasing exports and introducing innovation and entrepreneurship skills. The dynamic role of SMEs in developing countries ensures them as engines through which the growth objectives of developing countries can be achieved.

It is estimated that SMEs employ 22% of the adult population in developing countries (UNIDO, 1999). The United Nations Industrial Development Organization (UNIDO) estimates that SMEs represent over 90% of private business and contribute to more than 50% of employment and of gross domestic product (GDP) in most African countries (UNIDO, 1999).

In Rwanda, the SME sector, including formal and informal businesses, comprises 98% of the businesses in Rwanda and 41% of all private sector employment.(Report of MINICOM, June 2010). The SME sector has the potential to lower Rwanda's trade imbalance but however, SMEs in Rwanda face a myriad challenges including limited access to finance, high energy costs, inadequate skills and training, low levels of societal trust as well challenges with contract enforcement.

CHAPTER I

1.0. Introduction

Small and medium enterprises play predominant roles in the economies of most of the developed and developing countries, especially in Rwanda, and impact significantly on employment creation, income distribution, and dispersion of industries.

The importance of the SME sector and the informal sector is acknowledged internationally, defining SMEs as challenging task, and then every country has its own definition.

There is no single, uniformly accepted definition of a small firm (Storey, 1994). Firms differ in their levels of capitalization, sales and employment. Hence, definitions which employ measures of size (e.g. number of employees, turnover, profitability and net worth) when applied to one sector might lead to all firms being classified as small, while the same size definition when applied to a different sector might lead to a different result.

Rwanda is one of the poorest countries in the world; it is landlocked with low industrial production. Its economy is almost based on agricultural productivity since 92% of the population occupies the agriculture sector (MUKAMUGANGA Clotilde, 2011, The role of small and medium enterprises in Rwanda from 1995 to 2010, NUR). It located in central Africa. Since 1991, the existing literature has shown the declining trends of incomes, savings, employment resources, famine, high population growth rate and general drop in the standards of living of people.

The Rwandan economy faces a complexity of problems, which are rooted in socio-economic structure and history of violence and injustice. Hence the low agricultural productivity, famine and frequent droughts; high population growth, low human resource development, high transport costs and environmental degradation contribute tremendously to the structural problems which led to huge macroeconomic difficulties.

Besides, social problems, which culminated into 1994 Genocide in Rwanda and caused the destruction of Economic and social infrastructures, the human resource base and the general productive apparatus and systems, were also affected by the war .Hence the destruction of the social fabric, the loss of people's confidence and trust in each other increase more the poverty and vulnerability of the Rwandan people especially in rural areas.

In this context, the Government's ultimate objective is to create a new social, political and economic framework that must address the problems of the country. The government of Rwanda has developed a policy that promote the creation of alternative ways of attaining high incomes, employment, a policy which encourages entrepreneurs to contribute more positively to economic development in the country. Entrepreneurs are encouraged in implementing small and medium enterprises which play a paramount role on economic development. (MUKAMUGANGA Clotilde, 2011, The role of small and medium enterprises in Rwanda from 1995 to 2010, NUR).

1.1. Background

The aspirations of Rwanda's Vision 2020 are founded upon six main pillars, one of which is private sector led economic growth. The emergence of a viable private sector that can serve as the principle engine of the economy is paramount to Rwanda's development and key to this will be fostering an environment conducive to SME growth and development.

According to the Rwanda SME Policy of 2010, Small and Medium Enterprises and micro enterprises in Organization for Economic Cooperation and development countries account for over 95% of all firms, 60-70% of employment and 55% of GDP and create the majority of new jobs, indicating the impact SMEs have on employment. In contrast, currently over 80% of Rwandans are engaged in agricultural production.

The SME sector, including formal and informal businesses, comprises 98% of the businesses in Rwanda and 41% of all private sector employment though the formalized sector has much growth potential with only 300,000 currently employed (Rwanda SMEs policy, June 2010). Most micro and small enterprises employ up to four people, showing that growth in the sector would create significant private sector non-agricultural employment opportunities.

The 2011 Establishment Census enumerated 123,256 establishments (Rwanda SMEs policy, June 2010). The private sector accounts for 96.5% of total establishments, with 4,256 non-profit (3.4%), 73 public and 46 mixed establishments.

Sole proprietorship is by far the most common form of legal status with 112,169 establishments (90.8%). There are 2,520 establishments limited by shares and 8,573 with other forms of legal status (e.g. non -profit associations, government).

Rwandan small and micro businesses comprised 97.8% of the private sector and account for 36% of private sector employment. SMEs in Rwanda comprise approximately 98% of the total businesses and account for 41% of all private sector employment.

SMEs in Rwanda face many macro level challenges faced by large companies, including limited transport and energy, a missing insurance agency, low level of societal trust, challenges with contract enforcement and a weak education system.

Unlike large firms that may have the time and resources to invest in resource and human capacity building, SMEs often have limited abilities to develop the skills of their staff or take the advantage of local economies of scale in terms of energy, transport or raw materials.

They also often lack the ability to gather and process market information outside of what is immediately relevant to their current business due to lack of technical knowledge and training on how to make a use of this information.

They also are dependent upon a single individual or small group of individuals to develop business ideas and assume the risk of start-up or expansion and the burden of taxation and other regulations. This means that even for entrepreneurs that do see opportunities in the market, it is difficult to bring those ideas to fruition due to the potential costs of failure.

This challenge is exacerbated by the fact that financial institutions find it too high risk to lend to SMEs given the cost/benefit ratio in terms of time and resources required to process SME loans as well as the difficulties most SMEs face in consolidating capital and creating business plans to become viable lending candidates. This creates a blockage to growth where SMEs that have the skills to scale-up or move into manufacturing and processing are constrained due to their limited access to finance, even if they are willing to assume the risk.

However, despite the above challenges, the SME sector has the potential to lower Rwanda's trade imbalance. Rwanda reported a trade deficit of 285.5 millions USD in 2010. Rwanda's exports remains dominated by traditional products such as coffee, tea and minerals like tin, Coltan, wolfram and cassiterite.

Rwanda's main export partners are China, Germany and United States. SMEs in Rwanda have remained less competitive compared to regional neighbors and if no effort is made to make them more competitive, this situation is likely to worsen with Rwanda's accession to the East African Community and the implementation of the common market protocols. Making existing and new Rwandan SMEs more competitive in value added exports is therefore one among other vital actions necessary to reverse the trade imbalance and building competitiveness.

It is in this context that the Entrepreneurship Development Unit within the Ministry of Trade and Industry is in the process of identifying the most competitive SMEs, sectors pre District across the country in order to support SMEs undertake business activity within sectors with the aim of unlocking SMEs competitiveness(MINICOM, June 2010).

1.2. Problem statement

The establishment census confirmed that SMEs have a critical role to play in creating jobs for Rwandans, whereby SMEs comprise approximately 98% of the total businesses and account 41% of all private sector employments.

The SME sector, with formal and informal businesses, plays a crucial role in the country's development; it has a potential to lower Rwanda's trade imbalance and generate off farm employment. Strengthening this sector has been highlighted as a successful tool in achieving economic goals that is why the Government has taken the lead in SMEs sector development.

Focusing on this priority, clustering strategy will serve as a vehicle for enhancing competitiveness among Rwandan SMEs. When SMEs work collaboratively within a cluster, they can take advantage of market opportunities that they could not achieve alone and share certification or monitoring systems which reduces cost and increases learning.

Cluster based intervention engenders collective action, dialogue, trust, experiences transfer and capacity building within clusters and with other linked organizations and sectors.

Clusters organization can also offer a useful entry point for stakeholders seeking to support business and private sector development.

The fact is that firms working together in a cluster should be able to respond to the challenges of global market than isolated ones that is the motive that the Ministry of Trade and Industry has in run of linking SMEs together in cluster.

Despite the role of SMEs in the Rwandan economy, the financial constraints they face in their operations are daunting and this has had a negative impact on their development and also limited their potential to drive the national economy as expected. This is worrying for a developing economy without the requisite infrastructure and technology to attract big businesses in large numbers.

Most SMEs in the country lack the capacity in terms of qualified personnel to manage their activities. As a result, they are unable to publish the same quality of financial information as those big firms and as such are not able to provide audited financial statement, which is one of the essential requirements in accessing credit from the financial institution.

This is buttressed by the statement that privately held firms do not publish the same quantity or quality of financial information that publicly held firms are required to produce. As a result, information on their financial condition, earnings, and earnings prospect may be incomplete or inaccurate. Faced with this type of uncertainty, a lender may deny credit, sometimes to the firms that are credit worthy but unable to report their results.

Another issue has to do with the inadequate capital base of most SMEs in the country to meet the collateral requirement by the banks before credit is given out. In the situation where some SMEs are able to provide collateral, they often end up being inadequate for the amount they needed to embark on their projects as SMEs assets- backed collateral are usually rated at `carcass value' to ensure that the loan is realistically covered in the case of default due to the uncertainty surrounding the survival and growth of SMEs (Binks et al., 1992).

These are some of the factors already acknowledged by some researchers as blocking most SMEs in accessing credit from the financial institution in the country. But are these really the case in Rwanda?

SMEs in Rwanda do not also have the luxury of picking a financing scheme that will be appropriate for their businesses. The major type of financing open to them is debt financing from the financial institutions, which most often comes with a long list of requirements that most SMEs find them difficult to meet. The other type that is Asset financing, aside the long list of criteria also requires operators of SMEs to provide 50% of the funds and the financing institution providing the other half to fund the purchases of the assets.

This type of financing do not allow for growth of the SMEs sector since they are all short term in nature (John Ackah and Sylvester Vuvor , June 2011).

1.3. Research questions

This study attempted to provide answers to questions that serve as guidelines of the study:

1.3.1. What is the nature and characteristics of small and medium enterprises in Rwanda?

1.3.2. What are the roles of small and medium enterprises in the economic development in Rwanda?

1.3.4. What are the supports needed for promoting the small and medium enterprises in

1.4. Study objectives

1.4.1. General objectives

The study seeks to understand what has been researched and written on assessment of the contribution of SMEs to the economic development of Rwanda.

1.4.2. Specific objectives

? To understand the contribution of SMEs to the economic development of Rwanda and it function roles relevant to the public and private organization.

? To analyze the nature, scope and working Small and Medium Enterprises in Rwanda, to examine the Government policies on small and medium enterprises.

? To assess the barriers hindering small and medium enterprises in the economic development

1.5. The research hypotheses

The following is the hypothesis of this study, the assessment of the contribution of small and medium enterprises to the economic development of Rwanda.

An overview of research methods of the study

This research took 7 months from January 15^th,to 30^th, June 2014 and it was conducted to the population which is equal to 84 people (clients, employees and staffs of Huye Water enterprise). The sample size was used in this study is 26 respondents.

For getting the accurate result different methods and techniques have been used in this study and techniques/tools for data collections were: Questionnaire, interview and documentation while qualitative and quantitative methods were. Tables with frequencies and its interpretation were used to put in meaningful way the perceptions of respondents.

1.6. Identification of study

The study will base on both independent and dependent variables therefore the variables of this study include the following:

ED= f( t +? + gdp +...), here (t is a tax level, gdp means the gross domestic product, ? is called the employment level)

1.7. Significance of the study

The study will establish the major problems, which small and medium enterprises face.

The study tries to establish how a small and medium enterprises can worked and managed in order to play a significant and effective role in the economic development of Rwanda.

It will be useful in making major contributions to policy makers on the promotion of small and medium enterprises strategy.

The study will attempt to fill some gaps on the limited research on small and medium scale enterprises.

The study will analyze carefully the present roles of small and medium enterprises in the economic development of Rwanda and also provide a basis for other studies on small and medium of enterprises on top of being a contribution to the already existing academic development.

The research will be used to present a written thesis or dissertation that will lead to the award of a Bachelor's degree in the Department of Economics and Development Economics as my option.

1.8. Scope of the study

The project is entitled: «The assessment of the contribution of Small Medium and Enterprises in the economic development of Rwanda».

However, to gain a thorough understanding of the Rwandan SME market, a benchmarking exercise is carried out between Rwandan SMEs and other countries.

1.9. Organization of the study

The study is divided into five chapters. Chapter one is the general introductions, which include background to the study, statement of the problem, research questions, research hypothesis, objectives of the study, significance and organization of the study.

The second chapter presents the definitions of the key concepts and the relevant literature on small and medium scale enterprises. The third chapter provides the methodology used in obtaining the data. The fourth chapter presents the analysis of data and research findings and interpretations of data.

CHAPTER II. LITERATURE REVIEW AND DOCUMENTATION

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: economic development, and small and medium enterprises and their assessment.

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.

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 (Clotilde MUKAMUGANGA, 2011 page 14).

This chapter presents the definition of key concepts, the general overview of SMEs, the preferred policies and objectives, need for development of SMEs, the tenth elements required for SMEs from ISO, advantages of SMEs, limitations of small business and the main causes of failure. The overall purpose of this chapter is to identify and assess the gaps that this study will fill and contribute approaches to the better performance of a sustainable economic development of Rwanda.

2.2. Literature search

A comprehensive literature search of published academic, peer reviewed professional literature using a variety of databases including journal articles, conference papers, books, dissertations and technical papers, both published and unpublished, was conducted. The main sources included libraries both public and university (University of Rwanda-Huye Campus) libraries and the internet sources of information.

i. Published journal articles, working papers and other theoretical publications on SMEs access to credit;

ii. Papers/articles found on the websites for economic development, development policy of SMEs in Rwanda, banks and other funders; and

iii. Papers/articles found on the websites for credit regulators and SME advocacy organizations.

2.3. Descriptions and understanding of terms

2.3.1. An assessment

An assessment is a process in which you make a judgment about a person or situation, or the judgment you make (Longman dictionary).

According to international Red Cross «Assessment» means judgment, appraisal, estimation or evaluation. An assessment is part of a bigger process that serves a greater purpose than just looking at understanding the situation and the needs. However this is used to understand a situation in order to make decisions on whether there is a need to respond to a hazard or to a situation that can lead to a disaster if nothing is done.

Through an assessment it can be determined, in consultation with the relevant authorities and communities, whether assistance is required and, if so, the kind of assistance needed it must collect information that will allow a good analysis of the situation and the threats to life, human dignity, health and livelihoods of the population.

2.3.2. Meaning of SMEs and Economic development

Ø The definition of SMEs

Small and medium-sized enterprises (SMEs) are a very heterogeneous group. SMEs are found in a wide array of business activities, ranging from the single artisan producing agricultural implements for the village market, the coffee shop at the corner, the internet café in a small town to a small sophisticated engineering or software firm selling in overseas markets and a medium-sized automotive parts manufacturer selling to multinational automakers in the domestic and foreign markets.

The owners may or may not be poor; the firms operate in very different markets (urban, rural, local, national, regional and international); embody different levels of skills, capital, sophistication and growth orientation, and may be in the formal or the informal economy. The abbreviation "SME" is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization . Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors

In the United States, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue and number of employees (which in some circumstances may be as high as 1500, although the cap is typically 500). Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices.

In July 2011, the European Union Commission said it would open a consultation on the definition of SMEs in 2012. In Europe, there are three broad parameters which define SMEs:

The European definition of SME follows: "The category of micro, small and medium-sized enterprises is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.

EU member states have had individual definitions of what constitutes an SME. For example, the definition in Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy under a European-labeled programmed.

According to German economist Hans-Heinrich Bass, "empirical research on SME as well as policies to promote SME has a long tradition in West Germany, dating back into the 19th century. Until the mid-20th century most researchers considered SMEs as an impediment to further economic development and SME policies were thus designed in the framework of social policies.

Only the ordo-liberal school, the founding fathers of Germany's social market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems (mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial policies to promote SMEs.

Canadian Industry defines a small business as one with fewer than 100 employees (if the business is a goods-producing one) or fewer than 50 employees (if the business is service-based), and a medium-sized business as one with fewer than 500 employees. While Industry Canada may have screening criteria based on SME qualification, such as eligibility for subsidies, it is not the tax authority in Canada.

Corporations in Canada are generally taxed at 29% federally. Canadian Controlled private corporations receive a 17% reduction in the tax rate on taxable income from active businesses up to $500,000. This small business deduction is reduced for corporations whose taxable capital exceeding $10M, and is completely eliminated for corporations whose taxable capital exceeds $15M.

In China, the definition of a small-medium enterprise is most commonly based on the number of employees that usually with fewer than 500 employees; In China, the definition of an SME is complex, which depends on the industry category and based on the number of employees, annual revenue and total assets, and this criteria on small and medium-sized enterprises are based on the SME Promotion Law of China (2003), which sets the guideline for classifying SME's.

1. The relevant size of the SMEs is significantly smaller than the large and listed companies in China due to the size of their capital stock, credit allowance. According to Guo and Li (2007), the Structural characteristics of SMEs in China are:

However, in recent years, some SMEs have grown really large in size due to their continuous improvement and technological improvements (Wikipedia, July 2008).

2. After the reformations of government legislations in 2005 for the favor of SMEs in China, nowadays, SMEs have been operating in different branches of businesses such as manufacturing, services, construction, transport and retailing. This support has helped the emergence of many more SMEs in China which means there is even greater demand for financing all these SMEs

3. Small enterprises also make up huge proportion of SMEs in China which usually lack the degree of specialization and cooperation in the production areas. This is mainly due to the fact that there is lack of government legislations that supports and shows guidelines for SMEs in China.

4. The main market for SMEs is the domestic market of China which is due to the fact that SMEs cannot cope with fierce competition in the international markets or does not have advantage over foreign-invested companies with high-tech. Due to shortage of funds, most SMEs operate mainly in labor-intensive small and medium industries as the technological progress is slow for them.

In Kenya, the term is SME (for "small, medium and micro enterprises"); elsewhere in Africa, MSME stands for "micro, small and medium enterprises". Maximum number of employees equal 10000 maximum revenue or turnover. ( European Commission, 6^th May 2003).

In Rwanda, according to the SME Development Policy 2010, SMEs have to fulfill two of three indicators-net capital investments, annual turnover and number of employees. A Micro Enterprise is therefore defined as an enterprise employing maximum 3 people; annual sales/revenue turnover of maximum 0.3million and net capital investment of maximum 0.5 million.

A Small Enterprise is defined as an enterprise employing 4 to 30 people; annual sales/revenue turnover of between 0.3 to 12million and net capital investment of between 0.5 to 15million.

A Medium Enterprise is defined as an enterprise employing 31 to 100 people; annual sales/revenue turnover of 12 to 50 million and net capital investment of 15 to. Registered cooperatives may also benefit from this policy in so far as they are SMEs.

Size of enterprise	Net capital investments (Million Rwf)	Annual turner over (Million Rwf)	Number of employees
Micro enterprises	Less than 0.5	Less than 0.3	1 to 3
Small enterprises	0.5 to 15	0.3 to 12	4 to 30
Medium enterprises	15 to 75	12 to 50	31 to 100
Large enterprise	More than 75	More than 50	More than 100

2.3.3. Economic development

Economic development, according to Harvard Professor Michael E. Porter is the "long-term process of building a number of interdependent microeconomic capabilities and incentives to support more advanced forms of competition." These capabilities and incentives, which were originally identified in Porter's The Competitive Advantage of Nations, 1990, include the nature and extent of the inputs required by firms to produce goods or services; the rules, incentives and norms governing the type and intensity of local rivalry; the quality of demand for local services; and the extent and quality of local suppliers and related industries.

Economic development differs from economic growth. Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out: «economic growth is one aspect of the process of economic development.

Economic development can also be described as a process that influences growth and restructuring of an economy to enhance the economic well being of a community. In the broadest sense, economic development encompasses three major areas:

1. Policies that government undertakes to meet broad economic objectives including inflation control, high employment and sustainable growth.

2. Policies and programs to provide services including building highways, managing parks and providing medical access to the disadvantaged.

3. Policies and programs explicitly directed at improving the business climate through specific efforts, business finance, marketing, neighborhood development, business retention and expansion, technology transfer, real estate development and others.

The main goal of economic development is improving the economic well being of a community through efforts that entail job creation, job retention, tax base enhancements and quality of life. As there is no single definition for economic development, there is no single strategy, policy or program for achieving successful economic development. Communities differ in their geographic and political strengths and weaknesses.

Each community therefore, will have a unique set of challenges for economic development.

2.3.5. Growth and development

Dependency theorists argue that poor countries have sometimes experienced economic growth with little or no economic development initiatives; for instance, in cases where they have functioned mainly as resource-providers to wealthy industrialized countries. There is an opposing argument, however, that growth causes development because some of the increase in income gets spent on human development such as education and health.

According to Ranis et al., economic growth and is a two-way relationship. Moreover, the first chain consists of economic growth benefiting human development with the rise in economic growth, families and individuals will likely increase expenditures with heightened incomes, which in turn leads to growth in human development. Further, with the increased consumption, health and education grow, also contributing to economic growth. In addition to increasing private incomes, economic growth also generates additional resources that can be used to improve social services (such as healthcare, safe drinking water, etc.).

By generating additional resources for social services, unequal income distribution will be mitigated as such social services are distributed equally across each community, thereby benefiting each individual. Concisely, the relationship between human development and economic development can be explained in three ways. First, increase in average income leads to improvement in health and nutrition (known as Capability Expansion through Economic Growth). Second, it is believed that social outcomes can only be improved by reducing income poverty (known as Capability Expansion through Poverty Reduction).

Lastly, social outcomes can also be improved with essential services such as education, healthcare, and clean drinking water (known as Capability Expansion through Social Services). John Joseph Puthenkalam's research aims at the process of economic growth theories that lead to economic development. After analyzing the existing capitalistic growth-development theoretical apparatus, he introduces the new model which integrates the variables of freedom, democracy and human rights into the existing models and argues that any future economic growth-development of any nation depends on this emerging model as we witness the third wave of unfolding demand for democracy in the Middle East.

He develops the knowledge sector in growth theories with two new concepts of 'micro knowledge' and 'macro knowledge'. Micro knowledge is what an individual learns from school or from various existing knowledge and macro knowledge is the core philosophical thinking of a nation that all individuals inherently receive. How to combine both these knowledge would determine further growth that leads to economic development of developing nations.

Yet others believe that a number of basic building blocks need to be in place for growth and development to take place. For instance, some economists believe that a fundamental first step toward development and growth is to address property rights issues, otherwise only a small part of the economic sector will be able to participate in growth. That is, without inclusive property rights in the equation, the informal sector will remain outside the mainstream economy, excluded and without the same opportunities for study.

2.3.6. Regional policies of economic development

In its broadest sense, policies of economic development encompass three major areas:

· International trade and exchange rates are a key issue in economic development. Currencies are often either under-valued or over-valued, resulting in trade surpluses or deficits.

2.4. General overview of Small and medium enterprises (SMEs)

The growth and development of micro-enterprises as well as small and medium scale enterprises has been crucial to the economic development of East African countries ( Mamadou March, 1996).

Many governments and specialized small and medium enterprises development agencies and institutions have long been engaged in providing assistance for the establishment of small and medium enterprises and for their growth and development activities.

This the mainly through the creation of an enabling environment, for example economic and financial policies that are geared towards encouraging development of small and medium enterprises, pre-investment feasibility surveys, facilities for raw materials and other inputs, infrastructure facilities and domestic assistance.

Small and medium enterprises are a key component in economic life, not only because of their number and variety but also because of their catalytic role in the economy. They play a complementary role in the support of the large sector, and are a ground for innovations and adaptations. They can be seen as a kind of industrial breeding ground, a source of constant renewal of industry and commerce, and a wellspring of competition dynamism (Tarner et al 1989).

Governments, organizations, international institutions, private and public investors and all other development associations are turning their attention to the small-scale enterprises. Efforts to promote economic progress by establishing large industries have usually failed to improve the lot of majority of the population. In the developing countries, small and medium businesses are viewed as an important element in the economic development (Malcolm, 1976).

This section provides a broad overview of small enterprise definitions used across the globe with the objective of understanding what an SME really is. This understanding will go a long way in comparing and benchmarking results from different studies.

SME definitions can be broadly categorized into two, «economic» and «statistical» definitions. Under the economic definition, a firm is regarded as small if it meets the following three criteria:

(2) It is managed by owners, or part owners, in a personalized way and not through the medium of a formalized management structure; and

The «statistical» definition, on the other hand, is used in three main areas: (1) quantifying the size of the small firm sector and its contribution to GDP, employment and exports; (2) comparing the extent to which the small firm sector's economic contribution has changed over time; and (3) in a cross country comparison of the small firms' economic contribution.

These definitions, however, have a number of weaknesses. For example, the economic definition, which states that a small business is managed by its owners or part owners in a personalized way and not through the medium of a formal management structure, is incompatible with its statistical definition of a small manufacturing firm which might have up to 200 employees.

According to UNIDO, the definition of SMEs is a significant issue for policy development and implementation and depends primarily on the purpose of the classification. For the purposes of policy development, UNIDO generally advises countries to take into account the quantitative and qualitative indicators for SME definition.

2.5. Popular types of small and medium enterprises

Small business exist in every type of industry, agriculture, forestry, and fishing, mining , construction, manufacturing, transportation , communication, and utilities, wholesale trade, retail trade, finance, insurance, and real estate, and services. In order of importance, however, they are most important in retail trade, services, construction, wholesale trade, and manufacturing.

Retail businesses sell their products directly to consumers. But they are tens of thousands of small retail enterprises, such as bakery, greeting card, record, apparel, jewelry and numerous other types of shops and stores.

This study noted that the small business segment of the economy is heterogeneous with businesses ranging in size from micro-enterprises to relatively large firms. Small businesses are very diverse and have different needs. They operate in the formal and informal economies. Some are simply survivalist whereas others are run by people with an entrepreneurial flair. Some are start ups; some are growing rapidly; others are experienced and highly sophisticated. They operate in different markets, local, national and global (Wikipedia, October 2007).

No single policy can cover all these businesses, formal and informal, operating in different industrial sectors and with many sector specific challenges. Thus, data categories should be sufficiently differentiated to provide detailed and nuanced information to support targeted policy approaches and practical interventions. It is worth reconsidering whether SMEs should be considered as «one group» as the acronym infers. For policy purposes, a one- size-fits-all approach certainly will not work.

CATEGORY

SMEs

LARGE COMPANY

Management

· Proprietor entrepreneurship

· Functions-linked personality

· Manager-entrepreneurship

· Division of labor by subject matters

Personnel

· Lack of university graduates

· All- round knowledge

· Dominance of university graduates

· Specialization

Organization

Sales

Buyer's relationship

Production

Research development

· Highly personalized contacts

· Competitive position not defined and uncertain

· Unstable

· Labor intensive

· Following the market, intuitive approach

· Highly formalized communication

· Strong competitive position

·Based on long- -term contracts

· Capital intensive, economies of scale

· Institutionalized

Finance

· Role of family funds, self financing

· Diversified ownership structure,

access to anonymous capital market

Source: P.M. Hamuranek, C.F. Lettonayr, J.H. Picher, Title, Manual for small industrial business. (UNIDO, Vienna, 1994) Page 7 and 14.

The abbreviation "SME" occurs commonly in the European Union (EU) and in international organizations such as the World Bank (WB), the United Nations (UN) and the World Trade Organization (WTO). The term "small and medium businesses" or "SMBs" is predominantly used in the USA. In Rwanda the term is «SMEs» for small, and medium enterprises, and elsewhere in Africa, MSME is used for micro, small and medium enterprises.

2.6. Factors needed for development of small and medium enterprises

Greater flexibility: small firms are typically more flexible than large firms.

For example, they can adopt their plans quickly in response to environmental changes. Large firms, which many layers of management, cannot respond as quickly.

More personal attention to customers and employees: small business owners have more direct contact with their customers and have a better feel for what they want than very large business. They can often respond sooner to changes in customers preferences as well as offer more personal service.

The relationship between the owners of small business and their employees is also often more direct and personal than in many large business, where management tends to communicate with employees though labor and management representatives.

Lower fixed costs: small companies often have lower fixed costs than large firms.

Fixed costs are costs that do not vary as the volume of business changes. Thus the small firm might be able to sell its product at lower price than a large competitor with high fixed costs.

Greater entrepreneurial and innovative fervor: an entrepreneur is a risk taker who starts and operates a business in hope of making a profit. The hired managers who run big corporations seldom hold any significant ownership in them. They have less to gain by taking the risk, for example, of developing new products. As result, they may tend to be overly conservative in running the corporations.

Greater motivation of the owners, hired managers generally do not have a significant ownership stake in their corporations. Small business owners do, and this in itself can motivate them to work harder.

In addition, the desire to be independent and act as one's owner boss is a powerful motivator (NORMAN M. Scarborough, 1999 p. 103 up to 106).

2.6.1. Ten good things ISO standards can do for small and medium enterprises

o Standards add credibility and confidence for your customers Standards open new business opportunities and sales

2.6.2. Principles of good regulation for Small and Medium Enterprises

· The impact of regulation on small business is identified, establishing an appropriate balance between risk and cost.

· Policy objectives, including the need for regulation, are clearly defined and effectively communicated to those involved.

· Those being regulated understand their obligations and know what to expect from the enforcing authorities.

· Proposals are published and all those affected are consulted before decisions are taken.

2.7. The importance roles of SMEs in the economy

The importance and potential contribution of the SME sector are supported by both theoretical and empirical arguments and evidence. We turn first to the former. Part of the contribution of the SME sector both to the overall total factor productivity (efficiency, as usually defined) of an economy and to employment generation and distributional equality comes by virtue of its pattern of technology choice.

SME technology tends to be intermediate between the highly labor intensive technologies of micro enterprise, which as a result achieve only low average labor productivity, and the highly capital intensive technologies of large firms which thereby achieve high labor productivity, but use more capital per worker than is available for the economy as a whole.

Given this correlation between size and capital intensity, it becomes a foregone conclusion that an economy that applies a high share of its capital to a small group of workers must necessarily have, as the other side of the coin, a large informal or microenterprise sector that uses very little capital (the bit not used by the large-scale sector) with the large amount of labor not employed by the large firms.

Its intermediate technology characteristic is what gives the SME sector a special role (together with small-scale agriculture) in the generation of adequate or decent employment. When most jobs are in the micro enterprise sector, too many of them are destined to be low productivity and hence low income in character. SME firms can be substantially more productive, so in terms of the potential to generate «decent» jobs this sector competes with large private firms and the government, but it has the advantage of being able to generate many more such jobs for a modest input of capital. The key mechanism in generating decent employment in most developing countries involves the expansion of this sector fast enough to absorb people previously unemployed (a few) or engaged in low productivity informal sector jobs.

In a globalizing world it is naturally important that as many major categories of firms as possible have the capacity to compete in world markets. The importance of an efficient collaboration between large firms and SMEs through subcontracting is at its peak in outward oriented countries especially those competing in international markets in products involving a good deal of labor. Being able to rely of efficient low-cost subcontractors can substantially increase the competitiveness of the large exporters, and has been an important factor underpinning the successes of Japan, Taiwan and Korea( Palma and Gabriel, January 2005).

On the empirical side, some features are common to nearly all SME sectors. The most important positive features have, naturally, gone with those cases where SMEs have made the biggest positive contribution. Broad empirical evidence highlighting the importance of SMEs includes the facts that:

Broad empirical evidence highlighting the importance of SMEs includes the facts that:

· The most successful developing country over the last 50 years, Taiwan, is built on a dynamic SME sector. This has produced both (for its time) record breaking growth and a quite low level of inequality, by comparative standards.

The experience of Korea, Taiwan's partner among the Asian Tigers and a more or less equally fast grower, has provided the laboratory to illustrate another point-inequality can fall significantly when the weight of the SME sector rises quickly, as it did for a period after the mid-1970s in Korea.

Colombia's golden age of growth, from the late 1960s through the 1970s, coincided with very fast expansion of the manufacturing SME sector and with an apparent decline in urban inequality.

· SMEs tend to use medium-sophistication technology, which is approximately consistent with the factor endowment ratios in most developing countries.

· Many firms «grow into» or «grow out of» the SME size range, with both of these transitions having something positive to be said for them.

· The SME size range is where many important entrepreneurs and firms of the future get their start.

2.8. Is it any correlation between Small and medium enterprises, business environment and

Efforts targeted at the SME sector are often based on the premises that SMEs are the engine of growth, but market imperfections and institutional weaknesses impede their growth. Skeptics question the efficacy of this policy and point to empirical evidence either in favor of large firms or of a size-blind policy approach. While many country-level and microeconomic studies have assessed the importance of SMEs in the economic development and industrialization process (Snodgrass and Biggs, 1996), Beck, Demirguc-Kunt and Levine (2005a) provide the first cross-country evidence on the links between SMEs, economic growth, and poverty alleviation, using a new database compiled by Ayyagari, Beck and Demirguc-Kunt (2003).

Cross-country regressions of GDP per capita growth on SMEs share in manufacturing employment show a strong positive relationship over the 1990s, even after controlling for an array of other country characteristics that can account for differences in growth across countries.

Instrumental variable regressions that explicitly control for reverse causation and simultaneity bias, however, erode the significance of the relationship between SMEs and economic growth.

The regressions do not necessarily lead to the conclusion that SMEs do not foster economic growth. Rather, they fail to reject confidently the hypothesis that SMEs do not exert a causal impact on GDP per capita growth. This finding is consistent with the view that a large SME sector is a characteristic of fast-growing economies, but not a cause of their rapid growth. Beck, Demirguc-Kunt and Levine (2005a) also do not find any evidence for any association of a large SME sector with faster income growth of the lowest income quintile and faster rates of poverty reduction.

While to our best knowledge there is no robust cross-country evidence on the relationship between the business environment and economic growth, industry-level, firm level and survey evidence consistently show a positive association of a competitive business environment with entry, entrepreneurship and investment. Klapper, Leaven and Rajan (2006) show that one channel through which the business environment affects economic development is the entry of new firms.

By using firm-level survey data for 52 countries, Demirguc-Kunt, Love and Maksimovic (2012) show that one of the reasons for this variation in the likelihood of incorporating is the fact that incorporated firms face lower obstacles to their growth in countries with better developed financial sectors and efficient legal systems, strong shareholder and creditor rights, low regulatory burdens and corporate taxes and efficient bankruptcy processes.

Corporations report fewer financing, legal and regulatory obstacles than unincorporated firms and this advantage is greater in countries with more developed institutions and favorable business environments. Further, they find some evidence of higher growth of incorporated businesses in countries with good financial and legal institutions.

Using survey data from interviews with entrepreneurs and non-entrepreneurs in seven cities across Russia, Djankov et al. (2004) provide further evidence for the importance of the business environment for the decision of becoming an entrepreneur. They find that in addition to many personal characteristics the perception of corruption and government officials' attitude towards entrepreneurship affects the decision to become an entrepreneur.

Similarly, Johnson et al. (2002) find that entrepreneurs in transition economies are more likely to reinvest their profits if they feel more secure about property right protection in their country, while Cull and Xu (2005) find that Chinese entrepreneurs are more likely to reinvest their profits if they are more confident in the system of property rights protection and have easier access to credit, with this effect being stronger for small firms.

Are different dimensions of the business environment equally important? Using firm level survey data on the business environment across 80 countries, Ayyagari, Demirguc-Kunt and Maksimovic (2005) investigate the impact of access to finance, property right protection, provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption, macroeconomic and political stability on firm growth.

They show that finance, crime and political instability are the only obstacles that have a direct impact on firm growth and finance is the most robust one among those. Together, these results suggest that it is important to have a competitive business environment that allows for the entry of new and innovative entrepreneurs resulting in the Schumpeterian process of «creative destruction» rather than simply having a large SME sector, which might be characterized by a large number of small enterprises that are neither able to grow nor to exit.

Indeed, a large, but stagnant SME sector may be a by-product of a poor business environment itself. Furthermore, the existing evidence suggests that access to finance plays a very important role in the overall business environment, potentially constraining both firm entry and growth (Thorsten Beck and Asli Demirguc-Kunt , February 2006)

2.9. Limitations of Small and Medium enterprises in Rwanda

Small and medium enterprise strength comes from the ability of smaller firms to react quickly and flexibly to adapt to market realities and to take advantage of opportunities that would not be an advantage to larger firms. Small enterprises grow to medium enterprises as they are increasingly able to develop the resources to expand out of their local economic system.

Thousands of small companies operating at the micro level, taking advantage of local resources and opportunities, form the base of a healthy economy by providing local services, jobs and supplying or processing for larger firms and markets. Although substantial supporting initiatives had been undertaken by the Government, they have failed to create the enabling environment necessary to develop the sector.

1. Limited resources and human capacity for previous initiatives meant they were unable to fulfill the mandate of SME development or to extend their services country-wide

2. Limited coordination and partnership in these initiatives meant that many ongoing activities, in the public and private sector, were not sufficiently connected and harmonized to maximize their potential for SME development.

3. A limited policy environment lacking focus and a prioritization of cluster and sector specific policies meant that the general policy environment was not targeted at SMEs

4. The structure of previous finance schemes, by placing them in large intermediary institutions with complicated application procedures and limited assessment capacity, meant the SMEs found them difficult to access.

5. The (low) quality and «one size fits all» approach for business development services meant that the private sector did not take advantage of them, though the current PSF model is working to address this constraint.

6. The general regulatory environment in Rwanda is structured toward large companies that have the time and resources to comply, making the existing structures a challenge to grow for SMEs.

7. Inadequate Infrastructure for rural SME development that inhibits implementation of innovative ideas and provision of services.

2.10. Preferred policy objectives for promoting SMEs in Rwanda

Evident in best practice policies and «lessons learned» in Africa, Australasia and Europe, a number of clear factors are required in order to enable success. These factors include:

· High-level political oversight and ownership of the policy implementation process. For each policy objective, policy choices are evaluated on their suitability to achieve the objectives of the policy, their feasibility in being delivered with the systems and finance available, and their acceptability among stakeholders.

2.10.1. Policy objective 1: Promote a culture of entrepreneurship among Rwandans

Entrepreneurial culture is underdeveloped among Rwandans given the short history of business in the country and the absence of successful role models. Many Rwandans will not become entrepreneurs, but will contribute to the growth of business as skilled employees.

Skills development, as well as the promotion of entrepreneurship for those in programs that display entrepreneurial motivation, are already being addressed by TVET and PSF initiatives. However, as identified by the PSF capacity needs assessment, promoting a culture where those with the desire and energy to become entrepreneurs are nurtured and encouraged is integral to growth of the SME sector.

Whilst entrepreneurship has been introduced into the curriculum of numerous institutions, there is often not yet a practical element. By offering practical opportunities for young people interested in business to engage in entrepreneurship, they are more likely to engage in entrepreneurial activities.

A number of key policy strategies are required to achieve the aim of this policy objective.

They will be executed in collaboration with Ministry of Education and the Workforce Development Authority.

» Introduce a component of entrepreneurship training into school and TVET curriculums, both focusing on risk and innovation and also business skills such as financial management and marketing

» Introduce a youth entrepreneurship course for existing associations of out-of-school or vulnerable youth interested in starting their own business; the course would include training in business skills such as financial management, marketing, risk and innovation; this would be funded by the capacity building component of the SME fund.

» Implement a mentoring program for young people starting businesses via the BDS centers; leaders of local successful businesses should be recruited and trained in how to offer advice to young people

» Introduce talks on business related topics and visits by leaders in government and private sector targeting children from their early age, i.e. pre-primary and primary school

» In each district with a BDS, develop a strategy on how to network with SMEs to determine their changing market information needs and how to best create tools for them to access this information.

» Comprehensive databases of market information to be made available at BDS centers

» Facilitate participation of SMEs in International Fairs and in Trade Missions.

» Develop and implement a program on preferential access by SMEs to Government procurement contracts.

2.10.2. Policy objective 3: Put in place mechanisms for SMEs to access appropriate business financing

Financial institutions perceive SMEs as high risk and are therefore inflexible in terms of collateral accepted and repayment terms. This is compounded by the fact that most small borrowers lack experience and understanding of financial organizations and do not have the necessary skills to make successful applications.

In addition, most financial products from commercial banks are not suitable to the agricultural sector, where most SMEs currently operate, and existing regulations limit the total funds available for lending. The policy recommends working with private commercial banks to strengthen their SME lending windows and knowledge of SME's in general.

Despite this, there are funds available for SMEs to assist in lending. Currently there are four credit lines and four guarantee funds created by Government for which SMEs are eligible. These include funds for export promotion, agricultural development and SME development. They are managed by two different entities: the National Bank of Rwanda and the Rwandan Development Bank (BRD). However, this poses two problems: firstly the complexity of having a number of different funds managed by different entities; and secondly the issue of «conflict of interest», when the facility is managed by an institution that is the biggest recipient of the fund itself (i.e. currently BRD).

2.10.3 Policy objective 4: Simplify the fiscal and regulatory framework for SMEs growth

The promotion of a legal and regulatory framework, that supports the development of SMEs, is key to both promoting and formalizing the sector. Current Rwandan investment and tax policy is structured toward the promotion of large enterprises and also fails to take advantage of the huge tax potential of an SME base that is willing to comply with simplified procedures and tax rates that stimulate rather than stifle entrepreneurial thinking.

In Rwanda both the high rate of taxation and the complexity of the tax code are major burdens to SMEs. Businesses in Rwanda must currently pay under a minimum of seven separate tax regimes, meaning not only is taxation high, but the World Bank estimate 3% of Rwanda's GDP is spent on compliance issues (Red Tape Study, 2008). This goes beyond taxation to include environmental regulations, EAC and international quality and safety standards required for export and Rwandan government health protocols. Many SMEs in Rwanda are shut down due to failure to comply with environmental or health regulations, even though they cannot afford to comply or do not understand the regulations themselves.

The Government recognizes the need to simplify the complex systems and to reduce the rate of tax in order to encourage unregistered businesses to enter the tax system. In line with this, a move towards a Flat Tax regime in Rwanda is currently being discussed. The aim of a FT will be to reduce the administrative burden on all economic agents, expand the available tax base through formalization and thus increase revenue generation.

Experience in other countries has shown that lowering taxes can actually increase tax revenue by improving tax compliance and increasing the tax base. The South African Revenue Service has increased its revenue by an average of 17% a year while continuously introducing incentives such as the consolidated turnover tax, to reduce taxes for individual SMEs.

The implementation of a flat tax encompassing income, VAT, employment and profit taxes is already in the process of being studied and developed. Special attention is being paid to the possible impact on SMEs, particularly around the proposed removal of all exemptions, incentives and special conditions. A flat tax should maximize government tax revenue collection while keeping rates low enough to allow tax payers an acceptable return for their effort and entrepreneurship. It is assumed that the flat tax will be introduced for all businesses in Rwanda.

A number of key strategies are required in order to achieve this policy objective:

» Simplify tax procedures for SMEs filing returns by reducing the number of payments to two per year and the number of taxes to be paid to one single authority as opposed to the current situation.

»Undertake a publicity campaign to inform SMEs of the new FT regime and benefits of formally registering as a tax payer.

»Introduce a reward scheme for registered SMEs that induce un-registered SMEs to register for tax purposes and Work with regulatory agencies to simplify and streamline regulations for SMEs, making them SME friendly.

» Provide financial support through the SME development fund to assist existing viable SMEs that face closure for non-compliance.

2.10.4 Policy objective 5: Develop an appropriate institutional framework for SMEs development

Initiatives Currently, the SME landscape in Rwanda is scattered with institutions offering services to SMEs. However, there is no institution fully dedicated to SMEs nor is there one body

In order for the Gov to succeed in its aim to prioritize SME development, and therefore increase the capacity of the private sector and meet its ambitious development goals, a clear institutional framework for SMEs needs to be developed. Responsibility for implementing the SME policy will be handled at the agency level, while MINICOM remains in charge of policy oversight.

2.11 General failure causes of the Small and medium enterprises and how to avoid them in the world?

There are a variety of reasons why a small business often fails. There are some steps that small business owners can do to avoid them. Here are ten causes of small business failure and how to avoid them.

1. Most small business owners don't have enough money saved up. You need to save up at least six months of worth living expenses along with six months of worth of expenses for your business too.

2. Some companies don't have enough advertisements throughout the year. You need to have do more advertising in order for people to know about your company. Advertisements are the most important to spend on since it will help your business become even more successful.

3. Some companies fail since they don't generate enough sales. You need to do more advertising so more people know about your company or lower the prices. You need to do a few specials in order to get more sales.

4. The company doesn't hire enough staff. You need to hire more staff when you have too much work to handle. You don't want to get behind on the work otherwise your customers won't be happy.

5. The company doesn't have a high enough budget. This is where most companies fail at since they don't have enough money to pay everything. The business owner needs to have more money before starting the company or get a business loan.

6. The company can't survive during the slow season so they often fail. The company needs to figure out a way to generate enough sales or save up enough money to survive during the slow season of the company.

7. A company doesn't have enough money to expand the business even though it needs too. The company needs to get a business loan, save money, or even outsource the work somehow.

8. The company doesn't have enough money to keep a professional image. Most companies lose sales when they don't look professional or even stay professional. They need to have the best of everything in order to succeed.

9. Some try to be cheap on products or service then they often fail. In order to stay successful in a business then you can't sell cheap products or service cause the only result is people not being impressed. You want people to feel they aren't getting ripped off.

10. Some try to violate city rules or state regulations. This is a big reason why companies go out of business real quick. You need to follow city rules and follow the state regulations otherwise you won't be in business anymore.

2.12. Failure causes of small and medium enterprises in Rwanda

Richard Hodgetts (1982: 24-26) has asserted that the causes of failure of small and medium enterprises are as follows:

a. Some managers are incompetent: the major reason as to why many small and medium enterprises fail is incompetence of managers. The owners simply do not know to run the business.

b. The second most common reason why small and medium enterprises fail is unbalanced experience. By this, we mean that the owners do not have well rounded experience in the major activities of the business such as finance, selling and production. Due to lack of experience in one or more of these critical areas the enterprise gradually fail.

c. Another common cause of business failure is lack of managerial experience. The owners simply do not know how to manage people.

CHAPTER III: RESEARCH METHODOLOGY

3.1. Introduction

The methodology refers to a set of methods and principles that are used when studying a particular kind of work. The research methods according to Grinnell and Williams (1990:42) refer to the number of ways arriving at the knowledge. The methodology comprises on intellectuals process, on orderly system of the arrangement that enable one to reach the aspect of knowledge. It is conceptual process that co-ordinates a set of investigation operations and techniques.

Fred.N Kerlinger, (1964:700) stressed that the methodological research is a controlled by investigation of the theoretical and applied aspects of measurements, mathematics, statistics, and ways of obtaining and analyzing data.

This research study attempts to show an assessment on the contribution of small and medium enterprises to the economic development of Rwanda.

This chapter gives a detailed presentation of the tools and techniques that were used to investigate the research issues in the field. It includes spelling out the area of the study and study population. It further describes the methods and techniques used in the choosing the sample size and selection instruments like questionnaire, interviews and documentation were used.

It also includes data processing and analysis with problems that were encountered in this research, finally this chapter provides the background against which the findings and conclusions of the study were examined and appreciated regarding their reliability and validity.

3.2. Research design

Kenneth D. Bailey (1978:7) stated that, research design is a stage in social research where the research must decide on how to measure the two main variables in this on her hypothesis and what group of people on whom to test the hypothesis. He further said, this involves deciding not only how many people will be used as subjects but also what their particular characteristics should be and under what circumstances the data while be gathered.

According to Churchill (1992:108) a research design is a framework or a plan for the study used as a guide in collecting and analyzing data.

Grinnell Jr and Williams (1990:41) defined that, research design as a careful systematic study or investigation in some field of knowledge, undertaken to establish some facts or principles. He further stated that, a research design is the total plan we use so to assist in answering our research questions.

He urges that, as part of our plan, we decide how the research question should be, required to answer it, from whom the data will be obtained and what is the best way to gather that data. Regarding this study, descriptive and explanatory design was used on questionnaire and interview schedule.

3.3. Source of data collections

According to Horn by et al (1963:2490), defines data as facts or things certainly known and form when conclusion may drown, in conducting research study, the required data was gathered from both primary and secondary data.

3.3.1. Primary data

Robert Ferber and P. Verdoom (1970:45) argued that, sometimes primary data will be collected by means of survey, sometimes from company records or others source material. With a regard to the study, primary data was obtained from the small and medium enterprise (Huye Water enterprise) as a case study selected and customers, the excise departments and employees of different sections of Huye water enterprise through questionnaires interview schedules and observation method.

3.3.2. Secondary data

Extensive study and review of published and unpublished documents, reports journals, newspapers and policy reports relevant to the study was used. Secondary data is «A data gathering method that makes use of pre-existing data» Richard M. Grinnell and Margaret Williams, (1990:228). This technique is important because it reviews the literature and tries to canvas both global and national perspectives so that the researcher could have a comparative framework for analysis and evaluation (William, 1982:401).

Secondary data sources for this research work were drawn from the permanent file of some surveyed enterprises. The permanent file included among other documents and these includes the following: the statute, minute of managers, the manual of procedures and other documents considered necessary for this study. The secondary data helped to fill the gap left by primary data obtained through questionnaires and interview schedule hence showing the designed picture of this research study.

3.4. The study approach

The study was conducted in private organizations namely Huye water enterprise, this case study has been selected just it is effective to the research as he resides in the same geographical area with selected organization, so this save transport charges and time costs.

It is also convenient for the research to get the required information without facing much difficulty. Christenson (1991:92) says that, case study is on intensive description and analysis of a single or individual, organization or event based on information obtained from a variety of sources such questionnaire, interviews, documents, and tests results achieved records.

Furthermore, most of the research on SMEs that had been carried out in Huye water enterprise was about the private, so the researcher is interested in discovering the concerns of SMEs effectiveness and efficiency in the private organizations, hence selecting the case study of Huye water enterprise.

3.5. Description of the study population

As it has been indicated above, given the width of this topic under study, the population is also wide as it is located in Huye areas. Despite the fact that the population under this study is derived from a selected enterprise and this selection is formed by customers, employees and staff of enterprise.

3.5.1. Sample size and selection technique

The study must consider a sample size that is within the cost constraint but should provide the ability to detect an independent variable effect (Christensen, 1991: 372). Williamson (1982:113) comments on the sample size as being a phase of research, which is crucial because of its major impact on time and money that must go into data collection.

While selecting the sample size of the study; the researcher purposely selected two respondents particularly; representing all staff members. Data is collected from selected respondents from the study population.

3.6. DATA COLLECTION TECHNIQUES

A technique is widely used by professionals in almost all sectors of the industry, be it business, education, etc. The skills that are needed to perform a particular activity (Cyrille, 2010:105, NUR). Data collection refers to a method (process), in which information related to the study is gathered by suitable mediums.

There are primary and secondary data collection techniques, like interviews and questionnaires, books and guides, group discussions, internet data, among others. However during this work I rely on various important aspects in data collection and the leading here are the following:

3.6.1. Interview technique

This is a mode of data collection commonly used in collecting information from people. A form of person-to-person interaction between a researcher and the interviewed. However it is a direct

technique used to interview people individually or in groups in certain cases, thus enabling to point out observations and comments in a richer way than a survey or questionnaire.

According to Grawitz (1979:310) research interview is a procedure of scientific investigation using a verbal communication process in order to the set objective, which constitutes the collaboration of research or the rejection of a research hypothesis.

Given that, interview mainly focuses on discussion and most of respondents under the assessment have a minimum level of education, I have used through discussions with different beneficiaries and stakeholders of Small and Medium enterprises whom I judge to have both sufficient and relevant data.

3.6.2. Questionnaires.

Kendall (1992:135) says that, a questionnaire is an information gathering techniques that gathers information about the attitudes, beliefs from several respondents, organization that may be affected by the system.

Grinnel and Williams (1990:228) defined a questionnaire as a method used for collecting data, as a set of written question which calls for response on the part of the client, may be either self-administered or group-administered. Under this study the researcher-ended to use both the closed-ended questions and the open-ended questions in order to facilitate the work of the respondents and at the sometime to give the liberty of expressing their views.

3.6.2.1. closed-ended questions

Grinnel and Williams (1990:228) asserted that, closed-ended question is a type of question or interview schedule on a survey instrument which limits the respondent's response by the use of pre-selected alternatives.

3.6.2.2. Open-ended questions

According to Grinnel Jr and Williams (1990:228), an open-ended question, is the type of question or on the interview schedule or a surveying instrument which does not limits the respondents responses to any pre-selected alternatives.

3.7.2. Coding

Mannheim and C. Rich (1995:440) asserted that coding is the process of assigning numerical values to represent values on variables. After being edited the data was coded where the numbers were assigned to each of the answer so that they could be easily summarized and analyzed.

3.7.3. Tabulation

According to Selltiz et al. (1965: 406-407), tabulation refers to the part of technical process on statistical analysis of data that involves counting to determine the number cases that fall into various categories. Thus after eliminating errors, codes were assigned to each answer. This stage led to the construction of statistical tables showing frequency distribution of answers to questions addressed to respondents.

The statistical tables were used to compare the number of occurrences of each answer to questions asked. Up to this level, it was through mathematical and statistical tables that the number of occurrence of each answer in relation to the questions asked was converted into percentages which made it clear. Each table was accompanied by explanations about the nature of relationship between the variables that were indicated in tables.

CHAPTER IV: DATA ANALYSIS AND INTERPRETATION

4.1. Introduction

This chapter consists of practical part of the study. It first presents the field study, second concentrates on data presentation, the analysis of field findings (from the respondent) in relation to the objectives and hypothesis of the researcher. And finally this discusses the interpretation emanated from results.

Furthermore the study concerning the assessing the contribution of small and medium enterprises to the economic development of Rwanda case of Huye water enterprise was conducted using a questionnaire, observation and interview schedules as tools of data collection from respondents.

Similarly throughout this part, the researcher interpreted and analyzed the data that were collected from the field. It is on this note that the researcher uses percentages, tables, frequencies as well as statistical references and econometric view as ways of analyzing, interpreting, and presenting results.

4.2. Background of Small and medium enterprises to the economic development

4.2.1. The development of SMEs and their potential contribution to the world economy

There has been considerable interest in the economic development of SMEs, and in reducing the tendency of failure because of the potential contribution to the world economy. Entrepreneurship through small businesses has been signaled as having potential in the creation of sustainable development (Tilley & Parrish, 2006) and poverty alleviation in transitioning and developing countries (Morris, Woodworth, & Hiatt, 2006). SMEs are recognized worldwide as vital and significant contributors to economic development, job creation, and the general health and welfare of economies (Haron, 2001; Korsching & Allen, 2004).

SMEs are an integral part of the economic lifeline of most countries around the world. They are a major source of ideas and employment and they both sustain and stimulate the growth of national economies. According to Schlogl (2004), he stated that small and medium-sized firms dominate our economies in terms of employment and number of companies, yet their full potential remains remarkably untapped. Although there is a broad assumption stating that SMEs generally has positive effects on country's economic growth, the notion of economic imperatives for SMEs remains largely untested.

Given the important contribution of SMEs to national economy, it is opportune to investigate how the potential of this sector can be fully harnessed.

4.2.2. Overview of the contribution of SMEs to the economic development of Rwanda

The Government of Rwanda has a vision to become a middle-income country. In order to achieve this goal the medium term Economic Development and Poverty Reduction Strategy states that it must achieve an annual GDP growth rate of 8.1% and increase off-farm employment to 30% by 2012.

The SME sector, including formal and informal businesses, comprises 98% of the businesses and 41% of all private sector employment in Rwanda. Most micro and small enterprises employ up to four people, showing that growth in the sector would create significant private sector non-agricultural employment opportunities. Currently, over 80% of the population is engaged in agricultural production.

The SME sector also has the potential to lower Rwanda's trade imbalance and it is the GoR's vision to increase the role of value-added exports to increase export revenue and reduce the import-export gap. The Government of Rwanda also seeks to reduce its dependency on foreign aid and debt by increasing internal tax revenue. Since 2009, tax revenues have increased largely from the collection of Value Added Tax and the role of SMEs in this cannot be undermined.

Despite the above, there had not been a coordinated policy to address the SME landscape and unlock the underlying potential of SMEs in national development prior to 2010. In order to contribute to achieving increased off-farm employment and tax revenue, the GoR developed and is currently implementing a coherent and well coordinated SME Development Policy. The major aim of the policy is to create an enabling environment for the growth and development of the SME sector in Rwanda.

4.3. CASE STUDY: HUYE WATER ENTERPRISE

4.3.1. Presentation of Huye water enterprise

After identifying the profile and locating geographically Huye water enterprise, we will analyze its mission, its objectives, its historical, its evolution, its organization and its management, then its role in economic development of Rwanda.

4.3.2. The Profile of Huye water enterprise

HUYE water enterprise is a private company that was formed in 1998, with the key aim of mineral water production and its base is in Huye District former Butare town in the Southern Province.

Their first mineral water product appeared at the market beginning with the year 2000, after the scientific laboratory experiment by the University of Shanghai in china. Experts from this University confirmed the purity of the mineral water manufactured by HUYE water enterprise.

HUYE water enterprise does not only produce mineral water but also produces the plastic bottles into which their mineral water products are packed.

4.3.3 .HUYE water enterprise location

Its head office is in Kigali city at Muhima near Kabuga's building because of availability of large market, a good condition of working etc. This company still sells its products locally but it imports its raw materials abroad specifically from China.

4.3.4. Mission of HUYE water enterprise

It seeks to increase the productive capacity of the mineral water and play a key role in transforming the economic development of Rwanda and enhancing the well being of people. Through their dynamic and responsive teams, it aims at providing the products and maintains the highest levels of customer service and professional integrity.

4.4. HUYE water enterprise's objectives

? To support the development of the industrial sector generally through innovative and the transfer international best practice.

? To support the drive of the private sector investment for the development of the economy working with locals as well as international investment and development focused agencies.

? To meet needs and expectations of its customers by providing the products at the right quality and at the right time.

Shortly, all enterprises such as small, medium and large companies have necessarily one goal to achieve. It is in regards that Huye water enterprise has fixed major objectives that we can classify in two categories:

The social objective of Huye water enterprise is to generate the revenues to the population of the different region by introducing new trading activities, friendship between the traders and customers, solidarity and creativity sprit, paying good taxes to the government.

Briefly, Huye water enterprise plays key roles in job creation for local population according to the capacity and competence of each of it which fight against unemployment level.

Economic objective pursuit by enterprise is justified by its considered true interest center. Then, enterprise wants to maximize the production in order to satisfy the potential demand and insurer rational management which contribute to the reduction of its charges, keep and ameliorate the quality of its products, maintain good image in front of actual consumers, develop the competence in front of its personal, maximize the profits, innovate the new technique ,etc.

4. 5.The environment of Huye water enterprise

The HUYE water enterprise is not a monopoly one but operates with a perfect competition market structure like Inyange industry, Urwibutso enterprise, etc.

In order to adapt itself to the business investment, this enterprise makes sure that it has a good relationship with the commercial banks and even other industries operating in Rwandan territory and other countries.

4.6. Juridical statute of Huye water enterprise

HUYE water enterprise is an individual Industrial company of Mr. GAKWAYA Etienne whose capital was 83,404,822 RWF at the beginning in 1998 but currently increased up to the capital of 149,000,000 RWF (Department of finance, December 2012).

IT Manager		Chief Accountant	Importation Officer	Engineer
	Human Resource manager

Accountant A	Accountant		Secretary	Cashier
		Accountant

Manpower	Drivers	Officer messengers

4.8. DATA ANALYSIS

It has been a result of a number of factors, but the main factor is a lack managerial skills and the lack of good conditions of working such as technological advanced, limited skills and knowledge and lack of financial tools.

As finalist student in Development Economics at University of Rwanda-Huye Campus in this research, we picked interest in one of techniques that is commonly used in decision making since it naturally provides much information in almost every aspect of the business.

The researcher was motivated to find out the assessment of the contribution of small and medium enterprises to the economic development of Rwanda in case of employment level provided the level of taxes, production level produced, etc. The student was also interested in knowing whether this techniques is used or not, and what could be the requirement to use them effectively.

4.8.3. Basic activities of Huye Water enterprise

4.8.3.1. Huye water enterprise plans

Here, in order to increase properly the production level of this enterprise, three terms were adopted, short- term plan, medium -term and long- run plan.

Advertisement more their products through in the different areas like radio, television, etc in order to attract the population within the country and abroad.

Innovation and creating new products, and sending other retailers agencies in the different region of our country like in Rubavu District, Kirehe District and abroad with Burundi is included.

This enterprise has plans of contracting loans from the bank ( I&M Bank) or getting credit from private sector. These long plans are to assist in the potential for growth in term of production level. As a result it is trying to import heavy machines in order to facilitate on its production capacities.

4.9. Employment situation in Huye water enterprise

Presently Huye water enterprise employs 26 permanent workers, and others employees that have been hired according on the period of time. Here, when there a high demand of product ( water) in some areas directly the level of distributers must be increased.

Level of education	Number of employees	Percentage (%)
Primary	12	46.1
secondary	6	23.07
Post- secondary	6	23.07
Universities	2	7.69
Total		100

Presently over 14 workers employed in the enterprise located into the office of General Director. The remaining number of workers is employed without the consideration of their education.

The majority of the employees have obtained some level of formal education at all. About 53% of workers have a higher than junior primary educational level, all these evidence to the extent, the production scale and growth of enterprise is positively correlated with education of proprietor.

It is likely that education will not be major limiting factor in potential growth of the industry, but skills enhancing training may however be required particularly among women. The limiting skills and training among workers in the industry may be the case to the slow growth of the industry.

4.10. Investments level in Huye water enterprise

HUYE water enterprise is an individual company of Mr. GAKWAYA Etienne whose capital was 83,404,822 RWF at the beginning in 1998 but currently increased up to the capital of 149,000,000 RWF.

This sector was invested in the different activities, the main ones in which the industry invested a lot of money include, initial inputs with 37.29%, new machines 36.24%, chemical products 8% and vehicle repairs with 8.33% other activities took a minimum amount of money.

Number	Nature of investment	Amount in RWF	Percentage
1	Replacement of old machine with new ones	54,000,000	36.24
2	Initial inputs	55,574,323	37.29
3	Chemical product	12,000,790	8
4	Machines and other materials concerned with vehicle repair	12,424,887	8.33
5	Information on training, technique and technique visitors	10,400,000	6.97
6	Taxes and others requirements	4,600,000	3.08
Total		149,000,000

(Source: Annual report ,15^th, May 2013 , Huye water enterprise Finance department)

4.11. Findings related to the contribution of Huye water enterprise to the economic development of Rwanda on the beneficiaries? welfare.

Data is drawn from both male and female respondents and to assess whether both equally benefit

from Huye water enterprise's activities following is the table showing the respondents distribution according to Age group and sex.

Age	Male	Female		TOTAL
Group
	Frequencies	Frequencies	Frequencies	Percentage
<20	3(10)	1(2.77)	21	31.8
21-30	10(33.33)	11(30.5)	29	36.4
31-40	12(40)	17(47.23)	11	23.2
41-50	4(13.33)	7(19.44)	1	16.7
>60	0(0)	0	1	0
Total	30	36	66	100

Out of 66 respondents, 2 of technical staff and 64 beneficiaries, 31.8% have declared to lie in group of 21-30 years, 36.4% appear in the category of 31-40 years old, and only 16.7% declared to be in the category of 51-60.

Most of respondents are women since it has been observed that women are of the vast majority

in trading activities such as in mini- market, chops, etc and it has a large number of workers as their represent 57.1% and 53.7% of the total population respectively.

They are playing indispensable role in Huye water enterprise's activities and in improving the quality of life in their households.

Benefits/achievements	After working in Huye water enterprise
Nutrition	54	84
Affording medical insurance	52	81.25
Building/or rehabilitating house	35	54.68
Affording basic needs( clothing, improved healthcare, etc)	57	89
Milk production or affording to buy milk for consumption	50	78.1
Paying school fees for children	42	65.63
Owning domestic animal	41	64.0
Animal Sheds construction	23	35.93
Buying other materials(cars, motovehicles, mattress, bicycles, radios, etc)	39	60.9
Other achievements	14	21.8
Total respondents	64	100

Accordingly, nutritional as well as health conditions have been improved essentially because of milk production, income from milk production, and increased agricultural income due to manure use, etc. For instance almost of them consume milk in their households. Consequently 89% agree to have access on healthcares and 65.63 % are able to pay school fees for their children.

Compared to their livelihoods before working and after working within Huye water enterprise as employees, respondents declared that before the majority gaining cows from Huye water enterprise began, there were few households consuming milk. Basically the reasons behind was that few of these regions only did own dairy cows and thus, they could not afford to buy milk. Therefore milk consumption determines improvements in family happiness as obviously the bigger number of children per household needed constant use of milk in their daily consumption.

4.12 .Employees' annual income before and after working in Huye water enterprise

Whilst assessing conduction, the researcher was interested to know real possible improvements made through evaluating household income before and after joining activities piloted by Huye water enterprise.

Table 4.7 Households annual income before and after joining in Huye water enterprise

Annual income(rwf)	Before working within Huye water enterprise		After the working
	Number of respondents	%	Number of respondents	%
<60000	49	76.5	17	26.5
60000-100000	13	20.4	39	60.9
120000-240000	2	3.1	5	7.8
240000-360000	0	0	3	4.6
360000-480000	0	0	0	0
480000-600000	0	0	0	0
> 600000	0	0	0	0
TOTAL	64	100	64	100

Table 5. depicts that after working in this enterprise, moreover the contribution of Huye water enterprise occurred in economic development of Rwanda basing on those data obtained above, surveys back ago identified nearly 48.11% of households in Huye district who have declared spend year with only earn less than 30000rwfs as income, 38.6%, 30000rwfs and 12.26%, 60000rwf. Only 26.5 percent of the respondents earn less to 60000wfr after joining in Huye water enterprise.

Therefore the majority of respondents have shown positive increment in income as 60.9 percent declared to have earned between 120000- 240000rwFs annually. Thus, above the poverty line compared to current Rwanda poverty standards and 76.5% of respondents who depended on less than 60000rwf ever characterized most of households in selected regions before the project.

4.13. Respondents opinions about their categories according Ubudehe survey (household's categories).

Accordingly, nutritional as well as a health conditions has been improved, essentially because of milk production, income from milk production and increased the industrial level due to the manure use, etc.

Household category	Before working in Huye water enterprise	%	After working in Huye water enterprise	%
	Frequencies	Percentage	Frequencies	Percentage
The poorer	0	0	0	0
The very poor	10	15.6	0	0
The poor	35	54.7	5	7.8
The middle-rich	19	299.6	50	78.1
The rich	0	0	9	14
The money rich	0	0	0	0
TOTAL	64	10	64	100

Some aspects of availability of food are above target and this is an encouraging sign. From the responses, it appears that food security, healthcare and education no longer pre-occupies the minds of parents as they are now able to provide these for their families. Distribution in table4.4 indicates 78.1(%) and 14 % of the total respondents surely declared to be in the category of the middle-rich and food rich respectively. This, quietly differ from 54.7 percent lived poor before this enterprise began.

4.14. Respondents views on the enterprise impact on welfare benefits

Table 4.9 Respondents views about Huye water enterprise impact on their wellbeing

Individual welfare	Number of respondents	Percentages
Very good	14	21.21
Good	51	77.27
Slowly good	1	1.5
Poor	0	0
Extremely poor	0	0
No change	0	0
Total	66	100

Given that this enterprise has provided more things to their workers, more taxes to the government and as well generates daily income from efforts used in production process, during the research activity the researcher was concerned on income generated in the study areas.

Respondents' views enclose the overall objective of Huye water enterprise «to increase the industrial income and improve the nutrition of their employees». The table 4.6; shows 92.4 percent of technical staff and respondents (beneficiaries) agree that Huye water enterprise achieved to increase industrial output and income to the people in the different areas. 61 respondents representing 92.4% witnessed that their individual welfare have been improved since benefiting from Huye water enterprise's activities.

4.15. Respondents views on advantages derived from joining in Huye water enterprise

Table 4.10 Do you find advantages in that the project has piloted your sector than non-piloted?

Response Suggested	Frequencies	Percentage
Yes	64	100
No	0	0
Total	64	100

Asked (beneficiaries) on whether they any advantage in working with Huye water enterprise, hundred percent of respondents argued that they derive in it so many benefits. Comparing to those (people) living in the non-piloted sectors of Huye District.

The scale of production and distribution level has been facing problems in the importation of raw materials such as containers, bottles, boxes and machines, all these material inputs are imported from China.

? Distorted prices (too high or too low, discriminatory and excessive marketing margins)

4.17. GENERALIZATION OF THE FINDINGS OF THE STUDY

After collecting data and analyzing the above mentioned findings, this can help us while verifying the already cited hypothesis. Also given the research study is conducted at field in Huye water enterprise, this is the basis for whereby beneficiaries provided their views regarding the Huye water enterprise successful achievements.

Recalling that in order to assess the contribution of Huye water enterprise to the economic development of Rwanda, following keys were guiding statements that the researcher wanted to verify:

H_o: Huye water enterprise has not enabled to develop their beneficiaries and economy in generally as a reason to overcome the level of poverty?

- Huye water enterprise has not increased the income level of its beneficiaries in Huye District and outside of it as well.

H₁: Huye water enterprise has positively contributed to the economic development of Rwanda as a result of social welfare of the population.

Thus, to verify so, the researcher undergone field visits to observe and make interviews and distributing questionnaire with several beneficiaries. From the field visits and reports from service providers, and the impact of this enterprise has been observed. Findings show that Huye water enterprise activities have brought several changes in the life of the beneficiaries.

These include direct impact in different domains such as , building houses with some employees, buying cars, impact also on school enrolment and healthcare of the beneficiaries, and their children as well. Hence this is portrayed in table4.5 where 84.4% of selected sample agreed to have maintained food security in their households.

Enterprise as it has been discussed above is a crucial tool in enhancing equal distribution of resources and availing the basic needs for rural intractable areas. It is in this context that the country likes Rwanda where most of their population is affected by poverty and, who largely survive on agricultural output, here some strategies effectively enable rural poor farmers to conquer their poverty.

4.18. Area for further research

Research on the assessment of the contributions of small and medium enterprise is encouraged because the SMEs play big roles in economic development in the most of countries. Further research should be conducted on the stakeholders' perspective on the economic development.

Lastly, further research should also be done on the role of qualified economists in industrial achievements and the firm's performance.

CHAPTER V : SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1. Summary

The aim of this chapter is to present a summary of the study, general conclusion and recommendations for improvement and areas for further research. The general objective was to assess the contribution of small and medium enterprises to the economic development of Rwanda.

Findings on the contribution of Huye water Enterprise as one of medium enterprise in economic development have been based on some of objectives presented in the earlier chapter and on the conceptual framework about role of small and medium enterprises in economic development of Rwanda. Views from other authors have been cited to provide a strong background for studying the effectiveness of small and medium enterprises on economic development of Rwanda and the case study of Huye water Enterprise was appropriate.

In the first chapter, the researcher tried to indicate the background of this study, the problem statement where the researcher tried to show how SMEs have not performed well in the economic development of Rwanda in reducing the Rwandan's trade imbalance and generate off farm employment; at this level objectives of this study are stated as well as its hypothesis.

In the second chapter, the review of what other researcher have so far done in this area of the assessment on the contribution of small and medium enterprises to the economic development has been given. Different views on SMEs have been advanced and discussed to provide theories upon which hypothesis are tested,

In the third chapter, the methodology aspects adopted by the researcher in carrying out this research is defined. Study variable were determined, sampling techniques used were also discussed; data collection also was defined for this research to collect both primary and secondary data. Primary data were collected using interview, survey as quantitative oriented research; secondary data were collected using extensive study and review of published and unpublished documents, reports of 10 years period 2003 - 2013.

In chapter four, the study design stated above demanded this research to cover historical records, currently published materials and information obtaining from interviews and observation. Therefore, it would be very helpful for the research to use an econometrics views (e-view) to do the analyzing job on econometrical records.

Moreover, since part of information will be in the form of description such as laws, regulations, policies and information obtaining from interview, other analyzing methods other than computer will be utilized.

Finally, the findings enabled the researcher to test the hypothesis. Basing on the findings the researcher confirms all hypotheses stated

5.2. Conclusion

The assessment of the contribution of small and medium enterprises to the economic development of Rwanda revealed that there was consensus among researchers and policy makers that SMEs play a pivotal role in economic development through the creation of employment opportunities, generating higher levels of production, increasing levels of exports and promoting innovation and entrepreneurial skills.

Despite their importance, SMEs face considerable challenges that inhibit their growth, which includes limited access to finance. The purpose of this study was to assess, through a research on the contribution of SMEs to the economic development of Rwanda, basing on Huye water enterprise.

5.3. Recommendations

Based on the research findings, skills of the researcher and other constraints accounted, we can finish this work by giving the following recommendations that aimed at further improve the production level for the great success of HUYE top three product clusters.

5.3.1. For Government

As the study revealed, registered SMEs were more likely to have a bank account and making use of a credit product. Moreover, because of the difficulty of separating small business owner's personal finances from that of the business, registering made it easier to make the distinction because business registration separates the business at law from its owner, thereby reducing the probability of an application for credit being rejected.

Increasing levels of formality also mean additional reporting requirements, thus promoting the availability of information available on a business, the lack of which can also be an impediment to accessing financing. In this regard, interventions to increase the levels of formality in the SME sector would have a positive impact on the SME sector being able to access finance.

As noted above, the additional reporting requirements resulting from registration would increase the information available on the business as well as improve the quality of that information. Other policy interventions aimed at improving the availability and quality of information available to reduce the problems of information asymmetry.

? Establishment of a Government Department to deal specifically with SMEs, entrepreneurship and support for this sector.

Main roles of the proposed harmonized department of SMEs and Entrepreneurship include;

5.3.2. For the Owner of enterprises

Regarding the poor level of managerial competence and skills of the small business owners, interventions should focus on providing training and courses that will improve the human resource capacities in this regard.

As noted above, there is generally low uptake on available products, especially on Government schemes. One of the reasons, it is believed, for this poor uptake of facilities available, including financing, is the lack of a «single source of information», a one stop shop if you like of all available support programmers and how to access them .

The Government of Rwanda sets out all the specific objectives of the Act; that is «to promote and advance the social and economic welfare of Rwandans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers, by:

(a) Promoting the development of a credit market that is accessible to all Rwandans people, and in particular to those who have historically been unable to access credit under sustainable market conditions».

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