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Contribution of small and medium enterprise to the economic development of Rwanda

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par Valens NYANDWI
Universite Nationale du Rwanda - Licence 2013

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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.

European Union

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:

· Micro-entities are companies with up to 10 employees

· Small companies employ up to 50 workers

· Medium-sized enterprises have up to 250 employees.

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, 6th 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.

Table 1 Difference between SMEs and Large Company

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

(Smes development policy, June 2010)

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