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

2.3.6. Regional policies of economic development

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

· Governments undertaking to meet broad economic objectives such as  price stability, high  employment, and  sustainable growth. Such efforts include  monetary and  fiscal policies, regulation of financial institutions,  trade, and  tax policies.

· Programs that provide infrastructure and services such as  highways,  parks,  affordable housing,  crime prevention, and  K-12 education.

· Job creation and retention through specific efforts, business  finance,  marketing,  neighborhood development,  workforce development,  small business development,  business retention and expansion,  technology transfer, and  real estate development. This third category is a primary focus of economic development professionals.

· One growing understanding in economic development is the promotion of  regional clusters and a thriving  metropolitan economy. In today's global landscape, location is vitally important and becomes a key in  competitive advantage.

· 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:

(1) It has a relatively small share of their market place;

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

(3) It is independent in that it is not part of a larger enterprise.

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.