The Contribution of SMEs to Economic Growth in Africa
Date
2011-04-19
Authors
Oji, Chijioke Kennedy
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Abstract
In recent times, governments of countries and various internationally recognised institutions
have come to the utter realisation of the somewhat overwhelming difference in the form of
economic liberialisation and sustainable accelerated growth in development, which can be
achieved through engaging the Small and Medium Enterprises (SMEs) in numerous sectors
of the economy in different business operations. Targeting development through SME
establishment has proved to be an important hydra-headed strategy to achieve an appreciable
upgrade of the economic status of Western and Asian countries where SMEs account for
about 20% of the Gross Domestic Product (GDP) and 40 – 60% of employment, through the
complimentary ripple effects like poverty alleviation, job creation, market industralisation,
crime reduction etc which all point toward an increased standard of living for citizens of the
country. This however has not been the case for Africa.
This study looks into the contributions of SMEs to economic growth in Africa as measured
by selected economic variables i.e. entrepreneurial index of a country, per capita income of
SMEs, trade statistics of SMEs, attraction of FDI for SMEs and capital investment in SMEs,
all as contributors to the GDP of countries. GDP in this research is a measure of the economic
position of a country. Five econometric models were developed for four African regions
totaling 16 countries, using multiple regression analysis to investigate the relationship
between GDP and the selected variables, in a bid to estimate the level of dependence of the
GDP on these variables.
The study finds evidence that GDP of selected African countries is not dependent on the
economic indicators used as the yardstick for measurement. Hence, Africa shuts itself out of
viable growth opportunities in deciding not to invest in the SME sector as a long-term
strategy for economic resurgence and development. If the truly applaudable success achieved
by foreign counterparts is to be realised on the African continent, in order to partake of the
benefits of economic development, governments must invest capital and FDI in the form of
education and management competencies within the SME sector and back this strategy up
with favorable policies to foster sustainable economic growth and appreciable development
Description
MBA - WBS
Keywords
Economic growth, Africa, Small businesses