A joint publication by the International Labour Organization (ILO) and the German Agency for International Cooperation (GIZ) said small and medium-sized enterprises (five to 250 employees) generate a large share of jobs in industrialized countries.
The ILO and the GIZ study report which was made available to the Ghana News Agency over the weekend, analyses the impact of Small and Medium-sized Enterprises (SMEs) over job creation and poverty reduction in developing countries.
The study – “Is Small Still Beautiful? Literature Review of Recent Empirical Evidence on the Contribution of SMEs to Employment Creation,” – examines almost 50 research studies and concluded that SMEs provide two-thirds of all formal jobs in developing countries in Africa, Asia and Latin America, and 80 per cent in low income countries, mainly in Sub-Saharan Africa.
It said more important than holding the majority of jobs in low income and emerging economies, SMEs make a key contribution to the net creation of jobs, especially smaller and young firms.
There is a widely held view that, due to their shorter life span, SMEs do not generate many jobs, but according to the study, this is not true: 50 per cent of total employment creation comes from enterprises with less than 100 employees.
“Job growth not only comes from existing companies but also from newly-created firms, especially those that grow very fast in the first years of activity.”
“These start-ups amount to a relatively small share of all companies, but it is estimated that they account for quite a large share of the total job creation,” the study noted.
Recent studies show this is indeed the case in developed countries. The research of this book points to a similar conclusion for emerging economies, where small firms tend to grow faster than large ones.
It said: “Nevertheless, we are far from fully understanding the way SMEs operate in low income and developing economies. There are key areas where data is missing, for example on micro and informal firms and on the quality of jobs created in SMEs”.
The study noted that, needless to say good enterprise policies should support growth of all firms – big, medium and small, but it is important to keep in mind that SMEs face specific challenges: difficulty to access finance, greater burden from regulatory frameworks, and cost disadvantage to expand in relation with bigger companies.
“We need targeted policies for SMEs, not because they are small but because they are key engines of the real economy and the seedbed for bigger enterprises. Small is still beautiful, as the saying goes, but only if we strive to make it a reality.
“In a fast changing market environment, smaller enterprises are and will be key players in shaping the challenging reality of labour markets around the world,” the study said.