THE ROLE OF SMALL AND MEDIUM ENTERPRISES (SMEs) IN RURAL DEVELOPMENT


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THE ROLE OF SMALL AND MEDIUM ENTERPRISES (SMEs) IN RURAL DEVELOPMENT: A CASE STUDY OF KENYASI IN THE ASUTIFI NORTH DISTRICT  

ABSTRACT

The study sought to describe the role SMEs play in rural development in Kenyasi. A survey of 50 respondents were purposively and randomly selected to answer questions on the key role SMEs’ play in rural development, SMEs contributory factors to rural development, and the challenges that confront SME operators in contributing to rural development. The study observed that SMEs play the role of: creating jobs in rural areas, decentralised use and distribution of resources; altering production quickly to exploit changing market conditions for rural development; filling the niche markets in the national economy that are too small for mass producers; introduction of innovations into the market to serve as a catalyst for societal development and deepening the manufacturing sector and fostering competitiveness. Again, the setting up of NVTI in the rural areas; established entrepreneurial development programs; attitude towards risk and a competitive nature; and ability to manage work force and managing accounts enable SMEs to contribute to rural development. The study further discovered that ineffective business development services; inadequate access to finance; constraints on women to develop their entrepreneurial potentials and difficulty with gaining access to appropriate technology and information on available techniques are the major challenges confronting SMEs in Kenyasi Distrcit in their effort to contribute to rural development. The study recommends among others that: inculcating of the study of SME into the syllabus of tertiary education, and more institutions supporting the development of rural entrepreneurship as well as strategic development alliances should be established.

TABLE OF CONTENTS

                                                                                                                                     Page

Title Page………………………………………………………………………………...i

Declaration ii

Dedication iii

Acknowledgement iv

Abstract v

Table of Contents vi

List of Tables viii

Abbreviations ix

CHAPTER ONE: INTRODUCTION

1.0Background to the Study 1

1.1Statement of the Problem 3

1.2 Objectives of the Study 4

1.3 Research Questions 5

1.4Significance of the Study 5

1.5 Scope and Limitation of the Study 5

1.6 Organization of Chapters 6

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction 7

2.1 Conceptual Framework 7

2.1.1 Concept of SMEs 7

2.1.2 Overview of MSEs and Policy Framework 9

2.1.3 Public institutions in support of MSEs in Ghana 10

2.1.4 Diversifying Rural Livelihood Sources: Significance of SMEs 13

2.1.5 The Concept of Development 14

2.1.6 Constraints To MSE Development 19

2.2 Empirical Evidence 22

CHAPTER THREE: METHODOLOGY

3.0 Introduction 24

3.1 Profile of the Study Area 24

3.2Study Type 25

3.2.1 Study Variable 25

3.2.2 Study Population 25

3.2.3 Sampling Size and Sampling Technique 25

3.4 Research Design 26

3.5 Data Collection 26

3.6 Data Analysis Method 26

3.7 Ethical Consideration 27

CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND DISCUSSIONS

4.0 Introduction 28

4.1 Analysis and Presentation of Data 28

4.1.1 Demographic Characteristics of Respondents 28

4.1.2 The Key Role SMEs’ Play in Rural Development 29

4.1.3 Factors that enable SMEs to Contribute to Rural Development 31

4.1.4 The Challenges that confront SME Operators in contributing to Rural Development 32

4.2 Discussion of Results 34

4.2.1 Demographic Characteristics of Respondents 34

4.2.2 The Key Role SMEs’ Play in Rural Development 34

4.2.3 Factors that enable SMEs to Contribute to Rural Development 35

4.2.4 The Challenges that confront SME Operators in contributing to Rural Development 35

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction 37

5.1 Summary of Findings 37

5.2 Conclusions 38

5.3 Recommendations 39

References 42

Appendix 45

CHAPTER ONE

INTRODUCTION

1.0 Background to the Study

The role of micro and small enterprises (MSEs) as engines of endogenous development in rural economies is increasingly recognized in development theory and has attracted the attention of policy makers(Tetteh& Frempong, 2009).According to Tacoli et al, (2003)MSEs add value to agricultural products and play crucial roles in the decentralised use and distribution of resources.Again,they augment government efforts to achieve economic growth and poverty reduction in rural and urban areas (African Development Bank, 2005). Wangwe (1999) argues further that MSEs tend to ensure balanced economic growth since they are concentrated in different parts of the country. Once more, Reijonen and Komppula(2007)posit that MSEs have been credited for introducing innovations into the market to serve as a catalyst for societal development (Reijonen & Komppula, 2007). The development and promotion of MSEs can deepen the manufacturing sector and foster competitiveness.

A vibrant MSE sector can also help to achieve a more equitable distribution of the benefits of economic growth by alleviating some of the problems associated with uneven income distribution (UNCTAD, 2001).Consequently, many development plans in developing countries have placed strong emphasis on the development of an entrepreneurial middle-class that create employment and has the potential to overcome institutional conditions that hamper growth in rural areas. For example, in Ghana, the Growth and Poverty Reduction Strategy (GPRS I &II) identified MSEs as engines of growth, wealth creation and avenues for employment generation for the majority of its citizens.

In Ghana, a vibrant MSE sector in the rural areas is very important since about 60% of the country’s population reside in these areas where poverty is more pronounced. According to the Ghana Statistical Service (2012), about 86% of the total population living below the poverty line in Ghana can be found in the rural areas.Recognising the critical role of the MSEs in poverty reduction, a number of existing institutions, which have a mandate to promote industrialisation in the rural areas, have been strengthened to facilitate more economic change on the countryside. Tetteh and Frempong (2009) posit that in order to build strong rural economy, the government of Ghana has set up National Vocational Training Institutions (NVTI), established entrepreneurial development programs as well as favourable conditions for micro financial institutions (MFIs) and other infrastructural services to encourage the growth and development of both informal and formal MSEs in the country.

The problems of rural development in Ghana have become a major concern today. This concern notwithstanding, the problems seem as intractable as ever. There are significant disparities in income and standards of living between the rural and urban populations (GPRS, 2004). This has resulted in the continuous increase in the movement of people from the countryside to the city, creating a serious social crisis, the ramification of which is affecting the quality of life. The manifestations of this include; people sleeping on pavements and others sprawling in shanty slums, ragged beggars, crimes and other deviant behaviours such as prostitution, drug addiction and alcohol abuse (GPRS, 2004).

1.1 Statement of the Problem

Petrin (1994) affirms that rural development is now being linked more and more to SMEs.  SMEs stand as a vehicle to improve the quality of life for individuals, families and communities and to sustain a healthy economy and environment. SMEs orientation in rural areas is based on stimulating local entrepreneurial talent and subsequent growth of indigenous companies. This in turn would create jobs and add economic value to a region, and at the same time it will keep scarce resources within the community. In line with this Gavian et al (2002)have suggested that SMEs are traditionally thought of as well poised to respond to increased demand by creating jobs. Again, Lyson (1995) echoes the prospects of small-enterprise framework as a possible rural development strategy for economically disadvantaged communities and provides this description of the nature of small-scale flexibly specialized firms: “First, these businesses would provide products for local consumption that are not readily available in the mass market. Second, small-scale technically sophisticated enterprises would be able to fill the niche markets in the national economy that are too small for mass producers. Third, small, craft-based, flexibly specialized enterprises can alter production quickly to exploit changing market conditions.”

According to Benzing and colleagues (2009), factors enabling SMEs to contribute to rural development can be categorized into psychological and personal skills, management skills and training, and external environment. Stefanovic et al., (2010) and Frese et al., (2002) describe urge of independence, innovativeness, attitude towards risk and a competitive nature as a psychological attributes relating to success. Managerial skills comprise of ability to manage work force and managing accounts, environmental conditions consists of sufficient governmental support, access to the capital and support of family and friends (Benzing et al., 2009).

The lack of entrepreneur business management experience and training, however, may create a barrier equally powerful and limit the growth potential of microenterprises. This is spurred by its popularity as a spatial development tool and a panacea to the financial needs of rural entrepreneurs, who are often unable to meet the loan acquisition requirements of conventional commercial banks, the management and control of which is vested in the people as enshrined in the Banking Law 1989 (Decree 225) (Ghana: Banking law Document). Rural finance contributes to community economic development by lifting the poor and low-income people out of poverty by enabling them to engage in more productive farm and non-farm income-generating activities to raise their living standards (Zeller et al, 1996). The effects of these are manifested in improvement in their nutritional status, health and education, particularly in women and children (MkNelly and Dunford 1999, Khandker 1998, Wright 2000).

1.2Objectives of the Study

The main objective of the study was the role of SMEs in rural development.

Based on the problem statement above, the study seeks to:

1. Ascertain the key role SMEs’ play in rural development.

2. Identify factors that enable SMEs to contribute to rural development.

3. Ascertain the challenges that confront SME operators in contributing to rural development.

1.3Research Questions

Based on the objectives above, the study seeks to address the following questions:

1. What key role do SMEs’ play in rural development?

2. What factors enable SMEs to contribute to rural development?

3. What challenges confront SME operators in contributing to rural development?

1.4 Significance of the Study

Rural enterprises are important generators of employment and economic growth internationally. With majority of Ghana's population living in rural areas with agriculture and small scale activities as their main economic activities, the rural sector producesthe bulk of the nation's output. Hence, the standard of living of the rural dwellers need to be improved. One way of doing this is a carefully planned and implemented rural finance programmes to SMEs necessary to accelerate the pace of economic development.The study therefore sought to ascertain the key role SMEs’ play in rural development; identify factors that enable SMEs to contribute to rural development; and ascertain the challenges that confront SME operators in contributing to rural development.The findings of the research will serve as inputs and lessons to the government, stakeholders and those agencies spearheading the campaign for support for SMEs to promote rural development. 

1.5Scope and Limitationof the Study

The study did not cover all the Districts. The study was done in only Kenyasi. The study is focused on SME operators who employ at least 2-3 persons for the products and services provided. The study also aims at using own soap making stores, barbering shops, salons, provision stores, carpentry shops, dressmaking shops for the sampling of opinions for presentation and analysis of data.

Among the limitation of this study is the fact that only SMEs in Kenyasi districtwere covered. Second is the difficulty in gathering data and information, much of which is considered sensitive. Another relates to the culture of not keeping accurate data and records by most SMEs. Many heads of SMEs had little time for interview owing to their tight schedules.

1.6Organization of Chapters

This study is organized into five main chapters. Chapter one gives an introduction to the whole study. The chapter comprises the background of the study, problem statement, research objectives and questions, significance of the study, scope and limitations of the study, and organization of the chapters. Chapter two of the study reviews relevant literature on the role of SMEs in rural development. Chapter three is about the methodology used in gathering the relevant data for the study. Sub-topics seen under this chapter are introduction, profile of the study area, study type, study variable, study population, sampling size and sampling technique, research design, data collection tools/Instruments, Data analysis method and ethical consideration.Chapter four is about data presentation and analysis. Chapter five looks at summary, conclusion and recommendations.  

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THE ROLE OF SMALL AND MEDIUM ENTERPRISES (SMEs) IN RURAL DEVELOPMENT


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