SME Outreach Program

Why Market Analysis Matters?

Small and medium enterprises (SMEs) play an important role in employment creation and income level or gross domestic product creation. As a consequence, SMEs constitute a key economic actor to achieve poverty alleviation and sustainable growth. In numbers, evidence showcases that regardless of the economy size, SMEs have created 67 percent of the global employment and between 60-70 percent of the global GDP is attributable to SMEs. Policymakers around the world are aware of the pivotal role of SMEs in the global economy. Yet, when looking at the bottlenecks that prevent SMEs’ development, access to finance is one of the top barriers faced my many. Still, access to financial services remains a very significant challenge in emerging economies, particularly in the aftermath of the financial crisis.

Financial regulators, such as central banks or ministries of economy, are aware of their responsibility and mandate to work on implementing policy solutions that improve access to finance for SMEs.

Recent studies show that SME’s account for an overwhelming majority of private sector business and economic activity in both developed and developing countries. Given the role of micro-, small- and medium-sized enterprises (MSMEs) in the global economy, it is essential to understand their importance and potential contribution to the Sustainable Development Goals (SDGs)

According to the World Bank and the OECD multiple reasons explain why MSME development is critical for achieving the SDGs:

MSMEs play an important role in most national economies, particularly in developing countries. Formal MSMEs contribute up to 45% of total employment and up to 33% of Gross Domestic Product (GDP) in emerging market economies. These numbers would be significantly higher when informal MSMEs are included.
MSMEs are major creators of jobs. In emerging markets, 4 out of 5 new positions in the formal sector were created by MSMEs, which is about 90% of total employment. The World Bank reports that 600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and sub-Saharan Africa.
MSMEs are particularly important for poverty reduction, especially in rural areas and amongst women and other socially disadvantaged groups. Because of their role and place in national economies, MSMEs are taking a lead in helping to meet most of the economic-related SDGs, including promoting inclusive and sustainable economic growth, increasing employment opportunities and decent work especially for the poor, advancing sustainable industrialisation and innovation, and creating a positive push for a higher quality of life, better education and good health for all.
MSMEs are particularly important for poverty reduction, especially in rural areas and amongst women and other socially disadvantaged groups. Because of their role and place in national economies, MSMEs are taking a lead in helping to meet most of the economic-related SDGs, including promoting inclusive and sustainable economic growth, increasing employment opportunities and decent work especially for the poor, advancing sustainable industrialisation and innovation, and creating a positive push for a higher quality of life, better education and good health for all.

In short, MSMEs are crucial to the Leaving No One Behind principle that is central to the 2030 Agenda.

Given MSME contributions to achieving the SDGs, the research underlined the importance of MSMEs to job creation and innovation for sustainable development in developing countries. That agenda also advocates for national governments, financial institutions and development banks to support MSME growth by providing a conducive regulatory framework, innovative financing solutions and systematic entrepreneurship training programmes.

In Singapore, for example, more than 100 000 SMEs, which account for 70% of the country’s total SMEs, use business support programmes organised by the governmental enterprise development agency and centres. It is becoming increasingly important for governments to allocate the necessary resources, services and funding to worthy MSMEs and start-ups. Equally important is providing these MSMEs and start-ups with a platform to share and transfer knowledge across the business ecosystem, not only with each other but also with the investors, research centres and other stakeholders upon which they will ultimately depend.

According to the World Bank, incubators and business accelerators are emerging rapidly across the world.One of the many aspects of MSME development is the concept of social entrepreneurship. Indeed, using business to solve major social and environmental problems is gaining traction in East Africa and parts of West Africa, particularly in agriculture and telecommunications. It embodies the entrepreneurial spirit, long-established already in the West African tradition of market women and in modern examples of successful entrepreneurs as seen with MPesa (M for mobile, pesa for money in Swahili) and the social enterprise Esoko that offers apps to train and support farmers in monitoring production, increasing yield and expanding their marketing.

Even with a heightened global commitment to their growth, MSMEs still face multiple challenges, including limited access to finance, a lack of capacity and knowledge, particularly regarding business development, and insufficient marketing and strategic management skills. A report by IMF,analysing over 400 enterprises across East Africa, found that around half have not achieved break-even. The report concludes that investments of USD 100 000 to 500 000 are critical for the growth of these enterprises, but demand for such investments outstrips supply.

Unleashing the potential of MSMEs for the SDGs requires transforming policies as well as systemic changes in the way financial markets and institutions operate. This would reduce the constraints MSMEs face in accessing financial resources and catalyse the growth of informal MSMEs into formal ones. And the impact from this would be multiple and far-reaching, unlocking more sources of capital, fueling additional economic growth and generating further employment opportunities.