Background of the study
Small and Medium Scale Enterprises (SME) have played important roles in the development process in most of the developed economies, and proven to be one of the most viable sectors with economic growth potential. The successes recorded by these countries were because of serious consideration of the future rewards from sustained investment in this sector. Due to their size and scope of operations, these enterprises require relatively small capital investment to start, thereby offering a relatively high labour-to-capital ratio. They also demand low technology and managerial skill, which are readily available within the society. The extent to which the opportunities offered by SMEs are exploited and their contributions maximized in any economy depends on the enabling environment created through the provision of requisite infrastructure facilities. These include roads, telecommunications, power, ports, etc. and the introduction and pursuit of policies such as concessionary financing that encourage and strengthen the growth of SMEs. SMEs have such a crucial role to play in the development of an economy that they cannot be ignored. There is growing recognition of the important role small and medium enterprises (SMEs) play in economic development. They are often described as efficient and prolific job creators, the seeds of big businesses and the fuel of national economic engines. Even in the developed industrial economies, it is the SME sector rather than the multinationals that is the largest employer of workers (Mullineux, 1997). Interest in the role of SMEs in the development process continues to be in the forefront of policy debates in most countries. Governments at all levels have undertaken initiatives to promote the growth of SMEs (Feeney and Riding, 1997). SME development can encourage the process of both inter and intra-regional decentralization; and, they may well become a countervailing force against the economic power of larger enterprises. More generally, the development of SMEs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation (Cook and Nixson, 2000). SMEs represent over 90% of private business and contribute to more than 50% of employment and of GDP in most African countries (UNIDO, 1999). Small enterprises in Ghana are said to be a characteristic feature of the production landscape and have been noted to provide about 85% of manufacturing employment of Ghana (Steel and Webster, 1991; Aryeetey, 2001). SMEs are also believed to contribute about 70% to Ghana’s GDP and account for about 92% of businesses in Ghana. In fact, SMEs can serve as sources of inputs for the multinationals thereby replacing existing foreign sources. They are also training grounds for local skills and entrepreneurs, and could become channels for mobilizing local savings, ensuring a more equitable distribution of income and reducing the migration of manpower from the rural to the urban areas. Ghana like any other development country in the sub-Sahara Africa opted for a development pattern that relied on high levels of government’s intervention as the best policy to speed up development after independence. This development approach adopted drew lessons from the big-push theory propounded by Rosenstein Rodan, quoted in The MIT Dictionary of Modern Economics (1992), which gives inspiration to developing countries who seek to develop their economies quickly by investing heavily in all sectors of their economies. Hence balanced growth was seen as the most appropriate development strategy for developing countries to adopt. Although this period has been associated with economic growth and some reduction in poverty, poverty still remains high in Ghana. In order to achieve significant results in poverty reduction there is the need for sustained effort in raising real disposable incomes through productive and profitable...
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