Special issue on small business development and poverty alleviation in Africa

Citation

Okpara, J.O. (2011), "Special issue on small business development and poverty alleviation in Africa", Management Research Review, Vol. 34 No. 2. https://doi.org/10.1108/mrr.2011.02134baa.001

Special issue on small business development and poverty alleviation in Africa

Article Type: Guest editorial From: Management Research Review, Volume 34, Issue 2

The development of small and medium-sized enterprises (SMEs) has been recognized as a key strategy for economic development and poverty reduction in developing countries, particularly in Africa. Since their independence, most African nations have been promoting the development of small enterprises as a means for economic growth. More recently, due to the increase of unemployment and poverty, there has been a renewed focus on the promotion of small businesses not merely as an engine for growth, but more importantly as the key to job creation and poverty reduction. Poverty reduction has been a key issue facing many African nations. Studies have shown that Africa has the highest proportion of people living in poverty – nearly half of the population lives below the international poverty line of $1 per day. This persistently high level of poverty is attributed partly to the jobless growth of economies, and has led to an emphasis on small business development as a catalyst for job creation and poverty reduction.

To date, small businesses in Africa have high failure rates which are enormous for African economies with limited capital and other resources. The combined failure rates for businesses and barriers increases unemployment rates and perpetuate poverty. In the light of the above, it seems necessary to call for a special issue to address the problem surrounding small business development and poverty, with the hope of encouraging more research on this important subject.

Articles that address small business development and poverty alleviation issues relevant to the Africa business context are in this issue. Understanding the factors hindering the development and survival of SMEs in Nigeria would help policy makers to design targeted policies and programs that would actively stimulate economic growth, as well as helping policy makers to support, encourage, and promote SMEs for poverty alleviation in Nigeria. Any strategy for poverty alleviation in Africa must include, support, encouragement, and promotion of small businesses.

In the first paper, John O. Okpara investigates the factors that hamper the growth and survival of small businesses in Nigeria. The data for this study were gathered through a survey of 211 owners/managers of small businesses. Two pronged analytical methods were used analyzed the data. Analysis of factors hindering small business development in Africa was performed through factor analysis. In addition, descriptive statistics and correlation analysis were used to test the hypotheses developed for the study. Based on the results of this study, several factors were identified as responsible for hindering small business growth and survival in Nigeria. Among these are financial constraints, management problems, corruption, and lack of infrastructure. Lack of capital and the complexities of obtaining loans from financial institutions and development agencies were also cited as major hindrances to small business development. The study recommends among others, that small business owners/managers should source cheap, low-interest loans from banks and other financial institutions, borrow from friends and relatives with the intent to pay back, negotiate advance payments from customers, and seek loans from micro-financing organizations. It is also recommended that the government should encourage the development of the Grameen Bank type model in order to counteract the problem of collateral and lending issues.

In the second paper, Charles Amo Yartey examines how unlisted companies in Ghana finance their growth and to what extent do they rely on internal finance relative to external sources of finance. The paper also investigates the determinants of the capital structure of unlisted companies in Ghana. The paper uses the Singh-Hamid methodology as well as panel data techniques to evaluate the financing decisions of unlisted companies in Ghana. Findings of the study show that unlisted firms in Ghana finance most of their growth from external debt and they are also characterized by shorter debt maturity. The results also show that the dominant factors affecting the debt equity ratios of unlisted firms in Ghana are size, firm growth, tangibility, profit margin, and financial development. The results of this study has important implications for financial stability as high ratio of short-term debt to total debt makes the corporate sector highly vulnerable to changes in economic conditions and may increase the economy wide impact of a financial crisis. It is therefore, policymakers in Ghana should take appropriate steps to lengthen the maturity structure of corporate debt.

In the third paper, E.M. Siringi’s paper examines the implications of Kenya Women Finance Trust (KWFT) micro-finance credit upon Women Small and Medium Enterprises (WSMEs) and its contribution towards Poverty alleviation among women entrepreneurs in Kenya. Data were collected by means of self-administered “schedules”. Statistical analysis was used to estimate the impact of KWFT micro-credit contribution towards generation of income, savings, asset creation and the general social welfare among women beneficiaries. Results suggest that the KWFT micro-credit program has a positive impact on women entrepreneurs in terms of income, savings, asset creation, and the general social welfare. In addition, findings also show that micro-finance agencies in Kenya have increased their operations regarding poverty improvement. However, it is significant to note that a number of socio-culture and institutional issues such as rights to liberty, education, land ownership, others constrain WSMEs to access micro-finance credit. It is recommended among others that commercial banks entry into wholesale and retail micro-finance activities be encouraged and be promoted. Also cooperatives and savings institutions need to be encouraged to improve their organizations and product offerings. KWFT will need to reinforce its knowledge and connection with low-income women, to provide excellent service to these groups of women.

In the fourth paper, David Irwin examines approaches adopted by four business support organisations, originally created with similar objectives, in Kenya, Uganda, Tanzania and Cameroon to examine entrepreneurial heterogeneity in Africa and the hypothesis that local solutions are required to support entrepreneurs effectively. A review of each business support organisation’s approach, including a stakeholder analysis was undertaken. Although the trusts were established to achieve broadly similar objectives, all have followed a different path, apparently in response to the need to provide support in different ways. All are successful, demonstrating the significance of this approach. All learn from each other, adopting and, importantly, adapting successful programmes. The study is significant to policy makers, particularly in donors and multi-lateral institutions, considering how to encourage and support small business development. The findings should encourage the designers of new programmes to spend additional time ensuring that they understand how the needs of local entrepreneurs can best be addressed.

In the fifth paper, Daphne Halkias, Chinedum Nwajiuba, Nicholas Harkiolakis, and Sylva Caracatsanis examine the business and social profiles of women entrepreneurs in Nigeria in order to identify patterns of entrepreneurship and social and economic challenges facing women business owners in Nigeria. Data for this research were collected by means of a survey administered to a sample of Nigerian female entrepreneurs. Descriptive statistics was used analyze the data collected. Results show that no or few significant differences exist between male and female business owners or managers once they have already started a business, there is a strong indication that Africa has sizeable hidden growth potential in its women. From the results presented, it is evident that female entrepreneurship in Nigeria is driven by micro financing as well as family dynamics that work to shape and influence the birth of a business. The paper recommends that government authorities and policy makers should encourage and support women entrepreneurs. The growth and development of women entrepreneurs’ activities would further strengthen the Nigerian economy and create the basis for continued growth and development. Female entrepreneurs can play a vital role in creating capital and job opportunities enhancing the importance of their role in business activities along with raising children and taking care of their families.

The final paper by Anayo D. Nkamnebe and Ellis I. Idemobi examine the factors that are responsible for the poor credit recovery among micro-finance institutions (MFIs) that administers United Nations Development Programme’s micro credit in Anambra State, Nigeria. Results of this study reveal that nearly 70 percent of loans granted by the MFIs are non-performing. This is particularly true when considering that Nigeria is a micro enterprises driven economy as over 80 percent of the credit market is micro. This has negative implications for economic development considering the abundant evidence in the reviewed literature that micro credit and MFIs are of vita importance to economic development. It is recommended that in order to reduce the incidence of non-performing loans, the credit worthiness of the borrowers should be established. It also recommended that, collective appraisal of loan applications, loan utilization, monitoring, peer-pressure and cross guarantee to enforce repayment approaches be used. The import of grass root associations such as Community Development Associations, women groups, age grades and like in ensuring conformity can also be exploited.

I would like to thank Professor Joseph Sarkis the Editor of Management Research Review who motivated and encouraged me to undertake this project. Without his guidance and assistance this project would not have been possible. Profuse thanks are also due to Emerald Group Publishing, and especially to Kim Foster whose initial encouragement motivated us to embark on this project. I truly believe that we have laid the foundation for a new era in small business development and poverty alleviation research in Africa. We hope that this special issue will stimulate additional discussion and research on this important topic.

John O. OkparaGuest Editor

Reviewers for the special issue

Halkias, DaphneHellenic American University

Korukonda, Appa RoaBloomsburg University of Pennsylvania

Koumbiadis, NicholasAdelphia University

Madichie, Nnamdi O.University of East London

Morfopoulos, RichardBriarcliffe College

Nkamnebe, Anayo D.Nnamdi Azikiwe University

Obiozor, Emeka WilliamBloomsburg University of Pennsylvania

Ohn, JonathanBloomsburg University of Pennsylvania

Okpara, John O.Bloomsburg University of Pennsylvania

Yartey, Charles AmoAfrican Department, International Monetary Fund

Wynn, PamelaBloomsburg University of Pennsylvania