Thursday, October 2, 2014

Getting Away From the SME Cliché

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Next week, the African Development Bank Group (AfDB) will hold its annual meeting in Lisbon on the theme, “Towards An Agenda for Inclusive Growth in Africa”. A prelude to the meeting will be the AfDB-EMRC Forum on increasing the growth of  and support flow toward small and medium-sized enterprises (SMEs).

The discourse on SMEs has been granted a “privileged treatment” in development literature. However, while an important sector of an economy, SMEs are often seen as a solution to development problems, but rarely are they – and their accompanying discourses - seen as part of it.

In neo-liberal theory there is an assumption that SMEs “reflect factor endowment-based comparative advantages better than larger firms, are more market friendly and better for promoting competitive market conditions that lead to higher economic and social efficiency”. Thus, a key ideology underpinning SME expansion is that the minimalist - “nightwatchman” - state represents the best enabling environment. Consequently, the harnessing of a “developmental state” to propel economic growth through a higher level of state direction over the economy is antithetical to SME ideology.

Duro Kuteyi, the chair of the Nigerian Association of Small Scale Industrialists, argues that if the Nigerian government was to better promote and protect SMEs the sector would engender production, marketing and exports, as did the “Asian tigers”. As in many analyses of East and Southeast Asian economic growth in the 20th century, such as the World Bank in 1993, Kuteyi’s argument reiterates the tendency to lump together the growth of the regions as uniform and from the same source or ideological model, disavowing wide discrepancies in colonial or historical legacies, amounts of foreign investment and aid, the provision of physical and social infrastructure, the primacy of insulated economic bureaucracies and the role played by government intervention. The argument that SMEs should be ‘at the top of the agenda’ for the Nigerian government’s economic development planning is also near-sighted. To contend that because ‘advanced economies’ place SME development at a high priority means the Nigerian government should do the same misunderstands both the differing policy needs of highly differentiated economies and the path taken by advanced economies to reach where they are.

Small firms are not the ‘backbone’ of Nigeria’s economy – agriculture is. And if a central aim of economic development is to uplift the 70% of Nigeria’s population living in poverty, a state-led focus on agriculture is a necessity: poverty is concentrated in rural areas where the poor struggle to feed themselves through subsistence forms of agriculture. They rarely come near to producing a surplus, which would likely be wasted anyway due to poor infrastructure and a lack of storage facilities.

As Prof Chris Cramer argues, it is “important to get away from the cliche of small and medium-sized enterprises. Important though these are, serious industrialisation is likely to turn on the prospects and ambitions of large national leader enterprises”. Such “serious industrialisation”, which offers the best chance for raising GDP levels to the level needed to foster inclusive growth is unlikely to be kick-started by a rolling back of the state.