A survey by the International Labour Organization (ILO, 2007) at the national (macro) level suggests that small firms generate a substantial share of GDP in many countries. The small business sector constitutes the majority of working population in most countries especially Africa and Asia (Allal, 1999). This small businesses account for half of the nonfarm workforce in Latin America and two-thirds of the non-farm workforce in Africa. In Thailand, small businesses generate three out of every four new, non-farm jobs. They comprise more than 97 per cent of all firms in the manufacturing and trade/service sectors; and generate 71 per cent of total employment in the service and trade sector (Oluyibo and Hill, 2003). In Indonesia, small businesses account for almost half of total manufacturing employment and generate half of all new jobs (Taymaz, 2005). About 90 percent of workers in India owe their livelihood to small business sector employment. These workers contribute 60 per cent of net domestic product and 70 per cent of domestic income (Simmons, 2004). More than half of the economically active population in Philippines is employed in micro small businesses.
Mexico looks to small business for 32 per cent of its GDP and 64 per cent of its local employment. McKee (2002) indicates that approximately 49 per cent of GDP in Peru and 70 per cent in Nigeria (especially in the agricultural sector) are from small businesses. Small enterprises may be integral to the success of key economic Sectors (Seibel, 1996). Focusing and supporting microenterprises can be justified because they have the potential to generate output, employment and income as well as being central to innovation (Kantor, 2002). More specifically, micro and small enterprises can have vital development functions in the developing countries. According to Levitsky (1993) these development functions include
■ To help generate employment by using more labour in relation to capital invested
■ To act as seedbeds for entrepreneurial talents
■ To operate in less populated rural areas
■ To be able to start up with very limited resources
■ To provide “hand-on” training facilities for people with varying levels of education in both management and technical skills
■ To supply both low-cost items for the poor and in certain circumstances, high cost quality products for the rich and for export; and
■ To able them to weather recession, material shortage and market changes because of their flexibility. According to U\RT (2003), other functions of micro and small enterprises are
■ to contribute to equitable distribution of income and to add value to agro products.
In this vein Kantor (2002) concluded that majority of women are active in this sector worldwide. It improves the welfare of the women and contributes to their social and economic empowerment. It is apparent the self employment and entrepreneurship contributes to women’s self esteem and confidence. All these points illustrate the ways in which Microenterprises contribute to economic development.
Challenges Facing Small Business Development
There are various challenges facing small business operators in Nigeria; while some are financial other are non financial. The main problems are markets for the product they sell, access to inputs required for the products, finance and lack of incentives (Malhotra, 2003). Access to capital particularly fixed capital is a serious problem for enterprises just getting started. Akabueze (2002) indicates that the challenges or constraints deterring the development of small businesses in Nigeria are: insufficient personal savings, uncoordinated business ideas and plans, non bankable projects by entrepreneurs, inability of the business operators to satisfy high credit risk standards, including security and volatile exchange rate regime.
Other barriers according to Osuala (2006) include: poor capacity building, inadequate or poor infrastructure, dependence on imported material/inputs, weak competitive advantage, vulnerability to dumping of foreign goods and shortage of technical expertise. To gain access to finance, small business operators should learn how to write a realistic business plan supported with financial projections, which highlight the profitability of the enterprises before they seek for funds. Such companies should be duly and legally registered with appropriate authorities maintain financial records and put in place strong internal control mechanisms. Above all, the operators should be knowledgeable about the kind of business they want to venture into.