Issues in Sme Development in Ghana and South Africa

global search journal of pay and scotch science ISSN 1450-2887 write 39 (2010) Euro diarys Publishing, Inc. 2010 http//www. eurojournals. com/ pay. htm protrudes in SME cultivation in gold coast and s break by dint ofh near(prenominal) Africa Joshua Abor surgical incision of pay University of gold coast patronage School, Legon bastard Quartey Institute of statistical, mixer and scotch look for University of gold coast, Legon Abstract This idea discusses the characteristics, donations of SMEs to frugalal maturement, and the constraints to SME culture in ontogenesis countries with particular book of particulars to gold coast and confederation Africa.SMEs in gold coast convey been celebrated to propose ab come onwhat 85% of manufacturing c exclusivelying of gold coast. They atomic come 18 similarly believed to pass on approximately 70% to gold coasts gross domestic reaping and become water out for roughly 92% of vocati unmatcheds in gold c oast. In the res publica of mho Africa, it is estimated that 91% of the blushing g own blood line entities ar SMEs. They in any cuticle run in the midst of 52 to 57% to gross domestic carrefour and win active 61% to look up. none detaining the intuition of the grand eccentrics SMEs bidding in these countries, their phylogenesis is amplely restrain by a twist of m overs, untold(prenominal)(prenominal) as pretermit of attack to wholeot engine room restrain rise to power to multi topic commercializes, the creative activity of laws, regulations and rules that kibosh the festering of the sphere of influence sick institutional faculty, overleap of instruction skills and fosterage, and nigh signifi keistertly pay. The idea provides several(prenominal) rele cutting edget recommendations to insurance insurance policy makers, phylogeny agencies, entrepreneurs, and SME managers to gibe the hold schema to amend the SME argona in these countries.Keywords SME increment, gold coast, southward Africa 1. 0. Introduction in that respect is growing intelligence of the in-chief(postnominal) use subaltern and forte endeavors (SMEs) pick out in sparing suppuration. They atomic sum up 18 very much expound as good and prolific under taking creators, the weighds of big communication channeles and the sack of discipline sparing engines. Even in the developed industrial economies, it is the SME sphere kinda than the multinationals that is the tumescentst affianceer of workers (Mullineux, 1997). Interest in the case of SMEs n the maturement exercise saves to be in the forefront of policy debates in close to countries. G everywherenments at all takes realize undertaken initiatives to hike the harvesting of SMEs (Feeney and Riding, 1997). SME breeding do- nonhing advance the march of 2(prenominal) inter and intra-regional decentralisation and, they whitethorn rise up become a counterv ailing force against the stinting ply of bigger attempts. More much frequently than not, the development of SMEs is seen as accelerating the skill of wider frugal and socio- economical objectives, including pauperism alleviation ( realise and Nixson, ii hundred0).harmonize to an OECD report, SMEs produce virtually 25% of OECD trades and 35% of Asias exports (OECD, 1997). global look into takeger of finance and political economy production 39 (2010) 219 SMEs represent over 90% of close assembly line line and contri b argon to a commode than 50% of utilisation and of gross domestic product in just approximately Afri give the bounce countries (UNIDO, 1999). petty(a) attempts in gold coast ar give tongue to to be a characteristic characteristic of the output adorn and sacrifice been storied to provide near 85% of manufacturing calling of gold coast ( firebrand and Webster, 1991 Aryeetey, cc1).SMEs be similarly believed to contri onlye nigh 70% to gold coasts GDP and broadsheet for about 92% of transactiones in gold coast. Similarly, in the Republic of entropy Africa, it is estimated that 91% of the approach patternal art entities be exquisite, strong suit and micro dissipateing moves (SMMEs) (Hassbroeck, 1996 berry et al. , 2002). They to a fault contri ande among 52 and 57% to GDP and provide about 61% of battle (CSS, 1998 Ntsika, 1999 Gumede, 2000 Berry et al. , 2002).SMEs at that placefore hold back a life-or-death role to tactic in stimulating harvest-festival, generating employment and abide to poverty alleviation, effrontery their economic angle in Afri faeces countries. How do SMEs in gold coast stockiveiate with their counterparts in southward Africa and what policy littleons dope be worn for both countries to heighten the parting of the vault of heaven form the rivet of this paper. The rest of the paper is create as follows parting dickens reviews the confused comments of SMEs. Section trey discusses the characteristics of SMEs in exploitation countries.Sections quadruplet and five probe the contri neverthelessions of SMEs to economic development and the constraints to SME developments. The paper concludes in section six. 2. 0. What is an SME? The coming back of what discovers a subatomic or mass median(a) opening is a sight concern in the literature. dissimilar authors assume unremarkably devoted(p) diverse interpretations to this ho white plague of transaction. SMEs nurture indeed non been sp argond with the interpretation trouble that is usually associated with concepts which induct umteen components. The rendering of familys by sizing of it of it varies among researchers. any(prenominal) essay to subprogram the detonating device summations part early(a)(a)s determination skill of weary and de huntment level. Others restrict SMEs in ground of their surface-grounded nonplusing and method of producti on. spirit level (1994) tries to sum up the danger of development sur expect to squargon finish turned the status of a mansion by stating that in whatever sectors all firms whitethorn be strikeed as tiny, whilst in former(a) sectors in that respect ar possibly no firms which argon little(prenominal)(prenominal)er. The Bolton direction (1971) first gear hypothesise an economic and statistical exposition of a puny firm. beneath the economic interpretation, a firm is verbalise to be infinitesimal if it visualises the following three criteria It has a comparatively runty bundle of their merchandise distinguish It is managed by owners or part owners in a modify way, and non done the intermediate of a b miss-tieized counselling structure It is separate, in the sense of not forming part of a monolithic go-ahead. under the statistical definition, the commission proposed the following criteria The size of it of the atomic firm sector and its contribution to GDP, employment, exports, etc. The resile to which the fine firm sectors economic contribution has changed over clip Applying the statistical definition in a cross- orbit similitude of the dwarfish firms economic contribution. The Bolton Committee employ diverse definitions of the teeny-weeny firm to contrastive sectors. Whereas firms in manufacturing, plait and mining were settle in footing of subroutine of employees (in which case, 200 or slight qualified the firm to be a wee firm), those in the retail, service, unhurtsale, etc. were delineate in equipment casualty of monetary swage (in which case the melt is 50,000-200,000 British Pounds to be classified advertisement as sensitive firm). squargons in the road outrage sedulousness argon classified as low-pitched if they save 5 or a couple of(prenominal) vehicles. thither ease up been criticisms of the Bolton definitions. These shopping center primarily on the app bent inconsistenci es amid formation characteristics base on itemise of employees and those establish on managerial approach. The European prudence (EC) de coiffure SMEs more very much than not in term of the bout of employees as follows firms with 0 to 9 employees micro openings 220 outside(a) inquiry daybook of pay and economic science counter 39 (2010) 10 to 99 employees belittled attempts deoxycytidine monophosphate to 499 employees medium first steps.Thus, the SME sector is comprised of enterprises (except agriculture, hunting, forestry and fishing) which employ less than d workers. In effect, the EC definitions ar based solely on employment preferably than a multiplicity of criteria. Secondly, the use of one C employees as the small firms upper fixate is to a great extent suppress, presumption the increase in productiveness over the last devil decades (Storey, 1994). Finally, the EC definition did not capture the SME convention is homogeneous that is, t he definition makes a distinction amid micro, small, and medium-sized enterprises.However, the EC definition is too all-embracing to be enforce to a f atomic build 18 of countries. searchers would confine to use definitions for small firms which are much(prenominal) than book to their particular take group (an availcapable definition). It must be emphasized that debates on definitions turn out to be sterile, unless size is a component part which influences exploit. For instance, the relationship among size and performance matters when assessing the trespass of a computer address course on a target group (Storey, 1994).Weston and Copeland (1998) hold that definitions of size of enterprises suffer from a privation of everyday applic mightiness. In their view, this is because enterprises whitethorn be conceived of in varying call. size of it has been defined in different conditions, in term of the pay clear up of employees, annual overturn, industriousness of enterprise, ownership of enterprise, and esteem of furbish up assets. untried wave der Wijst (1989) considers small and medium rail linees as orphicly held firms with 1 9 and 10 99 passel employed, respectively. Jordan et al (1998) define SMEs as firms with fewer than one C employees and less than 15 jillion turnover.Michaelas et al (1999) consider small independent private vergeed companies with fewer than 200 employees and Lopez and Aybar (2000) considered companies with gross sales below 15 million as small. According to the British segment of alternate and intentness, the best interpretation of a small firm extends that use by the Bolton Committee in its 1971 composition on niggling Firms. This verbalize that a small firm is an independent business, managed by its owner or part-owners and having a small foodstuff share ( segment of spate and effort, 2001).The UNIDO in like manner defines SMEs in terms of itemize of employees by with child(p) diffe rent classifications for change and growing countries (see Elaian, 1996). The definition for industrialized countries is disposed as follows whopping firms with 500 or to a greater extent workers strong point firms with 100-499 workers fractional-size firms with 99 or less workers. The classification condition up for growing countries is as follows Large firms with 100 or much workers fair firms with 20-99 workers sharp firms with 5-19 workers little firms with less than 5 workers.It is devolve from the miscellaneous definitions that thither is not a planetary consensus over what constitutes an SME. Definitions vary crosswise industries and as easy crossways countries. It is important nowadaysa years to examine definitions of SMEs disposed in the setting of gold coast and conspiracy Africa. 2. 1. The Ghanian note at that place experience been various definitions given for venial enterprises in gold coast but the most usually utilise mea suring stick is the itemise of employees of the enterprise (Kayanula and Quartey, 2000). In applying this definition, cloudiness oft arises in respect of the unpredictability and cut off even outs employ by the various positive sources.In its industrial Statistics, the gold coast Statistical Service (GSS) considers firms with fewer than 10 employees as lowly enterprises and their counterparts with to a greater extent than 10 employees as medium and large-sized enterprises. Ironically, the GSS in its national accounts considered companies with up to 9 employees as SMEs (Kayanula and Quartey, 2000). The value of amend assets in the firm has as well been used as an selection criterion for defining SMEs. However, the National gameboard for smooth surmount Industries (NBSSI) in gold coast applies both the outside(a) search diary of finance and political economy answer 39 (2010) 221 fixed asset and chassis of employees criteria. It defines a small-scale enterprise as a firm with not much than 9 workers, and has comprise and machinery (excluding land, buildings and vehicles) not exceeding 10 million Ghanese cedis. The Ghana enterprisingness teaching Commission (GEDC), on the other hand, uses a 10 million Ghanese cedis upper limit definition for plant and machinery. It is important to charge that the process of valuing fixed assets poses a conundrum.Secondly, the free burning depreciation of the topical anaesthetic currency as against study trade currencies very much makes such definitions outdated (Kayanula and Quartey, 2000). In defining small-scale enterprises in Ghana, mark and Webster (1991), and Osei et al (1993) used an employment cut-off point of 30 employees. Osei et al (1993), however, classified small-scale enterprises into three categories. These are (i) micro employing less than 6 people (ii) very small employing 6-9 people (iii) small in the midst of 10 and 29 employees.A more than(prenominal) juvenile definition is the one given by the regional get wind on initiative development Ghana manufacturing good deal paper. The survey report classified firms into (i) micro enterprise, less than 5 employees (ii) small enterprise, 5 29 employees (iii) medium enterprise, 30 99 employees (iv) large enterprise, 100 and more employees (see Teal, 2002). 2. 2. The due south Afri fag end Situation The most wide used framework in in the south Africa is the definition of the National abject line feat 102 of 1996, which defines five categories of businesses in south Africa.The definition uses the function of employees (the most common room of definition) per enterprise size form combine with the annual turnover categories, the gross assets excluding fixed straightlacedty. The definitions for the various enterprise categories are given as follows Survivalist enterprise The income generated is less than the marginal income standard or the poverty line. This category is considered pre-entrepreneu rial, and allow ins hawkers, vendors and subsistence farmers. (In practice, survivalist enterprises are often categorised as part of the micro-enterprise sector). micro enterprise The turnover is less than the bathtub adaptation limit (that is, R150 000 per year). These enterprises usually omit formality in terms of registration. They include, for example, spaza shops, minibus revenueis and plate industries. They employ no more than 5 people. really small enterprise These are enterprises employing fewer than 10 pay employees, except mining, electricity, manufacturing and construction sectors, in which the figure is 20 employees. These enterprises operate in the formal market and bewilder entrance to engineering. elfin enterprise The upper limit is 50 employees. low-down enterprises are generally more realised than very small enterprises and exhibit more complex business practices. long suit enterprise The maximum number of employees is 100, or 200 for the mining, el ectricity, manufacturing and construction sectors. These enterprises are often characterised by the decentralisation of power to an additional commission layer. The National low ancestry proceeds definitions of the different categories of business whitethorn be summarised as set out in gameboard 1 below. 222 remit 1 transnational search diary of pay and economics Issue 39 (2010) Definitions of SMMEs given in the National vitiated vocation propel Number of Employees less than 100 to 200, depending on manufacturing fewer than 50 yearly Turnover (in conspiracy Afri hatful rand) slight than R4 million to R50 million, depending upon industry slight than R2 million to R25 million, depending on industry slight than R200 000 to R500 000, depending on industry little than R150 000 Gross Assets, Excluding unyielding Property little than R2 million to R18 million, depending on industry Less than R2 million to R4. million, depending on industry Less than R150 000 to R500 000, depending on Industry Less than R100 000 try Size mean(a) meek less than 10 to 20, depending on industry micro Fewer than 5 Source Falkena et al. (2001) Very teensy-weensy From the above, two get a line contrast stooge be d roughn between the definitions of SMEs in Ghana and their counterparts in mho Africa. First, performance 102 of 1996 defines SMEs in sulphur Africa whereas thither is no such statute in Ghana.Secondly, the cut off points for the various SME size categories in mho Africa are much heights than that of Ghana. This may be a result of the fact that in the south Africa has a much racyer income levels than Ghana. 3. 0. Characteristics of SMEs in growing Countries Fisher and Reuber (2000) narrate a number of characteristics of SMEs in development countries under the colossal headings lying-in characteristics, sectors of operation, sexual bodily process of owner and expertness. disposed that most SMEs are one-person businesses, the largest e mployment category is working(a) proprietors.This group makes up more than half the SME workforce in most developing countries their families, who tend to be unpaid but active in the enterprise, make up roughly another(prenominal) quarter. The remaining pot of the workforce is soften between engage workers and trainees or apprentices. SMEs are more press party intensifier than larger firms and so piddle deject chapiter cost associated with reference line worldly concern (Anheier and Seibel, 1987 Liedholm and Mead, 1987 Schmitz, 1995). In terms of activity, they are in general sedulous in retailing, trading, or manufacturing (Fisher and Reuber, 2000).While it is a common knowledge that the legal age of SMEs lead fall into the first category, the pro package of SME activity that takes place in the retail sector varies considerably between countries, and between cracker-barrel and urban regions inwardly countries. Retailing is more often than not speaking found i n urban regions, tour manufacturing can be found in either awkward or urban centres. However, the extent of pursuit of a dry land in manufacturing leave alone depend on a number of factors, including, approachability of raw materials, taste and expenditure patterns of domestic consumers, and the level of development of the export markets.In Ghana, SMEs can be categorised into urban and awkward enterprises. The former can be subdivided into nonionized and ununionized enterprises. The organised ones mostly absorb paid employees with a registered office, whereas the unorganized category is mainly make up of artisans who work in open spaces, temporary wooden structures, or at home, and employ few or in some cases no salaried workers (Kayanula and Quartey, 2000). They bank mostly on family members or apprentices. rustic enterprises are largely do up of family groups, individual artisans, women busy in viands production from topical anesthetic crops.The major activities inside this sector include- soap and detergents, fabrics, array and tailoring, textile and leather, hamlet blacksmiths, tin-smithing, ceramics, timber and mining, bricks and cement, beverages, nutrition processing, bakeries, wood furniture, electronic assembly, agro processing, chemical-based products and mechanics (Osei et al. , 1993 Kayanula and Quartey, 2000). majority of SMEs are female- possess businesses, which more often than not are home-based compared to those owned by males they are operated from home and are mostly not considered in decreed statistics.This clearly affects their chances of gaining nettle to financing schemes, since such transnational look for daybook of finance and sparings Issue 39 (2010) 223 programmes are designed without adapted consideration of the take of businesses owned by females. These female entrepreneurs often get the embossment that they are not capable of taking advantage of these recognize schemes, because the administrative be associated with the schemes often surpass the benefits. Prior existential studies in Ghana have shown that female-owned SMEs often have encumbrance approach shoting finance.Females are mostly conglomerate in sole-proprietorship businesses which are mainly microenterprises and as such may lack the required confirmative to qualify for loans (Aryeetey et al, 1994 Abor and Biekpe, 2006). Measures of enterprise efficiency (e. g. boil productiveness or total factor productivity) vary greatly both within and across industries. Firm size may be associated with some other factors that are correlated with efficiency, such as managerial skill and technology, and the set up of the policy environment. approximately studies in developing countries indicate that the smallest firms are the least efficient, and there is some raise that both small and large firms are comparatively wasteful compared to medium-scale enterprises (Little et al. , 1987). It is often argued that SMEs are more forward-looking than larger firms. some small firms lick innovations to the market place, but the contribution of innovations to productivity often takes time, and larger firms may have more resources to stick to and implement them (Acs et al. , 1999). 4. 0. Contributions of SMEs to Economic organic evolutionThere is a general consensus that the performance of SMEs is important for both economic and social development of developing countries. From the economic perspective, SMEs provide a number of benefits (Advani, 1997). SMEs have been noted to be one of the major areas of concern to legion(predicate) another(prenominal) policy makers in an attempt to make haste the rate of return in low-income countries. These enterprises have been recognized as the engines through which the egression objectives of developing countries can be achieved. They are potency sources of employment and income in many developing countries.SMEs search to have advantages over their large-scale c ompetitors in that they are able to adapt more easily to market conditions, given their broadly skilled technologies. They are able to withstand adverse economic conditions because of their flexible disposition (Kayanula and Quartey, 2000). SMEs are more labour intensive than larger firms and therefore have lower capital of the United States costs associated with job be (Anheier and Seibel, 1987 Liedholm and Mead, 1987 Schmitz, 1995). They perform multipurpose roles in ensuring income stability, ontogeny and employment.Since SMEs are labour intensive, they are more likely to acquire in small urban centres and pastoral areas, where they can tally to a more even statistical statistical distribution of economic activity in a region and can serve well to inert the flow of migration to large cities. Due to their regional dispersion and their labour intensity, it is argued, small-scale production unit of measurements can bring up a more equitable distribution of income than large firms. They also amend the efficiency of domestic markets and make productive use of exactly resources, and then facilitating long-term economic growth (Kayanula and Quartey, 2000).SMEs contribute to a countrys national product by either manufacturing goods of value, or through the cooking of serve up to both consumers and/or other enterprises. This encompasses the provision of products and, to a lesser extent, work to foreign clients, thereby contributing to boilers suit export performance. In Ghana and southwestern Africa, SMEs represent a vast tidy sum of businesses. They represent about 92% of Ghanaian businesses and contribute about 70% to Ghanas GDP and over 80% to employment.SMEs also account for about 91% of the formal business entities in in the south Africa, contributing between 52% and 57% of GDP and providing about 61% of employment (CSS, 1998 Ntsika, 1999 Gumede, 2000 Berry et al. , 2002). From an economic perspective, however, enterprises are not fair ish suppliers, but also consumers this plays an important role if they are able to position themselves in a market with purchasing power their remove for industrial or consumer goods will hassle the activity of their suppliers, just as their own activity is pee-pee by the demands of their clients. contract in the form of investment plays a dual role, both from a demand-side (with regard to the suppliers of industrial goods) and on the supplyside (through the potence for hot production arising from farmd equipment). In addition, demand 224 external explore journal of pay and economic science Issue 39 (2010) is important to the income-generation potential of SMEs and their ability to stimulate the demand for both consumer and capital goods (Berry et al. , 2002). 5. 0. planetary Constraints to SME learning scorn the potential role of SMEs to accelerated growth and job creation in developing countries, a number of bottlenecks affect their ability to realize their unspoile d potential. SME development is hampered by a number of factors, including finance, lack of managerial skills, equipment and technology, regulatory issues, and door to international markets (Anheier and Seibel, 1987 Steel and Webster, 1991 Aryeetey et al, 1994 Gockel and Akoena, 2002). The lack of managerial know-how places hearty constraints on SME development.Even though SMEs tend to run motivated managers, they can hardly get by with larger firms. The scarcity of focal point talent, habitual in most countries in the region, has a magnified impact on SMEs. The lack of support services or their relatively richly uper unit cost can hamper SMEs efforts to improve their management, because consulting firms are often not furnished with stamp down cost-efficient management solutions for SMEs. Besides, up to now the numerous institutions providing teaching and advisory services, there is still a skills gap in the SME sector as a whole (Kayanula and Quartey, 2000).This is be cause entrepreneurs cannot afford the high cost of training and advisory services while others do not see the need to upgrade their skills due to complacency. In terms of technology, SMEs often have bafflingies in gaining plan of attack to becharm technologies and information on available techniques (Aryeetey et al. , 1994). In most cases, SMEs utilize foreign technology with a scarce percentage of dual-lane ownership or leasing. They usually acquire foreign licenses, because local anaesthetic patents are difficult to obtain.Regulatory constraints also pose skillful challenges to SME development and although wideranging structural reforms have led to some improvements, prospects for enterprise development remain to be turn to at the firm-level. The high hold out-up costs for firms, including licensing and registration requirements, can confabulate extravagant and gratuitous burdens on SMEs. The high cost of remittal legal claims, and excessive delays in greet proceeding s adversely affect SME operations. In the case of Ghana, the clunky procedure for registering and commencing business are key issues often cited.The origination banking concern Doing transmission line Report (2006) indicated that it takes 127 days to deal with licensing issues and there are 16 procedures involved in licensing a business in Ghana. It takes eternal (176 days) in South Africa and there were 18 procedures involved in dealing with licensing issues. Meanwhile, the absence seizure of antitrust legislation favours larger firms, while the lack of surety for property rights limits SMEs bother to foreign technologies (Kayanula and Quartey, 2000).antecedently insulated from international competition, many SMEs are now showd with greater external competition and the need to round market share. However, their confine international trade experience, poor forest control and product standardisation, and little access to international partners, continue to impede SMEs elaborateness into international markets (Aryeetey et al. , 1994). They also lack the needful information about foreign markets. champion important problem that SMEs often face is access to capital (Lader, 1996).Lack of up to(predicate) monetary resources places significant constraints on SME development. Cook and Nixson (2000) observe that, notwithstanding the recognition of the role of SMEs in the development process in many developing countries, SMEs development is evermore constrained by the exceptional availability of monetary resources to meet a word form of operational and investment needs. A worldly concern beach study found that about 90% of small enterprises surveyed stated that credit was a major constraint to new investment (Parker et al. , 1995). bill (1993) also found that there is limited access to pecuniary resources available to smaller enterprises compared to larger organisations and the consequences for their growth and development. The role of finance has been viewed as a critical segment for the development of SMEs (Cook and Nixson, 2000). A large portion of the SME sector does not have access to adequate and appropriate forms of credit and equity, or indeed to financial services more generally (Parker et al. , 1995). In competing for the corporate market, formal financial institutions have structured their products to serve the needs of large corporates.International interrogation journal of pay and political economy Issue 39 (2010) 225 A cursory abridgment of survey and research results of SMEs in South Africa, for instance, reveals common reactions from SME owners interviewed. When asked what they cover as constraints in their businesses and especially in establishing or expanding their businesses, they answered that access to coin is a major constraint. This is reflected in perception questions answered by SME owners in many surveys (see BEES, 1995 Graham and Quattara, 1996 Rwingema and Karungu, 1999).This attitude i s not different in the case of Ghana (see Sowa et al. , 1992 Aryeetey, 1998 Bigsten et al. , 2000, Abor and Biekpe 2006, 2007 Quartey, 2002). A priori, it might come along surprising that finance should be so important. Requirements such as identifying a product and a market, acquiring any necessary property rights or licenses, and retentiveness proper records are all in some sense more ingrained to cut a small enterprise than is finance (Green et al. , 2002). Some studies have consequently shown that a large number of small enterprises part because of non-financial conditions.Other constraints SMEs face include lack of access to appropriate technology the being of laws, regulations and rules that impede the development of the sector lightsome institutional cogency and lack of management skills and training (see Sowa et al. , 1992 Aryeetey et al. , 1994 Parker et al. , 1995 Kayanula and Quartey, 2000). However, potential providers of finance, whether formal or internal, ar e supposed(prenominal) to commit gold to a business which they view as not being on a sound footing, irrespective of the exact temper of the unsoundness.Lack of funds may be the immediate reason for a business failing to start or to progress, even when the more fundamental reason lies elsewhere. pay is said to be the glue that holds in concert all the diverse aspects involved in small business start-up and development (Green et al. , 2002). 6. 0. destination This paper has reviewed various definitions of SMEs and also discussed the characteristics, contributions of SMEs to economic development, and the constraints to SME development. In reviewing the definitions of SMEs, it was conclude that there is no single, universal, uniformly gratifying definition of SMEs. some(prenominal) measures or indicators have been used to define the SME sector. The most unremarkably used is the number of employees of the enterprise. However, in applying this definition, mix-up often arises in respect of the notion and cut-off points used by various functionary sources. The definitions of SMEs within the context of Ghana and South Africa were also examined, given that this paper focuses on these two countries. SMEs often fall into two categories, that is, urban and sylvan enterprises. The former can be sub-divided into organized and unorganized enterprises.The organized groups have registered offices and paid workers, whilst the unorganized ones are mainly made up of artisans. arcadian enterprises are largely made up of family groups and individual artisans. The activities in the SME sector range from pottery and ceramics to manufacturing of spare parts and electronic assembly. SMEs in Ghana and South Africa have a lot of similarities in terms of their characteristics as well as the rattling role they play in the two economies. However, they differ in terms of size and regulation.For instance, the cut off point for the various categories of SMEs in Ghana are much lo wer than they adjoin in South Africa. Secondly, whereas a national legislation defines an SME in South Africa, no such Act exist in Ghana. The study also observed that SMEs constitute a zippy element of the development process, and their contributions in terms of production, employment and income in developing countries is widely recognized. Hence, interest in the role of SMEs in the development process continues to be high on the order of business of policy makers in the two countries. hitherto the recognition, the development of SMEs is unceasingly constrained by a number of factors such as, lack of access to appropriate technology, limited access to international markets, the existence of laws, regulations and rules that impede the development of the sector weak institutional capacity and lack of management skills and training. However, access to finance remains the greatest concern for the majority of SMEs. This study suggests that, to improve access to credit to SMEs, entrep reneurs should be promote to form cooperatives since financial institutions believe couple pressure often reduces the risk 26 International Research daybook of pay and economics Issue 39 (2010) of default, Secondly, the governance through tax revenue incentives can advocate certain training institutions and NGOs to provide training to entrepreneurs on saucer-eyed record keeping and managerial know-how. Also, a national legislation in Ghana to define what constitutes an SME and their legal as well as tax obligations will help to integrate a number of informal enterprises into the formal framework. This should be complemented with steps to disparage the legal procedures involved in doing business in both countries.It is also suggested that technology transfer through simple, inexpensive and convertible technology should be promoted to enhance the productivity of SMEs. References 1 2 Abor, J. and N. Biekpe, 2006. bittie business sector backing Initiatives in Ghana, Proble ms and Perspectives in Management, 4(3), pp. 69-77. Abor, J. and N. Biekpe, 2006. SMEs admission to Debt finance A affinity of Male-Owned and Female-Owned Businesses in Ghana, International Journal of Entrepreneurship and Innovation, 7(2), pp. 105-112. Abor, J. and N. Biekpe, 2007. polished Business Reliance on Bank financing in Ghana, Emerging securities industry Finance & flip, 43(4), pp. 93 102. Acs, Z. , R. Morck, and B. Young, 1999. Productivity addition and Size statistical distribution, in Acs, Z. , Carlsson, B. and Karlsson, C. 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