Private sector development and SME’s

Abstract

This paper seeks to highlight the role of private sector development in the resilience building of small states. It refers to small and medium sized enterprises (SMEs) stressing the extent to which SMEs can enhance economic flexibility, an important element in economic resilience, defined as the ability to withstand and rebound from exogenous shocks. The private sector, compared to the public sector, is generally more exposed and therefore responsive to market realities. As a result, a strong private sector is vital for resilience building, and this is especially so in small states, which tend to be highly exposed to external shocks. However the private sector can be inefficient and characterized by inertia, especially if there is a proliferation of monopolies and oligopolies Therefore the paper contends that the development of this sector should be accompanied by appropriate polices to encourage private sector competitiveness and efficiency. The paper also discusses the role of SMEs in small states and their role in resilience building. It argues that the backbone of the economies of large and small economies are SMEs. In the case of small states most firms are likely to be micro-enterprises, employing fewer than 10 persons. The paper argues that small states should attempt to maximize the contribution of micro-enterprises towards the enhancement of competitiveness, by creating an atmosphere congenial to entrepreneurship, improving access to funds, particularly venture capital, and encouraging clustering. The paper also uses the ‘Doing Business’ Index published by the World Bank to identify the weaknesses of some small states and to highlight area where business reform is required.