The influence of small business support systems on economic development : a case study in Lesotho

Abstract

The vital role of small business in maintaining a nation's economic health has only recently been fully recognized by U.S. policy makers. United States employment statistics indicate that the small business sector (firms with fewer than 100 employees) created many of new jobs from 1980 to 1982. The value of a thriving small business sector in promoting economic development has also been underemphasized by government planners and donor agencies in Lesotho. The brisk pace and obvious expansion of this sector in Lesotho are causing policymakers to reassess small business needs and government programs. The value of small business as an economic development tool has been actively debated in economic growth literature for many years. Rostow noted that small and medium sized industry create most of a nation's new jobs during periods of rapid growth. More recently arguments for small business as a generator of exports and jobs in Third World countries have been advanced. Petrof noted that small business can make a positive contribution to economic development if potential buyers and sellers are brought together, relevant market information is communicated, resources are efficiently used, demand stimulated for products with a high domestic and export growth potential and small firms are dispersed throughout a country. Since less developed countries lack markets necessary to support mass production and do not have sophisticated technology and infrastructure, small business may be the appropriate production and distribution vehicle. Small firms may find it easier to create a market niche, producer products with less technology and be more adaptable. Cobbe recognized early on the need for small scale, dispersed rural industry in Lesotho to provide income earning opportunities and to make use of underemployed labour. More recently, studies conducted by the German Institute and USAID/Lesotho found that small craft industries which do not rely on foreign skills, technology or capital can be suitable instruments to generate employment. The Institute also suggested that small craftsmen and traders in Lesotho could become larger and more successful businessmen with; proper assistance. This paper summarizes the current economic environment in Lesotho and discusses future income and employment prospects. The support systems (parastatals) for business creation that are financed by government and private donors will be reviewed. Suggestions are' made to improve job creation efforts by parastatals.