The global economy is slowing down. Sub-Saharan Africa has not been immune to the trend --just this week, the International Monetary Fund slashed its once-robust growth forecasts for the region. Meanwhile, what growth there has been in recent years has skewed disproportionately to the relatively wealthy, leading to rising inequality and political tension. After decades pursuing high growth, governments’ focus has shifted to better quality growth, in developing and developed countries alike.Inclusive growth is the new grail. At the United Nations last month, the world’s governments adopted an ambitious set of Global Goals to eradicate extreme poverty by 2030, expand opportunities for all, and protect our planet.Success requires growth that is rapid, equitably distributed and environmentally sustainable. The goals adopted in New York wisely recognised the potential of small and medium enterprises (SMEs) to foster growth and inclusiveness.New research from the International Trade Centre (ITC), the joint agency of the United Nations and the World Trade Organisation, makes a compelling case for small and mid-sized firms as the missing link to inclusive growth. Our SME Competitiveness Outlook, released this month, aims to provide annual guidance on where best to concentrate efforts to boost countries’ SME sectors. Jobs are the main channel through which people share in – or are left out of – economic growth. And SMEs account on average for around 80 percent of national employment in low income countries like Rwanda. Large companies everywhere tend to be more productive than small ones. But the gap in productivity is far wider in developing countries. Low productivity in turn means lower wages and worse working conditions. This productivity gap has a silver lining: there is plenty of room to improve. Higher SME productivity translates into more and better paying jobs, distributed across less fortunate sections of the economy. SMEs able to ‘internationalise’, whether by exporting or importing directly or selling to firms that do, register particularly high productivity, wage, and employment gains. Boosting the productivity and competitiveness of SMEs thus means working for inclusive growth. But figuring out how best to do soisn’t easy. Thefactors holding SMEs back vary from one country to another. Tax policies can dis-incentivise growth. Elsewhere, access to finance dries up the moment businesses become too big for micro-lenders, even if they remain too small for traditional bank loans. Intermittent electricity and spotty internet access often render them uncompetitive. Expensive transportation and long customs delays can frustrate attempts to operate across borders. Sometimes the problems lie more with the firms themselves: they might lack skilled managers and staff, fail to understand market opportunities, or struggle to meet international health and safety standards. The SME Competitiveness Outlook helps us understand the country-specific constraints most relevant to business success. The report systematically organizes them across three pillars: the ability of SMEs to connect, compete and change. It then analyses these determinants of SME competitiveness at the level of companies, their immediate business environment, and national policy. Problems on any pillar, at any level, can be fatal to international competitiveness. For instance, the ability of a country’s SME sector to supply quality goods in a timely and cost-effective manner is a function of firms’ own abilities, but also of the existence of a system to certify that their products meet international standards, and macro-level considerations like swift customs procedures. Similarly, smaller companies’ ability to absorb knowledge and adapt to changing market forces has much to do with internet penetration rates and ready access to finance. The report’s findings will help governments and their partners identify which weaknesses are most harmful to SMEs, in turn paving the way for well-targeted reforms. After all, why invest heavily in expensive telecommunications infrastructure when what companiesreally need are bank accounts? Rwandan SMEs come out relatively favourably in the inaugural report. While landlocked developing countriestypically have some of the world’s lowest e-connectivity rates,mid-sized Rwandan firms are an exception, making good use of websites and emails to connect to customers and suppliers – and this despite a relatively weak national environment for the use of information and communication technologies. Large firms overperform by an even bigger margincompared to their counterparts in countries at similar income levels.Small companiesdo less well, however. What is most striking about Rwandan firmsis the strength of their performance on indicators assessing businesses’ capacity to adapt and innovate in the face of changing market conditions. Medium-sized and large firms over-performed on every count - on getting investments financed by banks, having audited financial statements, investing in training, and licensing foreign technology - suggesting a potentially high innovative capacity. Small firms also outperformed their peers in countries at similar levels of development. The strong record on bank financing may reflect the success of Rwandan government policiesto prevent small and mid-sized firms from being starved of finance. The report suggests that Rwanda could enhance the ability of SMEs to contribute to its remarkable development achievements by investing more in workforce education. This would likely strengthen companies’ capacity to meet international quality certifications, a necessary step for moving up the value chain. The writer is the Executive Director of the International Trade Centre
