Small enterprises, tiny but vital [Archives:2004/767/Business & Economy]

August 26 2004

By Abdulaziz Mohammed Abdullah

The Ministry of Trade and Industry, in a ministerial decree in 1991, defined small enterprises as follows:

1- Any productive unit involving ten workers and YR 1-2 million worth of equipment.
2- A productive unit with equipment surpassing a value of YR 2 million, but which does not use more than 10 workers.
3- Any operational productive unit.
4- The Employer(s) is/are not among the workers.

On the other hand, the Industrial Survey conducted in 1996, gave a different definition of small, medium, and large enterprises:
1- Small enterprises employ less than 5 employees.
2- Medium enterprises employ 5-9 workers.
3- Big enterprises involve ten or more workers.

The results of that survey indicate that all industrial establishments mounted to 30,042. According to the above mentioned definition, large enterprises totaled 251 (less than 1% of the total number), medium ones totaled 1051 (3.5%), while the remaining 95.7% were small enterprises.
The contribution of the industrial sector to domestic production can be increased if a better investment atmosphere is fostered and maintained. Small industrial establishments have the potential to contribute greatly. The economic policy should be geared towards encouraging small industries, facilitating the establishment of new small enterprises and improving the present ones. However, current policies basically aim at encouraging and protecting big industries. For example, the latest investment law, Investment Law No. 22 for 2002, gives advantages to big projects of all different types (industrial, housing, health, tourism etc), statement No. 23 of the law says that for an enterprise to enjoy tax exemptions, assets (excluding land and buildings) should exceed YR 50 million or equivalent, and employees should number at least 10. As for construction and tourism projects, the former should have no less than 50 housing units, and the latter be no less than three stars.
Thus, it is necessity to consider the condition small enterprises globally, not only in the industrial sector, but also in other fields, since they have a great impact on the macroeconomics of the developing, as well as the developed, countries.
In Japan, for example, small enterprises provide some 72% of the requirements of the mineral industry, 76% of the engineering industry, and 79% of the electrical and electronic industry. Not only that, but small and medium sized enterprises contribute 30% of the country's of the total industrial exports.
It is no wonder that this type of small industry plays a key role in social and economic development, with key advantages including:
– The development of urban communities in districts and provinces because they are so numerous and spread over a large area.
– The provision of products for various social classes, especially those with limited incomes, because they fit and adapt to local markets.
– Creating job opportunities which contributes to reducing unemployment.
– Enhancing the integration of differently sized industries and organisations by supplying basic components such as spare parts, and electronic equipment etc.

It is vital to recognise the importance of small enterprises in all sectors (industrial, services, etc). The government should nurture and take care of small enterprises through the establishment of a legal and institutional framework for them. A law for small and micro enterprises should be issued, with standardized definitions that differentiates between small, medium, and large enterprises not only in terms of the number of employees, but also in terms of the invested capital, and technology.