‘Sluggish SME development hurts economy’

Kathmandu, October 11

As small and medium enterprises (SMEs) are more focused on outsourcing and hiring part-time employees following the financial crisis of 2009, it has adversely affected the growth of full-time staffers in the labour market, said the International Labour Organisation (ILO)’s recent report titled ‘World Employment and Social Outlook, 2017’.

“Before the global and financial crisis of 2009, average employment growth for SMEs — focusing on full-time permanent employment only — was substantially higher than that for large firms, at 4.7 and 3.3 percentage points, respectively,” said the report, “Job dynamics among young firms in terms of full-time permanent employment have weakened since the crisis.”

The impacts of lower economic growth and trade on global supply chains are the major reasons for the sluggish job growth rates. Other important trends, notably technological changes and innovation, are shaping the world of work in new and different ways and have complicated the post-crisis environment.

As per the ILO report, employment growth in the young firms which was encouraging before crisis, has been sluggish in post-crisis period. This change reflects developments in the overall business environment, whereby employment creation in large firms has remained weak, while new and younger firms have been shedding jobs at a much faster pace than before.

In 2016, the private sector employed 2.8 billion individuals worldwide, representing 87 per cent of total employment and the formal sector firms employ more than half of the world’s wage and salaried workforce in the private sector.

Moreover, while large enterprises are the principal source of employment in the formal private sector relative to SMEs, the contribution of SMEs to total employment has grown over the past years, as per the report.

Number of employees within SMEs in the formal sector almost doubled in the 132 countries for which estimates are available, with SMEs’ share of total employment rising from 31 to 35 per cent. However, there is considerable heterogeneity across regions and income groups. In developing economies, SMEs account for 52 per cent of total employment, compared with 34 per cent in emerging economies and 41 per cent in developed economies. SMEs and young firms are also often more dynamic with respect to employment growth, said the report.

“In developing economies, the rate of job creation among SMEs is similar to that for large firms, but in emerging and developed economies, employment growth is higher among SMEs than large firms (although the premium relative to large firms is considerably lower in emerging economies than those in developed economies).”

ILO report further said that the SMEs in developing economies, and to a lesser extent in emerging economies, are entrepreneurs out of necessity, whose primary focus is to survive and not necessarily

to expand.