NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Soromfe Uzomah

One of the great challenges of the 21^st Century is the need to reduce poverty levels and economic inequality globally. Economic growth is the most powerful tool for reducing poverty and improving the quality of life in developing countries.

The World Bank’s Poverty and Inequality Report finds that, “More equal countries tend to have healthier people, be more economically efficient, and have greater social stability than highly unequal countries. And countries that invest smartly in reducing inequality today are likely to see more sustained economic growth than those that don’t invest. Less inequality can benefit the vast majority of the world’s population.”

However, emerging markets are often defined by marked levels of economic inequality. And while governments have a responsibility to try to close the income gap, Small and Medium Enterprises (SMEs) can have a profound impact in ensuring economic growth as reflected by GDP growth.

SMEs represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies, and these numbers rise significantly if we include informal SMEs. It’s estimated that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments. In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs.

Photo courtesy of Free-Photos.