I just discovered an interesting blog that discusses the importance of MSMEs in developing countries and how they are most impacted by climate change.
We often think that it is the large, multinational companies that are the employment engines around the world. There is no question that they are very important to driving the global economy. However, most of us are more dependent on small companies for everyday activity. And, many people around the world are much more dependent on the existence of small businesses either as owners or employees. Some economies are clearly driven by the existence of large corporations – and this will vary from country to country or region within a country to region.
So, what makes micro/small/medium-sized companies (MSMEs) so important to developing countries and why are they so affected by climate change?
First, it is most important to appreciate the inherent character of a developing country. The Library of Congress Collections Policy Statement outlines how the term – developing country – is used by quasi-governmental organizations:
“The World Bank and the United Nations use different terminology to define “developing countries,” also known as “less-developed countries.” The latter organization also uses “least developed countries,” “small island developing states,” and “landlocked developing countries.” The World Bank’s main criteria for classifying economies is gross national income (GNI) per capita, previously referred to as gross national product, or GNP. The United Nations has stated that: “There is no commonly agreed definition of developing countries.”
In the United Nations and World Bank lists, the number of developing countries ranges from 104 to 152. The 2008 List of Developing Countries compiled by the World Bank has 152 countries. The World Bank also includes five high-income developing economies – because of their economic structure or the official opinion of their governments, as well as several countries with transition economies – based on their low or middle levels of per capital income. For this Collections Policy Statement, the Library considers a developing country one in which:
- The majority of population makes far less income, and has significantly weaker social indicators, than the population in high-income countries…[and]
- Lives on far less money–and often lacks basic public services–than the population in highly-industrialized countries.
Having lived in a country that was ranked as the 3rd poorest country in the world helped to bring these metrics into sharp focus.
Second, while there may be some uncertain elements in discussing what is or is not a developing country, there is even a greater divergent dialogue occurring around the world when it comes to climate change – or, as I prefer to use, changing climate. I have written numerous posts on climate change and will be listing more in the future. This post is not intended to rehash those issues.
Third, what are the metrics to determine how a company is classified either as micro-, small- or medium-sized? These categories were established to provide assistance to smaller companies as an aid to sustain their growth and survivability.
According to the European Commission Enterprise and Industry:
“The main factors determining whether a company is an SME are: 1. number of employees and either 2. turnover or balance sheet total.
To qualify as an M (Micro: <10 employees) S (Small: <50 employees) M (Medium: <250 employees) Enterprise, an enterprise must respect the staff headcount ceiling and either the turnover ceiling or the balance sheet ceiling. In addition, a series of other conditions must be fulfilled, notably that an enterprise must not have relationships with other enterprises (specified in the Definition) that mean that together these enterprises exceed the ceilings. An enterprise must be autonomous or part of a group of affiliated enterprises that together fall below the ceilings.”
In Europe, these categories are also important because of their significance to the EU economy.
“Focusing on employment size categories only, in 2010, enterprises with less than 250 employees are estimated to have accounted for 99.8% of the total number of enterprises across Europe, 66.9% of employment, 57% of turnover and 58% of value-added. For the same year, micro enterprises with less than 10 employees are estimated to account for 92% of the total number of enterprises, 30% of employment, 18% of turnover and 22% of value-added, while ‘small’ enterprises with less than 50 employees are estimated to have accounted for 97% of the total number of enterprises, 50% of employment across Europe, 37% of turnover and 39% value-added.”
Generally, the rules are fairly consistent across the Industrialized (Developed) countries.
“Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ fewer than a given number of employees. This number varies across countries. The most frequent upper limit designating an SME is 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States considers SMEs to include firms with fewer than 500 employees.
Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most 10, or in some cases 5, workers.”
With this background, I share some thoughts from the blog: Micro, Small, and Medium Enterprises: Key Players in Climate Adaptation – on why the issue of changing climate can be so significant to MSMEs around the world.
- In most developing economies, Micro, Small, and Medium Enterprises (MSMEs) employ up to 78 percent of the population and account for approximately 29 percentof the national GDP. Their presence in communities throughout the world– big and small, rural and urban – allows them to get products and services to hard-to-reach populations. This market concentration and high level of employment means MSMEs are in a good position to contribute to making vulnerable populations more climate-resilient.
- But while MSMEs can assist in helping vulnerable households adapt to climate change, they are also extremely vulnerable to the impacts of a warmer world, such as intensification of precipitation and shifts in water availability. It’s important that MSMEs overcome these challenges and capitalize on their unique business opportunities in ways that help vulnerable communities adapt to climate change.
- Contributing to the success or failure of MSMEs when environmental challenges occur is one not-so-simple-reality. One of the main obstacles is limited access to financial resources in the form of loans, credit, or grants. Without this finance, MSMEs are limited in their ability to develop new products and expand operations. MSMEs also face other development challenges, including low human resource capabilities, low technological capabilities, and insufficient access to electricity.
The bottom line is that while global economies in general will suffer from the consequences of changing climate, some countries and businesses will be less immune than others. For many living in developing countries, the impact of a changing global climate is real and the consequences are real.