The Role of Small Scale Projects in Mitigating Unemployment

1. The Role of Small Scale Projects in Mitigating Unemployment The Integrated Rural Development Training Course organized by The Egyptian International Center for Agriculture Cairo, Egypt, December 12, 2006. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

2. Contents • Introduction • SMEs Definition and classification • Significance of SMEs • Unemployment Meaning and Types • Costs of Unemployment • The Underlying logic of Jobs Creation Role of SMEs Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

3. Contents (cont’d.) • SMEs Role in Jobs Creation :international perspective • Employment Changes • Estimating New Created Jobs • The Costs of Jobs Creation • The Relationship between the New jobs Creation and Household’s Income Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

4. Lecture goals • Defines the SMEs. • Understands meaning and costs of unemployment. • Recognizes the relation between SMEs and unemployment. • Distinguishes between SMEs job creation role for the world regions. • Estimates the direct and indirect jobs created by SMEs. • Describes the relation between job creation and the household’s income. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

5. Introduction “ Bridging the global productivity divide, particularly in parts of the economy where the majority of people work – such as in agriculture, small scale - enterprises - is essential for fighting poverty and stimulating growth in both output and decent and productive employment. ” ILO (2005),The World Employment Report 2004-05 Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

6. SMEs Definition and classificationTable 1: Revised European SME definition Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

7. SMEs Definition and classification (cont’d.) Table 2. Egyptian Definition Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

8. Significance of SMEs • SMEs Provide low cost employment since the unit cost of persons employed is lower for SMEs than for large-size units. • Assist in regional and local development since SMEs accelerate rural development by linking it with the more organized urban sector. • Help to achieve fair and equitable distribution of wealth by regional dispersion of economic activities. • Contribute significantly to export revenues because of the low-cost labour intensive nature of its products. • Have a positive effect on the trade balance since SMEs generally use indigenous raw materials. • Assist in fostering a self-help and entrepreneurial culture by bringing together skills and capital through various lending and skill enhancement schemes. • Grant the elasticity to withstand economic, financial and commercial disruption and maintain a reasonable growth rate since being indigenous is the key to sustainability and self-sufficiency.   Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

9. Unemployment Meaning and Types • The labor forceconsists of all the human resources currently engaged in, or available for, productive economic activity in an economy. • Theeconomic aspect of unemploymentoriginates from situation in which the quantity of labor demanded is less than the quantity supplied in a market economy. • The Unemploymentis the job-seekers without any employment. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

10. Unemployment Meaning and Types (cont’d.) Figure 1. Unemployment in a Competitive Market Wage rates A B Supply curve for labor W1 W Demand curve for labor Employment per unit of time 0 e0 e e1 The unemployment is the difference which is equal to employment supply (e1) – employment demand (e0) at the wage rate W1. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

11. Unemployment Meaning and Types (cont’d.) The major unemployment types : • Frictional Unemployment is transitional or short-run in nature. It usually originates on the labor supply side and it is often in the form of people changing and searching for new jobs. • Structural Unemploymentis usually long-run in nature and usually originates on the demand side of labor. It results from economic changes that cause the demand for specific kinds of labor to be low relative to the supply in particular markets and regions of the economy. • Cyclical Unemploymentis caused by economic fluctuations. It is due to a contraction in aggregate demand or total spending in the economy. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

12. Unemployment Meaning and Types (cont’d.)Table 3. The total and Agricultural unemployment Rates by the world regions in 2004 (%) Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

13. The Underlying logic of Jobs Creation Role of SMEs • The large-scale farmers are interested on capital return, while the smallholders are interested on labor return. • The smallholder concerns with the annual net income. He/She is willing to work more days if his/her annual income will increase. The seasonality of labor in agricultural activities enhances this attitude. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

14. SMEs Role in Jobs Creation: International Perspective • The International Labor Conference emphasized in 1998 on "Job Creation in Small and Medium-sized Enterprises". • In EU with some 23 million enterprises providing around 75 million jobs and representing 99% of all enterprises, SMEs play a central role in the European economy. • In Latin America after focusing on large investments and running after multinationals for years, Latin American politicians are beginning to realize that SMEs are the true job creators, as well as important players in technology supply chains. Governments have vastly reduced red tape to ensure SMEs’ needs are attended to quickly. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

15. SMEs Role in Jobs Creation: International Perspective (cont’d.) • The majority of Chile’s SMEs are micros, which are defined as having a turnover of less than $75,000. In 2004, they accounted for over 80% of the SME market. The number of SMEs has increased by 50,000 since 2001. This now equates to 95% of total employment. • Among the major regional economies, only Argentina experienced a drop in the number of SMEs between 1998 and 2002, while these types of businesses flourished elsewhere in Latin-America, especially in Brazil and Mexico. • In Brazil the economy expanded by only 0.8% in 1999, SMEs grew by 6.5%. • In Colombia, SMEs now account for 36% of all jobs and 63% of industrial jobs. Moreover, SME membership in Colombia’s chambers of commerce rose from an average of 20% in 2000 to 93% in 2002. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

16. SMEs Role in Jobs Creation: International Perspective (cont’d.) • In Africa, the SMEs represent over 90 % of private business and contribute to more than 50% of the employment and of GDP in most African countries. • In South Africa the share of employment located in the micro, small and medium sectors taken together is high – estimated recently at 60% while the sector generated about 40% of output. • In Egypt the small and medium enterprises form 99% from all enterprises and the majority of the informal sector. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

17. SMEs Role in Jobs Creation: International Perspective (cont’d.) Table 4. The Development of SMEs in Egypt between 1986-1996 Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

18. SMEs Role in Jobs Creation: International Perspective (cont’d.) • Asia has some of the world’s best-performing economies, especially Taiwan and Hong Kong, are very heavily based on small enterprises. • For example, Hong Kong in 2005, a total of almost 270,000 SMEs accounted for over 50% of employment, providing job opportunities to almost 1.2 million people. The majority of enterprises were in the services sector, specifically import and export, and wholesale and retail trade. • In Japan, the SMEs represented 99.7% of all enterprises, with retail and manufacturing being the most popular industries. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

19. Employment Changes • The change in employment is caused by one or more of the following five sources: • The opening a new or re-opening of business establishments, • The employment expansion of existing business establishments, • The employment contraction of existing business establishments, • The temporary or permanent closing of business establishments, and • The creation of new types of jobs. • The net employment growth rate = the job creation rate – the job destruction rate Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

20. Estimating New Created Jobs • The annual increase in direct new jobs = (The total number of full-time employees of the small enterprises adjusted for transferred and replacement jobs * 12 month or number of working days per year) / number of months the small enterprise was in operation during year). • The two indicators to measure the indirect jobs are as follows: • The number of indirect jobs created as a result of the direct jobs. For example ,Mellor and Gavian (December, 1999) concluded that for each job directly created in agriculture 2.8 jobs would be created in the small-scale enterprises in the rural areas and market towns that constitute the agriculturally driven non-agricultural sector . 2. The total earnings of indirect jobs by the following equation: The total earnings of indirect jobs = the number of indirect jobs created by the project * the average wage rates for the indirect jobs. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

21. Estimating New Created Jobs (cont’d.) Table 5. Type I employment multipliers for the Agriculture and Agro- industrial sectors in Egypt 2001 For example if the livestock type I employment multiplier is 1.5, which implies that for each job created directly by the livestock industry, 0. 5 jobs are created indirectly through additional purchases from veterinary services to framers to produce additional livestock output Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

22. The Costs of Jobs Creation • If a project creates an additional job using less cost, this means that the job creation process has high cost effectiveness. • The incremental cost of job creation is C = (P * deflator) / (J* A* α) Where: C = the incremental cost of job creation (the incremental cost of job per employee-year) P = the SMEs Program expenditure in time, t Deflator to convert the current dollars into constant dollars to enable comparison over time. J= number of jobs created in time t, irrespective of job duration A= the average duration of participation in the SMEs Program as job in weeks α = incrementally ratio obtained from SMEs evaluation studies. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

23. The Relationship between the New jobs Creation and Household Income The concept of income is comprehensive. It includes the following five sources: • Non-farm = wage earnings from non-agricultural labor + government and private sector employment + net revenues from non-farm enterprises; • Agricultural crops = net farm income from all crop production +imputed values from home production and consumption +crop byproducts + agricultural labor wages; • Livestock and poultry = net farm returns from traded livestock and small animals + imputed values of home-consumed animal products +animal byproducts + draft animal labor • Transfer payments = net transfers + net remittances in cash and kind + interest and dividends from pensions and savings. • Rental = rents in cash or kind from ownership of such assets as land, machinery and housing. Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

24. The Relationship between the New jobs Creation and Household Income Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com

25. Best wishes with your Training Course and Good Stay in Egypt ! Dr. Ahmed Qadry Bahloul Zagazig University drahmedbahloul@yahoo.com