Small industries in developing countries

A regional development programme Is set out for a developing country, using Bophuthatswana as an example. A stable society with an increasing quality of life, and creation of enough job opportunities In the country are assumed as the primary objectives. Of the various alternative approaches to creating employment opportunities - agriculture, wholesale and retail trade, construction of Infrastructure, and large scale and small Industry - It appears that labour-Intensive small In dustries can achieve employment objectives at the lowest cost to the economy. This approach, which also develops en trepreneurship and organizational talent, Is recommended as having economic, social and political advantages. The roles of small scale industrial entrepreneurs In developed and In developing countries are contrasted, the major problems In the latter being the ability to identify potentially profitable projects for export, and the ability to market in neighbouring countries. The proposed development strategy would require a new specialized development agency in South Africa, col laborating closely with the developing states's own develop ment agency, and both of them assisting entrepreneurs to identify projects with potential.

s.-Afr. Tydskr. Bedryfsl. 1980, 11: 1 -4  For a paper of this nature, my point of departure, as a regional scientist, is a specific regional or interregional economic development goal or objective, and the ways and means of achieving that objective. For the purposes of this paper, I assumed that Bophuthatswana's primary development objective is to be a stable society with an ever-increasing quality of life. Translated into operational development terms, this means the creation of enough employment opportunities within the country's borders to accommodate its growing population.

Creating employment opportunities: Altematlve approaches
Once 'maximizing employment opportunities' is identified as a country's or a region's development objective, the problem reduces to that of minimizing the economic cost of that goal. This suggests that that programme or combination of programmes which offers the largest expected increase in employment opportunities, given the country's available development budget, will be adopted. Against this background the pros and cons of alternative programmes can be considered.

Agricultural programmes
Studies carried out by the International Labour Organization suggest that agricultural programmes alone cannot provide enough employment opportunities for the unemployed and under-employed of developing countries.• Another fact about agricultural programmes, though this is only important for Bophuthatswana in the long term, is that the more effective agricultural production becomes, the less labour is required.

Wholesale and retail activities
In an open developing economy (such as that of Bophuthatswana) in close proximity to a developed economy (such as that of the Republic of South Africa), the promotion of wholesale and retail activities will tend to facilitate the outflow of funds from the developing economy, and therefore tend to have an adverse effect on the economic base multiplier of the developing economy. Development policy should therefore be designed to stimulate trade activities in Bophuthatswana just to the point where it will not be necessary for people to spend their income on the South African side of your country's borders. 2 Construction of Infrastructure Rosenstein-Rodan has pointed out that the number of permanent jobs created by th~ ~uildi?g of infrastruct?re is a mere fraction of the additional Jobs created durmg the construction phases of such projects. 2 Infrastructure construction should therefore not be relied upon exclusively to generate increasing numbers of permanent jobs.

Industry
Large scale industry If developing countries are considering program.m~s. to attract large scale industry as a means of max1m1zmg employment opportunities, they must realize: o that large scale industry requires management of a high degree of sophistication; o that large amounts of money will be involved; and o that, as far as their efforts to attract such industry are concerned, they are in competition with a large number of other developing countries as well as countries like Korea and Hong Kong, and several of the Southern States of the USA.

Small scale industry
A United Nations study group noted the following about small industries: 'If the policy criterium is to increase employment in depressed areas, then labour-intensive small industries can achieve the socially desirable objective of short-run employment maximization -at the lowest cost to the national economy'. 3 A recommendation that Bophuthatswana focuses its development efforts on small scale industry might come as a disappointment to some members of the government. A small industries programme need, however, not be inconsistent with the longer term development objectives of the country, which may include the development of larger scale industries. However, small scale industry producing modern final products for Bophuthatswana's local markets, or intermediate and final goods for markets in South Africa and beyond, are ideally suited to overcome the initial deficiencies in the economic structure of a developing country. In many parts of the world small scale industries have played the role of seedbeds for the growth of organizational talent and entrepreneurship, and have contributed considerably to the training of labour. There are no obvious reasons why they cannot also fulfil these roles in Bophuthatswana. Small industries can tap small quantities of all types of resources that would remain untapped in their absence. For instance, in India, small scale industries have played an important role in the reorientation of entire families and communities toward the demands and requirements of an industrial society; that is to introduce industrial rhythm to an agrarian society." The sociological and political advantages of encouraging small scale industries include the development of a middle-class group of independent entrepreneurs, which is a desirable and much needed element in a society that values democratic self-rule.' P· 27 Other advantages of small industry development programmes include the fact that losses caused by mistaken S.-Afr. Tydskr. Bedryfsl. 1980, 11(1) investment or production decisions by relatively inexperienced managers, are ~ess seriou_s in sma~l industries than in large scale industnes. Small mdustry 1s often also the most efficient way of meeting demand when: o the local market for a given item is limited o where transportation costs are high o where a highly specialized market is served, and o where product changes are frequent. 6 Contrasts between the roles of small scale Industrial entrepreneurs in developed and in developing areas Developed country In a developed country the entrepreneurial function boils down to the following activities: o Identifying potentially profitable industrial projects; o Carrying out a feasibility study on the project; o Establishing the industry, that is: acquiring production equipment employing labour training labour, etc. o Effective management of the small industry, that is: procurement production supervision quality control maintenance, and effective marketing.

Developing country
In a developing country the same entrepreneurial functions need to be carried out to ensure the success of any small industry.
Industry in an open developing country, such as Bophuthatswana, can be divided into basic industry, that is those industries serving markets across the borders of the country, and non-basic industry, that is those serving local markets. According to the time tested economic base model, the basic industries are the prime movers of the economy of an open region or of the local economy of a country.
If employment in the basic industries increases, employment in the rest of the local economy increases by a multiple, the size of which depends on the economic base multiplier of the area.
The entrepreneurial function with respect to basic industries, in a developing country, is far more complex than that with respect to non-basic industries. In the former case it requires, factors such as the ability to identify potentially profitable projects in markets across the borders of Bophuthatswana, and the ability to market in (that is to export effectively to) those markets.
It is highly unlikely that more than a few people with the ability to carry out all the entrepreneurial functions will be found in Bophuthatswana. The success of a small industry development programme as a means of creating employment opportunities in Bophuthatswana, however, depends critically on the availability of entrepreneurs with the ability to establish and manage basic industries. It will therefore be necessary to design a development S. Afr. J. Bus. Mgmt 1980, 11(1) programme specifically to overcome the shortage-ofentrepreneurs-problem.
A development programme to overcome the shortage-of-entrepreneurs-problem An effective programme to overcome the problem of a shortage of entrepreneurs with the ability to establish basic small scale industries in Bophuthatswana, will require co-operation between a specialized development agency in South Africa, the Bophuthatswana National Development Corporation and prospective entrepreneurs. The role of each of these participants in the programme will now receive our attention.

A new specialized development agency in South Africa
The South African Prime Minister, the Hon. P. W. Botha, identified in his address to South African business leaders on 22 November 1979 in Johannesburg, the 'achieve(ment) of a more equitable regional distribution of economic development in Southern Africa' 5 P· 33 as one of the goals to be pursued in a Constellation of Southern African States. To achieve this goal labour intensive small scale basic industries will have to be established inter alia in Bophuthatswana. Achievement of this goal will only be possible if certain critical services can be rendered by a specialized RSA development agency to the national development corporations of states within the proposed constellation of Southern African States. These services include: o the development and offering for sale (to national development corporations) of labour intensive small scale industrial projects; a service which will involve: the identification of potentially profitable small scale industrial projects producing for South Africa industrial or consumer markets; and the research and development required to change capital intensive production processes, or parts thereof, 7 p.7ff to labour intensive processes without changing the quality of the final output of the process; o the securing of production contracts, or subcontracts, for small scale industries in the developing states from inter alia: The small scale industry development programme of which only the skeleton could be given in this paper would, in the sense that certain critical functions would be carried out by specialized development agencies, relax the strict requirements for successful entrepreneurship. It can therefore be expected that with such a programme more small industries will be established successfully in developing countries within the proposed Constellation of Southern African States.

Evaluating this development proposal
For a development strategy to be successful it must be beneficial to all the parties concerned. In conclusion it will therefore be necessary to identify the potential benefits of the development strategy proposed in this paper, as they accrue to the different participants in the strategy. Benefits for the South African economy o It will reverse the trend towards increased capital intensity which occurred in South Africa's industrial sector since 1970; o In so far as it will increase the labour content and reduce the capital content of South Africa's industrial output, it will make the economy less dependent on imported capital goods and protect its balance of payments during the economic upswing; and o It will enable South AfricaQ. industrialists to increase their output without substantial new investment.

Concluslon
The development strategy proposed in this paper requires government activity only as a catalist, while its potential to increase employment opportunities and raise the quality of life in every national state within the proposed Constellation of Southern African States, suggests largely increased opportunities for private sector activity in an enlarged Southern African regional market.
S. -Afr. Tydskr. Bedryfsl. 1980, 11(1) The proposed strategy has two main features: Close cooperation between development agencies (both in South Africa and in the developing national states) and individual entrepreneurs; and assistance to entrepreneurs in identifying and implementing projects with potential.
This approach should be far more effective and have more lasting results than the mere encouragement and large amounts of capital, which too frequently is the favourite form of aid given to developing countries.