CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In the last 20 to 30 years the performance of Small and Medium Size Enterprise (SMEs) in various economies in the world have been very remarkable and recognizable. The American economy which happens to be among the largest economies in the world turn to be very dependent on the contributions and performance of SMEs. This is particularly true when looking at this success from the angle of productivity, job growth and stability (Chandler, 1977).

Also, these performances have been seen in the rapid transformation of Asian economies like Malaysia, Indonesia and China, which are also proof of SMEs, as major catalysts to economic development. Africa is not left behind on this economic adventure. When looking at the Sub Sahara Africa, it is very easy to notice and appreciate the different economies especially on the financial sector, service sectors and sole proprietorship.

This is evident in the economy of countries like Nigeria, Ghana and Kenya, not forgetting Cameroon with the recent exploitation of SMEs especially in Buea. This has led to the GDP of these countries.

The contributions of SMEs to the Cameroon economy are also very evident in the domain of job creations and innovations in production. After the departure of the colonial masters, there was a boom in the private sector of the Cameroon’s economy.

This was due to the fact that most of the plantations that were left by the colonial masters, which were for the production of raw materials for their home industries in Europe were now in the hands of the private individuals. But this boom did not last for long.

From about 1968 to 1987 Cameroon’s economy was controlled by the private sector, which came in through nationalization and takeover of plantations and other businesses left behind by the colonial masters. Following the economic crisis of the 80s, the country had to adopt the Structural Adjustment Program (SAP) and the Stabilization Program.

These two programs were to redirect resources in the country so as to burst the private sector and stabilize the economy respectively. The HIPC initiative which came up after these policies as a follow up was followed by the Growth and Employment Strategy Paper (GESP). In 2002 there was our vision of the country’s 1990 investment code.

This new investment codes gave more confidence and created an investment friendly environment. This explains the massive growth of the business sector within the last decade especially the SMEs. The Small and Medium Size Enterprise (SMEs) present the most dynamic economic foundation for growth, income and employment creation.

The government has continued to support SMEs through economic, financial and regulatory policies such as: (Law No 2013/004 of 18 April, 2013 to laydown private investment incentives in the Republic of Cameroon) in order to provide an enabling environment for sustainable growth and development.

More private sector involvement has been encouraged through a wide range of measures and incentives policies to improve the micro enterprises operations such as access to credit is been emphasized and facilitated by the Ministry of Small and Medium Size Enterprises in Cameroon. SMEs are been encouraged to start the production of some intermediate industrial inputs particularly on a sub-contracting basis between the large and small firm (Opio 1996).

SMEs are presumed to be behind most of the socio-economic transformation in South East Asia, West Africa and America and play a significant role in Cameroon development process.

This is because during the early stages of economic development these enterprises embody unique evidence by the rapid rate of investment and enterprise growth. The development of the sector is therefore critical in reducing poverty in Cameroon. SMEs are generally undercapitalized, suggesting major operational difficulties in accessing credit and pursuing corporate goals, (Ninsiima, 2008).Koregold (1991) noted in his findings in Latin America in his research regarding small business loans. This revealed the benefits of small loans to

“tiny” businesses, as they were alternatives to the bank loans which attracted high interest rates. Designing these appropriately so that they catered for particular needs of the SMEs borrowers (in terms of the rates and pay back periods) and so assist in creating jobs, (Korengold, 1991).

1.2 Statement of the Problem

Despite the necessity for a comprehensive risk management program, many SMEs rarely have detailed risk assessment and management strategies. The mechanism to prevent the harmful effects of risks is also not systematically developed and performed. This shows that, SMEs place too little emphasis on risk management.

Also, most small and medium enterprise owners usually consider risk management as an issue relevant only to large companies. The fact that engaging in risk assessment and management requires a certain budget and human resource also hampers their ability to set up a comprehensive RM program.

1.3 Research Questions

1. What effect does risk identification have on the profitability of SMEs in Buea?
2. What influence does risk evaluation have on the profitability of SMEs in Buea?
3. To what extent does risk monitoring affect the profit of SMEs in Buea?

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