An UGC Autonomous Institution
(Approved by AICTE, permanently affiliated to JNTU, Hyderabad) (NAAC Accredited Institution with ‘A’ Grade)
Vol. 8 No. 3 July-September 2019 (Special Issue)
ISSN (Online) : 2322-0449
ISSN (
) : 2277-6753
Department of Master of Business Administration
Abstract
The present state of SMEs in Yemen is a topic of discussion where Yemen is struck by war. and therefore, it is important to employ the strategies to maintain longevity of the resource. A major segment overcoming this dependence is Small and Medium Enterprises (SMEs), which is one of the fastest growing industrial sectors in the country's economy. The present study revolves around the impact of lack of financial resources on the progress of an SME in Yemen. The paper analyses the impact of financial resources due to which progress in Yemeni Small and Medium Enterprises face challenges and its redressel can be from easing of rules and regulation, reduce foreign interference and more support from the government will create an atmosphere compatible for SME's in Yemen
Keywords: SMEs, Yemen, constraints, financial resources
Introduction
In the backdrop of extensive globalization and expansion of economies, Small and Medium Scale Enterprises (SMEs) play the role of key drivers in development of any country by employing maximum workforce. Janämsä, Tähtinen, Ryan, & Pallari (2011) identified that SMEs encourage skill development and utilize the opportunities and resources which influence growth. In general, an SME is commonly defined on the basis of number of people working in the enterprise and varies vis-à-vis different countries (Ardic, Mylenko, & Saltane, 2011, p.123). It is also defined on the basis of gross value of assets, turnover and ownership structure of the organization (Inyang, 2013, p.7). It is observed that during crisis, SMEs emerge as potential stabilizers in the downfall period. The major role these enterprises play in providing jobs to labor class should not be neglected in the economy because of their significant contribution. Moreover, due to huge presence of manpower engaged in SMEs in the overall Arab economy, it has become a representative for efficiency and growth (Alasrag 2010).
But, the presence of these enterprises in the current political situation of some Arab nations is threatened due to the ongoing civil and political wars. For instance, Yemen is one of the impoverished countries in the world due to wars which have been waging since the last decade. The wars between government of President Hadi and allies to the Houthi rebel movement has received much attention due to the economic damage inflicted (BBC 2016d). The president is backed by the coalition forces which
* Research Scholar
Impact of Lack of Financial Resources on the
Progress of SME in Yemen
is also supported by the US, UK and France. The war between the coalition forces and their Yemeni allies involving battle over internal issues is having a disastrous effect on the civilians (Yernanian 2017). On the other hand, the economic prosperity achieved by certain other Middle Eastern nations such as Kingdom of Saudi Arabia, Kuwait and Qatar have catapulted the Asian and African economy to new heights. However, these countries are not without their share of regulatory, social and political challenges. In this research, the main aim is to observe the challenges and growth opportunities faced by small and medium scale enterprises in term of lack of financial resources in Yemen.
Economic Situation
The political turmoil in the country has exacerbated economic stagnation and the entire country is struggling with controlling the depleted reserves. This instability has damaged the economic infrastructure of the nation causing food inflation in the region (Marslen & Lehane 2015). According to the World Bank report, the economy of Yemen is constantly deteriorating and there is disruption in oil production and other economic activities (World Bank 2015). The imports have also contracted considerably and annual inflation rose to 30% in 2015 and is further expected to increase due to low fiscal performance (World Bank 2016). Moreover, an alarming humanitarian crisis unfolded and civilians' deaths toll has exceeded 6000 in 2015. The country is in need of emergency humanitarian assistance; 14.4 million people are facing insecurities with respect to availability of food, 19.3 million do not have access to safe drinking water and lack hygienic sanitation facilities (World Bank 2016). Further, 37.3% population is living below the poverty line of US $ 2 a day per person. It also has the highest malnutrition rate in the world. To curb this menace, US government provided an assistance of $ 327 million to the nation in FY 2016. Through USAID and the Bureau for Population Refugees and Migration, government support programmes such as food, medical aid, hygienic water supplies and vaccination for children are provided to reduce the spread of disease in the country (Bureau of Public Affairs 2017). The aid programs also help citizens recover in health, education and cope up with insecure environment engulfing them presently.
Objective
To identify The impact of lack of financial resources on the progress of SMEs in Yementhis study aims to identify the challenges and prospects for business growth faced by SMEs in Yemen.
Hypothesis
There is no significant impact of lack of financial Resources on the progress of SME's in Yemen.
SMEs in Yemen
market stagnancy, unskilled labour, access to specialist advice on technology, financing, market and raw material and lack of infrastructure. However, despite the constraints faced by SMEs there are advantages of operating SME in Yemen, such as, job creation, utilization of local resources, institutional capacity building, establishment of new business lines, enhance sub-sector divisions, promote technical knowledge, upgrade skill and export promotion. The proposed conceptual framework model for management of SMEs in Yemen is showcased in the following figure 3.
Challenges faced
Inflation and Market Stagnancy
Advantages of R unning
SMEs in Yemen
Aids in Job Creation
Incorporating Innovation
Utilization of Local Resources
Aids in Institutional capacity building
Focus on finance in rural areas
Others (establishes new business lines, enhance sub-sector divisions, promote technical knowledge, upgrade skill, export promotion)
Social Situation Technological Situation Political Situation Small and Medium Enterprises (SMEs) in Yemen Unskilled labour
Access to Specialist Advice and Technology
Access to Financing
Limited access to Raw Material
Access to Market
Lack of Infrastructure
Figure 3:: Conceptual framework model for management of SMEs in Yemen
Hypothesis testing:
Ho-1- There is no significant impact of lack of financial resources on the progress of SMEs in Yemen.
HA-1- There is significant impact of lack of financial resources on the progress of SMEs in Yemen.
1.
Correlation Analysis
Correlation analysis is a statistical technique which is used to assess the relationship between the variables. In the present study, correlation has been used to assess the relation between dependent variable and independent variables. Correlation values lies between -1 and +1, negative values shows inverse correlation and positive values shows direct correlation.
Correlation between dependent variable and independent variables is given in table below. It can be inferred from the correlation table that the hindrance in the progress of SME's in Yemen is statistically significant and positively correlated with all the financial factors. Out of all the financial factors, size of loan/ insufficient maturity was found to possess the maximum Pearson correlation value of 0.87 depicting that it has the maximum impact on the hindrance in the progress of SME's in Yemen. Thus it can be stated that if the size of the loan increases or the maturity time is insufficient, the progress of the SME's in Yemen is hindered. A similar study conducted by Augustine & Asiedu, (2017) it was found that as the size of the loan increases, the progress of the SME is hindered since the repayment of the loan becomes an added burden on the firm. Thus the study supports the findings of the present study.
Correlations
Financial Factors Pearson
Correlation
Significance Level
High Interest Rates 0 .831 0
Complex Application Procedure 0 .835 0
High Co llateral Requirements 0 .833 0
Ap plication wo uld not be approved 0 .855 0
Informal Payments 0 .794 0
Need for a loan 0 .833 0
Size of loan or maturity are insufficient 0.87 0
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Primary Data
2.
Regression Analysis
Regression analysis is a statistical technique that is used to find the impact of independent variables on the dependent variable.
Conducting regression analysis for SMEs in
Yemen-Table 1: Model Summary for Regression Analysis
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .985a 0.97 0.969 0.19583
a. Predictors: (Constant), High Interest Rates, Complex Application Procedure, High Collateral Requirements, Application would not be approved, Informal Payments, Need for a loan, Size of loan or maturity are insufficient.
The above table of model summary presents adjusted R square to be .969.Thus it can be stated that the independent variables that are the financial factors included in the model explain 96.9 % variation in the dependent variable or 96.9% changes in the dependent variable is due to change in independent variables. Rest of the variation in the dependent variable can be attributed to some other factors which are not included in the study.
Table 2: ANOVA table for Regression Analysis
ANOVAa
Model
Sum of
Squares Df
Mean
Square F Sig.
1 Regression 607.325 7 86.761 2262.491 .000b
Residual 18.867 492 .038
Total 626.192 499
a. Dependent Variable: Hindrance in Progress
b. Predictors: (Constant), High Interest Rates, Complex Application Procedure, High Collateral Requirements, Application would not be appro ved, Informal Payments, Need for a loan, Size of loan or maturity are insufficient.
Further, the above table presents a very high value of F (2262.491) and high significance (.000). It can be stated that the coefficients included in the model are non-zero and contribute to the model fit. Based on the above analysis, the null hypothesis can be rejected and it can be stated that there is significant impact of financial factors on the hindrance of progress of SMEs in Yemen.
Table 3 Coefficient table for Regression Analysis
Coefficients
Model
Unstandardized Coefficients
Standardized Coefficients
t Sig.
B
Std.
E rror Beta
1 (Constant)
-1.4 13E-05
.028 -.001 1.000
High Interest Rates .174 .025 .194 7.012 .000
Complex Application Procedure .139 .011 .167 12.333 .000
High Collateral Req uirements .146 .011 .171 13.135 .000
Application would not be approved .159 .013 .191 12.415 .000
Informal Payments .128 .010 .149 12.205 .000
Need for a loan, .106 .025 .119 4.254 .000
Size of loan or maturity are
insufficien t .146 .013 .167 11.463 .000
a. Dependent Variable: Hindrance in Progress
Firstly it can be inferred from the table above that all the coefficients are statistically significant at 5% level of significance. The values of the standard coefficient represent the extent of influence of independent variables on the dependent variables. Thus, higher the Co-efficient value of the independent variables, the more is the influence of the dependent. Out of all the factors, High interest rate has the highest value of standardized coefficient (.194) and a significance value of .000. It means that high interest rate have the highest impact on the hindrance in the progress of SME's in Yemen. Thus as the interest rates increase, the hindrance in the progress of the SMEs also increase. This finding of the present study is being supported by previous study done by Kwaning, Nyantakyi, & Kyereh, (2015) who found that the loans taken at high interest rates increase the unwanted financial burden on the SMEs hindering the progress. Further, an unstandardized coefficient value of .174 states that for every 1 unit change in the High interest rate, .174 unit changes takes place in the dependent variable that ishindrance in the progress of the SMEs.
The second highest value of standardized coefficient (.191) was found to exist by the variable loan application will not be accepted stating that if the loan applications are not accepted then the progress of the SMEs will be hindered. This can be attributed to the fact that in absence of the funds, it is impossible for the firms to grow and develop since business calls for investment that then require the firms to acquire funds. A big source of these funds is fulfilled by the loans. As a result, in absence of these loans the firms face big time setbacks both growth wise and financially.
Based on the data analysis and inferences aspect of the study. The descriptive and inferential analysis has been presented in this section. The inferential results found that in Yemen a has been found to be significantly impacted by the coefficients considered in the study. It was found that High interest rate has high impact on the hindrance in the progress of the SMEs in Yemen .
Hence, the null hypothesis of no relationship between lack of financial resources and progress on SMEs is Rejected.
Conclusion
The findings indicate that political instability is a crucial factor that impedes growth of SMEs in Middle East. In lieu of this finding, and that owing to the benefit of SMEs on the profitability of a country's economy, it is recommended that government of these Middle Eastern countries delve deeply into the factors that are encouraging political instability in these countries and make necessary steps to control them. If done properly, it is assumed that the environment will become welcoming for growth and prosperity of SMES in Yemen Government need to emphasize more on political instability and build hospitable financial environment to bring back to offset economy on track once again.
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