The role of SMME'S in local economic development aimed at job creation, income generation and poverty alleviation in Zamdela

Abstract

This dissertation studies the role of SMME's in local economic development aimed at income generation, poverty and unemployment alleviation in Zamdela. The study focuses on five main areas namely, the analysis of SMME's, the measurement of unemployment, the measurement of poverty, the determinants of poverty and the solution of poverty. Poverty is measured by means of the headcount index. Unemployment is identified as the major cause of poverty and the solution to poverty is embodied in an increase of households' income. High rates of urbanization and unemployment growth created large backlogs in the provision of housing, infrastructural and social services. Specific profiles of poor households, compared with those of non-poor households, depict: the greater size of poor households; their higher dependency rates; lower levels of qualifications; lower average wages of the employed; higher levels of unemployment; and lower formal sector employment. Unemployment is identified among others, as a major determinant of poverty. Therefore, the main component of any policy aimed at alleviate poverty should focus on employment creation. Employment for unemployed persons attached to poor households, at a mere wage of R600 per month, has the potential to reduce the poverty rate as indicated in the second paragraph. A micro-analysis of poverty among households in Zamdela shows that the poverty rate was 77 percent in 2004. The unemployment rate was 41 percent in 2004.The poverty gap index was 0.32 in 2004. The poverty gap index will be reduced from 0.32 to 0.21, if an additional 8 072 jobs for poor unemployed persons could be created as welders, textiles workers etc. at an average wage income of R600 per month and that the headcount index will be reduced from 0.77 to 0.25. This implies that the ercentage of households below their poverty lines would be reduced from the present 77 percent to 25 percent and the average shortfall in income of the poor households would reduced from the present 32 percent to 21 percent (without taking the multiplier effect into account). This dissertation studies the role of SMME's in local economic development aimed at income generation, poverty and unemployment alleviation in Zamdela. The study focuses on five main areas namely, the analysis of SMME's, the measurement of unemployment, the measurement of poverty, the determinants of poverty and the solution of poverty. Poverty is measured by means of the headcount index. Unemployment is identified as the major cause of poverty and the solution to poverty is embodied in an increase of households' income. High rates of urbanization and nemployment growth created large backlogs in the provision of housing, infrastructural and social services. Specific profiles of poor households, compared with those of non-poor households, depict: the greater size of poor households; their higher dependency rates; lower levels of qualifications; lower average wages of the employed; higher levels of unemployment; and lower formal sector employment. Unemployment is identified among others, as a major determinant of poverty. Therefore, the main component of any policy aimed at alleviate poverty should focus on employment creation. Employment for unemployed persons attached to poor households, at a mere wage of R600 per month, has the potential to reduce the poverty rate as indicated in the second paragraph. A micro-analysis of poverty among households in Zamdela shows that the poverty rate was 77 percent in 2004. The unemployment rate was 41 percent in 2004.The poverty gap index was 0.32 in 2004. The poverty gap index will be reduced from 0.32 to 0.21, if an additional 8 072 jobs for poor unemployed persons could be created as welders, textiles workers etc. at an average wage income of R600 per month and that the headcount index will be reduced from 0.77 to 0.25. This implies that the percentage of households below their poverty lines would be reduced from the present 77 percent to 25 percent and the average shortfall in income of the poor households would reduced from the present 32 percent to 21 percent (without taking the multiplier effect into account).